1
As Filed with the Securities and Exchange Commission on August 24, 1998
Commission File No. 333-____
------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-----------------
FUTURELINK DISTRIBUTION CORP.
(Exact name of registrant as specified in its charter)
603-7 Avenue S.W.
Suite 550
Calgary, Alberta CANADA T2P 2T5
(403) 543-5511
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
Colorado 7371 95-3895211
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
-----------------
CAMERON CHELL
CHIEF EXECUTIVE OFFICER
FUTURELINK DISTRIBUTION CORP.
603-7 Avenue S.W., Suite 550
Calgary, Alberta CANADA T2P 2T5
(403) 543-5511
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
possible after the Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
2
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Proposed Maximum Proposed Maximum
Class of Securities Amount To Offering Price Per Aggregate Offering Amount of
To Be Registered Be Registered Security (1) Price Registration Fee(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying Bialik 4,250,000 Shares of $1.00 $ 4,250,000
Exchangeable Shares Common Stock $ 1253.75
Common Stock Underlying 10% 9,615,385 Shares of $1.00 $ 9,615,385 $ 2836.54
Convertible Debentures, Common Stock
Principal Amount $5,000,000
Common Stock Underlying 1,041,667 Shares of $0.96 $ 1,000,000 $ 295.00
Thomson, Kernaghan Warrants Common Stock
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 14,907,052 Shares of $ $14,865,385 $4,385.29
Common Stock
====================================================================================================================================
(1) Calculated pursuant to Rule 457(c) and (g).
(2) Based on the average closing bid and asked price of the Registrant's Common
Stock on August 18, 1998, on the NASD OTC Bulletin Board.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
3
FUTURELINK DISTRIBUTION CORP.
CROSS REFERENCE SHEET
ITEM NUMBER AND HEADING IN LOCATION
FORM SB-2 REGISTRATION STATEMENT IN PROSPECTUS
---------------------------------------------------- -------------------------------------------------------------
1. Front of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Facing Page and Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus ......................................... Inside Front Cover and Outside Back Cover Pages of Prospectus
3. Summary Information and Risk Factors................ Prospectus Summary; Risk Factors
4. Use of Proceeds..................................... Use of Proceeds
5. Determination of Offering Price..................... Not Applicable
6. Dilution............................................ Not Applicable
7. Selling Security Holders............................ Selling Security Holders
8. Plan of Distribution................................ Plan of Distribution
9. Legal Proceedings................................... Business
10. Directors, Executive Officers, Promoters and
Control Persons..................................... Management; Certain Transactions; Risk Factors
11. Security Ownership of Certain Beneficial Owners and Security Ownership of Certain Beneficial Owners and Management
Management..........................................
12. Description of Securities........................... Description of Securities
13. Interest of Named Experts and Counsel............... Experts
14 Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
15 Organization Within Last Five Years................. The Company; Business
16 Description of Business............................. Business; Prospectus Summary; Risk Factors; Management's
Discussion and Analysis
17 Management's Discussion and Analysis or Plan of
Operations.......................................... Management's Discussion and Analysis
18 Description of Property ............................ Business
19 Certain Relationships and Related Transactions...... Certain Relationships and Related Transactions
20 Market for Common Equity and Related Stockholder
Matters ............................................ Market for Common Equity and Related Stockholder Matters;
Description of Securities
21 Executive Compensation.............................. Management; Executive Compensation
22 Financial Statements................................ Financial Statements
23 Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure................. Not Applicable
4
PROSPECTUS August 24, 1998
FUTURELINK DISTRIBUTION CORP.
4,250,000 SHARES OF COMMON STOCK UNDERLYING BIALIK EXCHANGEABLE SHARES
9,615,384 SHARES OF COMMON STOCK UNDERLYING $5,000,000 CONVERTIBLE DEBENTURES
1,041,667 SHARES OF COMMON STOCK UNDERLYING THOMSON KERNAGHAN WARRANTS
This Prospectus relates to (i) 4,250,000 shares of common stock underlying
Exchangeable Shares issued to Don and Olivia Bialik in FutureLink Distribution
Corp., a Colorado corporation ("Futurelink USA") (The "Bialik Exchangeable
Shares") (ii) 9,615,384 shares of common stock of Futurelink USA issuable upon
exercise of a 10% Convertible Debenture with a US$5,000,000 principal amount
held by Thomson Kernaghan & Co., Ltd. ("Convertible Debenture") and (iii)
1,041,667 warrants ("Warrants") to purchase 1,041,667 shares of common stock of
Futurelink USA, issued to Thomson Kernaghan & Co., Ltd. The securities issued to
the Bialiks' and to Thomson Kernaghan were issued in Reg S transactions by
Futurelink USA on August 21, 1998. See "Selling Security Holder" and "Plan of
Distribution".
The Exchangeable Shares issued to Don and Olivia Bialik, allows Futurelink USA
to, issue 4,250,000 shares of Futurelink USA common stock in consideration for
exchange of the Exchangeable Shares. The Convertible Debenture issued allows
Thomson Kernaghan & Co., Ltd. to convert to common shares of Futurelink USA at a
conversion price equal to the lesser of $0.75 cents per share or the average
closing bid price on the OTC Bulletin Board for the Futurelink USA common shares
in the three trading days prior to the date of notice of conversion, which must
be on or before August 14, 2001. The 1,041,667 warrants issued to Thomson
Kernaghan & Co., Ltd. are at an exercise price $0.96 per share expiring August
14, 2001.
Don and Olivia Bialik and Thomson Kernaghan & Co. Ltd.(the "Selling Security
Holders") may be deemed underwriters within the meaning of the 1933 Act, with
respect to the securities offered, and any profits realized or commissions
received may be deemed underwriting compensation.
Futurelink USA will not receive any proceeds upon the exercise of the conversion
rights by Don and Olivia Bialik. In the event, that all the Thomson Kernaghan
Warrants and Debenture conversion features are exercised, Futurelink USA will
receive gross proceeds not to exceed $1,000,000. Futurelink USA will have
already received the proceeds from the initial placement of the Debenture in the
amount of up to $5,000,000. See "Selling Security Holders", "Plan of
Distribution" and "Use of Proceeds". The Company will pay all of the expenses of
this prospectus estimated at approximately $50,000.
FutureLink USA's Common Stock is traded on the NASD OTC Bulletin Board under the
symbol FLNK, and last traded at $0.93 on August 20, 1998.
-------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. FOR INFORMATION
REGARDING CERTAIN RISKS RELATING TO THE COMPANY, SEE "RISK FACTORS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
5
AVAILABLE INFORMATION
FutureLink USA has filed with the Commission a registration statement under the
Securities Act with respect to the Securities registered hereby. This Prospectus
omits certain information contained in said registration statement as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock, reference is made to the
registration statement, including the exhibits thereto. Statements contained
herein concerning the contents of any contract or any other document are not
necessarily complete, and in each instance, reference is made to such contract
or other document filed with the Commission as an exhibit to the registration
statement, or otherwise, each such statement being qualified in all respects by
such reference. The registration statement, including exhibits and schedules
thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of such materials can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates and at the Commission's web site.
2
6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in or incorporated by reference into this Prospectus. Except where
otherwise indicated, all share and per share data and information included in
this Prospectus relating to the number of shares of Common Stock assume no
exercise of (i) the Warrants, (ii) the options available for grant under
Futurelink USA's Stock Option Plan or (iii) the Bialik Reserved Shares.
THE COMPANY
DESCRIPTION OF THE COMPANY
FUTURELINK DISTRIBUTION CORP.
(A COLORADO CORPORATION) ("FUTURELINK USA")
FutureLink USA is a holding/investment company with a 100% interest in
FutureLink Acquisition Corp. (an Alberta corporation) and a 46.229% interest in
FutureLink Distribution Corp. (an Alberta corporation) ("FutureLink Alberta")
which is located in Calgary, Alberta. FutureLink USA, with certain exceptions,
is in the process of acquiring the remaining issued and outstanding securities
of FutureLink Alberta.
FutureLink USA's management believes that strategic acquisitions could
tremendously enhance FutureLink USA's growth and profitability over the next
several years. On August 3, 1998, FutureLink USA entered into an agreement with
FutureLink Alberta ("FutureLink Alberta Acquisition Agreement"), which provides
that, subject to regulatory approval and certain exceptions, FutureLink USA will
acquire all of the FutureLink Alberta Securities in consideration of the
issuance of FutureLink USA Common Shares to the FutureLink Alberta Security
holders on a one-for-one basis for each such security. Management of FutureLink
Alberta is identical to that of FutureLink USA and certain security holders of
FutureLink Alberta are also security holders of FutureLink USA.
In addition, by agreement among FutureLink Alberta, FutureLink USA, Donald A.
Bialik, Olivia B. Bialik, Bialik Family Trust, Riverview Management Corporation
("RMC") and SysGold Ltd. dated August 4, 1998, as amended by agreement dated
August 21, 1998, FutureLink USA has agreed to acquire all of the issued and
outstanding shares of RMC which in turn owns all of the issued and outstanding
shares of SysGold Ltd. and SysGold Inc.(the "SysGold Acquisition Agreement").
SysGold has approx. 60 employees and annual sales of CDN$10 million. RMC has
total liabilities of approx. CDN$1,800,000. The consideration is CDN$8,685,000
payable by CDN$3,000,000 cash on closing (scheduled for August 21, 1998),
CDN$685,000 by a promissory note payable within 90 days, and partly by the
issuance of 4,250,000 Riverview Management Corporation shares exchangeable into
4,250,000 FutureLink USA Common Shares (attributed value $0.85/share).
FutureLink USA has entered into a Debenture Acquisition Agreement dated August
14, 1998 with Thompson Kernaghan & Co., Ltd. an Ontario corporation ("TK").
Pursuant to this agreement TK has purchased from FutureLink USA up to $5,000,000
of a 10% convertible debenture ("Debenture") and $1,000,000 in a series of
warrants in FutureLink USA.
FUTURELINK DISTRIBUTION CORP. (AN ALBERTA CORPORATION) ("FUTURELINK ALBERTA")
FutureLink Alberta is the world's first computer utility company. It is
dedicated to providing small to medium sized businesses (50-1000 seats) with the
most efficient and cost effective system for the delivery of computer hardware,
software and electronic content at an attractive cost for installation,
administration and maintenance. It is FutureLink Alberta's objective to make
computer use as affordable and convenient to use as the telephone.
FutureLink USA's shareholders have approved the transactions contemplated
thereby, including, subject to regulatory approval, the acquisition of all of
the FutureLink Alberta Securities by FutureLink USA in consideration for the
FutureLink USA Common Shares, as may be adjusted in certain events. FutureLink
Alberta's key technology platform to deliver its computing model is the thin
client computing. A thin client
3
7
is a computer that has a central processing unit (CPU), a keyboard, a mouse and
a monitor that is connected to a network. Thin clients have no hard drive,
floppy disks or CD-ROM drives nor any moving parts thus greatly reducing
operating and maintenance costs. The thin client is connected to a network that
delivers any software application to any desktop from a server. The thin client
is designed to eliminate the need for constant computer upgrades, reduce the
initial capital investment of buying PCs and reduce the time and money spent on
computer maintenance.
FutureLink Alberta is offering its WATCH(TM) service as an integrated
information technology outsourcing service to the mid-market (companies with 50
- - 1000 seats).
RIVERVIEW MANAGEMENT CORPORATION. ("RMC")
RMC is a holding/investment company with operating, wholly owned subsidiaries
known as SysGold Ltd.("SysGold") and SysGold Inc. In 1992, RMC commenced
providing information technology (IT) outsourcing services in the Calgary,
Alberta vicinity through SysGold. SysGold has seen their revenues grow from
approximately CDN$200,000 in their first year of operation to approximately
CDN$9.5 million in their 1997 fiscal year. SysGold's clients come in a range of
sizes, industry sectors and growth stages. SysGold helps its clients use
information technology to enhance business, create efficiencies and drive
performance.
SysGold specializes in providing technical computing services to companies with
diverse and complex technology requirements. Over the past 6 years, they have
grown from having one client to over 90, from servicing 40 users to over 3500,
and from staffing four professionals to over 70. Many of their clients are in
the energy business. Others are in such industries as legal, advertising, and
construction.
SysGold is a total solution provider that supplies integrated business and IT
solutions in the areas of management consulting, land and land systems,
accounting, software development and infrastructure management. SysGold strives
to understand its clients' organizational processes and information requirements
and provides a full suite of information management services.
THE OFFERING
Common Stock Offered Hereby 14,907,052 shares
Common Stock Outstanding as of August 21, 1998 15,499,303 shares
NASD OTC Bulletin Board Symbol FLNK
SUMMARY FINANCIAL DATA
A. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The summary pro forma financial data in the table are derived from the pro forma
consolidated financial statements and related notes thereto of Futurelink USA.
The data should be read in conjunction with the pro forma consolidated financial
statements and the related notice contained elsewhere herein.
4
8
SUMMARY OF SELECTED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (1)
Six Months Year Ended
Ended June 30, December 31
(Unaudited) (Unaudited)
1998 1997
-------------- -----------
Statement of Income Data:
Revenues $ 5,360,575 $ 6,665,460
Total operating expenses $ 6,572,265 $ 8,146,598
Loss from operations $(1,211,691) $(1,481,138)
Net loss $(1,382,115) $(2,225,912)
Balance Sheet Data:
Current assets $ 1,079,449 $ 774,411
Working capital $ (567,035) $(1,035,555)
Total assets $ 9,535,407 $ 8,534,625
Total liabilities $ 4,449,549 $ 4,213,176
Stockholders' equity $ 5,084,858 $ 4,321,449
Note:
(1) The pro forma financial statements as at June 30, 1998, as at December 31,
1997, for the six months ended June 30, 1998 and for the year ended December 31,
1997 give effect to the acquisition of all the outstanding shares in FutureLink
Alberta and all the outstanding shares of RMC as if the effective dates of these
transactions were December 31, 1997/June 30, 1998, for the balance sheet data
and January 1, 1997/January 1, 1998 for the income statement data.
B. FUTURELINK DISTRIBUTION CORP., A COLORADO CORPORATION
The summary financial data in the table are derived from the consolidated
financial statements and related notes thereto of Futurelink USA. The data
should be read in conjunction with the consolidated financial statements and
the related notice contained elsewhere herein.
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL INFORMATION
Six Months Years Ended December 31,
Ended June 30, ------------------------------
(Unaudited) (Audited) (Unaudited)
1998 1997 1996
----------- --------- -----------
Statement of Income Data:
Revenues $ 0 $ 0 $ 0
Total operating expenses $ 71,076 $ 122,049 $ 6,864
Loss from operations $ (71,076) $(122,049) $ (6,864)
Net loss $ (482,392) $(737,049) $ (6,864)
Net loss per common share $ (0.25) $ (1.65) $ (2.75)
Balance Sheet Data:
Current assets $ 0 $ 0 $ 0
Working capital $ (24,981) $ (23,932) $ (6,873)
Total assets $ 1,269,259 $ 0 $ 515,000
Total liabilities $ 529,783 $ 23,932 $ 11,377
Stockholders' equity $ 739,476 $ (23,932) $ 503,623
5
9
FORWARD-LOOKING STATEMENTS
When included in this Prospectus, the words "expects," "intends,""anticipates,"
"plans," "projects" and "estimates," and analogous or similar expressions are
intended to identify forward-looking statements. Such statements, which include
statements contained in "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," are inherently subject to a variety of risks and uncertainties that
could cause actual results to differ materially from those reflected in such
forward-looking statements. For a discussion of certain of such risks, see "Risk
Factors." These forward-looking statements speak only as of the date of this
Prospectus. Futurelink USA expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statement
contained herein to reflect any change in Futurelink USA expectations with
regard thereto or any change in events, conditions or circumstances on which any
such statement is based.
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THE PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE MAKING AN
INVESTMENT. THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF FUTURELINK USA PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS
PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING
STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. FUTURELINK USA ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL
AS THOSE DISCUSSED ELSEWHERE HEREIN.
RISKS CONCERNING FUTURELINK USA
FutureLink USA has a significant subsidiary, FutureLink Alberta and is in the
process of acquiring 100% of Riverview Management Corporation.
Limited Control and Influence on Futurelink USA. The current officers and
directors, including the controlling beneficial shareholders of Futurelink USA
in the aggregate, directly or beneficially, currently own approximately 34% of
the total outstanding Common Stock. As a result, these individuals will probably
be able to elect a majority of Futurelink USA's directors and thereby control
the management policies of Futurelink USA, as well as determine the outcome of
corporate actions requiring shareholder approval by majority action, regardless
of how other shareholders of Futurelink USA, may vote. Such ownership of Common
Stock may have the effect of delaying, deferring or preventing a change in
control of Futurelink USA and may adversely affect the voting rights of holders
of Common Stock.
Limitation of Liability of Directors. As permitted by the Colorado Business
Corporation Act, Futurelink USA has Articles of Incorporation, as amended,
eliminates, with certain exceptions, the personal liability of its directors to
Futurelink USA and its shareholders for monetary damages as a result of a breach
of fiduciary duty. Such a provision makes it more difficult to assert a claim
and obtain damages from a director in the event of a breach of his fiduciary
duty. The Colorado Business Corporation Act provides that a corporation has the
power to (i) indemnify directors, officers, employees and agents of the
corporation against judgments, fines and amounts paid in settlement in
connection with suits, actions and proceedings and against certain expenses
incurred by such parties if specified standards of conduct are met: and (ii)
purchase and maintain insurance on behalf of any of the foregoing parties
against liabilities incurred by such parties in the foregoing capacities. The
Bylaws of Futurelink USA provide for indemnification of its officers and
directors against expenses actually and necessarily incurred by them in
connection with the defense of any action, suit or proceeding in which they are
made parties by reason of being or having been officers or directors of
Futurelink USA; except in relation to matters as to which any such director or
officer is adjudged in such action, suit or proceeding to be liable for gross
6
10
negligence or willful misconduct in the performance of duty. However, such
indemnification is not exclusive of any other rights to which those indemnified
may be entitled under any bylaw, agreement, vote of shareholders or otherwise.
Solvency of FutureLink USA. FutureLink USA has incurred significant losses.
FutureLink USA is subject to a lawsuit as described under "Legal Proceedings".
FutureLink USA may require additional financing in order to carry on its
business. There can be no assurance that such financing will be available or, if
available, will be upon terms satisfactory to FutureLink USA.
Dependence on Key Personnel. The success of Futurelink USA is highly dependent
on the efforts and abilities of its directors, officers and employees. The
unexpected loss or departure of any of FutureLink USA's key directors, officers
or employees could be detrimental to the future operations of FutureLink USA.
The success of FutureLink USA's business will depend, in part, upon FutureLink
USA's ability to attract and retain qualified personnel as they are needed.
There can be no assurance that FutureLink USA will be able to engage the
services of such personnel or retain its current personnel.
Dividends and Cash Flow. FutureLink USA has a limited history and currently does
not have any operating business. The Corporation has no present intention to pay
dividends to the holders of its FutureLink USA Common Shares.
Risks Related to Possible Acquisitions. Futurelink USA may expand its operations
through the acquisition of additional businesses. There can be no assurance that
Futurelink USA will be able to identify, acquire or profitably manage additional
businesses or successfully integrate any acquired businesses into Futurelink USA
without substantial expenses, delays or other operational or financial problems.
Further, acquisitions may involve a number of special risks or effects,
including diversion of management's attention, failure to retain key acquired
personnel, unanticipated events or circumstances, legal liabilities and
amortization of acquired intangible assets and other one-time or ongoing
acquisition related expenses, some or all of which could have a material adverse
effect on Futurelink USA business, operating results and financial condition.
Client satisfaction or performance problems of a single acquired firm could have
a material adverse impact on the reputation of Futurelink USA as a whole. In
addition, there can be no assurance that the acquired businesses, if any, will
achieve anticipated revenues and earnings. The failure of Futurelink USA to
arrange its acquisition strategy successfully could have a material adverse
effect upon Futurelink USA's business, operating results and financial
condition. Limited Trading History of FutureLink USA Common Shares; Stock Price
Volatility. Between January 1, 1998 and August 3, 1998, the closing sale price
has ranged from a low of $0.57 per share to a high of $4.34 per share. The
market price of the FutureLink USA Common Shares could continue to fluctuate
substantially due to a variety of factors, including quarterly fluctuations in
results of operations, adverse circumstances affecting the introduction of
market acceptance of new products and services offered by Futurelink USA,
announcements of new products and services by competitors, changes in the IT
environment, changes in earnings estimates by analysts, changes in accounting
principles, sales of FutureLink USA Common Shares by existing holders, loss of
key personnel and other factors. The market price for the FutureLink USA Common
Shares may also be affected by Futurelink USA's ability to meet analysts'
expectations, and any failure to meet such expectations, even if minor, could
have a material adverse effect on the market price of FutureLink USA Common
Shares. In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market prices
of securities issued by many companies for reasons unrelated to the operating
performance of these companies. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been instituted against such a company. Any such litigation instigated
against Futurelink USA could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
upon Futurelink USA's business, operating results and financial condition.
7
11
RISKS CONCERNING FUTURELINK ALBERTA
Creditworthiness of Clients. The value of FutureLink Alberta's computer
equipment, software, and intellectual property thereto may depend on the credit
and financial stability of FutureLink Alberta's customers. FutureLink Alberta's
projected income would be adversely affected if a significant number of
customers were unable to meet their obligations to FutureLink Alberta or if
FutureLink Alberta were unable to continue to collect its accounts receivables.
In the event of default by customers, FutureLink Alberta may experience delays
in enforcing its rights as a vendor and may incur substantial costs in
protecting its investment.
Start-Up Company. The business of FutureLink Alberta should be considered highly
speculative due to its present stage of development. FutureLink Alberta does not
have a history of earnings nor has it sufficiently diversified such that it can
mitigate the risks associated with its planned activities. FutureLink Alberta
has limited cash and other assets and a limited business history.
Securityholders must rely solely upon the ability, expertise, judgement,
discretion, integrity and good faith of FutureLink Alberta's management in all
aspects of the development and implementation of FutureLink Alberta's business
strategy.
Speculative Nature of Computer Business. The acquisition and management of
computer services may result in a failure to produce income or revenue.
Moreover, the industry is subject to significant risk factors including changes
in general economic conditions, competition from other properties, the failure
of customer to meet their obligations and other operating costs
Competition. The market for IT services is very competitive because of the large
number of competitors and the rapidly changing environment. Primary competitors
include participants from a variety of market segments, including "Big Six"
accounting firms, systems consulting and implementation firms, application
software firms, service groups of computer equipment companies, facilities
management companies, general management consulting firms and programming
companies. Many of these competitors have significantly greater financial,
technical and marketing resources and greater name recognition than FutureLink
Alberta. In addition, FutureLink Alberta competes with its client's internal
resources, particularly where these resources represent a fixed cost to the
client. Such competition may impose additional pricing pressures on FutureLink
Alberta. There can be no assurances that FutureLink Alberta will compete
successfully with its existing competitors or with any new competitors.
Tradename A number of U.S. International Companies currently use all or a
portion of the name "FutureLink" in connection with products or services in
similar industries as that engaged in by the Company. While the Company is
attempting to qualify under a trademark its name throughout the U.S. in Canada,
significant issues may be present as to the ability to widely use the name in
connection with the products or services to be rendered by the Company.
Rapid Technological Change; Dependance on New Solutions. FutureLink Alberta's
success will depend in part on its ability to develop IT solutions that keep
pace with continuing changes in IT, evolving industry standards and changing
client preferences. There can be no assurance that FutureLink Alberta will be
successful in adequately addressing these developments on a timely basis or
that, if these developments are addressed, FutureLink Alberta will be successful
in the marketplace. In addition, there can be no assurance that products or
technologies developed by others will not render FutureLink Alberta's services
uncompetitive or obsolete. FutureLink Alberta's failure to address these
developments could have a material adverse effect on FutureLink Alberta's
business, operating results and financial conditions.
8
12
Attraction and Retention of Employees. FutureLink Alberta's business involves
the delivery of professional services and is labor-intensive. FutureLink
Alberta's success depends in large part upon its ability to attract, develop,
motivate and retain highly skilled technical employees. Qualified technical
employees are in great demand and are likely to remain a limited resource for
the foreseeable future. There can be no assurance that FutureLink Alberta will
be able to attract and retain sufficient numbers of highly skilled technical
employees in the future. FutureLink Alberta has historically experienced
turnover rates which it believes are consistent with industry norms. An increase
in this rate could have a material adverse effect on FutureLink Alberta's
business, operating results and financial condition, including its ability to
secure and complete engagements.
Project Risks. Many of FutureLink Alberta's engagements involve projects that
are critical to the operations of its clients' businesses and provide benefits
that may be difficult to quantify. FutureLink Alberta's failure or inability to
meet a client's expectations in the performance of its services could result in
a material adverse change to the client's operations and therefore could give
rise to claims against FutureLink Alberta or damage FutureLink Alberta's
reputation, adversely affecting its business, operating results and financial
condition.
Fixed-Bid Projects. FutureLink Alberta undertakes many projects billed on a
fixed-bid basis, which is distinguishable from the company's other method of
billing on a time and materials basis. The failure of the company to complete
such projects within budget would expose the company to risks associated with
cost overruns, which could have a material adverse effect on FutureLink
Alberta's business, operating results and financial condition.
Dividends. Since incorporation, FutureLink Alberta has not paid any dividends on
its outstanding FutureLink Alberta Common Shares and has no present intention to
pay dividends thereon.
RISKS CONCERNING RIVERVIEW MANAGEMENT CORPORATION
RMC purchased a 33% minority interest in its subsidiary SysGold Ltd. from a
minority shareholder for a purchase price of CDN$315,000 on July 24, 1998. The
buy out was based on an effective evaluation dated April 30, 1996. At that date,
the valuation for 100% of SysGold Ltd. was approximately CDN$950,000. The
acquisition by FutureLink USA values SysGold Ltd. at CDN$8,000,000 on an arms
length basis. FutureLink USA believes this to be a reasonable valuation at the
current time and substantially higher than the valuation of SysGold Ltd. at
April 30, 1996. The reasons for the increased valuation over the past 28 months
are primarily as follows:
a) SysGold's revenues have increased from approximately CDN$3 million
for the year ended October 31, 1995 to approximately CDN$9.7 million
for the year ended October 31, 1997,
b) SysGold's employee/consultant base (one of its key assets) has
increased from approximately 30 at the end of fiscal 1995 to a
current of 75,
c) SysGold currently has a strong management team, excellent
reputation, blue ship client base and proven technology service
delivery platform.
Creditworthiness of Clients. The value of SysGold's computer equipment,
software, and intellectual property thereto may depend on the credit and
financial stability of SysGold's customers. SysGold's projected income would be
adversely affected if a significant number of customers were unable to meet
their obligations to SysGold or if SysGold were unable to continue to collect
its accounts receivables. In the event of default by customers, SysGold may
experience delays in enforcing its rights as a vendor and may incur substantial
costs in protecting its investment.
Speculative Nature of Computer Business. The acquisition and management of
computer services may result in a failure to produce income or revenue.
Moreover, the industry is subject to significant risk factors including changes
in general economic conditions, competition from other properties, the failure
of customer to meet their obligations and other operating costs.
Competition. The market for IT services is very competitive because of the large
number of competitors and the rapidly changing environment. Primary competitors
include participants from a variety of market segments, including "Big Six"
accounting firms, systems consulting and implementation firms, application
software firms, service groups of computer equipment companies, facilities
management companies, general management consulting firms and programming
9
13
companies. Many of these competitors have significantly greater financial,
technical and marketing resources and greater name recognition than SysGold. In
addition, SysGold competes with its clients internal resources, particularly
where these resources represent a fixed cost to the client. Such competition may
impose additional pricing pressures on SysGold. These can be no assurances that
SysGold will compete successfully with its existing competitors or with any new
competitors.
Rapid Technological Change; Dependence on New Solutions. SysGold's success will
depend in part on its ability to develop IT solutions that keep pace with
continuing changes in IT, evolving industry standards and changing client
preferences. There can be no assurance that SysGold will be successful in
adequately addressing these developments on a timely basis or that, if these
developments are addressed, SysGold will be successful in the marketplace. In
addition, there can be no assurance that products or technologies developed by
others will not render SysGold's services uncompetitive or obsolete. SysGold's
failure to address these developments could have a material adverse effect on
SysGold's business, operating results and financial conditions.
Attraction and Retention of Employees. SysGold's business involves the deliver
of professional services and is labor-intensive. SysGold's success depends in
large part upon its ability to attract, develop, motivate and retain highly
skilled technical employees. Qualified technical employees are in great demand
and are likely to remain a limited resource for the foreseeable future. There
can be no assurance that SysGold will be able to attract and retain sufficient
numbers of highly skilled technical employees in the future. SysGold has
historically experienced turnover rates which it believes are consistent with
industry norms. An increase in this rate could have a material adverse effect on
SysGold's business, operating results and financial condition, including its
ability to secure and complete engagements.
Project Risks. Many of SysGold's engagements involve projects that are critical
to the operations of its clients' businesses and provide benefits that may be
difficult to quantify. SysGold's failure or inability to meet a client's
expectations in the performance of its services could result in a material
adverse change to the client's operations and therefore could give rise to
claims against SysGold or damage SysGold's reputation, adversely affecting its
business, operating results and financial condition.
Fixed-Bid Projects. SysGold undertakes many projects billed on a fixed-bid
basis, which is distinguishable from the company's other method of billing on a
time and materials basis. The failure of the company to complete such projects
within budget would expose the company to risks associated with cost overruns,
which could have a material adverse effect on SysGold's business, operating
results and financial condition.
RISKS CONCERNING THE SECURITIES OF FUTURELINK USA
Possible Volatility of Securities Prices. The Stock market has from time to time
experienced significant price and volume fluctuations that may be unrelated to
the operating performance of any particular company. The market prices of the
securities of many publicly-traded companies in the computer industry have in
the past been and can be expected in the future to be especially volatile.
Factors such as Futurelink USA's operating results, announcements by Futurelink
USA or its competitors concerning technological innovations, new products or
systems may have a significant impact on the market price of the Company's
securities.
Risks of Low-Priced or Penny Stock. The common stock of Futurelink USA is traded
on the NASD OTC Bulletin Board. As such it is subject to Rule 15(g)-(9) under
the 1934 Act. Such Rule may adversely effects the ability of purchasers in this
Offering to sell of the securities acquire hereby in the secondary market.
Rule 15g-9 requires additional disclosure, relating to the market for penny
stocks, in connection with trades in any stock defined as a penny stock. The
Commission defines a penny stock to be any equity security that has a market
price of less than $5.00 per share (exclusive of commissions), subject to
certain exceptions. Such exceptions include any equity security listed on Nasdaq
and any equity security issued by an issuer that has (i) net tangible assets of
at least $2,000,000, if such issuer has been in continuous operation for three
years, (ii) net tangible assets of at least $5,000,000, if such issuer has been
in continuous operation for less than three years, or (iii) average annual
revenue of at least $6,000,000, if such issuer has been in continuous operation
for less than three years. Unless an exemption is available, the regulations
10
14
require the delivery, prior to any transaction involving a penny stock, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith.
In addition, trading in the Common Stock would be covered by Rules 15g-1 through
15g-6 under the 1934 Act for non-Nasdaq and non-exchange listed securities.
Under such rules, broker/dealers who recommend such securities to persons other
than established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities also are exempt from these
rules if the market price is at least $5.00 per share.
No Dividends Anticipated on Common Stock. FutureLink USA has not paid any
dividends on its Common Stock to date. FutureLink USA does not currently intend
to declare or pay any dividends on its Common Stock in the foreseeable future,
but plans to retain earnings, if any, for development and expansion of its
business operations.
Current Prospectus and State Registration Required to Exercise Warrants. The
purchasers of the Warrants will only be able to exercise the Warrants if: (i) a
current Registration Statement under the 1933 Act relating to the Common Stock
is qualified for sale or exempt from qualification under the 1933 Act and; (ii)
such Common Stock is qualified for sale or exempt from qualification under the
applicable securities laws of the states in which the various holders of the
Warrants reside. Although FutureLink USA will use its best efforts to maintain
the effectiveness of the current Registration Statement covering the Common
Stock issuable upon the exercise of the Warrants, there can be no assurance
FutureLink USA will be able to continue to do so. The value of the Warrants may
be greatly reduced if a current Registration Statement covering the Common Stock
issuable upon the exercise of the Warrants is not kept effective or if such
Common Stock is not qualified or exempt from qualification in the states in
which the holders of the Warrants reside.
USE OF PROCEEDS
With the exception of the exercise price of the Warrants, FutureLink USA will
not receive any proceeds from the sale of securities offered hereby. It is
currently anticipated that the net proceeds from the exercise of the Warrants,
estimated at $1,000,000 will be added to the general funds of FutureLink USA and
used for working capital and other general corporate purposes. FutureLink USA
will pay all the expenses of this Prospectus, estimated to be approximately
$50,000.
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
FUTURELINK USA
The common stock of FutureLink USA commenced quotation on the OTC Bulletin Board
under the symbol "FLNK" in late 1995. Until the third quarter of 1995 no
substantial public trading market had developed for the common stock of
FutureLink USA.
NASD OTC Bulletin Board Symbols
Common Stock FLNK
FutureLink USA has not paid any dividends on its Common Stock since its
inception and has no current plans to pay dividends on the Common Stock in the
foreseeable future. In addition, FutureLink USA's ability to pay cash dividends
is restricted by FutureLink USA's current credit facilities, and future
borrowings may contain similar restrictions. The Company intends to reinvest
future earnings, if any, in the development and expansion of its business. Any
future
11
15
determination to pay dividends on the Common Stock will depend upon FutureLink
USA's results of operations, financial condition and capital requirements and
such other factors deemed relevant by FutureLink USA's Board of Directors.
The closing price of the Common Stock of FutureLink USA as reported on the NASD
OTC Bulletin Board Issues on August 18, 1998, by brokers making a market, was
$1.00.
As of August 19, 1998, there were approximately 252 beneficial holders of the
common stock of the Company.
FutureLink USA's Common Stock is traded on the Nasdaq OTC Bulletin Board under
the symbol FLNK. The following table summarizes the trading activity of
FutureLink USA from January 1998.
Price Range
-------------------- Trading Share Value
High Low Volume NOTE 1
---- ---- ---------- -----------
January, 1998 3.56 1.75 1,294,400 $3,849,893
February, 1998 3.50 2.90 714,100 2,241,748
March, 1998 4.12 2.75 1,834,300 6,253,275
April, 1998 4.34 3.06 5,333,400 14,219,948
May, 1998 4.00 1.37 7,575,200 19,470,561
June 1-5, 1998 1.31 1.00 1,001,300 1,044,374
June 8-12, 1998 1.25 1.03 572,000 632,511
June 15-19, 1998 1.02 0.73 1,763,500 1,407,873
June 22-26, 1998 1.03 0.08 688,200 583,900
June28-July 3, 1998 0.81 0.66 744,000 518,001
July 6-10, 1998 0.64 0.57 978,700 599,967
July 13-17, 1998 1.68 0.72 2,724,100 3,510,358
July 20-29, 1998 1.25 1.00 1,033,000 2,092,682
---------- -----------
Totals 25,586,200 $56,425,091
========== ===========
- ----------
Note 1) Calculated by mutiplying the average daily price reported by
Bloomberg by the daily volume. This is only an estimate of the true
share values traded. This method would tend to overstate the true share
value.
On July 31, 1998 the high and low prices of FutureLink USA's Common Stock were
$1.10 and $.94 per share, respectively. As of July 31, 1997 there were
approximately 252 holders of record of FutureLink USA Common Stock.
FutureLink USA has not declared or paid any cash dividends on its Common Stock
and does not intend to declare or pay any cash dividends in the foreseeable
future. The payment of dividends, if any, is within the discretion of the Board
of Directors and will depend on the FutureLink USA's earnings, if any, its
capital requirements and financial condition, and such other factors as the
Board of Directors may consider.
FUTURELINK ALBERTA
There is no market for the securities of FutureLink Alberta to be acquired
pursuant to the FutureLink Alberta Acquisition Agreement.
RIVERVIEW MANAGEMENT CORPORATION
There is no market for the securities of RMC, SysGold Ltd. or SysGold Inc.
12
16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with FutureLink USA's
consolidated financial statements and the related notes thereto and the other
financial information included elsewhere in this Prospectus. When used in the
following discussions, the words "believes", "anticipates", "intends", "expects"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those projected, including, but
not limited to, those set forth in "Risk Factors." readers are cautioned not to
place undue reliance on forward-looking statements, which speak only as of the
date hereof.
FUTURELINK USA
JUNE 30, 1998 VS. JUNE 30, 1997
On January 20, 1998, Core Ventures, Inc.(now known as FutureLink Distribution
Corp.) acquired a 46% interest in FutureLink Alberta.
FutureLink Alberta is the world's first computing utility and specializes in
providing IT services to mid-sized companies. FutureLink USA accounts for its
investment in FutureLink Alberta using the equity method for accounting for
investments.
In the six months ended June 30, 1998, FutureLink USA incurred $71,076 of
administration expenses in administering its 46% investment in FutureLink
Alberta. In addition, FutureLink USA recorded an increase on its share capital
of $60,200 related to the forgiveness of a loan to the company by a shareholder.
FutureLink USA's equity in FutureLink Alberta losses during this period was
$411,316.
FutureLink USA has no revenues or expenses in the similar period in 1997.
Liquidity and Capital Resources
FutureLink USA raised $1,351,602 in equity and advances from shareholders.
FutureLink USA has invested $1,680,515 in FutureLink Alberta in advances and
purchases of FutureLink Alberta shares. As at June 30, 1998, the company's
investment in FutureLink Alberta had a book value (net of its equity loss) of
$1,269,259. FutureLink USA had liabilities of $529,783 representing accounts
payable and advances from shareholders of $504,802. The $504,802 advance was
converted to equity in July 1998.
FISCAL 1997 VS. FISCAL 1996
For the year ended December 31, 1997, revenues were $0 compared to $0 in the
year ended December 31, 1996, as FutureLink USA had no active operations.
Operating expenses increased from $115,189 to $122,049 as FutureLink USA
unsuccessfully attempted to acquire the operations of Printscan Technologies
Inc.
Share capital income increased $39,494 as a result of the forgiveness of a loan
from a shareholder.
Other non-operation losses in 1997 included the write-off of mining assets
recorded on the balance sheet at a book value of $515,000 and a loss of a
non-refundable deposit of $100,000 related to the failed attempt to acquire the
assets of Printscan.
Liquidity and Capital Resources
In 1997, FutureLink USA raised $170,000 from the issuance of common shares.
These funds were used to pay operating
13
17
administration expenses and the non-refundable deposit in the failed attempt to
acquire the assets of Printscan. At the end of 1997, FutureLink USA had no
recorded assets and current account payables were $23,932.
1996
FutureLink USA has been an inactive company for a number of years. In 1996,
FutureLink USA incurred nominal administrative expenses of $6,864 in maintaining
the FutureLink USA legal entity.
Liquidity and Capital Resources
FutureLink USA received shareholder advances of $3,602 in 1996 and ended the
year with mining assets with a book value of $515,000 and liabilities (accounts
payable and shareholder advances) of $11,377.
FUTURELINK ALBERTA
JUNE 30, 1998 VS. JUNE 30, 1997
In January 1998, FutureLink USA acquired a significant interest in FutureLink
Alberta with plans to acquire the rest of FutureLink Alberta later in 1998 via a
takeover bid to minority shareholders. During the first six months of 1998,
FutureLink Alberta launched its information technology services business focused
on distributed thin client technology.
In the six months ended June 30, 1998, FutureLink Alberta recognized revenues of
CDN$30,675 from information technology services and hardware/software sales.
Operating expenses were CDN$1,096,052 in the six months ended June 30, 1998,
versus CDN$160,775 of operating expenses in the six months ended June 30, 1997.
The tremendous increase in operating expenses in 1998 vs. 1997 can be attributed
to an increase in office premises, administration, marketing and technical
management, marketing efforts and the addition of employees in conjunction with
the launch of FutureLink Alberta's IT services business. In addition, in July
1998 FutureLink Alberta discontinued its web page development activities and
sold its interest in the business to NextClick Ltd. in exchange for equity. This
equity was recorded at CDN$1.00 in its books and records.
As at June 30, 1998, FutureLink Alberta has signed significant multi-year IT
service contracts with revenues to be recognized over the next 3-5 years.
Liquidity and Capital Resources
During the six months ended June 30, 1998, FutureLink Alberta raised
CDN$2,193,198 of financing which included CDN$333,775 of common share equity
financing and CDN$1,859,423 of shareholder advances from FutureLink USA. The
financing helped fund CDN$1,492,710 of operating activities and CDN$370,173 of
capital asset investments. As of June 30, 1998, FutureLink Alberta had
CDN$232,971 of cash, CDN$143,703 of net working capital, capital assets of
CDN$515,050 and long-term liabilities of CDN$1,891,401 (including shareholder
loans and capital leases.).
FISCAL 1997 VS. FISCAL 1996
During the fiscal 1997 year, there was a shift in FutureLink Alberta's business
as the interactive cafe initiative was discontinued in favor of distribution of
computing services to businesses via thin client networks.
In 1997, FutureLink Alberta had nominal interest income of CDN$4,820 versus
CDN$2,752 in 1996. FutureLink Alberta had operating expenses of CDN$805,568,
with consulting expenses of CDN$401,320 being the major category of expense.
Operating expenses in 1997 increase tremendously from 1996 levels of CDN$200,845
as the company increased its development expenditures with respect to the
distribution of information technology services and ceased its interactive cafe
development expenditures. FutureLink Alberta's discontinued web page development
activities had a net loss of CDN$14,179 in 1997.
14
18
Liquidity and Capital Resources
In fiscal 1997, FutureLink Alberta raised CDN$593,454 of equity and debt
financing to help fund operating activities of CDN$392,897 (net of working
capital decrease) and capital asset purchases of CDN$279,523. At December 31,
1997, FutureLink Alberta had cash of CDN$10,886, a working capital deficit of
CDN$413,508 and capital assets of CDN$239,330. In addition, FutureLink Alberta
had long term debt obligations (including capital leases) of CDN$106,753.
FISCAL 1996
FutureLink Alberta commenced operations as 689936 Alberta Ltd. In March 1996
FutureLink Alberta was initially focused on developing a chain of internet cafes
focused on exposing and distributing new information technology to consumers.
From the date of commencement of operations to December 31, 1996, FutureLink
Alberta had nominal interest income of CDN$2,752 and incurred CDN$200,845 of
operating expenses in developing the interactive cafe business model.
CDN$109,625 of the expenses were for consultants who assisted the company in
developing its business model and planning its internet cafes.
Liquidity and Capital Resources
In 1996, FutureLink Alberta raised CDN$370,329 in equity financing. In addition
to funding CDN$269,817 of operations, the company loaned CDN$104,500 to a
company owned by a director. The loan was repaid in 1997. As of December 31,
1996, FutureLink Alberta had CDN$89,852 of cash, CDN$104,500 of notes
receivables and CDN$10,545 of other assets. The company had CDN$40,458 of trade
payables and accrued liabilities as of December 31, 1996.
RIVERVIEW MANAGEMENT CORPORATION
8 MONTHS ENDED JUNE 30, 1998 COMPARED TO 8 MONTHS ENDED JUNE 30, 1997
For the 8 months ended June 30, 1998, revenues increased CDN$2,351,872 (43%) to
CDN$7,844,545 from CDN$5,492,673 recorded in the 8 months ended June 30, 1997.
This increase resulted from several factors. The number of major clients
increased by 13 (29%) to 58 from 45. The number of staff increased by 28 (58%)
to 76 from 48.
Hardware and software sales increased by CDN$982,497 (37%) to CDN$4,232,998 from
CDN$2,863,237 for the same period in the previous fiscal year. Cost of goods
sold rose proportionately by CDN$911,046 (38%) to CDN$3,314,946 from
CDN$2,403,900.
The major cost of system consulting revenue - system consultant salaries,
benefits, and contract costs increased by CDN$1,283,238 (58%) to CDN$3,500,311
from CDN$2,217,073. This greater than proportional increase in staffing costs
rose from competitive pressure on staff salaries.
General and administrative expenses increased by CDN$332,435 (76%) to
CDN$769,665 (9.8% of revenue) from CDN$437,230 (8.0% of revenue) in the prior
year. This increase in overhead costs occurred because we had to add
supervisory, purchasing and administrative staff to handle our larger number of
consultants. Advertising and Promotional costs went up by CDN$33,380 (64%) to
CDN$85,851 (1.1% of revenue) from CDN$52,471 (1.0% of revenue) for the same
period.
After provision for income taxes, SysGold recorded a decrease in profit of
CDN$33,668 to CDN$143,716 for the 8 months ended June 30, 1998, compared to
CDN$177,384 for the 8 months ended June 30, 1997.
15
19
FISCAL YEAR 1997 AS COMPARED TO FISCAL YEAR 1996
For the year ended October 31, 1997, revenues increased CDN$4,233,532 (80%) to
CDN$9,520,789 from CDN$5,287,257 recorded in the year ended October 31, 1996.
This increase resulted from several factors. The number of major clients
increased by 9 (22%) to 49 from 40. The number of staff increased by 21 (60%) to
58 from 35. SysGold's client base spent more on expansion of their management
information systems in 1997 compared to 1996.
Hardware and software sales increased by CDN$1,961,878 (66%) to CDN$4,929,610
from CDN$2,967,732 the previous fiscal year. Cost of goods sold rose
proportionately by CDN$1,776,779 (65%) to CDN$4,500,816 from CDN$2,724,037.
The major cost of system consulting revenue - system consultant salaries,
benefits, and contract costs increased by CDN$1,921,208 (100%) to CDN$3,835,563
from CDN$1,914,355. This greater than proportional increase in staffing costs
arose mainly from competitive pressure on staff salaries, prior to revenue
contract renewal dates with clients.
Advertising and Promotional costs went up by CDN$55,467 (130%) to CDN$97,897
(1.0% of revenue) from CDN$42,430 (0.8% of revenue) the previous fiscal year.
This low marketing cost basically reflected SysGold's policy of obtaining new
customers by reference from our staff and clients.
General and administrative expenses increased by CDN$217,975 (39%) to
CDN$773,921 (8.1% of revenue) from CDN$555,946 (10.5% of revenue) in the prior
year. This increase in overhead costs occurred generally because SysGold added
supervisory, purchasing and administrative staff to handle its larger number of
consultants. As well, a favorable tenant sub-lease ended and RMC moved,
incurring increased rent costs of CDN$48,000, additional furniture rent and
lease costs of CDN$28,000, and telephone cost of CDN$11,000.
After provision for income taxes, the Company recorded an increase in profit of
CDN$114,635 (430%) to CDN$141,311 for the year ended October 31, 1997, compared
to CDN$26,676 for the year ended October 31, 1996.
BUSINESS
FUTURELINK USA
FutureLink USA is a holding/investment company with a 100% interest in
FutureLink Acquisition Corp. (an Alberta corporation) and a 46.229% interest in
FutureLink Distribution Corp. (an Alberta corporation) ("FutureLink Alberta")
which is located in Calgary, Alberta. FutureLink USA, with certain exception, is
in the process of acquiring the remaining issued and outstanding securities of
FutureLink Alberta.
FutureLink USA was incorporated under the Colorado Corporation Code on April 4,
1955 under the name of Cortez Uranium and Mining Co. On February 25, 1957, its
name changed to Core Oil, Inc. On June 16, 1983, its name changed to Core
Mineral Recoveries, Inc. On July 20, 1997, its name changed to Core Ventures,
Inc. On February 17, 1998, its name changed to FutureLink Distribution Corp. In
conjunction with these name changes, the Corporation has undertaken a number of
changes to its authorized capital. Upon incorporation, the authorized capital
was 10,000,000 shares with a par value of $0.01. On June 16, 1983, the
authorized capital was altered to authorize the issuance of 15,000,000 shares
with a par value of $0.01/share. On October 7, 1986, the authorized capital was
altered to authorize the issuance of 30,000,000 shares with a par value of
$0.01/share. On July 20, 1997, the articles were amended to provide for a par
value of $0.001/share. On July 20, 1997, FutureLink USA effected a 200:1 reverse
split. On December 2, 1997, FutureLink USA effected a 30:1 reverse split. On
January 20, 1998, the articles were amended to authorize the issuance of
100,000,000 common shares with a par value of $0.0001/share and 5,000,000
preferred shares with no par value.
16
20
The principal executive office of FutureLink USA is located at Suite 550 - 603 -
7th Avenue S.W. Calgary, Alberta, T2P 2T5. The contact telephone number is (403)
543 - 5511. The registered and records office of the Company is located at 5025
South Federal Boulevard, Englewood, Colorado, 80110.
All references herein are in US dollars unless otherwise referenced. At this
date, the Canadian dollar equals .6521 cents US.
STRATEGIC ACQUISITIONS
FutureLink USA's management believes that strategic acquisitions could
tremendously enhance FutureLink USA's growth and profitability over the next
several years/
On August 3, 1998, FutureLink USA entered into an agreement with FutureLink
Alberta ("FutureLink Alberta Acquisition Agreement"), which provides that,
subject to regulatory approval and certain exceptions, FutureLink USA will
acquire all of the FutureLink Alberta Securities in consideration of the
issuance of FutureLink USA Common Shares to the FutureLink Alberta Security
holders on a one-for-one basis for each such security. Management of FutureLink
Alberta is identical to that of FutureLink USA and certain security holders of
FutureLink Alberta are also security holders of FutureLink USA.
A. SysGold
By agreement among FutureLink Alberta, FutureLink USA, Donald A. Bialik, Olivia
B. Bialik, Bialik Family Trust, Riverview Management Corporation ("RMC") and
SysGold Ltd. dated August 4, 1998, as amended by agreement dated August 21,
1998, FutureLink USA has agreed to acquire all of the issued and outstanding
shares of RMC which in turn owns all of the issued and outstanding shares of
SysGold Ltd. and SysGold Inc.(the "SysGold Acquisition Agreement"). SysGold has
approx. 60 employees and annual sales of CDN$10 million. RMC has total
liabilities of approx. CDN$1,800,000. The consideration is CDN$8,685,000 payable
by CDN$3,000,000 cash on closing (scheduled for August 21, 1998), CDN$685,000 by
a promissory note payable within 90 days, and partly by the issuance of
4,250,000 restricted FutureLink USA Common Shares (attributed value
$0.85/share). The SysGold Acquisition Agreement will be amended prior to
closing. SysGold Inc. will be added as a party. Donald A. Bialik will be subject
to an employment agreement which would pay him a significant salary/year, plus a
performance bonus and stock options totalling 250,000 FutureLink USA Common
Shares at a price to be agreed upon. The deposit of CDN$100,000 has been paid
and may become non-refundable in certain circumstances. The transaction is an
arms length transaction and numerous condition precedents must be satisfied
prior to closing.
B. Thomson Kernaghan
FutureLink USA has entered into a Debenture Acquisition Agreement dated August
14, 1998 with Thompson Kernaghan & Co., Ltd. an Ontario corporation ("TK").
Pursuant to this agreement TK has purchased from FutureLink USA up to $5,000,000
of a 10% convertible debenture ("Debenture") and $1,000,000 in a series of
warrants in FutureLink USA.
The purchase price for the Debenture shall be payable in a series of the
closings. The initial closing scheduled for August 21, 1998 provides FutureLink
USA with $2,250,000 U.S. to be utilized by the Company primarily for the
acquisition of stock in Sysgold, Ltd., as described below. The initial closing
is subject to certain financial requirements of Sysgold, the filing of a 1933
Act Registration Statement to cover conversion of the common shares underlying
the Debenture as described below and an opinion of FutureLink USA counsel.
Additional closings at the rate of no more than one per month and in the amount
$500,000 per month are subsequently scheduled. Subsequent closings are
conditioned upon effectiveness of the FutureLink USA 1933 Act and 1934 Act
Registrations maintenance of, minimum bid prices and daily volume requirements.
On the initial funding date, TK shall receive a 10% commission on all payments
made for the Debenture, and $1,000,000 principal amount of a series of warrants
of FutureLink USA exercisable at a per share price equal to $0.96 per share).
17
21
In addition, FutureLink USA will be depositing into escrow a total of 11,000,000
shares of common stock, 10,657,052 shares of which shall be registered pursuant
to a Form SB-2 Registration Statement with the Securities and Exchange
Commission, as the common stock underlying the Debenture, and the Warrants
issued to TK.
The Debenture is all due and payable on August 21, 2001 provided that TK shall
have the right, at its option beginning on the 30th day after the initial
funding date to convert in $100,000 increments or multiples thereof the
principal amount to common shares of the Company at a conversion price equal to
the lower of 78% of the average closing bid price of the FutureLink USA common
stock on the principal market for the common stock for the three trading days
immediately preceding the date of notice of conversion, or the three trading
days prior to the initial closing date. If the price of the common stock of
FutureLink USA has substantially diminished for the three trading days prior to
notice of conversion, the number of shares of common stock issuable upon
conversion could exceed the amount registered hereunder.
The Warrants to purchase common stock consist of two separate warrants, one for
$250,000 face amount and the other for $750,000 face amount both issued to TK in
consideration for its execution and funding under the Debenture Purchase
Agreement. The warrants are exercisable on or after August 21, 1998 through and
including August 21, 2001 at an exercise price equal to $0.96 per share.
Therefore, the total number of shares of the common stock underlying the
warrants that are registered pursuant to the Form SB-2 registration statement
equal 1,041,667 shares of common stock.
FutureLink USA plans to acquire other IT service companies in the USA and
Canada. These purchases would provide FutureLink USA with the following:
- - a blue chip client base which gives FutureLink USA customer references
for sales proposals
- - quality management and client service delivery personnel critical to
success in the IT services sector
- - bases for entry into new geographic and industry markets
- - additional sources of potential revenues from customer sales of
additional IT.
FutureLink USA's general acquisition criteria are:
1. IT service companies in the outsourcing, network management, application
development and maintenance and Y2K consulting fields,
2. target is located in Canada or the United States,
3. target has strong customer base and valuable existing service contracts,
4. target has talented management and client service delivery teams that
can integrate into FutureLink USA's service organization,
PATENTS AND TRADEMARKS
FutureLink USA currently has no patents or trademarks pending or in place.
ENVIRONMENTAL MATTERS
FutureLink USA believes it is in material compliance with all relevant federal,
state, and local environmental regulations and does not expect to incur any
significant costs to maintain compliance with such regulations in the
foreseeable future.
RESEARCH AND DEVELOPMENT
During each of the last two Fiscal Years FutureLink USA did not expend in excess
of Ten Thousand Dollars ($10,000) on research and development of products.
During Fiscal Year 1997, FutureLink USA did not capitalize research, development
or engineering costs, and such costs were expensed during the period of their
occurrence.
GOVERNMENTAL MATTERS
Except for usual and customary business and tax licenses and permits, and the
licenses and permits described elsewhere herein, no governmental approval is
required for the principal products/services of FutureLink USA , nor does
18
22
FutureLink USA know of any existing or probable governmental regulations
affecting FutureLink USA's activities.
INSURANCE
FutureLink USA maintains a $2,000,000 directors and officers liability insurance
policy. It currently does not, however, maintain commercial liability insurance
policy, a product liability insurance policy or an errors and omissions policy
to cover the sale of its services. There can be no assurance that its insurance
will be adequate to cover future claims or that FutureLink USA will be able to
maintain adequate liability insurance at commercially reasonable rates.
EMPLOYEES
FutureLink USA currently has no full-time employees and does not foresee
acquiring employees any time in the near future. Directors and officers are not
paid a salary.
DESCRIPTION OF PROPERTY
FutureLink USA does not currently own or lease property of any sort.
LEGAL PROCEEDINGS
FutureLink USA is aware of the following lawsuits:
1. Midland Walwyn Capital Inc. has commenced in Supreme Court of Ontario an
action against Core Ventures, Inc. (now known as FutureLink USA),
Abecorn Enterprises Limited, Alixe Cormick, Venture Law Corporation, and
Raymond Kompani. Midland Walwyn Capital Inc. is seeking judgement in the
amount of CDN$500,000 against all defendants. The action against Core
Ventures, Inc. alleges fraudulent misrepresentation, negligent
misrepresentation, intentional or negligent interference with
contractual relations. The action was commenced in October 1997. Core
Ventures, Inc. has filed a defence. The action relates to a share sale
transaction between Abecorn Enterprises Limited and Raymond Kompani.
Raymond Kompani apparently failed to pay Abecorn Enterprises Limited for
50,000 FutureLink USA Common Shares. Alixe Cormick acted as solicitor
for Abecorn Enterprises Limited and Core Ventures, Inc. Alixe Cormick
requested the General Securities Transfer Agency, Inc. to cancel share
certificate #3190 in the amount of 50,000 FutureLink USA Common Shares
standing in the name of Abecorn Enterprises Limited. The General
Securities Transfer Agency, Inc. cancelled share certificate #3190.
Raymond Kompani deposited share certificate #3190 with Midland Walwyn
Capital Inc. Midland Walwyn Capital Inc. proceeded to sell 50,000
FutureLink Common Shares on behalf of Raymond Kompani. When Midland
Walwyn Capital Inc. sent share certificate #3190 to the Depository Trust
Company (clearing house), the clearing house advised Midland Walwyn
Capital Inc. that the shares had been cancelled by the transfer agent
for Core Ventures, Inc. Midland Walwyn Capital Inc. had paid the net
sale proceeds to Raymond Kompani before they were advised by Depository
Trust Company of the problem. Midland Walwyn Capital Inc. was required
to repurchase 50,000 FutureLink USA Common Shares on the market. The
cost was $325,000. Midland Walwyn Capital Inc. demanded the repayment of
the funds from Raymond Kompani. Raymond Kompani has not repaid the
monies to Midland Walwyn Capital Inc. Midland Walwyn Capital Inc. is
suing to recover its losses.
2. US Bankruptcy Proceedings. FutureLink USA is aware that on April 4,
1995, Core Mineral Recoveries, Inc. voluntarily filed a petition under
Chapter 11 of the US Bankruptcy Code (95-70091) seeking protection from
its creditors. FutureLink USA was not discharged in bankruptcy. The
petition was dismissed thereby not compromising any of the creditors.
The outstanding debts should not exceed $100,000 and therefore should
not be considered material. FutureLink USA is investigating the extent
of the obligations and whether or not any lawsuits or judgements against
FutureLink USA exist. It was a term of the January 20, 1998 share
acquisition agreement that there were no debts in FutureLink USA.
FutureLink USA is investigating what recourse it may have relating to
this representation.
19
23
FUTURELINK ALBERTA
FutureLink Alberta is the world's first computer utility company. It is
dedicated to providing small to medium sized businesses (50-1000 seats) with the
most efficient and cost effective system for the delivery of computer hardware,
software and electronic content at an attractive cost for installation,
administration and maintenance. It is FutureLink Alberta's objective to make
computer use as affordable and convenient to use as the telephone.
FutureLink USA's shareholders have approved the transactions contemplated
thereby, including, subject to regulatory approval, the acquisition of all of
the FutureLink Alberta Securities by FutureLink USA in consideration for the
FutureLink USA Common Shares, as may be adjusted in certain events.
The obligations of FutureLink USA to complete the transaction are conditional
upon, among other things, the following:
(a) no action, suit or proceeding shall have been threatened or taken before
or by any federal, provincial, municipal or other governmental
department, commission, bureau, agency or instrumentality in Canada or
elsewhere outstanding, pending or threatened by or against FutureLink
Alberta at law or in equity;
(b) there shall not have occurred any material change, change of material
fact or any development that could result in a material or change of a
material fact in the business, operations or affairs of FutureLink
Alberta;
(c) FutureLink Alberta shall have no liabilities (absolute, contingent,
accrued or otherwise) at the time of closing of the Offer other than
those disclosed in the most recent financial statements of FutureLink
Alberta presented to FutureLink USA and as otherwise disclosed to
FutureLink USA in writing; and
(d) all necessary steps and proceedings shall have been taken to allow the
FutureLink Alberta Securities to be transferred from the FutureLink
Alberta Securityholders to FutureLink USA and vest in FutureLink USA
good and marketable title to the FutureLink Alberta Securities free and
clear of all liens, claims, charges, security interests, mortgages and
encumbrances.
FutureLink Alberta's key technology platform to deliver its computing model is
the thin client computing. A thin client is a computer that has a central
processing unit (CPU), a keyboard, a mouse and a monitor that is connected to a
network. Thin clients have no hard drive, floppy disks or CD-ROM drives nor any
moving parts thus greatly reducing operating and maintenance costs. The thin
client is connected to a network that delivers any software application to any
desktop from a server. The thin client is designed to eliminate the need for
constant computer upgrades, reduce the initial capital investment of buying PCs
and reduce the time and money spent on computer maintenance.
Since 1995, FutureLink Alberta has been engaged in the development of its own
thin client service: Wide Area Thin Client Hook-up (WATCH(TM)). For a monthly
fee of approximately $200 per desktop (depending on the number of desktops and
applications required) FutureLink Alberta's customers will receive:
1. access to common business software applications including Microsoft
Office;
2. access to a secured Internet or Intranet connection and all the
necessary software;
3. the ability to use existing proprietary applications and databases;
4. security enabled workstations for each employee including monitor,
mouse, keyboard and thin client network computer; and
5. system management and support including installation, software upgrades,
help desk and technical support.
FutureLink Alberta is offering its WATCH(TM) service as an integrated
information technology outsourcing service to the mid-market (companies with 50
- - 1000 seats).
20
24
SERVICES
FutureLink Alberta is the first company to take the next step in information
technology (IT) delivery and services: the outsourcing of small and mid-sized
company's computer networks (those companies with between 20 and 500 computer
users or seats) through the use of the thin client computers. FutureLink Alberta
will deliver this service by subscription (the customer signs a service
agreement) over highly secure, remote wide area networks (WAN) to its clients.
In addition, FutureLink Alberta will ally itself with value added resellers
(VARs) who will incorporate or bundle FutureLink Alberta's products and service
into their own, thus allowing FutureLink Alberta to quickly enter and capture
lucrative vertical industry markets such as oil and gas, independent insurance
brokerage companies and automobile dealerships.
FutureLink Alberta sells its service for a monthly rental fee (based on a three
or five year service contract) of approximately $200 per desktop under the brand
name of WATCH(TM) (Wide Area Thin Client Hook-up). FutureLink Alberta 's
WATCH(TM) system includes:
- - application software,
- - Internet services,
- - industry and company specific software,
- - customer premise equipment and operating software (the thin client, a
keyboard, mouse, monitor, network printer, the necessary connections,
and operating program(s)),
- - access to FutureLink Alberta's server farmer via bandwidth connectivity,
and
- - installation, training, network maintenance and support.
Applications Software
FutureLink Alberta will offer its customers access to the following high-use
software programs as part of FutureLink Alberta's service contract price:
Microsoft Office 97 (Word, Excel and PowerPoint) and either Netscape Navigator
or Microsoft's Internet Explorer Web Browser. It should be noted that these
programs are just a sample of the available programs.
Internet Services
FutureLink Alberta will offer customers seamless integration and access to the
Internet, and a secured Intranet environment due to FutureLink Alberta's
extensive use of firewalls designed to prevent unauthorized access to the
customer's network. For additional charges, FutureLink Alberta will provide its
customers with a Web site(s) and/or the ability to conduct electronic commerce
(e-commerce) over the Internet.
Industry and Company Specific Software
In certain industries, customers use industry specific or proprietary software
programs to conduct business, as an example, in the insurance industry many
brokers use Agency Manager. FutureLink Alberta's WATCH(TM) service will provide
users with access to industry specific software, as well as their existing
proprietary applications and databases. However, it should be noted that these
custom or industry specific applications must first be tested to ensure proper
operation in the thin client environment.
Customer Premise Equipment and Software
FutureLink Alberta is using Citrix Systems Software as its' primary network
operating system, WYSE Technologies as the main Thin Client hardware supplier,
and Network Computing Devices Inc. (NCD) as an additional source for Thin Client
hardware.
Citrix Systems, Inc. is the pace-setter and a world leader in Thin-Client/Server
software solutions. Their award winning WinFrame(R) and MetaFrame(TM) software,
based on the innovative ICA(R) and MultiWin(TM) technologies, provides access
21
25
to virtually any application, across any type of network connection to any type
of client.
The Wyse(R) Winterm (TM) thin-client family delivers the broadest range of
innovative, cost-effective terminals for accessing 32-bit Windows(R)-,
Java(TM)-, and browser-based applications. Winterm thin clients combine the ease
of management and inherent security of a terminal environment with the
application and performance capabilities of desktop PCs. Wyse was named the
worldwide leader in unit shipments for the thin client/enterprise NC market
segments in 1997 according to a newly released report by industry analyst firm
International Data Corporation (IDC).
NCD was founded in 1988 and since then has shipped more than 500,000 thin
clients to various companies including Federal Express, Barclays' Bank and the
University of Washington.
FutureLink Alberta's Server Farm
Many of FutureLink Alberta's thin clients will be connected to a server
facility. A server facility consists of many servers linked together that act as
the central nervous system of the network, in that they store and receive all
the programs or data that the thin clients execute. It is through the servers
that FutureLink Alberta will perform all the network maintenance and hardware
upgrade functions, thus eliminating the time and cost of upgrading applications
on each individual computer. The client to server ratio is highly variable,
depending on the resource requirements of the applications, the performance
requirements of the user, and the fundamental processing power of the server
itself. The use of multiple servers permits dynamic load balancing and assures
maximum performance for all users.
FutureLink Alberta connects its server farm to its customers on-site thin
clients via the best available high capacity data transmission service (ie.
phone line, fiber optic network, coaxial cable network, ADSL (Asymmetric Digital
Subscriber Lines), ATM (Asynchronous Transfer Mode) in the customer's area. ADSL
and ATM are high-speed lines that are dedicated for data transmission.
Network Maintenance and Support
FutureLink Alberta will initially provide its customers with technical support
five days a week (Monday to Friday) for ten hours a day, a so-called 5 X 10
system. The support will include installation and upgrade of software, daily
maintenance and back-up of the network and the customers' files (tape, mirrored
or redundant storage) and an emergency four-hour battery power back-up system,
with the goal of providing 99.9% up-time reliability.
In addition, FutureLink Alberta will provide its customers with:
- - Year 2000 (Y2K) compliant general business application software. Y2K is
a serious problem for most companies that use computers, especially if
the company uses a legacy computer operating system (pre 1985 software).
When computer programmers were first designing programs, they decided
that in order to save space on the computer's memory (because it was
expensive), they only allowed two digits to express dates. The
accidental outcome of this shortcut is that computer programs will
recognize January 1, 2000 as January 1, 1900. This problem could have
dramatic effects on corporate and government payroll and accounts
payable and receivable programs. It has been estimated that the Y2K
problem will cause 50% of all companies (with more than 20 networked
computer users) to reshape and/or delay major IT deployment decisions
and will consume 15% to 20% of the company's IT budget (The Gartner
Group Report: Future, September 22, 1997, page 7);
- - security enabled workstations for each employee, allowing access to only
the appropriate or approved programs.
It should be noted that:
- - the cost of the data transmission service is not included in the $200 a
month rental fee. The connection is leased from the telecom, cable or
satellite provider and is managed by FutureLink Alberta;
- - the customer requires a minimum of a 56 kps baud rate per station to
allow the user to receive information from FutureLink Alberta's remote
server. An example: a customer that has 10 thin clients would therefore
requires a 560 kps data transmission pipeline. Bandwidth costs are
highly variable, depending on local infrastructure and competition.
These costs are dropping rapidly in many jurisdictions as cable
television companies and independent
22
26
providers compete with telephone companies for this new and lucrative
business; and
- - through the use of FutureLink Alberta's WATCH(TM) program, companies may
be able to integrate a company's multiple locations under one system.
Prior to installing any equipment for a client, FutureLink Alberta would first
conduct a needs analysis of the customer's computing and software requirements.
The needs analysis consists of:
- - determining what are the requirements of the customer (Y2K software
compliance, data security, reducing the cost of managing a computer
network, etc.),
- - evaluating the customer's hardware and software needs and how they are
being addressed, and
- - conducting a cost/benefit analysis to demonstrate the economic viability
of FutureLink Alberta's service in comparison to other options.
INDUSTRY SUMMARY
The information technology ("IT") industry encompasses everything from mainframe
computers to personal computers ("PCs") to the Internet to computer service
companies. As such, the IT industry is in a constant state of evolution. At
present, the industry is undergoing three main revolutions:
1. the shift to a networked computer environment,
2. the desire of organizations to reduce their cost of operating and
maintaining their IT departments thereby increasing their operating
efficiencies, and
3. the ability to conduct business electronically without regard to
distance via the Internet or an Intranet (an internal or corporate
Internet).
The Networked Computer
Companies have shifted their computational resources away from mainframes,
developed in the 1960s, which required a legion of programmers and technicians
to manage the system. The problem with the mainframes of the 1960s was that they
used proprietary software and were difficult to manage, maintain and customize.
The advent of the desktop personal computers (PCs) in the 1980s changed the
dynamics of the computer industry, for it allowed individual users to create,
manage and distribute information throughout an organization. In the 1990s,
companies realized that by harnessing the power of individual PCs together to
form a network computing environment they could further streamline operations
while at the same time increase the communication capabilities of the users. The
networked computer or PC environment refers to having PCs connected to servers
(high-powered PCs, workstations or mainframe computers), which act as
information gatekeepers and route data over a local or wide area network (LAN or
WAN). The servers also maintain the databases that provide information to the
PCs.
IT Outsourcing
In the 1980s, organizations, as part of their drive to cut costs to become more
competitive, started to view their IT department as a cost center that should be
managed for cost efficiency and effectiveness. One of the ways that companies
optimized this cost was by outsourcing all or part of their IT functions to a
third party. Outsourcing refers to the process by which a company transfers
their computer hardware and software and their management information systems
(MIS) department to a third party who then manages it for up to a ten-year
period for a preset fee. As part of the outsourcing process, the third party may
buy the company's hardware and software and then supplies it back to the company
via a services agreement. According to International Data Corp, (IDC) of
Framingham, Mass., outsourcing is a $84 billion world-wide industry and this
market is projected to grow to over $120 billion by 2001. Part of the reason for
the explosive growth in IT outsourcing is that companies are realizing that they
can:
- - receive better IT products or service than the company could normally
afford,
- - receive a cash infusion. Normally when a company outsources its IT
department, there is a sale of assets (computer hardware and software
and the customers IT personnel) from the customer to the service
provider,
- - concentrate their resources on their core products and services, and
- - increase return on their assets -- by outsourcing they can take their IT
assets off the balance sheet.
23
27
The Internet
The Internet is changing the dynamics of how business is conducted. Through the
use of electronic or Internet commerce (e-commerce) businesses can increase
their purchasing options, expand their geographic territory, and reduce their
delivery time while decreasing their costs. A case in point, Dell Computers of
Austin, TX, is selling over $4 million a day of computers over the Internet, up
from $750,000 a day just a year ago. According to market research firm Jupiter
Communications Co., e-commerce could balloon to $37.5 billion by 2002, up from
$2.6 billion in 1997. However most of these benefits (network PCs, IT
outsourcing and the Internet) are generally unavailable to small companies
(those with between 20 to 500 computer users) for they may not have:
- - the financial resources to keep upgrading their computer's processing
and storage capacity to accommodate the larger and slower application
software,
- - the corporate data security knowledge or backup storage technology that
is necessary in a networked PC environment,
- - calculated the true cost and time required to maintain their network. It
has been estimated that the yearly cost of maintaining and upgrading a
networked PC environment ranges from $7,000 to $12,000 per unit,
- - the opportunity to outsource their IT department to traditional
outsourcers, as most outsourcing companies cater to larger corporations
(those with 1,000 plus seats), and
- - the ability or resources to purchase and install the latest Internet
software & hardware technology.
COMPETITION
Status Quo (the networked PC)
A market researcher, Computer Intelligence, recently conducted a survey of 319
technology decision-makers at large U.S. companies and found that 42% of them
had no plans to evaluate or adopt thin clients in the next year. However, 51% of
those same respondents were not familiar with thin clients. The status quo is
FutureLink Alberta 's biggest roadblock to success, in that:
- - companies may be reluctant to try new technology,
- - it will upset chief information officers (CIOs) at some companies, who
will view FutureLink Alberta's product and service as a threat to their
department,
- - employees may resist the fact that FutureLink Alberta's products have no
storage devices or CD-ROMs, and
- - businesses have started to cut the costs of managing a PC network by
tightening up their computer management, maintenance and administration
practices (for example, by restricting users access to floppy disks),
using automated management tools and the standardization among PC
platforms and end-user configurations. These businesses may feel that
they can better manage their IT costs than an IT outsourcing company.
Computer Outsourcing Companies
The computer outsourcing market in the United States alone is estimated to have
generated over $30 billion in revenue in 1997. The four largest firms are IBM,
EDS, GE Capital Services and Computer Sciences Corp. These companies take over
the complete management and administration of large corporate IT networks
(1,000+ computer users) or government agency computer needs.
IBM Global Service is the world's largest information technology service company
with 1997 revenue of approximately $26 billion. IBM's 110,000 service employees
serve customers in 164 countries providing business and information technology
consulting, systems integration, application development, product-specific
support and managed network services to Fortune 500 companies.
EDS is the world's second largest global information service provider with 1997
revenue of $15.2 billion. EDS' 110,000 employees serve 9,000 customers in 44
countries, providing business and information technology consulting, systems
integration, application development, product-specific support and managed
network services to Fortune 500 companies
24
28
and governments. It should be noted that EDS and Bell South have recently formed
a new alliance to develop and market network solutions to mid-size companies.
The new company is to be called MNS Alliance and will target companies with 500
to 10,000 employees. MNS will provide companies with an integrated
telecommunication and IT (software and hardware) management solution.
GE's IT Solutions is one of the leading global desktop service providers with
1997 revenue of $10 billion. IT Solutions provides desktop and client server
products, operating and application software, local and wide area network
design, and IT consulting service to government and commercial customers in over
20 countries.
Computer Sciences Corporation is a world leader in IT management with 1997
revenues of $6.3 billion of which $1.2 billion is derived from outsourcing
contracts. CSC's 44,000 employees serve clients from 600 offices world-wide
providing customers with management consulting, information systems consulting
and integration, and operation support.
None of the mainstream outsourcers are considered to be direct competition for
FutureLink Alberta as FutureLink Alberta is addressing a mid-market niche that
other IT outsourcers are not focusing on, and are deploying a leading edge thin
client technology platform.
COMPETITIVE ANALYSIS
FutureLink Alberta's network computing model: the delivery of data and
applications by subscription over highly-secure, remote WANs to thin client
desktop computers.
FutureLink Alberta's Competitive Advantages
- - Less expensive to operate than a networked PC. According to the Gartner
Group of Stamford, CT, the five-year cost of owning a PC with Windows
3.1 is $44,250. The cost would be $38,900 for Windows 95 and $38,400 for
Windows NT (Byte Magazine, April 1997 issue). This is compared with
FutureLink Alberta's cost of $200 per WATCH(TM) station per month over a
five-year period or $12,000 in total.
- - PC users often try to solve technical problems themselves -- which
sometimes makes the problems worse, interferes with their real jobs, and
lowers their productivity. In fact, users refer only one problem out of
10 to a help desk. With FutureLink Alberta's off-site troubleshooting,
the customer is ensured that a professional corrects the problem.
- - Its products and services provide intruder security through
state-of-the-art firewalls, mirrored (duplicated) servers and databases,
and sophisticated data access permissions. This level of protection is
usually only available in Fortune 500 companies and government agencies
- - It removes management's requirement to continually upgrade their PCs to
handle the latest software programs as all hardware upgrades occur on
FutureLink's server.
- - FutureLink Alberta's target market is companies with 20-1000 users,
where there is little competition from other IT service companies.
FutureLink Alberta's Challenges
- - FutureLink Alberta is a new company with a new method of distributing
computer services and applications. FutureLink must develop a brand name
and reference customer base to increase its market penetration.
- - WATCH(TM) may not be appropriate for people who require extensive amount
of local processing power or those users who use many different computer
peripherals.
- - WATCH(TM) works most effectively with software programs that are Windows
NT compliant.
25
29
INDUSTRY ANALYSIS
Thin Client Computer Environment
The thin client computing model is just in its infancy. Even though the products
have been available for nearly ten years, they have been directed at very narrow
market segments. Their broader application potential is just now coming to
light. The boisterous debate surrounding JAVA has brought the thin client option
to the forefront and the eventual success of JAVA will cause this market to
explode. Leading computer market research firms have come up with a wide variety
of estimates regarding thin client penetration and adoption.
- - International Data Corp, (IDC) estimates that about 300,000 thin clients
will be shipped in 1998 and 7 million units by the year 2000.
- - Dataquest (San Jose, CA) estimates that 2.5 million thin client
computers will be shipped by the year 2000.
- - The Gartner Group predicts that by the year 2000, 20 - 30% of all
computers, or 18 million units, will be thin clients.
- - Zona Research Inc. predicts that the thin client market will grow from
approximately 1.7 million in 1997 to over 6.7 million in 2000 for the
commercial market and up to 70 million units for the consumer
marketplace.
IT Outsourcing Market
According to IDC of Framingham, Mass., computer outsourcing has a $84 billion
world-wide market and this market is projected to grow to over $120 billion by
2001. However, according to EDS, the market for managed network services or IT
outsourcing in the United States is expected to generate $36 billion in revenue
in 1998 and $70 billion by the year 2000.
FutureLink Alberta has estimated that there are 25 million desktops in Canada
and the United States in companies that have 50 - 1000 employees. The IT
outsourced service market opportunity for small to mid sized businesses in North
America is $60 billion a year (assuming each seat was outsourced at $200 per
seat per month). This market niche is virtually virgin as most IT outsourcers
focus on companies with 1000+ seats.
MARKETING STRATEGY
FutureLink Alberta is the first company to take the next step in information
technology delivery and services -- the outsourcing of a company's computer
network and delivering the software applications by subscription over a
highly-secure, remote wide area networks (WAN) to a mainstream corporate client
base via thin client desktop computers. It is the objective of FutureLink
Alberta to create a new model of network computing services that has the cost
and convenience of a telephone and will be the dominant player in this market.
FutureLink Alberta has chosen Calgary as its first market due to its proximity
to the advanced telecommunication infrastructure that Telus, Shaw Cable and
MetroNet have installed in the downtown core. Over the next 18 months,
FutureLink Alberta will expand its service offering to other cities in Western
Canada and the United States.
FutureLink Alberta will initially target:
1. companies with between 20 and 1000 users,
2. industries where the giants have chosen to outsource their IT
departments (ie: the oil and gas sector), thus giving a frame of
reference for mid-sized industry players,
3. marketing alliances with niche telecom service providers targeting the
business market, and
4. strategic alliances with value added resellers (VARs) of applications
and services.
FutureLink Alberta will initially target these market segments because of the
following:
26
30
These industries use a few standard software programs. The key factor is that
these users rarely need new applications. Most industry segments will need some
standard word processor and spreadsheet package. Then there are typically a few
industry specific software packages that dominate each market segment. There is
seldom a need for a broad range of software offerings
Users share desktops. The old business model of full-time employees and one
person per office is giving way to a workplace with part-time employees,
independent contractors, temporary workers, and telecommuters. It makes little
sense to reserve a full-blown PC for everyone who might need occasional use of a
computer at the office. Because thin clients are stateless, employees can share
them and enjoy their own personalized working environment while sharing
desktops.
Services remote users who are difficult to support. If a PC breaks down at a
remote location (ie. an oil field), MIS must either send someone to fix the
problem or talk the user through the repairs. Because thin clients lack extras
such as persistent storage, there are lower failure risks. With a true hardware
failure, MIS can easily replace a stateless client with a new machine because
there's no local software or data files to restore.
Jobs revolve around remote data instead of local data. An order-entry person who
spends the day checking data in a centralized database and filling in electronic
forms is well served by a simple, foolproof machine. So is a factory foreman who
needs to view the latest engineering drawings in a database. These jobs are
highly specific and network-centric, so the workers aren't sacrificing
flexibility by switching to a network-centric device.
Security is paramount. Conventional desktop and laptop PCs can be security
nightmares because they store everything locally and users have virtually
unrestricted access to local storage. Every loss, theft, virus attack,
breakdown, or break-in is potentially catastrophic if it endangers strategic
data. Thin clients that store everything on a server are generally safer because
server closets are more physically secure and professionals regularly back up
the servers.
Companies need replacements for older, text-based terminals. Analysts estimate
that there are 30 million to 50 million dumb terminals (refers to terminals that
allowed only text-based information processing with all information being
processed by the company's mainframe). The insurance and the health care
industry continue to use dumb terminals for most of their data entry staff.
Today's thin clients can use the same legacy programs and data that these dumb
terminals use, yet they provide a graphic user interface (GUI), as well as
access to the Internet and corporate Intranets.
In addition, FutureLink Alberta will target companies that do not have a Chief
Information or Technology Officer. FutureLink Alberta plans to target the
Owner/Chief Executive Officer or the Chief Financial or Operating Officers of
these small to mid-size companies because they can understand the cost benefit
of outsourcing of their MIS department, and the MIS department may not be
powerful enough to resist the change.
The key to the sales of services is an impressive client reference list.
FutureLink Alberta is starting to generate a reference base through its initial
clients and also plans to build its client base and reputation via strategic
acquisitions of IT outsourcing and other information technology firms with solid
client bases, product and service offerings, and outstanding reputations.
It should be noted that FutureLink Alberta will not initially target companies
whose users need a lot of local processing power, frequently need to install new
software, or use a variety of peripherals.
SALES STRATEGY
FutureLink Alberta's sales strategy is to educate the customer on the benefits
of outsourcing their IT department by using the WATCH(TM) service. As part of
the sales process, FutureLink Alberta will emphasize to its customers:
- - Total Cost of Ownership (TCO). FutureLink Alberta's WATCH(TM) program is
less expensive than even a well managed networked PC environment,
- - the relief in not having their hardware become obsolete, as all hardware
upgrades are done on FutureLink Alberta's
27
31
Server,
- - state-of-the-art data security, back-up and encryption technology that
FutureLink Alberta provides which ensures that the customer's data is
secure against unwanted internal or external threats,
- - the removal of all the problems associated with the computer
administration and support functions, and the customer receives
extensive
- - customer service and support, including 5 days a week, 10 hours a day
on-line support.
FutureLink Alberta will sell its services through two sources:
- - FutureLink Alberta will hire sales representatives experienced in
selling information technology services or computer outsourcing
services.
- - FutureLink Alberta will form strategic alliance partnerships (SAPs)
within specific sectors. SAPs will be companies that offer a product or
service that can be easily integrated into the WATCH(TM) program. The
SAPs must create a win-win situation for FutureLink Alberta, the partner
and their customers. For example, FutureLink Alberta is forming a
strategic alliance partnership with several companies, including Sales
Force Automation Inc. ("SFAC") of Calgary, AB. SFAC provides training
and sale force automation programs that increase sales, decrease
employee turnover and provide management with better employee reporting
tools. SFAC will market WATCH(TM) as the technology platform of choice
to use in conjunction with implementing SFAC's sales force and data
management automation tools. SFAC has strong industry contacts in
industries including automobile dealerships, financial, investment,
communications and high technology.
ADVERTISING AND PROMOTION STRATEGY
FutureLink Alberta's advertising strategy is to place ads in vertical and
business publications that are read by its targeted industries (oil and gas,
insurance, hotels, etc). In addition, it will run direct marketing campaigns and
will advertise extensively over the Internet.
STRATEGIC GROWTH OPPORTUNITIES
This business plan and its projections are based on internal growth via sales of
computer utility IT services to small to medium sized businesses.
FutureLink Alberta is in discussions with several large customers concerning
outsourced IT services agreements using thin client technology and other
technology platforms. The opportunities are in such sectors as hospitality and
e-commerce in the office stationery sector.
In particular, FutureLink Alberta has been awarded the Information Technology
Services contract for Willson Stationers Ltd., a major Western Canadian retail
chain. Under the terms of the agreement, FutureLink will be responsible for the
design, implementation and management of Willson's complete network systems and
functions at all stores and the head office. The installation will involve more
than 175 computing stations and will provide FutureLink with contracted revenues
of approximately CAN$4,000,000 ($2,700,000) over the term of the contract.
Willson Stationers Ltd., founded in 1890, is one of the most widely recognized
and respected business names in Western Canada. Today, Willson's operates 25
retail outlets and four telemarketing/commercial sales offices in six cities, as
well as a distribution centre and custom products division.
Each of the other large strategic initiatives involves potential multi-million
dollar IT services contracts, and the closing of even one of these deals
significantly enhances FutureLink Alberta's reputation, revenue base, revenue
backlog and income.
TRADEMARKS
Although FutureLink Alberta's business has not depended on trademark or patent
protection, it recognizes the increasing
28
32
value of its various trade names, trademarks, and technical innovations.
FutureLink Alberta has applied for federal trademark registration of the names
"FutureLink", "Flink", "FutureServe", "Wide Area Thin Client Hook-up",
"W.A.T.C.H." and of our two logos in both Canada and the United States. In
addition, FutureLink Alberta may seek patents on its inventions in the future.
FutureLink Alberta's ability to compete may be enhanced by its ability to
protect its proprietary information, including the issuance of patents and
trademarks. The process of seeking patent protection can be expensive and can
consume significant management resources. FutureLink Alberta believes that
patents may strengthen its negotiating position with respect to future disputes
that may arise regarding its technology and processes. However, it believes that
its continued success depends primarily on such factors as the technological
skills and innovative abilities of its personnel rather than on any patents that
it may obtain. In addition, there can be no assurance that patents will issue
from pending or future applications or that any patents that are issued will
provide meaningful protection or other commercial advantage to FutureLink
Alberta.
ENVIRONMENTAL MATTERS
FutureLink Alberta believes it is in material compliance with all relevant
federal, provincial, and local environmental regulations and does not expect to
incur any significant costs to maintain compliance with such regulations in the
foreseeable future.
RESEARCH AND DEVELOPMENT
During each of the last two Fiscal Years FutureLink Alberta did not expend in
excess of Ten Thousand Dollars ($10,000) on research and development of
products. During Fiscal Year 1997, FutureLink Alberta did not capitalize
research, development or engineering costs, and such costs were expensed during
the period of their occurrence.
GOVERNMENTAL MATTERS
Except for usual and customary business and tax licenses and permits, and the
licenses and permits described elsewhere herein, no governmental approval is
required for the principal products/services of FutureLink Alberta , nor does
FutureLink Alberta know of any existing or probable governmental regulations
affecting FutureLink Alberta's activities.
INSURANCE
FutureLink Alberta maintains a $2,000,000 commercial liability insurance policy,
and an employee health insurance policy. It currently does not, however,
maintain either a product liability insurance policy or an errors and omissions
policy to cover the sale of its services. There can be no assurance that it's
insurance will be adequate to cover future product liability claims or that
FutureLink Alberta will be able to maintain adequate liability insurance at
commercially reasonable rates.
EMPLOYEES
As of August 19, 1998, FutureLink Alberta employed a total of 14 persons. Of
these employees, 2 are involved in sales and marketing, 7 in corporate and
general administration, and 5 in operations. FutureLink Alberta has experienced
no work stoppages and is not a party to a collective bargaining agreement. It
believes that it maintains good relations with its employees.
HISTORY
FutureLink Alberta was incorporated as a private company under the Business
Corporations Act (Alberta) on March 28, 1996 as 689936 Alberta Ltd. It's name
was then changed to Coffee.Com Interactive Cafe Corp., on June 19, 1996.
Coffee.com was established to provide "Internet cafe" services to the Calgary
market but after a short period of study, it abandoned this concept in favour of
providing network computing from remote servers to small to medium size
businesses and residential markets. On November 17, 1997, the company changed
its name to FutureLink Distribution Corp. to reflect this change.
29
33
FutureLink Alberta currently operates out of 7,000 square feet of leased
premises located at: 550, 603-7 Avenue SW, Calgary, Alberta, T2P 2T5,
telephone: (403) 543-5511, fax: (403) 543-5510, www.futurelink.net
DESCRIPTION OF PROPERTY
FutureLink Alberta maintains offices and a computer centre in a facility of
approximately 6,970 square feet in Calgary, Alberta under a lease that expires
April 30, 2002. This lease has an aggregate minimum annual rental payments of
approximately CDN$61,440 plus operating expenses and is subject to escalation.
FutureLink Alberta generally leases its equipment under standard commercial
leases, in some cases with purchase options which the company exercises from
time to time. FutureLink Alberta's equipment is generally covered by standard
commercial maintenance agreements.
FutureLink Alberta believes its current facilities are in good condition but
will not be sufficient to accommodate its expected volume of business once it
acquires RMC. The companies are actively searching for alternate lease space.
LEGAL PROCEEDINGS
The following sets out the lawsuits against FutureLink Alberta:
1. 554495 Alberta Ltd. commenced an action against Coffee.com Interactive
Cafe Corp. (now known as FutureLink Alberta) in October 1997 in the
Court of Queen's Bench of Alberta, Judicial District of Calgary, Action
# 9701-15514. The action relates to a purported lease agreement with
respect to space in Calgary. The Plaintiff seeks judgement an amount in
excess of CDN$285,000. FutureLink Alberta has defended and
counterclaimed. The parties are proceeding to discovery of corporate
officers.
2. Palmer Jarvis Inc. commenced an action against FutureLink Alberta in
June 1998 in the Court of Queen's Bench of Alberta, Judicial District of
Calgary, Action # 9801-07637. The action relates to a claim for unpaid
public relations and marketing services of approx. CDN$34,000.
FutureLink Alberta disputes the claim.
RIVERVIEW MANAGEMENT CORPORATION
RMC is a holding/investment company with an operating, wholly owned subsidiaries
known as SysGold Ltd.("SysGold") and SysGold Inc.
In 1992, RMC commenced providing information technology (IT) outsourcing
services in the Calgary, Alberta vicinity through SysGold. SysGold has seen
their revenues grow from approximately CDN$200,000 in their first year of
operation to approximately CDN$9.5 million in their 1997 fiscal year. Their
clients come in a range of sizes, industry sectors and growth stages. SysGold
helps its clients use information technology to enhance business, create
efficiencies and drive performance.
SysGold specializes in providing technical computing services to companies with
diverse and complex technology requirements. Over the past 6 years, they have
grown from having one client to over 90, from servicing 40 users to over 3500,
and from staffing four professionals to over 70. Many of their clients are in
the energy business. Others are in such industries as legal, advertising, and
construction.
SysGold is a total solution provider that supplies integrated business and IT
solutions in the areas of management consulting, land and land systems,
accounting, software development and infrastructure management. SysGold strives
to understand its clients' organizational processes and information requirements
and provides a full suite of information management services.
30
34
THE COMPUTER OUTSOURCING INDUSTRY
The outsourcing of computer service, whereby a client company obtains all or
part of its information processing requirements (including systems design,
software and hardware, communications, training, maintenance, and support) from
an information technology provider such as SysGold, continues to be a growing
trend. SysGold believes that it is generally significantly more cost-effective
and efficient for its clients to outsource information processing services to
SysGold than it would be to provide equivalent services for themselves by hiring
or contracting for service and support personnel.
Outsourcing provides clients with the following benefits:
- - The refocus of personnel, financial and technological resources on core
business and client related activities.
- - Access to highly skilled personnel and technology resources.
- - Access to experienced resources to perform selected information
processing functions.
- - Reduction of operating costs.
BUSINESS STRATEGY
SysGold's objective is to provide a comprehensive computer outsourcing
alternative to meet all or part of its clients' information technology
requirements. SysGold's strategy includes the following key elements:
Industry Specific Outsourcing Services SysGold develops and acquires
industry-specific outsourcing applications and services, so that SysGold 's
in-depth knowledge of a particular industry can then be applied to servicing
multiple clients in that field. SysGold currently provides outsourcing services
to approximately 90 clients, many of which are in the oil and gas sector.
Customer Service and Support SysGold believes that close attention to customer
service and support has been, and will continue to be, crucial to its success.
SysGold provides a high degree of customer service and support, including
customized training and rapid response to customer needs. SysGold has served
several clients since its inception in 1992. Because of its attention to
customer service, SysGold's client relationships have tended to be longer term.
Service Flexibility SysGold attempts to maximize utilization of its services by
offering a wide range of services to each client.
System Optimization SysGold's technical expertise is in networks, PC's, AS/400s,
NetWare, Windows, Windows 95 and NT. Their strength lies in their Total Quality
Management approach to system improvement. While many people can "optimize" a
single PC, SysGold is strongest at optimizing a "fleet" of PC's. The process of
optimization includes work and data flow analysis, user training and support,
and strong implementation of standards.
Facilities Management (Outsourcing) In most sites, SysGold can save money and
improve the service to users. They have the technical and management experience
to "outsource" the entire IT function, or any part of it. They can supply
full-time, part-time, or variable staffing as an organization's needs change.
The most significant economy from outsourcing is reducing duplicated effort. For
example, they will convert many sites to Windows NT in the coming year, but only
do the research once.
Network Design and Installation SysGold designs simple, effective networks. They
get installed on time, within budget, and with a minimum of disruption to
existing systems. Installation is followed by training and support to help users
quickly become efficient.
Application Design, Development and Implementation SysGold's technical expertise
is in software development, including the latest Internet / Intranet / Extranet
tools. Their strength is in the Total Quality Management approach to software
development. They design simple, effective applications that meet client
expectations.
31
35
Training SysGold provides in-house, hands-on training for groups of up to 8
people at a time. They cover the most popular user software such as the
individual products in Microsoft Office and Lotus Smartsuite, as well as
specialized training on specific other packages. This type of training is
cheaper and more effective than sending your staff out to a training service.
Users learn on their own PC, on their own network, and print to the exact
network printer they use everyday.
Hardware and Software Procurement Services Most of SysGold's clients ask them to
procure their hardware and software for them. As a service to their clients,
they have set themselves up as a re-seller, enabling them to purchase at
wholesale prices. They sell hardware and software to their clients at a rate of
cost plus 10%. This allows them to cover their procurement, administrative and
handling and usually results in a savings over the street price for their
clients that can add up to thousands of dollars per year of value.
Information Technology Planning SysGold provides technology planning services to
a range of clients. The objective is to help clients determine their technology
needs, select the appropriate technologies, and implement and use these
technologies in ways that add value to their business operations.
Customer and Billing Arrangements SysGold has over ninety clients. They range in
size from three users to four hundred. The needs of their clients are diverse.
Some large clients contract to have several SysGold employees on-site all of the
time. Other smaller clients utilize SysGold resources on a "on call" hourly
basis. The service commitments SysGold makes vary from client to client,
depending on client needs and their ability to meet them.
SysGolds' contractual and working relationships are flexible. Their
responsibility can be for total systems management, or limited to a specific
system. Contracts are tailored to suit the needs of a particular client. Billing
is generally done on a cost plus model based on a per hour rat, based on a flat
monthly fee, or per-user-per-month. Contracts can be multi-year, or month to
month.
STRENGTHS
SysGold's mission is to be the best company at delivering outsourced information
systems services to small and mid-sized companies. The following factors give
SysGold a competitive advantage over its competitors:
- - SysGold strives to understand its clients' business as well as the
technology which supports it. SysGold establishes a long term
partnership with its clients.
- - SysGold has an eager service attitude that starts at the executive
level. Senior management is actively involved with customers.
- - SysGold has an eager service attitude that starts at the executive
level. Senior management is actively involved with customers.
- - SysGold is vendor-neutral. SysGold has no vested interest in pushing
particular products and is free to help clients choose products best
suited to their needs.
- - SysGold focuses on providing outsourcing services. For example, they
don't sell hardware and software to anyone outside of their existing
client base.
- - SysGold has experience managing many IT systems. Their 60+ professionals
support 3500 users on a daily basis.
- - SysGold leverages knowledge they gain from other clients. Experience
gained from one client benefits all of their clients.
COMPUTER OUTSOURCING MARKET OVERVIEW
According to IDC of Framingham, Mass., computer outsourcing has a $84 billion
world-wide market and this market is projected to grow to over $120 billion by
2001. However, according to EDS, the market for managed network services or IT
outsourcing in the United States is expected to generate $36 billion in revenue
in 1998 and $70 billion by the year 2000.
The computer outsourcing market in the United States alone is estimated to have
generated over $30 billion in revenue
32
36
in 1997. The four largest firms are IBM, EDS, GE Capital Services and Computer
Sciences Corp. These companies take over the complete management and
administration of large corporate IT networks (1,000+ computer users) or
government agency computer needs.
IBM Global Service is the world's largest information technology service company
with 1997 revenue of approximately $26 billion. IBM's 110,000 service employees
serve customers in 164 countries providing business and information technology
consulting, systems integration, application development, product-specific
support and managed network services to Fortune 500 companies.
EDS is the world's second largest global information service provider with 1997
revenue of $15.2 billion. EDS' 110,000 employees serve 9,000 customers in 44
countries, providing business and information technology consulting, systems
integration, application development, product-specific support and managed
network services to Fortune 500 companies and governments. It should be noted
that EDS and Bell South have recently formed a new alliance to develop and
market network solutions to mid-size companies. The new company is to be called
MNS Alliance and will target companies with 500 to 10,000 employees. MNS will
provide companies with an integrated telecommunication and IT (software and
hardware) management solution.
GE's IT Solutions is one of the leading global desktop service providers with
1997 revenue of $10 billion. IT Solutions provides desktop and client server
products, operating and application software, local and wide area network
design, and IT consulting service to government and commercial customers in over
20 countries.
Computer Sciences Corporation is a world leader in IT management with 1997
revenues of $6.3 billion of which $1.2 billion is derived from outsourcing
contracts. CSC's 44,000 employees serve clients from 600 offices world-wide
providing customers with management consulting, information systems consulting
and integration, and operation support.
None of the mainstream outsourcers are considered to be direct competition for
SysGold as SysGold is addressing small to medium sized clients that other IT
outsourcers, other than FutureLink Alberta, are not focusing on, and are
deploying a leading edge thin client technology platform.
ENVIRONMENTAL MATTERS
RMC believes it is in material compliance with all relevant federal, provincial,
and local environmental regulations and does not expect to incur any significant
costs to maintain compliance with such regulations in the foreseeable future.
RESEARCH AND DEVELOPMENT
During each of the last two Fiscal Years RMC did not expend in excess of Ten
Thousand Dollars ($10,000) on research and development of products. During
Fiscal Year 1997, RMC did not capitalize research, development or engineering
costs, and such costs were expensed during the period of their occurrence.
GOVERNMENTAL MATTERS
Except for usual and customary business and tax licenses and permits, and the
licenses and permits described elsewhere herein, no governmental approval is
required for the principal products/services of RMC , nor does RMC know of any
existing or probable governmental regulations affecting RMC's activities.
EMPLOYEES
As of August 19, 1998, SysGold employed a total of 61 persons. SysGold has
experienced no work stoppages and is not a party to a collective bargaining
agreement. It believes that it maintains good relations with its employees.
33
37
INSURANCE
SysGold maintains insurance coverage that management believes is reasonable,
including business interruption insurance to fund its operation in the event of
catastrophic damage to any of its operation centres and insurance for the loss
and reconstruction of its computer systems. SysGold also maintains extensive
data backup procedures to protect both client and company data.
DESCRIPTION OF PROPERTY
SysGold maintains offices in a facility of approximately 5,888 square feet in
Calgary, Alberta under a lease that expires January 31, 2002. This lease has an
aggregate minimum annual rental payments of approximately CDN$43,831 plus
operating expenses and is subject to escalation.
SysGold generally leases its equipment under standard commercial leases, in some
cases with purchase options which the company exercises from time to time. The
company's equipment is generally covered by standard commercial maintenance
agreements.
SysGold believes its current facilities are in good condition but will not be
sufficient to accommodate its expected volume of business once it is acquired by
FutureLink USA. The companies are actively searching for alternate lease space.
LEGAL PROCEEDINGS
A Statement of Claim was issued by TAP Consulting Ltd. On August 19, 1998 naming
SysGold Ltd. As a defendant. The suit alleges that SysGold Ltd. wrongfully
terminated a management services contract dated January 19, 1991 between SysGold
Ltd. and TAP Consulting Ltd. without cause or reasonable notice.
SysGold Ltd. believes it has a sustainable defence to the action and intends to
vigorously defend it and to file a counterclaim.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
FUTURELINK USA
To the knowledge of management, no one person or entity owns 10% or more of the
issued and outstanding FutureLink USA Common Shares, as at August 19, 1998, both
before and after giving effect to the FutureLink Alberta Acquisition. If
FutureLink USA concludes the SysGold Acquisition Agreement, Donald A. Bialik,
Olivia B. Bialik and their related family trust would collectively own more than
10% of the issued and outstanding shares of FutureLink USA on a non diluted
basis and a fully diluted basis. Further if FutureLink USA concludes the SysGold
Acquisition Agreement the proposed lender may own more than 10% of the issued
and outstanding FutureLink USA Common Shares on an non diluted basis and on a
fully diluted basis.
The directors and officers of FutureLink USA, and their associates and
affiliates, as a group, beneficially own, directly or indirectly 2,213,750
FutureLink USA Common Shares or 13.3% of the outstanding FutureLink USA Common
Shares. In addition to the foregoing, if the directors and officers of
FutureLink USA were to exercise the options to purchase 2,275,000 FutureLink USA
Common Shares issuable or exercise of all outstanding stock options, such
individuals, as a group, would beneficially own, directly or indirectly,
4,488,750 FutureLink USA Common Shares, representing approximately 23.7% of the
outstanding FutureLink USA Common Shares on a fully diluted basis.
After giving effect to the FutureLink Alberta Acquisition, the directors and
officers of FutureLink USA, and their associates and affiliates, as a group,
will beneficially own, directly or indirectly, 2,238,750 FutureLink USA
34
38
Common Shares or 12.1% of the outstanding FutureLink USA Common Shares. In
addition to the foregoing, if the directors and officers of FutureLink USA
exercise all outstanding stock options, such individuals as a group, would own,
directly or indirectly, 4,513,750 FutureLink USA Common Shares, representing
approximately 21.8% of the FutureLink USA Common Shares on a fully diluted
basis.
After giving effect to the SysGold Acquisition Agreement and assuming 100% of
FutureLink Alberta pursuant to the FutureLink Alberta Acquisition Agreement, the
directors and officers of FutureLink USA, and their associates and affiliates,
as a group, will beneficially own, directly or indirectly, 6,488,750 FutureLink
USA Common Shares or 25.3% of the outstanding FutureLink USA Common Shares. In
addition to the foregoing, if the directors and officers of FutureLink USA
exercise all outstanding stock options, such individuals as a group, would own,
directly or indirectly, 9,013,750 FutureLink USA Common Shares, representing
approximately 32% of the FutureLink USA Common Shares on a fully diluted basis.
FUTURELINK ALBERTA
As at the date hereof, no person or company owns of record, or is known by
FutureLink Alberta to own beneficially, directly or indirectly, or to exercise
control or direction over 10% or more of the FutureLink Alberta Common Shares
except as set forth below.
Name and Type of Ownership Number of Percentage
Municipality of Residence Shares of Class
FutureLink USA, Beneficial and 1,540,000 46%
Colorado, U.S.A. of Record
RIVERVIEW MANAGEMENT CORPORATION
From 1993 to early August 1998, RMC's capital structure was as follows:
OWNER # OF SHARES
----- -----------
Don Bialik 100 Class A
5 Class D Preferred
Olivia Bialik 100 Class B
5 Class D
Bialik Family Trust 100 Class C
Between August 7, 1998 and August 20, 1998, Don Bialik and Family entered into a
series of transactions (capital reorganization) in contemplation of RMC's
acquisition by FutureLink Acquisition Corp.
As of August 20, 1998, RMC's capital structure is as follows:
OWNER # OF SHARES VALUE(CDN)
----- ----------- ----------
Don Bialik 500,000 Class J Preferred $500,000
2,168,334 Class K Preferred $2,168,334
100 Class B Common $342,500
Olivia Bialik 500,000 Class J Preferred $500,000
3,831,666 Class K Preferred $3,831,666
100 Class B Common $342,500
Bialik Family Trust 1,000,000 Class J Preferred $1,000,000
----------
Total $8,685,000
It is expected that RMC's capital structure will be further reorganized in
advance and as part of the acquisition of RMC by FutureLink Acquisition Corp.
35
39
MANAGEMENT
FUTURELINK USA
Name Age Position Held
---- --- -------------
Cameron B. Chell 29 Chairman of the Board and Chief Executive Officer
Don Bialik 42 President
Raghunath Kilambi 32 Director, V.P.-Corporate Finance and Chief Financial Officer,
Corporate Secretary
Linda M. Murray 32 Assistant Corporate Secretary
Philip Ladouceur 57 Director
Robert Kubbernus 39 Director
F. Bryson Farrill 71 Director
Robert H. Kohn 41 Director
The following is a brief description of the background of the key management and
directors of FutureLink USA:
CAMERON CHELL - CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER, PRESIDENT - Mr.
Chell's primary responsibility has been to assemble a leading edge professional
technology and business team to implement the FutureLink Alberta and FutureLink
USA business plans. His secondary responsibility is to seek financing for
FutureLink Alberta and FutureLink USA. Mr. Chell has helped build several
technology companies over the past 10 years. He is a Vice President of JAWS
Technologies Inc., an internet based encryption technology company. (OTC - BB
symbol JAWZ) He is also a principal of the investment banking firm of Chell
McNeill Inc. From 1994 to May 1997 Mr. Chell was employed as a registered
representative of a brokerage firm in Calgary, Alberta. Prior to 1994, Mr. Chell
was self employed in computer sales and other non related positions.
DON BIALIK - PRESIDENT - Mr. Don Bialik, B.Sc., P.Eng., MBA, has assumed the
role of President of FutureLink. His focus will be on the opening and
integration of new markets and acquisitions. Mr. Bialik is a highly respected,
successful entrepreneur and the founder of SysGold. With 15 years in the
Information Systems business, he is a pioneer in the outsourcing sector. Mr.
Bialik offers clients 10 years of specific information systems expertise.
RAGHU KILAMBI - DIRECTOR/VICE PRESIDENT OF CORPORATE FINANCE, CHIEF FINANCIAL
OFFICER AND CORPORATE SECRETARY - Mr. Kilambi has been Chief Financial Officer
of FutureLink USA since March 1998. As President of New Economy Capital Inc.,
Mr. Kilambi has raised significant equity and debt financing for Canadian and US
public and private high technology corporations. Previously, Mr. Kilambi was the
Director, Financial Services and Taxation and Corporate Secretary for Canada
Starch Company Inc., a CDN$400 million subsidiary in the US multinational
Bestfoods group of companies. Mr. Kilambi graduated from McGill University with
a Bachelor of Finance and Accounting. Mr. Kilambi is a Chartered Accountant. Mr.
Kilambi is also a director of Advanced Vision Systems Corp. (ASE:AVD).
LINDA M. MURRAY - ASSISTANT CORPORATE SECRETARY - Ms. Murray has extensive
experience in the hospitality industry and administration of companies which are
reporting issuers in Canada and the United States.
PHILIP LADOUCEUR - DIRECTOR - Mr. Ladouceur has served MetroNet as a director
since October 1996 and was President of MetroNet from October 1996 to October
1997. When Mr. Ladouceur joined MetroNet, the company was a local Calgary
telecom concern. He has led the company through equity and debt financings of
more than CDN$2 billion as well as the company's initial public offering on the
NASDAQ and Toronto Stock Exchanges. Also, Mr. Ladouceur guided the company
through its recent acquisition of Rogers Communications' Telecom business, a
transaction valued at over CDN$1 billion. MetroNet has now become a major
national presence and the largest competitive local exchange carrier in Canada.
Prior to joining MetroNet, Mr. Ladouceur was Executive Vice President,
Operations at Bell Canada International Inc., from February 1995 to October 1996
where he led key restructuring efforts and the formation of a major joint
venture with IBM Canada. From October 1992 to February 1995, Mr. Ladouceur was
the founding President and Chief Executive Officer of ISM Information Systems
Management (Alberta) Ltd., ("ISM") a Canadian computer
36
40
and network management outsourcing company. Under Mr. Ladouceur's direction, ISM
grew to CDN$75 million in revenue on an annual basis, and over 700 employees in
a two-year period from start-up. Mr. Ladouceur founded and, from June 1990 to
October 1992, was the Managing Director of HDL Capital Corporation, a
Toronto-based merchant bank that specializes in business turnarounds, management
buyouts, and financing for medium and small businesses in the
telecommunications, technology, software, and retail sectors. From 1986 to 1989,
Mr. Ladouceur was Senior Vice President, Finance, Chief Financial Officer and a
director of Rogers Communications Inc., one of the largest cable, cellular and
broadcasting companies in North America. While there, he oversaw the completion
of over CDN$3 billion in public and private financings. Additionally, Mr.
Ladouceur is currently serving as the Chairman of the Competitive
Telecommunications Association of Canada.
ROBERT KUBBERNUS - DIRECTOR - Prior to 1992, Mr. Kubbernus was the Chief
Financial Officer of Bankers Capital Group. His responsibilities included the
development of new products and markets as well as overseeing the financial
controls of the corporation. Since 1992, Mr. Kubbernus has been the President of
Bankton Financial Corporation, which specializes in the placement of debt
instruments with institutional and private lenders. Bankton Financial
Corporation is also involved in corporate restructuring and planning. Mr.
Kubbernus is the President of JAWS Technologies, Inc. (OTC - BB symbol JAWZ).
F. BRYSON FARRILL - DIRECTOR - Until 1989 Mr. Farrill had various positions with
Scotia McLeod and McLeod Young Wier including acting in the capacity as the
former Chairman of Scotia McLeod (USA) Inc. and McLeod Young Weir Ltd. Mr.
Farrill brings to FutureLink USA more than 30 years of equity, fixed income and
corporate finance experience in North America and Europe. He is the President
and Chairman of Solar Pharmaceuticals Ltd. (VSE.SLR) and Director of Panther
Resources Ltd. (OTC-BB - PATHR), Devine Entertainment Inc. (TSE-BBD), and Home
Life Inc. (OTC-BB-HLMF).
ROBERT KOHN - DIRECTOR - Mr. Kohn has a Bachelor's degree in Business
Administration from California State University in Northridge. Mr. Kohn has a
law degree from Loyola Law School in Los Angeles. From 1983 to 1985 he worked as
corporate counsel to Ashton-Tate Corporation, a developer and marketer of
personal computer software. From October 1985 to March 1987 Mr. Kohn was
associate general counsel for Candel Corporation, a developer of software for
IBM mainframes. From March of 1987 to September 1996, Mr. Kohn was a Senior
Vice-President of Borland International, Inc. (now Inprise Corp.), a developer
and marketer of personal computer software (Inprise Corp. trades on
NASDAQ-National Board INPR). From October 1996 to December 1997, Mr. Kohn was
Vice President of Business Development and General Counsel of Pretty Good
Privacy, Inc. a data encryption company. From January 1998 to present Mr. Kohn
has been the Chairman of GoodNoise Corporation (OTC-BB symbol GDNO), an internet
record company. Mr. Kohn is also an Adjunct Professor of Law and Business
Organisations of the Monterey College of Law.
FUTURELINK ALBERTA
Name Age Position Held
---- --- -------------
Cameron B. Chell 29 Chairman of the Board and Chief Executive Officer
Don Bialik 42 President
Raghunath Kilambi 32 Director, V.P.-Corporate Finance and Chief Financial Officer,
Corporate Secretary
Linda M. Murray 32 Assistant Corporate Secretary
Philip Ladouceur 57 Director
Robert Kubbernus 39 Director
F. Bryson Farrill 71 Director
RIVERVIEW MANAGEMENT CORPORATION
Name Age Position Held
---- --- -------------
Don Bialik 42 Director, President
Olivia Bialik 42 Director, Vice-President
37
41
DON BIALIK - DIRECTOR, PRESIDENT - Mr. Don Bialik, B.Sc., P.Eng., MBA, has
assumed the role of President of FutureLink. His focus will be on the opening
and integration of new markets and acquisitions. Mr. Bialik is a highly
respected, successful entrepreneur and the founder of SysGold. With 15 years in
the Information Systems business, he is a pioneer in the outsourcing sector. Mr.
Bialik offers clients 10 years of specific information systems expertise.
OLIVIA BIALIK - DIRECTOR - VICE-PRESIDENT - Mrs. Bialik's main focus for the
last five years has been as Director and Vice-President of both Riverview
Management Corporation and SysGold Ltd.
EXECUTIVE COMPENSATION
FUTURELINK USA
CASH
The following table sets forth compensation in respect of the only two senior
officers of FutureLink USA for the fiscal year ended December 31, 1997 and the
fiscal period from January 1, 1998 to July 31, 1998:
Annual Compensation Long Term
Compensation
--------------------------------------------------------
Securities
Other Under
Name and Annual Options All Other
Principal Period Salary Bonus Compensation Granted Compensation
Position Ended ($) ($) ($) (#) ($)
------ ------ ----- ------------ ------- ------------
C.E.O. 1997 Nil Nil Nil Nil Nil
Chell, Cameron 1998 Nil Nil Nil 500,000 Nil
Vice President 1997 Nil Nil Nil Nil Nil
Kilambi, Raghunath 1998 Nil Nil Nil 500,000 Nil
FutureLink USA pays its non-employee directors an honorarium of $250.00 per
board meeting at which they are in physical attendance. FutureLink USA may
reimburse expenses incurred due to their attendance at such meetings. No other
payments have been made to directors. The directors are eligible to receive
stock options under the FutureLink USA's stock option plan.
FutureLink USA has adopted a stock option plan (the "FutureLink USA's Stock
Option Plan") for senior officers, directors and full-time employees of the
Corporation, which does not restrict the number of options which may be granted.
The number of options and the exercise price of all options is set by the board
of directors of FutureLink USA, or a committee thereof, at the time of grant.
38
42
FUTURELINK USA STOCK OPTION PLAN
The following table sets forth options to purchase FutureLink USA Common Shares
which are outstanding under the Plan as of the date hereof:
- ---------------------------------------------------------------------------------------------------------
OPTION GRANTS
- ---------------------------------------------------------------------------------------------------------
NAME OF OPTIONEE EXERCISE PRICE VESTING AMOUNT VEST DATE EXPIRE DATE
- ---------------------------------------------------------------------------------------------------------
Cameron Chell $0.76 250,000 29-Jun-98 29-Jun-01
250,000 29-Jun-99 29-Jun-01
Raghunath Kilambi $0.76 250,000 29-Jun-98 29-Jun-01
250,000 29-Jun-99 29-Jun-01
Gayle Howard $0.76 87,500 29-Jun-98 29-Jun-01
87,500 29-Jun-99 29-Jun-01
James Brecht $0.76 50,000 29-Dec-98 29-Jun-01
50,000 29-Jun-99 29-Jun-01
Dave Bolink $0.76 50,000 29-Dec-98 29-Jun-01
50,000 29-Jun-99 29-Jun-01
Linda M. Murray $0.76 25,000 29-Jun-98 29-Jun-01
25,000 29-Dec-98 29-Jun-01
25,000 29-Jun-99 29-Jun-01
Jason Cornick $0.76 25,000 29-Jun-98 29-Jun-01
25,000 29-Dec-98 29-Jun-01
25,000 29-Jun-99 29-Jun-01
Jeff Doepker $0.76 25,000 29-Dec-98 29-Jun-01
25,000 29-Jun-99 29-Jun-01
Scott Lambert $0.76 25,000 29-Jun-98 29-Jun-01
25,000 29-Dec-98 29-Jun-01
25,000 29-Jun-99 29-Jun-01
Marjorie Martin $0.76 25,000 29-Dec-98 29-Jun-01
25,000 29-Jun-99 29-Jun-01
Connie Turnbull $0.76 15,000 29-Dec-98 29-Jun-01
15,000 29-Jun-99 29-Jun-01
Bryson Farrill $0.76 125,000 29-Jun-98 29-Jun-01
125,000 29-Jun-99 29-Jun-01
Robert H. Kohn $0.76 100,000 29-Jun-98 29-Jun-01
100,000 29-Jun-99 29-Jun-01
Robert Kubbernus $0.76 125,000 29-Jun-98 29-Jun-01
125,000 29-Jun-99 29-Jun-01
Phillip Ladouceur $0.76 250,000 July 16, 1998 29-Jun-01
250,000 16-Jul-99 29-Jun-01
Henry Bilideau $1.17 25,000 5-Jan-99 5-Aug-01
25,000 5-Aug-99 5-Aug-01
Carl Fransen $1.17 12,500 5-Jan-99 5-Aug-01
12,500 5-Aug-99 5-Aug-01
Colin Curwen $1.17 37,500 5-Jan-99 5-Aug-01
37,500 5-Aug-99 5-Aug-01
Christopher McNeill $1.17 37,500 5-Jan-99 5-Aug-01
37,500 5-Aug-99 5-Aug-01
Glenn Lachowiez $1.17 12,500 5-Jan-99 5-Aug-01
39
43
12,500 5-Aug-99 5-Aug-01
Troy Cleland $1.17 12,500 5-Jan-99 5-Aug-01
12,500 5-Aug-99 5-Aug-01
Katrina Cohrs $1.17 25,000 5-Jan-99 5-Aug-01
25,000 5-Aug-99 5-Aug-01
Don Bialik(1) $1.17 125,000 5-Aug-98 5-Aug-01
125,000 5-Aug-99 5-Aug-01
Doug Evans(1) $1.17 62,500 5-Jan-99 5-Aug-01
62,500 5-Aug-99 5-Aug-01
Bill Arnett(1) $1.17 75,000 5-Jan-99 5-Aug-01
75,000 5-Aug-99 5-Aug-01
Note:
(1) Issuance of options is contingent on the Closing of the SysGold
Acquisition Agreement.
BOARD COMMITTEES
The Compensation Committee currently consists of Messrs. Farrill, Kohn and
Kubbernus. The Compensation Committee establishes salaries, incentives and other
forms of compensation for officers of FutureLink USA and FutureLink Alberta. The
Audit Committee consists of Messrs. Kohn, Kubbernus and Farrill.
FUTURELINK ALBERTA
Directors are not remunerated in their capacities as such. Out of pocket
expenses of directors incurred pursuant to their attendance at meetings of the
board of directors of FutureLink Alberta will be paid by FutureLink Alberta.
The following table sets forth compensation in respect of the three senior
officers and Directors of FutureLink Alberta for the fiscal year ended December
31, 1997 and the period from January 1 to July 31, 1998.
Long Term
Annual Compensation Compensation
----------------------------------------------------------
Securities
Name and Other Under
Principal Period Annual Options All Other
Position Ended Salary Bonus Compensation Granted(2) Compensation
($) ($) ($) (#) ($)
- -------- ----- ------ ----- ------------ ---------- ------------
Chief Executive Officer 1997 Nil Nil Nil Nil CDN$125,000
Cameron Chell 1998 CDN$62,500 Nil Nil Nil CDN$11,916
Past President 1997 N/A N/A N/A N/A N/A
Murray Korth 1998 CDN$28,214 Nil Nil Nil CDN$1,128
Chief Financial Officer 1997 N/A N/A N/A N/A N/A
Raghu Kilambi 1998 CDN$37,500 Nil Nil Nil CDN$7,500
Director 1997 N/A N/A N/A N/A N/A
Philip Ladouceur 1998 Nil CDN$100,000 Nil N/A N/A
Director 1997 N/A N/A N/A N/A N/A
Robert Kohn 1998 Nil Nil Nil Nil $6,000
40
44
STOCK OPTION PLAN
The following table sets forth options to purchase FutureLink Alberta Class "A"
Common Voting Shares which are outstanding under the Plan as of the date hereof:
Number of Common Date of Grant Exercise Expiry Date
Shares Under Option Price Per
Common Share
Ali Janmohamed 120,000 Jan 1, 1998 CDN$1.00 Aug 26/98
RIVERVIEW MANAGEMENT CORPORATION
The following table sets forth compensation in respect of the senior officers of
RMC for the fiscal years ended October 31 and the period from November 1, 1997
to June 30, 1998.
Long Term
Annual Compensation Compensation
--------------------------------------------------------
Securities
Name and Consolidated Salary Under
Principal Fiscal year From Options All Other
Position Ending Oct. 31 SysGold Ltd. Bonus Granted Compensation
-------- -------------- ------------ ----- ------- ------------
Director, President 1996 CDN$49,150 CDN$54,300 N/A N/A
Don Bialik 1997 CDN$17,083 CDN$110,250 N/A N/A
1998 Nil Nil N/A N/A
Director, VP 1996 CDN$61,150 CDN$54,300 N/A N/A
Olivia Bialik 1997 CDN$53,383 CDN$76,050 N/A CDN$2,520
1998 CDN$24,000 Nil N/A N/A
41
45
SELLING SECURITYHOLDERS
FUTURELINK USA
Since December 2, 1997 the following FutureLink USA Common Shares have been
issued and remain outstanding (adjusted for all consolidations):
DATE NUMBER ISSUE PRICE AGGREGATE CONSIDERATION
- ---- OF SHARES PER SHARE ISSUE PRICE RECEIVED
--------- --------- ----------- --------
December 2, 1997 (post 200:1 203,500 N/A $1,286,737 Services
consolidation) and post 30:1
consolidation
December 18, 1997 10,000,000 $ 0.01 $ 100,000 Cash
SUB-TOTAL-DEC 31, 1997 10,203,500 $1,386,737
January 20, 1998 83,334 $ 3.00 $ 250,000 Cash
January 20, 1998 1,540,000 $ 0.22 $ 338,800 Share Exchange
April 3, 1998 68,480 $ 3.75 $ 256,800 Cash
April 3, 1998 37,333 $ 3.75 $ 140,000 Cash
April 22, 1998 46,666 $ 3.00 $ 140,000 Cash
April 22, 1998 20,000 $ 3.00 $ 60,000 Cash
-------- ----------
SUB-TOTAL - MAY 31, 1998 11,999,313(1) $2,572,337
July 7, 1998 3,500,000 $ 0.001 $ 3,500 Services
TOTAL- JULY 31, 1998 15,499,313(1) $2,575,837
Notes:
(1) The figures in this schedule reconcile to the audited financial
statements and the records of the Corporation. The records of the
transfer agent vary and are shown as the following as issued and
outstanding: December 31, 1997 10,231,025; May 31, 1998 11,826,834; and
July 20, 1998 15,499,303.
FUTURELINK ALBERTA
Since the date of incorporation of FutureLink Alberta, 3,331,275 Class "A"
Common Voting Shares have been issued as follows:
CDN $ Issue Price Aggregate Issue
Date Number of Shares Per Share Price (CDN $) Consideration Received
- ---- ---------------- --------- ------------- ----------------------
Dec 31, 1997 2,952,500 Various $732,689 Cash/Services
Jan. 5, 1998 2,500 $1.00 2,500 Cash
Jan. 13, 1998 7,500 $1.00 7,500 Cash
Jan.14, 1998 60,000 $1.00 60,000 Cash
Jan.16, 1998 10,000 $1.00 10,000 Cash
Jan.19, 1998 25,000 $1.00 25,000 Cash
Jan.20, 1998 155,775 $1.00 155,775 Services
Feb.6, 1998 10,000 $1.00 10,000 Cash
Feb.10, 1998 20,000 $1.00 20,000 Cash
Feb.12, 1998 10,000 $1.00 10,000 Cash
Mar. 23, 1998 5,000 $1.00 5,000 Cash
May 6, 1998 28,000 $1.00 28,000 Services
42
46
CDN $ Issue Price Aggregate Issue
Date Number of Shares Per Share Price (CDN $) Consideration Received
- ---- ---------------- --------- ------------- ----------------------
July 31, 1998 45,000 $1.00 45,000 Cash
------ ------
3,331,275 $1,111,464
RIVERVIEW MANAGEMENT CORPORATION
From 1993 to August 6, 1998 RMC's capital structure was as follows:
OWNER # OF SHARES VALUE(CDN)
----- ----------- ----------
Don Bialik 100 Class A $1
5 Class D Preferred $5,000
Olivia Bialik 100 Class B $1
5 Class D $5,000
Bialik Family Trust 100 Class C $1
Between August 7, 1998 and August 20, 1998, Don Bialik and Family entered into a
series of transactions (capital reorganization) in contemplation of RMC's
acquisition by FutureLink Acquisition Corp.
As of August 20, 1998, RMC's capital structure is as follows:
OWNER # OF SHARES VALUE(CDN)
----- ----------- ----------
Don Bialik 500,000 Class J Preferred $500,000
2,168,334 Class K Preferred $2,168,334
100 Class B Common $342,500
Olivia Bialik 500 Class J Preferred $500,000
3,831,666 Class K Preferred $3,831,666
100 Class B Common $342,500
Bialik Family Trust 1,000,000 Class J $1,000,000
It is expected that RMC's capital structure will be further reorganized in
advance and as part of the acquisition of RMC by FutureLink Acquisition Corp.
DESCRIPTION OF SECURITIES
FUTURELINK USA
As of the date of this Registration Statement, FutureLink USA is authorized to
issue: (a) 100,000,000 FutureLink USA Common Shares with par value of
$.0001/share; and (b) 5,000,000 FutureLink USA Preferred Shares with no par
value. There are 15,499,313 FutureLink USA Common Shares issued and outstanding
as fully paid and non-assessable. As at the date hereof, FutureLink USA has
reserved for issuance: (a) 3,780,000 FutureLink USA Common Shares pursuant to a
stock option plan (See "FutureLink USA Stock Options"); (b) 255,813 FutureLink
USA Common Shares pursuant to warrant and (c) 1,127,240 FutureLink USA Common
Shares pursuant to a debt for share exchange agreement and an additional
1,127,240 FutureLink USA Common Shares pursuant to warrants granted in the same
debt for share exchange agreement. There are no issued and outstanding
FutureLink USA Preferred Shares.
The following is a general description of the material rights, privileges and
restrictions and conditions attaching to each class of shares:
43
47
The authorized capital stock of the Company consists of 100,000,000 shares of
Common Stock, $.0001 par value, and 5,000,000 shares of Preferred Stock, $1.00
par value.
As of August 19, 1998, there were (i) 15,499,303 shares of Common Stock
outstanding held of record by 252 stockholders.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. Subject to preferences that may be applicable to
the holders of outstanding shares of Preferred Stock, if any, the holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. See "Dividend Policy". In the event of liquidation,
dissolution or winding up of the Company, and subject to the prior distribution
rights of the holders of outstanding shares of Preferred Stock, if any, the
holders of shares of Common Stock shall be entitled to receive pro rata all of
the remaining assets of the Company available for distribution to its
stockholders. The Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed by
the laws of the State of Colorado, with approval by the Company's stockholders,
to provide for the issuance of up to 5,000,000 shares of Preferred Stock in one
or more series, to establish from time to time the number of shares to be
included in each such series, to fix the designations, powers, preferences and
rights of the shares of each such series and any qualifications, limitations or
restrictions thereof, and to increase or decrease the number of shares of any
such series (but not below the number of shares of such series then outstanding)
without any further vote or action by the stockholders. The Board of Directors
may authorize and issue Preferred Stock with voting or conversion rights that
could adversely affect the voting power or other rights of the holders of
Shares.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for FUTURELINK USA is General Securities
Transfer Agency, Inc. in Albuquerque, New Mexico.
FUTURELINK ALBERTA
The authorized share capital of FutureLink Alberta consists of an unlimited
number of: (a) Class "A" Common Voting Shares; (b) Class "B" Common Shares; and
(c) First Preferred Shares. There are 3,331,275 issued and outstanding Class "A"
Common Voting Shares as of August 19, 1998. There are no Class "B" Common Shares
issued and outstanding. There are no First Preferred Shares issued and
outstanding. All of the Class "A" Common Voting Shares issued and outstanding
are fully paid and non-assessable.
The following is a general description of the material rights, privileges,
restrictions and conditions attaching to each class of shares.
CLASS "A" COMMON VOTING SHARES OF FUTURELINK ALBERTA
Subject to the provisions of the Alberta Business Corporations Act ("ABCA"), the
holders of the Class "A" Common Voting Shares are entitled to receive notice of,
to attend and vote at all meetings of the shareholders of FutureLink Alberta
(other than meetings of a class or series of shares other than the Class "A"
Common Voting Shares as such) and are entitled to one vote for each Class "A"
Common Voting Share held, except as required by law.
44
48
Subject to the payment of preferred rights attaching to any other class or
series of shares of the corporation, the holders of the Class "A" Common Voting
Shares are entitled to receive, if, as and when declared by the directors of
FutureLink Alberta, dividends in such amount and payable on such date as may be
determined from time to time by the directors of FutureLink Alberta. No dividend
may be declared or paid on the Class "A" Common Voting Shares if payment of the
dividend would cause the realizable value of the corporations assets to be less
than the aggregate of its liabilities and the amount required to redeem all
shares of the corporation then outstanding having attached thereto a redemption
or retraction right.
Subject to the preferential rights attaching to any other class or series of
shares of the corporation, if any, on the liquidation, dissolution or winding-up
of FutureLink Alberta, or any other distribution of the assets of FutureLink
Alberta among its shareholders for the purpose of winding-up its affairs, the
holders of the Class "A" Common Voting Shares shall be entitled to share, on a
per share basis, the remaining property and assets of FutureLink Alberta.
CLASS "B" COMMON SHARES OF FUTURELINK ALBERTA
Subject to the provisions of the ABCA, the holders of the Class "B" Common
Shares are not entitled to receive notice of, to attend and/or vote at meetings
of the shareholders of FutureLink Alberta (other than meetings of a class or
series of shares other than the Class "B" Common Shares as such).
Subject to the payment of preferred rights attaching to any other class or
series of shares of the corporation, the holders of the Class "B" Common Shares
are entitled to receive, if, as and when declared by the directors of FutureLink
Alberta, dividends in such amount and payable on such date as may be determined
from time to time by the directors of FutureLink Alberta. No dividend may be
declared or paid on the Class "B" Common Shares if payment of the dividend would
cause the realizable value of the corporations' assets to be less than the
aggregate of its liabilities and the amount required to redeem all shares of the
corporation then outstanding having attached thereto a redemption or retraction
right.
Subject to the preferential rights attaching to any other class or series of
shares of the corporation, if any, on the liquidation, dissolution or winding-up
of FutureLink Alberta, or any other distribution of the assets of FutureLink
Alberta among its shareholders for the purpose of winding-up its affairs, the
holders of the Class "A" Common Voting Shares shall be entitled to share, on a
per share basis, the remaining property and assets of FutureLink Alberta.
FIRST PREFERRED SHARES OF FUTURELINK ALBERTA
The First Preferred Shares may be issued from time to time in one or more series
in the number and with the designation, rights, privileges, restrictions and
conditions as determined by the directors of FutureLink Alberta in their sole
discretion. The First Preferred Shares will be entitled to preference, as to the
payment of dividends and the distribution of the remaining property of
FutureLink Alberta on dissolution, over the Class "A" Common Voting Shares and
the Class "B" Common Shares.
RIVERVIEW MANAGEMENT CORPORATION
The authorized capital of RMC after its capital reorganization in advance of its
acquisition by FutureLink Acquisition Corp. consists of:
An unlimited number of Class "A" Voting Common Shares
An unlimited number of Class "B" Voting Common Shares
An unlimited number of Class "C" Non Voting Common Shares
An unlimited number of Class "D" Non Voting Common Shares
An unlimited number of Class "E" Non Voting Common Shares
An unlimited number of Class "F" Non Voting Common Shares
An unlimited number of Class "G" Non Voting Common Shares
An unlimited number of Class "H" Non Voting Common Shares
An unlimited number of Class "I" Non Voting Common Shares
45
49
An unlimited number of Class "J" Voting Redeemable Preferred Shares
An unlimited number of Class "K" Non Voting Redeemable Preferred Shares
(these would be Non Exchangeable into FutureLink USA Common Shares)
An unlimited number of Class "L" Non Voting Redeemable Preferred Shares
Immediately prior to the closing of the SysGold Acquisition Agreement, RMC would
amend its articles/share provisions so as to delete the provisions relating to
the existing class K non-voting Redeemable Preferred Shares substituting new
share provisions for a class to be labeled as class "K" non-voting Redeemable
Retractable Preferred Shares ("Bialik" Exchange Shares)
The share provisions attaching to the Bialik Exchangeable Shares are structured
so that the Bialik Exchangeable Shares are at all times, as nearly as possible,
the economic equivalence of FutureLink USA Common Shares and have the same
voting rights as to FutureLink USA Common Shares.
Economic Equivalence is accomplished in several ways: (a) by virtue of the
protections found in the Colorado Corporations Code for a separate class of
shares; (b) the terms of the Support Agreement, including through covenants of
FutureLink USA that:
(a) FutureLink USA will not declare or pay dividends on the FutureLink USA
Common Stock unless Riverview immediately thereafter declares or pays,
as the case may be, an equivalent dividend on the Class "K" Exchangeable
Shares and Riverview has resources available to pay equivalent dividends
on the Class "K" Exchangeable Shares;
(b) FutureLink USA will ensure that Riverview will be able to honour the
redemption and retraction rights and the entitlement upon liquidation
pursuant to the terms of the Class "K" Exchangeable Shares;
(c) Without the prior written approval of Riverview or the holders of Bialik
Exchangeable Shares, FutureLink USA will not:
(i) issue or distribute shares of FutureLink USA Common Shares (or
securities exchangeable or convertible into or carrying rights
to acquire shares of FutureLink USA) by way of stock dividend or
other distribution; issue or distribute rights, options or
warrants; or issue or distribute securities of any class other
than FutureLink USA Common Shares) rights, options, warrants or
evidences of FutureLink USA or assets of FutureLink USA unless
Riverview is permitted under the applicable law to issue or
distribute the economic equivalent on a per share basis such
rights, options, securities, shares evidences of indebtedness or
other assets simultaneously to the holders of Exchangeable
shares; and Riverview does in fact issue or distribute such
economic equivalent.
(ii) subdivide, divide or change the then outstanding shares of
FutureLink Common Shares into a greater number of FutureLink
Common Shares; or reduce, combine or consolidate into a lessor
number of shares of FutureLink Common Shares; or reclassify or
otherwise change the shares of FutureLink Common Shares or
affect an amalgamation, merger, reorganization or other
transaction affecting the shares of FutureLink USA Common Shares
unless Riverview is permitted under the applicable law to
simultaneously make the same or equivalent change to, or in the
rights of holders of, the Exchangeable Shares and the same or an
equivalent change is in fact made.
Voting Equivalence is provided by the terms of the Articles of FutureLink USA
relating to voting rights of the Trustee pursuant to the FutureLink USA Special
Voting Share and the Voting Trust & Exchange Agreement which entitles the
Trustee to a number of votes (in the calculation of FutureLink USA Common Share
votes) equal to the number of Class "K" Exchangeable Shares outstanding from
time to time that are not being held by FutureLink USA or its affiliates. Each
holder of a Class "K" Exchangeable Share will have the right to instruct the
Trustee as to the manner of voting thereupon.
Shareholder approval of FutureLink USA
Shareholder consent may be necessary to effectuate these restrictions.
46
50
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FUTURELINK USA
The only material contracts entered into by FutureLink USA since incorporation
which can reasonably be regarded as presently material to FutureLink USA are as
follows:
1. The FutureLink Alberta Acquisition Agreement dated August 3, 1998
between FutureLink USA and FutureLink Alberta.
2. Option Agreements dated various dates various employees of FutureLink
Alberta.
3. An Escrow Agreement dated January 20, 1998 among the General Securities
Transfer Agency, Inc., FutureLink USA, Cameron Chell (as to 500,000
FutureLink USA Common Shares), Linda Carling (as to 490,000 FutureLink
USA Common Shares), Bernie March (as to 200,000 FutureLink USA Common
Shares), Colleen Rudolph (as to 250,000 FutureLink USA Common Shares)
and Gerald Albert (as to 100,000 FutureLink USA Common Shares) pursuant
to which an aggregate of 1,540,000 FutureLink USA Common Shares were
deposited in escrow. This agreement stated that one half of the
FutureLink USA Common Shares would be released on July 20, 1998 and one
half would be released on January 20, 1999.
4. A share acquisition agreement dated January 20, 1998, between Core
Ventures, Inc. (now known as FutureLink USA), FutureLink Alberta,
Cameron Chell, Linda Carling, Colleen Rudolph, Bernie March, and Gerald
Albert whereby FutureLink USA agreed to acquire 1,540,000 Class "A"
Common Voting Shares of FutureLink Alberta in consideration of the
issuance of 1,540,000 FutureLink USA Common Shares. The shares were
issued subject to an escrow agreement. The agreement provided that
3,500,000 FutureLink USA Common Shares would be issued to various
employees for the consideration of $3,500. FutureLink Alberta was added
as a party for the purpose of making representations and warranties to
induce FutureLink USA to enter into the agreement.
5. Indemnity agreement dated January 19, 1998 between John Anastasios Xinos
and Core Ventures, Inc. whereby John Anastasios Xinos agreed to
indemnify Core Ventures, Inc. for any losses suffered by Core Ventures,
Inc. arising from the Midland Walwyn Capital Inc. lawsuit.
6. Agreement among FutureLink Alberta, FutureLink USA, Donald A. Bialik,
Olivia B. Bialik, Bialik Family Trust, Riverview Management Corporation
("RMC") and SysGold Ltd. ("SysGold") dated August 4, 1998 ("SysGold
Acquisition Agreement") wherein FutureLink USA has agreed to acquire all
of the issued and outstanding shares of Riverview which in turn owns all
of the issued and outstanding shares of SysGold. SysGold has approx. 60
employees and annual sales of CDN$10 million. SysGold has liabilities of
approx. CDN$550,000. The consideration is CDN$8,685,000 payable by
CDN$3,000,000 cash on closing (scheduled for August 21, 1998),
CDN$685,000 by a promissory note payable within 90 days, and partly by
the issuance of 4,250,000 Exchangeable shares in RMC exchangeable into
shares of FutureLink USA Common Shares (attributed value $0.85/share).
Donald A. Bialik will be subject to an employment agreement which would
pay him a significant salary/year, plus a performance bonus and stock
options totalling 250,000 FutureLink USA Common Shares at a price to be
agreed upon. The deposit of CDN$100,000 has been paid and may become
non-refundable in certain circumstances. The transaction is an arms
length transaction and numerous condition precedents must be satisfied
prior to closing. FutureLink USA has entered into a financing
arrangement with Thomson Kernaghan & Co. Ltd., a Toronto investment
dealer to lend up to $5,000,000 to FutureLink USA, the proceeds of which
will be used to finance the SysGold Acquisition Agreement. Interest
would be at the rate of 10% per annum. The loan would be convertible to
FutureLink USA Common Shares at the lower of 75 cents or the bid price
of FutureLink USA quoted on the OTC-BB for the 3 days trading prior to
the Closing Date or the date of conversion. FutureLink USA also issued
1,041,667 warrants to the lender to purchase 1,041,667 shares at $0.96
per share.
47
51
FUTURELINK ALBERTA
Except for contracts entered into by FutureLink Alberta in the ordinary course
of business or otherwise disclosed herein, the only material contracts entered
into by FutureLink Alberta since incorporation which can reasonably be regarded
as being material are as follows:
1. The FutureLink Alberta Acquisition Agreement .
2. FutureLink Alberta Stock Option Plan. FutureLink Alberta has entered in
various agreement with various employees for the issuance of securities
of FutureLink Alberta.
3. FutureLink Alberta entered into agreement with Fundcorp Financial
Inc.("Fundcorp") effective December 19, 1997. Fundcorp was obliged to
use best efforts to assist FutureLink Alberta over a 60 month period in
obtaining, structuring, negotiating and settling the terms of Financing
Arrangements (as defined). Fundcorp was to manage the development of a
FutureLink Alberta finance division and its documentation and related
structure. Fundcorp was to provide management counsel and assist in
placing strategic planning. In consideration, FutureLink Alberta agreed
to pay Fundcorp: (a) cash payments equal to 1% of amounts provided to
FutureLink Alberta from time to time pursuant to Financing Arrangements
paid to Fundcorp net of any advances paid to Fundcorp; (b) cash payments
equal to 1/3 of the operating profits of the FutureLink Alberta finance
division; (c) cash payments of all out of pocket costs; (d) issuance of
250,000 warrants upon signing of the agreement. Each warrant entitled
Fundcorp to acquire 1 freely tradeable Class "A" Common Voting Shares of
FutureLink Alberta for each warrant redeemed. Fundcorp agreed not to
exercise their warrants for a 12 month period from the date of the
agreement unless otherwise requested by FutureLink Alberta. Provided
that the agreement had not been cancelled, FutureLink Alberta also
agreed to issue an additional 250,000 warrants upon the signing of the
agreement. Each of these warrants entitled Fundcorp to acquire 1 Class
"A" Common Voting Share of FutureLink Alberta for each warrant redeemed
not freely tradeable for a 1 year period from the signing of the
agreement. The price of the warrants is CDN$0.75/share. The liability
pursuant to this agreement is unknown. The management of FutureLink
Alberta have represented to FutureLink USA that Fundcorp has not met its
obligations under the terms of the agreement and that the agreement
should be cancelled along with the obligations with respect to the
500,000 warrants.
4. A share acquisition agreement dated January 20, 1998, between Core
Ventures, Inc (now known as FutureLink USA), FutureLink Alberta, Cameron
Chell, Linda Carling, Gerald Albert, Bernie March and Colleen Rudolph
whereby FutureLink USA agreed to acquire 1,540,000 Class "A" Common
Voting shares of FutureLink Alberta in consideration of the issuance of
1,540,000 FutureLink USA Common Shares. The shares were issued subject
to the Escrow Agreement (January 20). The agreement provided that
3,500,000 FutureLink USA Common Shares would be issued to various
employees for the par value of $3,500. FutureLink Alberta was added as a
party for the purpose of making representations and warranties to induce
FutureLink USA to enter into the agreement.
5. Willson Stationers Contract. Willson Stationers Ltd. signed the standard
service provider agreement. The contract is material because of the
potential size of the transaction and because of the relationship with
Cameron Chell. Mr. Chell is the Chief Executive Officer of Willson
Stationers Ltd. He also has an option to acquire 50% of the issued and
outstanding shares in Willson Stationers Ltd.
6. JAWS Technologies, Inc. Contract. JAWS Technologies Inc. has signed the
standard service provider agreement. The contract value is approx.
CDN$3,000 per month. It is material because of the interest of Cameron
Chell and Robert Kubbernus. Both are officers and shareholders. Robert
Kubbernus is a director.
Cameron Chell, Chairman of the Board and Chief Executive Officer of the Alberta
corporation, has personally guaranteed repayment of certain of the FutureLink
Alberta obligations. As of May 31, 1998, Mr. Chell has personally guaranteed
capital lease obligations of FutureLink Alberta totaling approximately
CDN$41,000.
During the 1996 fiscal year, FutureLink Alberta lent CDN$100,000.00 to 695116
Alberta Ltd. so that it may handle a business transaction on behalf of
FutureLink Alberta. Cameron Chell is a principal in the numbered company. This
48
52
transaction never occurred and the debt was repaid in the 1997 fiscal year.
Cameron Chell also lent FutureLink Alberta approximately CDN$282,000.00 either
personally or through his numbered company (679132 Alberta Ltd.) during 1997
which was a combination of loans and salary deferment on an interest-free basis.
These loans have been repaid in 1998.
RIVERVIEW MANAGEMENT CORPORATION
Both the directors of RMC, Don and Olivia Bialik, have personally guaranteed
leases of SysGold Ltd., a subsidiary of RMC. On October 31, 1997, the leases
which the directors have personally guaranteed are reflected in the lease
obligation balance of CDN$88,124 on the October 31, 1997 statements (Nil at
October 31, 1996). The June 30, 1998 financial statements reflect the
aforementioned capital leases at a total lease obligation of CDN$67,071.
The directors of the corporation have also personally guaranteed the operating
line of credit of SysGold Ltd., a subsidiary of RMC. The line of credit
outstanding at October 31, 1996, 1997 and June 1998 was CDN$24,580, CDN$17,962
and CDN$240,929 respectively.
The directors also have loaned certain amounts to the consolidated entity. At
October 31, 1996 and October 31, 1997 these balances are nominal, however, at
June 30, 1998, CDN$128,933 is owing as a result of the October 31, 1997 bonus
payment.
ACCOUNTING AND FINANCIAL DISCLOSURE
FUTURELINK USA
Due to the lack of activity for numerous years, FutureLink USA did not engage
the services of an accounting firm. We are not currently aware of any
disagreements on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which this firm may have
had with their past auditors.
In May, 1998 FutureLink USA engaged Ernst & Young as their independent chartered
accountants, to audit the financial statements of the year ended December 31,
1997. Ernst & Young reported without reservation on those financial statements.
FUTURELINK ALBERTA
FutureLink Alberta retained Halpin Anthony Owen & Mayer(HAOM) since its
incorporation in March of 1996. During the term of HAOM's engagement, there were
no disagreements on any matter of accounting principle or practice, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
the satisfaction of HAOM, would have caused it to make reference to the subject
matter of the disagreement in connection with its report.
FutureLink Alberta has recently engaged Ernst & Young to become their
independent auditors replacing HAOM.
RIVERVIEW MANAGEMENT CORPORATION
RMC and SysGold Ltd. retained Buchanan Barry & Co. as accountants and then
auditors since 1993. During the term of Buchanan Barry's engagement there were
no disagreements on any matter of accounting principle or practice, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
the satisfaction of Buchanan Barry, would have caused it to make reference to
the subject matter of the disagreement in connection with its report.
PLAN OF DISTRIBUTION
The Selling Securityholders (or pledges, donees, transferees or successors in
interest) may sell all or a portion of the respective Selling Securityholders'
Securities held by them from time to time while the registration statement of
which
49
53
this Prospectus is a part remains effective. The aggregate proceeds to the
Selling Securityholders from the sale of the respective Selling Securityholders'
Securities offered by the Selling Securityholders hereby will be the prices at
which such securities are sold, less any commissions. There is no assurance that
the Selling Securityholders will sell any or all of the Selling Securityholders'
Securities offered hereby.
The Selling Securityholders' Securities may be sold by the Selling
Securityholders in transactions on the NASDAQ Bulletin Board, in negotiated
transactions, or by a combination of these methods, at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related to
such market prices or at negotiated prices or through the writing of options on
the Selling Securityholders' Securities. The Selling Securityholders may elect
to engage a broker or dealer to effect sales in one or more of the following
transactions: (a) block trades in which the broker or dealer so engaged will
attempt to sell the Selling Securityholders' Securities as agent but may
position and resell a portion of the block as principal to facilitate the
transaction, (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus, and (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
In effecting sales, brokers and dealers engaged by the Selling Securityholders
may arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from the Selling Securityholders in amounts to
be negotiated (and, if such broker-dealer acts as agent for the purchaser of
such Selling Securityholders' Securities, from such purchaser). Broker-dealers
may agree with the Selling Securityholders to sell a specified number of such
Selling Securityholders' Securities at a stipulated price per Selling
Securityholder's Security, and to the extent that such broker-dealer is unable
to do so, acting as agent for the Selling Securityholders to purchase as
principal any unsold Selling Securityholders' Securities at the price required
to fulfill the broker-dealer commitment to the Selling Securityholders.
Broker-dealers who acquire Selling Securityholders' Securities as principal may
thereafter resell such Selling Securityholders' Securities from time to time in
transactions (which may involve crosses and block transaction and sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market, or otherwise at prices and on terms then
prevailing at the time of sale, at prices then related to the then-current
market price or in negotiated transactions and, in connection with such resales,
may pay to or receive from the purchasers of such Selling Securityholders'
Securities commissions as described above.
The Selling Securityholders and any broker-dealers or agents that participate
with the Selling Securityholders in sales of the Selling Securityholders'
Securities may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 in connection with such sales. In such event, any
commissions received by such broker-dealers or agent and any profit on the
resale of the Selling Securityholders' Securities purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act of
1933.
FutureLink USA will pay all expenses incidental to this offering and sale of the
Selling Securityholders' Securities to the public other than selling commissions
and fees.
The Selling Securityholders have been advised that during the time they are
engaged in "distribution" (as defined under Regulation M under the Securities
Exchange Act of 1934, as amended) of the securities covered by this Prospectus,
they must comply with Regulation M under the Securities Exchange Act of 1934, as
amended, and pursuant thereto: (i) shall not engage in any stabilization
activity in connection with FutureLink USA's securities; and (ii) shall not bid
for or purchase any securities of FutureLink USA or attempt to include any
person to purchase any of FutureLink USA's securities other than as permitted
under the Securities Exchange Act of 1934, as amended. Any Selling
Securityholders who are "affiliated purchasers" of FutureLink USA, as defined in
Regulation M, have been further advised that they and their affiliates must
coordinate their sales under this Prospectus and otherwise with FutureLink USA
and any other "affiliated purchasers" of FutureLink USA for purposes of
Regulation M. The Selling Securityholders must also furnish each broker through
which Selling Securityholders' Securities are sold copies of this Prospectus.
LEGAL OPINION
The validity of certain of the Securities offered hereby will be passed upon for
FutureLink USA by Jeffer, Mangels, Butler & Marmaro LLP, Los Angeles,
California.
50
54
EXPERTS
The audited Financial Statements of FutureLink USA included in this Prospectus
as at December 31, 1997 and for the year then ended have been audited by Ernst &
Young, Independent Chartered Accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing.
The audited Financial Statements of FutureLink Alberta included in this
Prospectus as at December 31, 1996 and December 31, 1997 and the periods from
March 28, 1996 to December 31, 1996 and from January 1, 1997 to December 31,
1997 have been audited by Halpin Anthony Owen Mayer, Independent Chartered
Accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
The audited Financial Statements of RMC included in this Prospectus as at
October 31, 1996 and October 31, 1997 and for the years then ended have been
audited by Buchanan Barry & Co., Independent Chartered Accountants, as indicated
in their report with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing.
51
55
INDEX TO FINANCIAL STATEMENTS
Description Pages
----------- -----
1. FutureLink USA Unaudited Pro Forma Consolidated Statement of Income for
year ended December 31, 1997 and Unaudited Pro Forma Consolidated Balance Sheet as
at December 31, 1997 ............................................................ F-1
2. FutureLink USA Unaudited Pro Forma Consolidated Statement of Income for
six months ended June 30, 1998 and Unaudited Pro Forma Consolidated Balance Sheet
as at June 30, 1998 ............................................................. F-6
3. FutureLink USA Unaudited June 30, 1998 Financial Statements, Audited
December 31, 1997 Financial Statements and Unaudited December 31, 1996
Financial Statements ............................................................ F-11
4. FutureLink Alberta Unaudited June 30, 1998 Financial Statements, Audited
December 31, 1997 and December 31, 1996 Financial Statements .................... F-22
5. RMC Unaudited June 30, 1998 and 1997 Financial Statements ....................... F-31
6. RMC Audited October 31, 1997 and 1996 Financial Statements ...................... F-39
F-i
56
FUTURELINK DISTRIBUTION CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(All amounts stated in $U.S.)
December 31, 1997
FutureLink
Riverview USA
FutureLink FutureLink Pro Forma Management Pro Forma Pro Forma
USA Alberta Adjustments Corporation Adjustments Consolidated
$ $ $ $ $ $
---------- ---------- ------------- ---------- ------------ -------------
ASSETS
CURRENT
Cash -- 7,617 (2.2)(100,000) 26,542 (2.3)150,777 (240,064)
(2.4)(325,000)
Accounts receivable -- 37,172 -- 955,528 -- 992,699
Inventory -- -- -- 8,168 -- 8,168
Prepaid expenses -- 7,302 -- 6,305 -- 13,608
---------- ---------- ------------- ---------- ------------ -------------
-- 52,091 (100,000) 996,543 (174,223) 774,411
Goodwill -- (2.1)929,040 -- (2.3)6,091,699 7,445,739
-- (2.2)100,000 (2.4) 325,000
Capital assets -- 167,469 -- 141,924 -- 309,393
Incorporation costs -- 420 -- -- -- 420
Deposits -- -- -- 4,662 -- 4,662
---------- ---------- ---------- ---------- ---------- ----------
-- 219,980 929,040 1,143,129 6,242,476 8,534,625
========== ========== ========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued 23,932 253,012 -- 916,932 -- 1,193,876
liabilities
Current portion of capital leases -- 21,602 -- 22,966 -- 44,568
Loan payable -- -- -- 23,639 -- 23,639
Promissory note payable -- -- -- -- (2.3)479,323 479,323
Shareholder loans -- -- -- 1,735 -- 1,735
Notes payable -- 66,825 -- -- -- 66,825
---------- ---------- ---------- ---------- ---------- ----------
23,932 341,439 -- 965,272 479,323 1,809,966
---------- ---------- ---------- ---------- ---------- ----------
DUE TO STOCKHOLDERS -- 61,259 -- -- -- 61,259
---------- ---------- ---------- ---------- ---------- ----------
OBLIGATIONS UNDER CAPITAL LEASES -- 13,441 -- 38,698 -- 52,139
---------- ---------- ---------- ---------- ---------- ----------
CONVERTIBLE DEBENTURE -- -- -- -- (2.3)2,250,000 2,250,000
---------- ---------- ---------- ---------- ---------- ----------
MINORITY INTEREST -- -- -- 39,812 -- 39,812
---------- ---------- ---------- ---------- ---------- ----------
STOCKHOLDERS' EQUITY
Share capital 1,020 512,693 (2.1)(512,693) 28 (2.3)(28) 4,346,401
(2.1)732,881 (2.3)3,612,500
Capital in excess of par 1,425,211 -- -- -- -- 1,425,211
Deficit (1,450,163) (708,852) (2.1)708,852 99,319 (2.3)(99,319) (1,450,163)
---------- ---------- ---------- ---------- ---------- ----------
(23,932) (196,159) 929,040 99,347 3,513,153 4,321,449
---------- ---------- ---------- ---------- ---------- ----------
-- 219,980 929,040 1,143,129 6,242,476 8,534,625
========== ========== ========== ========== ========== ==========
See accompanying notes to the unaudited pro forma consolidated financial
statements
F-1
57
FUTURELINK DISTRIBUTION CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(All amounts stated in $U.S.)
Year ended December 31, 1997
FutureLink
Riverview USA
FutureLink FutureLink Pro Forma Management Pro Forma Pro Forma
USA Alberta Adjustments Corporation Adjustments Consolidated
$ $ $ $ $ $
---------- ---------- -------------- ---------- -------------- ----------
REVENUE -- 4,820 3,373 6,662,087 -- 6,665,460
---------- ---------- -------------- ---------- -------------- ----------
EXPENSES
Salaries and employee benefits -- 48,946 -- 2,052,751 -- 2,101,698
Staff development -- -- -- 120,253 -- 120,253
Consulting -- 280,820 -- 631,150 -- 911,970
Travel -- 13,293 -- 14,734 -- 28,027
Accounting and legal fees 109,992 9,818 -- 60,870 -- 180,681
Hardware and software purchases -- -- -- 3,149,406 -- 3,149,406
Advertising and promotion -- 21,057 -- 68,503 -- 89,560
Depreciation and amortization -- 34,084 (3.1)102,904 51,604 (3.2)641,670 831,261
Office 12,057 22,438 -- 133,515 -- 168,010
Rent -- 25,078 -- 70,628 -- 95,706
Equipment rental -- 20,780 -- 8,901 -- 29,680
Internet -- 13,961 -- -- -- 13,961
Architectural and design fees -- 47,922 -- -- -- 47,922
Automotive -- -- -- 26,492 -- 26,492
Other -- 24,492 54,547 79,039
Interest on long term debt -- -- -- -- (3.3)272,932 272,932
---------- ---------- -------------- ---------- -------------- ----------
122,049 563,689 -- 6,443,354 -- 8,146,598
---------- ---------- -------------- ---------- -------------- ----------
LOSS BEFORE DISCONTINUED OPERATIONS (122,049) (560,316) -- 218,733 -- (1,481,138)
LOSS FROM DISCONTINUED OPERATIONS -- (9,922) -- -- -- (9,922)
---------- ---------- -------------- ---------- -------------- ----------
LOSS FROM OPERATIONS (122,049) (570,238) -- 218,733 -- (1,491,059)
WRITE-OFF MINING RELATED ASSETS (515,000) -- -- -- -- (515,000)
LOSS ON NON-REFUNDABLE DEPOSIT (100,000) -- -- -- -- (515,000)
---------- ---------- -------------- ---------- -------------- ----------
LOSS FOR THE YEAR BEFORE INCOME TAXES (737,049) (570,238) -- 218,733 -- (2,106,059)
INCOME TAXES -- -- -- (94,409) -- (94,409)
---------- ---------- -------------- ---------- -------------- ----------
(737,049) (570,238) -- 124,324 -- (2,200,469)
MINORITY INTEREST -- -- -- (24,443) -- (25,443)
---------- ---------- -------------- ---------- -------------- ----------
NET EARNINGS (LOSS) FOR THE YEAR (737,049) (570,238) -- 98,881 -- (2,225,912)
========== ========== ============== ========== ============== ==========
See accompanying notes to the unaudited pro forma consolidated financial
statements
F-2
58
FUTURELINK DISTRIBUTION CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in $U.S.)
December 31, 1997
1. The accompanying unaudited pro forma consolidated financial statements
have been prepared by management from the audited financial statements as
at December 31, 1997 and for the year then ended of FutureLink
Distribution Corp. (a Colorado corporation) ("FutureLink USA") and
FutureLink Distribution Corp. (an Alberta corporation) ("FutureLink
Alberta"), and from the audited financial statements as at October 31,
1997 and for the year then ended of Riverview Management Corporation
("Riverview") together with other information available to the companies.
In the opinion of the management of FutureLink USA, these pro forma
consolidated financial statements include all adjustments necessary for
fair presentation in accordance with accounting principles generally
accepted in the United States. These pro forma consolidated financial
statements may not be indicative of the financial position or the results
of operations that actually would have occurred if the events reflected
therein had been in effect on the dates indicated nor of the financial
position or the results of operations which may be obtained in the future.
These pro forma consolidated financial statements should be read in
conjunction with the audited financial statements of the companies
included elsewhere in this registration document.
2. The pro forma consolidated balance sheet at December 31, 1997 gives effect
to the following assumptions and transactions, all of which will become
effective on the date of the fulfillment or waiver of the conditions of
the FutureLink Alberta Acquisition Agreement and the SysGold acquisition
agreement as if the effective dates of those agreements were December 31,
1997:
2.1 The acquisition of all of the outstanding common shares of
FutureLink Alberta in exchange for an equal number of common shares
of FutureLink USA. This acquisition has been reflected as though the
initial acquisition of 1,540,000 common shares and the subsequent
acquisition of all the remaining common shares at a later date both
occurred on December 31, 1997.
The acquisition has been accounted for in these pro forma
consolidated financial statements by the purchase method. Based on
an independent valuation report dated March 1998 that attributed a
value of $0.22 to common shares of FutureLink Alberta, the total
value ascribed to the investment was $732,881. The purchase price
has been allocated to the net assets acquired based on their
estimated fair values, as follows:
Purchase
Allocation
$
--------
Net liabilities acquired (196,159)
Goodwill 929,040
--------
Purchase price 732,881
========
F-3
59
FUTURELINK DISTRIBUTION CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in $U.S.)
December 31, 1997
2.2 The allocation to goodwill of the estimated costs of the acquisition
described in 2.1 above, in the amount of $100,000 financed through
bank credit facilities of FutureLink USA.
2.3 The acquisition of all of the outstanding common shares of Riverview
for cash consideration of $3,000,000 Canadian, as well as a
promissory note for $685,000 Canadian and 4,250,000 common shares of
FutureLink USA with an ascribed value of $3,612,500 U.S.
The acquisition has been accounted for in these pro forma
consolidated financial statements by the purchase method. The
purchase price has been allocated to the net assets acquired based
on their estimated fair values, as follows:
Purchase
Allocation
$
---------
Net assets acquired 99,347
Goodwill 6,091,699
---------
Purchase price 6,191,046
=========
Consideration:
Promissory note payable 479,323
10% convertible debenture* 2,099,223
Common shares of FutureLink USA 3,612,500
---------
Total consideration 6,191,046
=========
*the proceeds from the debenture will be drawn in an initial amount
of $2,250,000, with the excess cash being held by FutureLink USA for
general use.
2.4 The allocation to goodwill of the estimated costs of the acquisition
described in 2.3 above, in the amount of $325,000 financed through
bank credit facilities of FutureLink USA.
F-4
60
FUTURELINK DISTRIBUTION CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in $U.S.)
December 31, 1997
3. The pro forma consolidated statement of income for the year ended December
31, 1997 gives effect to the acquisitions by FutureLink USA as described
in 2.1 and 2.3 above which will become effective on the date of the
fulfillment or waiver of the conditions of the FutureLink Alberta
Acquisition Agreement and the SysGold acquisition agreement, as if the
transactions had occurred January 1, 1997. The following adjustments are
reflected:
3.1 The amortization of Goodwill attributable to the allocation of the
purchase price of FutureLink Alberta in excess of the carrying value
of the net assets acquired, (see 2.1 and 2.2 above) calculated on a
straight-line basis over a period of 10 years.
3.2 The amortization of Goodwill attributable to the allocation of the
purchase price of Riverview in excess of the carrying value of the
net assets acquired, (see 2.3 and 2.4 above) calculated on a
straight-line basis over a period of 10 years.
3.3 The inclusion of interest expense on the convertible debenture for
one year, at an annual rate of 10%.
4. The amounts shown in these pro forma consolidated financial statements for
FutureLink Alberta and for Riverview have been translated into United
States dollars from Canadian dollars at a rate of $1 US equal to $1.4291
Canadian.
F-5
61
FUTURELINK DISTRIBUTION CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(All amounts stated in $U.S.)
June 30, 1998
FutureLink
Riverview USA
FutureLink FutureLink Pro Forma Management Pro Forma Pro Forma
USA Alberta Adjustments Corporation Adjustments Consolidated
$ $ $ $ $ $
---------- ---------- -------------- ---------- -------------- ----------
ASSETS
CURRENT
Cash -- 158,581 (2.2)(100,000) -- (2.3)207,933 (58,486)
(2.4)(325,000)
Accounts receivable -- 51,110 -- 1,028,028 -- 1,079,138
Inventory -- 2,480 -- 12,961 -- 15,441
Prepaid expenses -- 32,653 -- 10,704 -- 43,357
---------- ---------- -------------- ---------- -------------- ----------
-- 244,823 (100,000) 1,051,693 (117,067) 1,079,449
Goodwill -- -- (2.1)1,575,228 -- (2.3)5,957,683 7,957,911
(2.2)100,000 (2.4)325,000
Capital assets -- 350,589 -- 140,615 -- 491,203
Investment 1,269,259 -- (2.1)(1,269,259) -- -- --
Discontinued operations -- 1 -- -- -- 1
Incorporation costs -- 272 -- -- -- 272
Deposits -- -- -- 5,570 -- 5,570
---------- ---------- -------------- ---------- -------------- ----------
2,269,259 595,685 305,969 1,197,878 6,165,616 9,534,407
========== ========== ============== ========== ============== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank indebtedness -- -- -- 118,524 -- 118,524
Accounts payable and accrued 24,981 83,759 -- 748,873 -- 857,613
liabilities
Current portion of capital leases -- 29,187 -- 33,913 -- 63,100
Loan payable -- -- -- 19,152 -- 19,152
Promissory note payable -- -- -- -- (2.3)466,272 466,272
Shareholder loans -- -- -- 87,763 -- 87,763
Notes payable -- 34,060 -- -- -- 34,060
---------- ---------- -------------- ---------- -------------- ----------
24,981 147,006 -- 1,008,225 466,272 1,646,484
---------- ---------- -------------- ---------- -------------- ----------
DUE TO STOCKHOLDERS 504,802 10,338 -- -- -- 515,140
---------- ---------- -------------- ---------- -------------- ----------
OBLIGATIONS UNDER CAPITAL LEASES -- 11,429 -- 11,742 -- 23,171
---------- ---------- -------------- ---------- -------------- ----------
DUE TO FUTURELINK USA -- 1,265,689 (2.1)(1,265,689) -- -- --
---------- ---------- -------------- ---------- -------------- ----------
CONVERTIBLE DEBENTURE -- -- -- -- (2.3)2,250,000 2,250,000
---------- ---------- -------------- ---------- -------------- ----------
MINORITY INTEREST -- -- -- 14,755 -- 14,755
---------- ---------- -------------- ---------- -------------- ----------
STOCKHOLDERS' EQUITY
Share capital 1,200 725,930 (2.1)(725,930) 27 (2.3)(27) 4,346,581
(2.1)732,881 (2.3)3,612,500
Capital in excess of par 2,670,831 -- -- -- -- 2,670,831
Deficit (1,932,555) (1,564,707) (2.1)1,564,707 163,129 (2.3)(163,129) (1,932,555)
---------- ---------- -------------- ---------- -------------- ----------
739,476 (838,777) 1,571,658 163,156 3,449,344 5,084,858
---------- ---------- -------------- ---------- -------------- ----------
1,269,259 595,685 305,969 1,197,878 6,165,616 9,534,407
========== ========== ============== ========== ============== ==========
See accompanying notes to the unaudited pro forma consolidated financial
statements
F-6
62
FUTURELINK DISTRIBUTION CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(All amounts stated in $U.S.)
Six months ended June 30, 1998
FutureLink
Riverview USA
FutureLink FutureLink Pro Forma Management Pro Forma Pro Forma
USA Alberta Adjustments Corporation Adjustments Consolidated
$ $ $ $ $ $
---------- ---------- -------------- ---------- -------------- ----------
REVENUE -- 20,880 -- 5,339,694 -- 5,360,575
---------- ---------- -------------- ---------- -------------- ----------
EXPENSES
Salaries and employee benefits -- 219,781 -- 2,382,623 -- 2,602,404
Staff development -- -- -- 172,522 -- 172,522
Consulting -- 154,316 -- -- -- 154,316
Travel -- 52,591 -- 9,541 -- 62,133
Accounting and legal fees 40,158 51,827 -- 43,102 -- 135,087
Hardware and software purchases -- -- -- 2,256,447 -- 2,256,447
Advertising and promotion -- 49,408 -- 58,438 -- 107,846
Depreciation and amortization -- 49,034 (3.1)83,762 46,634 (3.2)314,134 493,564
Office 30,918 48,101 -- 139,946 -- 218,964
Rent -- 34,771 -- 51,393 -- 86,164
Investor relations -- 22,229 -- -- -- 22,229
Equipment rental -- 19,578 -- 4,955 -- 24,533
Internet -- 16,754 -- -- -- 16,754
Automotive -- -- -- 26,268 -- 26,268
Other -- 27,681 29,542 57,223
Interest on long term debt -- -- -- -- (3.3)135,814 135,814
Equity in loss of an affiliate 411,316 -- (3.4)411,316 -- -- --
---------- ---------- -------------- ---------- -------------- ----------
482,392 746,070 -- 5,221,410 -- 6,572,265
---------- ---------- -------------- ---------- -------------- ----------
LOSS BEFORE DISCONTINUED OPERATIONS (482,392) (752,190) -- 118,285 -- (1,211,691)
LOSS FROM DISCONTINUED OPERATIONS -- (149,965) -- -- -- (149,965)
---------- ---------- -------------- ---------- -------------- ----------
LOSS FOR THE YEAR BEFORE INCOME TAXES (482,392) (875,156) -- 118,285 -- (1,361,656)
INCOME TAXES -- -- -- (44,432) -- (44,432)
---------- ---------- -------------- ---------- -------------- ----------
(482,392) (875,156) -- 73,853 -- (1,406,088)
MINORITY INTEREST -- -- -- 23,973 -- 23,973
---------- ---------- -------------- ---------- -------------- ----------
NET EARNINGS (LOSS) FOR THE YEAR (482,392) (875,156) -- 97,826 -- (1,382,115)
========== ========== ============== ========== ============== ==========
See accompanying notes to the unaudited pro forma consolidated financial
statements
F-7
63
FUTURELINK DISTRIBUTION CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in $U.S.)
June 30, 1998
1. The accompanying unaudited pro forma consolidated financial statements
have been prepared by management from the unaudited financial statements
as at June 30, 1998 of FutureLink Distribution Corp. (a Colorado
corporation) ("FutureLink USA"), FutureLink Distribution Corp. (an Alberta
corporation) ("FutureLink Alberta") and Riverview Management Corporation
("Riverview"), and for the six month period then ended (eight month period
then ended in the case of Riverview) together with other information
available to the companies. In the opinion of the management of FutureLink
USA, these pro forma consolidated financial statements include all
adjustments necessary for fair presentation in accordance with accounting
principles generally accepted in the United States. These pro forma
consolidated financial statements may not be indicative of the financial
position or the results of operations that actually would have occurred if
the events reflected therein had been in effect on the dates indicated nor
of the financial position or the results of operations which may be
obtained in the future.
These pro forma consolidated financial statements should be read in
conjunction with the audited and unaudited financial statements of the
companies included elsewhere in this registration document.
2. The pro forma consolidated balance sheet at June 30, 1998 gives effect to
the following assumptions and transactions, all of which will become
effective on the date of the fulfillment or waiver of the conditions of
the FutureLink Alberta Acquisition Agreement and the SysGold acquisition
agreement as if the effective dates of those agreements were June 30,
1998:
2.1 The acquisition of all of the outstanding common shares of
FutureLink Alberta in exchange for an equal number of common shares
of FutureLink USA. This acquisition has been reflected as though the
initial acquisition of 1,540,000 common shares and the subsequent
acquisition of all the remaining common shares at a later date both
occurred on June 30, 1998.
The acquisition has been accounted for in these pro forma
consolidated financial statements by the purchase method. Based on
an independent valuation report dated March 1998 that attributed a
value of $0.22 to common shares of FutureLink Alberta, the total
value ascribed to the investment was $732,881. The purchase price
has been allocated to the net assets acquired based on their
estimated fair values, as follows:
Purchase
Allocation
$
----------
Net liabilities acquired (842,347)
Goodwill 1,575,228
----------
Purchase price 732,881
==========
F-8
64
FUTURELINK DISTRIBUTION CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in $U.S.)
June 30, 1998
2.2 The allocation to goodwill of the estimated costs of the acquisition
described in 2.1 above, in the amount of $100,000 financed through
bank credit facilities of FutureLink USA.
2.3 The acquisition of all of the outstanding common shares of Riverview
for cash consideration of $3,000,000 Canadian, as well as a
promissory note for $685,000 Canadian and 4,250,000 common shares of
FutureLink USA with an ascribed value of $3,612,500 U.S.
The acquisition has been accounted for in these pro forma
consolidated financial statements by the purchase method. The
purchase price has been allocated to the net assets acquired based
on their estimated fair values, as follows:
Purchase
Allocation
$
---------
Net assets acquired 163,156
Goodwill 5,957,683
---------
Purchase price 6,120,839
=========
Consideration:
Promissory note payable 466,272
10% convertible debenture* 2,042,067
Common shares of FutureLink USA 3,612,500
---------
Total consideration 6,120,839
=========
*the proceeds from the debenture will be drawn in an initial amount
of $2,250,000, with the excess cash being held by FutureLink USA for
general use.
2.4 The allocation to goodwill of the estimated costs of the acquisition
described in 2.3 above, in the amount of $325,000 financed through
bank credit facilities of FutureLink USA.
F-9
65
FUTURELINK DISTRIBUTION CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in $U.S.)
June 30, 1998
3. The pro forma consolidated statement of income for the six months ended
June 30, 1998 gives effect to the acquisitions by FutureLink USA as
described in 2.1 and 2.3 above which will become effective on the date of
the fulfillment or waiver of the conditions of the FutureLink Alberta
Acquisition Agreement and the SysGold acquisition agreement, as if the
transactions had occurred January 1, 1998. The following adjustments are
reflected:
3.1 The amortization of Goodwill attributable to the allocation of the
purchase price of FutureLink Alberta in excess of the carrying value
of the net assets acquired, (see 2.1 and 2.2 above) calculated on a
straight-line basis over a period of 10 years.
3.2 The amortization of Goodwill attributable to the allocation of the
purchase price of Riverview in excess of the carrying value of the
net assets acquired, (see 2.3 and 2.4 above) calculated on a
straight-line basis over a period of 10 years.
3.3 The inclusion of interest expense on the convertible debenture for
six months, at an annual rate of 10%.
3.4 The reversal of FutureLink USA's equity in the loss of FutureLink
Alberta.
4. The amounts shown in these pro forma consolidated financial statements for
FutureLink Alberta and for Riverview have been translated into United
States dollars from Canadian dollars at a rate of $1 US equal to $1.4691
Canadian.
F-10
66
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
FUTURELINK DISTRIBUTION CORP.
We have audited the accompanying balance sheet of FUTURELINK DISTRIBUTION CORP.
as at December 31, 1997 and the related statements of loss and deficit, changes
in stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Futurelink Distribution Corp.
as at December 31, 1997 and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States.
/s/ ERNST & YOUNG
Calgary, Canada
August 20, 1998 Chartered Accountants
F-11
67
FUTURELINK DISTRIBUTION CORP.
BALANCE SHEETS
(All amounts stated in $U.S.)
DECEMBER 31
JUNE 30, -------------------------
1998 1997 1996
(UNAUDITED) (Unaudited)
$ $ $
---------- ---------- ----------
CAPITAL ASSETS -- -- 515,000
Investment [note 3] 1,269,259 -- --
---------- ---------- ----------
1,269,259 -- 515,000
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities 24,981 23,932 6,873
---------- ---------- ----------
24,981 23,932 6,873
DUE TO STOCKHOLDER [NOTE 6] 504,802 -- 4,504
---------- ---------- ----------
529,783 23,932 11,377
---------- ---------- ----------
STOCKHOLDERS' EQUITY
Authorized
5,000,000 preferred shares without par value
100,000,000 common shares with par value of $0.0001
Issued
11,999,313, 10,203,500 and 2,500 common shares
issued and outstanding at June 30, 1998 and
December 31, 1997 and 1996, respectively [note 5] 1,200 1,020 25
Capital in excess of par [note 5] 2,670,831 1,425,211 1,216,712
Deficit (1,932,555) (1,450,163) (713,114)
---------- ---------- ----------
739,476 (23,932) 503,623
---------- ---------- ----------
1,269,259 -- 515,000
========== ========== ==========
Contingencies [note 9]
See accompanying notes
On behalf of the Board:
Director Director
F-12
68
FUTURELINK DISTRIBUTION CORP.
STATEMENTS OF LOSS AND DEFICIT
(All amounts stated in $U.S.)
SIX MONTHS YEARS ENDED
ENDED DECEMBER 31
JUNE 30 -----------------------
1998 1997 1996
$ $ $
---------- -------- --------
(Unaudited) (Unaudited)
REVENUE -- -- --
---------- -------- --------
EXPENSES
Accounting and legal 40,158 109,992 3,803
General and administrative 30,918 12,057 3,061
---------- -------- --------
71,076 122,049 6,864
---------- -------- --------
Loss from operations (71,076) (122,049) (6,864)
========== ======== ========
Write-off mining related assets [note 4] -- (515,000) --
Loss on non-refundable deposit [note 7] -- (100,000) --
Equity in loss of affiliate [note 3] (411,316) -- --
---------- -------- --------
(411,316) (615,000) --
---------- -------- --------
NET LOSS FOR THE PERIOD [NOTE 8] (482,392) (737,049) (6,864)
Deficit, beginning of period (1,450,163) (713,114) (706,250)
---------- -------- --------
DEFICIT, END OF PERIOD (1,932,555) (1,450,163) (713,114)
========== ======== ========
LOSS PER COMMON SHARE (0.25) (1.65) (2.75)
========== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 1,964,120 447,445 2,500
========== ======== ========
See accompanying notes
F-13
69
FUTURELINK DISTRIBUTION CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(All amounts stated in $U.S.)
COMMON STOCK CAPITAL IN
------------------------ EXCESS OF PAR DEFICIT
SHARES $ $ $
---------- ----- --------- ----------
BALANCE, DECEMBER 31, 1996 AND 1995 2,500 25 1,216,712 (713,114)
Issuance of share capital 1,000 10 9,990 --
---------- ----- --------- ----------
3,500 35 1,226,702 (713,114)
Change of par value from .01 to .0001 -- (35) 35 --
Issuance of share capital for cash 10,200,000 1,020 158,980 --
Forgiveness of shareholder debt -- -- 39,494 --
Net loss for the period -- -- -- (737,049)
---------- ----- --------- ----------
BALANCE, DECEMBER 31, 1997 10,203,500 1,020 1,425,211 (1,450,163)
Issuance of share capital on
exercise of special warrants 255,813 26 846,774 --
Issuance of share capital under
Share Purchase Agreement with
Futurelink Distribution Corp.,
an Alberta, Canada corporation 1,540,000 154 338,646 --
Forgiveness of shareholder debt -- -- 60,200 --
Net loss for the period -- -- -- (482,392)
---------- ----- --------- ----------
BALANCE, JUNE 30, 1998 11,999,313 1,200 2,670,831 (1,932,555)
========== ===== ========= ==========
The above statement gives retroactive effect to a share rollback of 200 to 1 on
July 20, 1997 and a rollback of 30 to 1 on December 2, 1997.
See accompanying notes
F-14
70
FUTURELINK DISTRIBUTION CORP.
STATEMENTS OF CASH FLOWS
(All amounts stated in $U.S.)
SIX MONTHS YEARS ENDED
ENDED DECEMBER 31
JUNE 30 -----------------------
1998 1997 1996
$ $ $
---------- -------- ------
(Unaudited) (Unaudited)
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss (482,392) (737,049) (6,864)
Adjustments to reconcile net loss to net cash
provided by operating activities
Write off mining related assets [note 4] -- 515,000 --
Equity in loss of affiliate 411,316 -- --
Loss on refundable deposit -- 100,000 --
---------- -------- ------
(71,076) (122,049) (6,864)
Changes in non-cash working capital balances
Accounts payable and accrued liabilities 1,049 17,059 3,802
---------- -------- ------
(70,027) (104,990) (3,062)
---------- -------- ------
CASH FLOWS USED IN INVESTING ACTIVITIES
Advances to Futurelink Distribution Corp. (Alberta)
[note 3] (1,341,775) -- --
Loss on refundable deposit -- (100,000) --
---------- -------- ------
(1,341,775) (100,000) --
---------- -------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from stockholders [note 6] 504,802 (4,504) 3,062
Proceeds from the issuance of common stock [note 5] 846,800 170,000 --
Forgiveness of shareholder debt [note 5] 60,200 39,494 --
----------
1,411,802 204,990 3,062
---------- -------- ------
INCREASE IN CASH -- -- --
Cash, beginning of period -- -- --
---------- -------- ------
CASH, END OF PERIOD -- -- --
========== ======== ======
See accompanying notes
F-15
71
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 and June 30, 1998
(Information as at June 30, 1998 and for the six month periods ended June 30,
1998 and as at and for the year ended December 31, 1996 is unaudited)
1. INCORPORATION AND OPERATIONS
The Company was formed on April 4, 1955 in the state of Colorado, USA, as Cortez
Uranium and Mining Co. The company was involved in several mining related
projects and had changed its name several times. On July 20, 1997, the company
changed its names to Core Ventures, Inc. The company changed its name to
Futurelink Distribution Corp. effective February 17, 1998.
The Company had no operations in the first six months of 1997. Accordingly
comparative interim financial statements are not presented for this period.
In early 1998, the Company changed its focus to concentrate on the acquisition
and development of companies in the business of information technology
outsourcing. The Company currently has no sources of revenue, except indirectly
through its investee, and has a deficit at June 30, 1998 of $1,932,555. Its
future viability is dependent upon acquiring or developing profitable operations
and securing additional financing to support these activities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have, in management's opinion, been properly prepared
in accordance with accounting principles generally accepted in the United
States. Differences between accounting principles generally accepted in Canada
and the United States would have no material impact on these financial
statements.
USE OF ESTIMATES
Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period necessarily
involves the use of estimates which would affect the amount of recorded assets,
liabilities, revenues and expenses. Actual amounts could differ from these
estimates.
INVESTMENT
The Company's investment in Futurelink Distribution Corp. (an Alberta, Canada
corporation), representing a 47% interest in the outstanding common shares at
June 30, 1998, is accounted for using the equity method.
F-16
72
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 and June 30, 1998
(Information as at June 30, 1998 and for the six month periods ended June 30,
1998 and as at and for the year ended December 31, 1996 is unaudited)
INCOME TAXES
The Company records its provision for income taxes using the liability method.
Under this method deferred tax assets and liabilities are recognized based on
the anticipated future tax effects arising from the differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases.
FINANCIAL INSTRUMENTS
The carrying values of financial instruments, including accounts payable and
accrued liabilities, and amounts due to stockholders approximate their fair
values. It is management's opinion that the Company is not exposed to
significant interest, currency or credit risks arising from these financial
instruments.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's investment is Canadian dollars.
Adjustments arising from translating the investee's financial statements into
United States dollars are recorded in stockholders' equity as a cumulative
translation adjustment.
INTERIM FINANCIAL STATEMENTS
The interim financial statements as at and for the period ended June 30, 1998,
in the opinion of management, include all adjustments (consisting of normal
recurring adjustments and accruals) necessary to present fairly the results for
the interim period presented. Operating results for the period ended June 30,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998.
F-17
73
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 and June 30, 1998
(Information as at June 30, 1998 and for the six month periods ended June 30,
1998 and as at and for the year ended December 31, 1996 is unaudited)
3. INVESTMENT
DECEMBER 31
JUNE 30, -----------------------
1998 1997 1996
(UNAUDITED) (Unaudited)
$ $ $
--------- --------- ---------
Futurelink Distribution Corp. (an Alberta,
Canada corporation)
1,540,000 common shares (47%) 338,800 -- --
Advances, non-interest bearing 1,341,775 -- --
--------- --------- ---------
Equity loss (411,316) -- --
--
1,269,259 -- --
========= ========= =========
On January 20, 1998 the Company issued 1,540,000 common shares in exchange for
1,540,000 common shares of Futurelink Distributions Corp., an Alberta, Canada
corporation ("Futurelink Alberta") representing 48% of the issued and
outstanding shares at that time. Based on an independent valuation report dated
March 1998 that attributed a value of $0.22 to common shares of Futurelink
Alberta, the total value ascribed to the investment was $338,800. The Company
has also advanced Futurelink Alberta $1,341,775. This amount is non-interest
bearing and has no repayment terms.
4. CAPITAL ASSETS
DECEMBER 31, 1996
-----------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
------- ------- -------
Mining concessions 85,000 -- 85,000
Proprietary mining process 430,000 -- 430,000
------- ------- -------
515,000 -- 515,000
======= ======= =======
During 1997 the Company wrote off these assets to their estimated net realizable
value of nil. The Company is no longer in the mining business.
5. SHARE CAPITAL
On January 20, 1998 the articles of the Company were amended to increase the
authorized share capital to 100,000,000 common shares and 5,000,000 preferred
shares.
83,334 warrants were issued to the share subscribers who were issued shares on
January 29, 1998. The warrants allow the holder to purchase additional shares at
$3.00 on or before one year and $3.30 before two years from the date of
acquisition. None of the outstanding warrants have been exercised as at June 30,
1998.
F-18
74
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 and June 30, 1998
(Information as at June 30, 1998 and for the six month periods ended June 30,
1998 and as at and for the year ended December 31, 1996 is unaudited)
105,813 warrants were issued to the share subscribers who were issued shares on
April 3, 1998. The warrants allow the holder to purchase additional shares at
$3.75 on or before one year and $4.00 before two years from the date of
acquisition. None of the outstanding warrants have been exercised as at June 30,
1998.
66,666 warrants were issued to the share subscribers who were issued shares on
April 22, 1998. The warrants allow the holder to purchase additional shares at
$3.25 on or before two years from the date of acquisition. None of the
outstanding warrants have been exercised as at June 30, 1998.
On January 19, 1998, the Company reserved 3,500,000 restricted common shares for
the issuance to officers, directors and employees of Futurelink Alberta. These
shares were issued on July, 1998.
Of the 11,999,313 shares issued at June 30, 1998, 1,341,000 are restricted and
10,658,313 are freely trading. Restricted shares held by non-affiliates of the
Company must be held for at least one year. Restricted shares held by affiliates
of the Company must be held for 1 to 2 years.
The 1,540,000 common shares issued to purchase a 48% investment in Futurelink
Alberta, are subject to a hold period. One half of the shares given to the
vendors will be released from escrow on July 20, 1998 and the balance will be
released on January 20, 1999.
On June 29, 1998, the Company issued stock options to purchase 3,080,000 common
shares to employees and non-employee directors with an exercise price of $0.755.
These stock options were all outstanding as at June 30, 1998. The options expire
on June 29, 2001.
A stockholder of the Company forgave $60,200 in 1998 and $39,494 in 1997 which
he had advanced to the Company during that period.
F-19
75
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 and June 30, 1998
(Information as at June 30, 1998 and for the six month periods ended June 30,
1998 and as at and for the year ended December 31, 1996 is unaudited)
6. RELATED PARTY TRANSACTIONS
During 1998, Linear Strategies Ltd., a stockholder, advanced the Company
$504,802. The Company in turn advanced the money to Futurelink Alberta. Interest
incurred on the loan to June 30, 1998 in the amount of $2,904 has been added to
the principal amount owing. Subsequent to June 30, 1998, the loan was converted
into shares and warrants.
The amount of $4,504 due to a stockholder of the Company at December 31, 1996
was non-interest bearing and had no repayment terms.
7. LOSS ON NON-REFUNDABLE DEPOSIT
During 1997, the Company made a $100,000 non-refundable deposit to purchase
Printscan Technology; however, the Company did not raise sufficient funds to
complete the purchase, and the deposit was forfeited.
8. INCOME TAXES
The provision for income taxes differs from the Company's statutory rate of 40
percent as follows:
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31
JUNE 30 ----------------------------
1998 1997 1996
$ $ $
--------- --------- ---------
(Unaudited) (Unaudited)
Provision for income taxes based on net loss as 192,957 294,820 2,746
reported
Add temporary differences not recognized
Write-off of mining related assets -- (206,000) --
Equity in loss of affiliate (164,526) -- --
Loss carryforwards (28,431) (88,820) (2,746)
--------- --------- ---------
Provision for income taxes -- -- --
========= ========= =========
The Company has cumulative temporary differences related to mining operations
written off in prior years and loss carryforwards which would give rise to
deferred tax assets. The Company has not maintained sufficient taxation records
to quantify these amounts; however, valuation allowances would reduce all such
assets to zero as there is significant uncertainty as to whether the Company
will generate taxable income.
9. CONTINGENCIES
A statement of claim has been filed against the Company in the amount of
approximately of $350,000 plus any interest on any damages awarded, costs on a
solicitor client basis and other
F-20
76
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 and June 30, 1998
(Information as at June 30, 1998 and for the six month periods ended June 30,
1998 and as at and for the year ended December 31, 1996 unaudited)
damages the court may award. The statement of claim alleges that the Company
made certain misrepresentations and interfered with contractual relations in
respect of a sale transaction between two third parties involving the Company's
common shares. It is management's position that the claim is without merit;
consequently, no liability in respect of the claim has been recorded in the
financial statements.
10. SUBSEQUENT EVENTS
On August 4, 1998 the Company signed a share purchase agreement which provides
for the acquisition of Riverview Management Corporation, an information
technology outsourcing and services firm, for cash consideration of $3,000,000
Canadian, as well as a 90 day promissory note for $685,000 Canadian and
4,250,000 common shares with an ascribed value of $3,612,500 U.S. Closing of the
purchase is subject to various conditions, including obtaining third party
financing for the cash portion of the purchase cost.
On August 20, 1998 the Company issued a takeover bid circular in order to
complete the purchase of 100% of Futurelink Alberta through the issue of an
additional 1,791,275 common shares with an ascribed value of $394,081. It is
management's intention to complete the acquisition by the end of September,
1998.
F-21
77
FUTURELINK DISTRIBUTION CORP.
BALANCE SHEETS
(all amounts stated in $ Cdn.)
JUNE 30 DECEMBER 31
-------------------------------------------
1998 1997 1996
(Unaudited)
$ $ $
---------- ---------- --------
ASSETS
CURRENT
Cash and short term deposits 232,971 10,886 89,852
Accounts receivable 75,085 53,122 8,158
Inventory 3,643 -- --
Prepaid expenses and deposits 47,971 10,436 1,669
Notes receivable [note 8] -- -- 104,500
---------- ---------- --------
359,670 74,444 204,179
CAPITAL ASSETS [NOTE 3] 515,050 239,330 9,745
DISCONTINUED OPERATIONS [NOTE 11] 1 -- --
INCORPORATION COSTS [NOTE 4] 400 600 800
---------- ---------- --------
875,121 314,374 214,724
========== ========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities 123,051 361,581 40,458
Current portion of capital leases [note 5] 42,879 30,871 --
Notes payable [note 8] 50,037 95,500 --
---------- ---------- --------
215,967 487,952 40,458
---------- ---------- --------
DUE TO SHAREHOLDERS [NOTE 8] 15,188 87,545 2,030
---------- ---------- --------
OBLIGATION UNDER CAPITAL LEASES [NOTE 5] 16,790 19,208 --
---------- ---------- --------
DUE TO FUTURELINK DISTRIBUTION CORP., A COLORADO
CORPORATION [NOTE 8] 1,859,423 -- --
---------- ---------- --------
SHAREHOLDERS' EQUITY
Share capital [note 7] 1,066,464 732,689 370,329
Deficit (2,298,711) (1,013,020) (198,093)
---------- ---------- --------
(1,232,247) (280,331) 172,236
---------- ---------- --------
875,121 314,374 214,724
========== ========== ========
Contingency [note 12]
See accompanying notes
Behalf of the Board:
Director Director
F-22
78
FUTURELINK DISTRIBUTION CORP.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(all amounts stated in $ Cdn.)
PERIOD FROM
SIX MONTHS ENDED JUNE 30 YEAR ENDED MARCH 28 TO
-------------------------- DECEMBER 31 DECEMBER 31
1998 1997 1997 1996
(Unaudited) (Unaudited)
$ $ $ $
---------- ---------- ---------- ----------
REVENUE
Sales 10,015 -- -- --
Equipment sales 19,668 -- -- --
Interest income 992 3,083 4,820 2,752
---------- ---------- ---------- ----------
30,675 3,083 4,820 2,752
---------- ---------- ---------- ----------
EXPENSES
Salaries 322,881 69,950 69,949 7,716
Consulting 226,705 30,442 401,320 109,625
Travel 77,262 8,645 18,997 12,196
Accounting and legal fees 76,139 4,794 14,031 17,172
Advertising and promotion 72,585 12,178 30,093 11,778
Depreciation and amortization 72,036 2,849 50,138 2,145
Office 70,665 6,109 32,066 12,674
Rent 51,082 7,046 35,839 3,300
Investor relations 32,656 -- -- --
Equipment rental 28,762 13,074 29,696 6,569
Internet 24,613 -- 19,952 --
Architectural and design fees -- -- 68,485 --
Other 40,666 5,688 35,002 17,670
---------- ---------- ---------- ----------
1,096,052 160,775 805,568 200,845
---------- ---------- ---------- ----------
LOSS BEFORE DISCONTINUED OPERATIONS (1,065,377) (157,692) (800,748) (198,093)
LOSS FROM DISCONTINUED OPERATIONS
[NOTE 11] (220,314) (6,680) (14,179) --
---------- ---------- ---------- ----------
NET LOSS FOR THE PERIOD (1,285,691) (164,372) (814,927) (198,093)
DEFICIT, BEGINNING OF PERIOD (1,013,020) (198,093) (198,093) --
---------- ---------- ---------- ----------
DEFICIT, END OF PERIOD (2,298,711) (362,465) (1,013,020) (198,093)
========== ========== ========== ==========
See accompanying notes
F-23
79
FUTURELINK DISTRIBUTION CORP.
STATEMENTS OF CASH FLOWS
(all amounts stated in $ Cdn.)
PERIOD FROM
YEAR ENDED MARCH 28 TO
SIX MONTHS ENDED JUNE 30 DECEMBER 31 DECEMBER 31
---------- ---------- ---------- ----------
1998 1997 1997 1996
(Unaudited) (Unaudited)
$ $ $ $
---------- ---------- ---------- ----------
CASH WAS PROVIDED BY (USED FOR):
Loss before discontinued operations (1,065,377) (157,692) (800,748) (198,093)
Add items not affecting cash:
Depreciation and amortization 72,036 2,849 50,138 2,145
---------- ---------- ---------- -----------
(993,341) (154,843) (750,610) (195,948)
Net change in non-cash working capital
related to operating activities
[note 10] (339,671) (24,483) 371,892 (73,869)
---------- ---------- ---------- -----------
Cash used for continuing operations (1,333,012) (179,326) (378,718) (269,817)
---------- ---------- ---------- -----------
Loss from discontinued operations (220,314) (6,680) (14,179) --
Add item not affecting cash:
Loss on discontinuance 60,616 -- -- --
---------- ---------- ---------- -----------
Cash used for discontinued operations
(159,698) (6,680) (14,179) --
---------- ---------- ---------- -----------
(1,492,710) (186,006) (392,897) (269,817)
---------- ---------- ---------- -----------
INVESTING ACTIVITIES
Purchase of capital assets (370,173) (68,019) (279,523) (11,690)
Incorporation costs -- -- -- (1,000)
---------- ---------- ---------- -----------
(370,173) (68,019) (279,523) (12,690)
---------- ---------- ---------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of common shares 333,775 160,000 362,360 370,329
Advances from shareholders (72,357) 31,500 85,515 2,030
Advances from Futurelink Distribution
Corp 1,859,423 -- -- --
Increase in capital lease obligation 9,590 -- 50,079 --
Increase (decrease) in note payable (45,463) -- 95,500 --
---------- ---------- ---------- -----------
2,084,968 191,500 593,454 372,359
---------- ---------- ---------- -----------
INCREASE (DECREASE) IN CASH 222,085 (62,525) (78,966) 89,852
CASH AND SHORT TERM DEPOSITS, END OF
PERIOD 232,971 27,327 10,886 --
---------- ---------- ---------- -----------
CASH, BEGINNING OF PERIOD 10,886 89,852 89,852 89,852
========== ========== ========== ===========
See accompanying notes
F-24
80
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(Information as at June 30, 1998 and for the six month periods ended June 30,
1998 and 1997 is unaudited)
1. DESCRIPTION OF BUSINESS
The Company was incorporated under the Business Corporations Act (Alberta) on
March 28, 1996 as 689936 Alberta Ltd. The name of the Company was changed to
Coffee.com Interactive Cafe Corp. by articles of amendment on June 19, 1996. The
name of the Company was subsequently changed to Futurelink Distribution Corp. on
November 17, 1997.
The Company is in the initial stages of development. Its future viability is
dependent upon management's ability to generate revenues or secure additional
financing to support continued service.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in Canada. Because a precise
determination of many assets and liabilities is dependent upon future events,
the preparation of financial statements for a period necessarily involves the
use of estimates and approximations which have been made using careful judgment.
The financial statements have, in management's opinion, been properly prepared
within reasonable limits of materiality and within the framework of the
significant account policies summarized below.
CAPITAL ASSETS
Capital assets are recorded at cost. Depreciation is recorded at the following
rates:
Furniture and fixtures 20% declining balance
Computer hardware 30% declining balance
Computer software 100% declining balance
Leasehold improvements 5 years straight line
One half of the normal depreciation is taken in the year of acquisition.
INCORPORATION COSTS
Incorporation costs are recorded at cost and are amortized on a straight line
basis over five years.
FINANCIAL INSTRUMENTS
The carrying values of financial instruments, including cash, accounts
receivable, accounts payable and accrued liabilities, notes payable, due to
shareholders, note payable, and long term debt, approximate their fair values.
3. CAPITAL ASSETS
JUNE 30, 1998
-------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
F-25
81
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(Information as at June 30, 1998 and for the six month periods ended June 30,
1998 and 1997 is unaudited)
$ $ $
------- ------- -------
Furniture and fixtures 67,290 8,785 58,505
Computer hardware 404,211 75,916 328,295
Computer software 92,916 33,779 59,137
Leasehold improvements 74,352 5,239 69,113
------- ------- -------
638,769 123,719 515,050
======= ======= =======
DECEMBER 31, 1997
-------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
------- ------ -------
Furniture and fixtures 33,385 4,346 29,039
Computer hardware 226,854 35,239 191,615
Computer software 20,830 11,284 9,546
Leasehold improvements 10,145 1,015 9,130
------- ------ -------
291,214 51,884 239,330
======= ====== =======
DECEMBER 31, 1996
------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
------ ----- -----
Furniture and fixtures 5,595 559 5,036
Computer hardware 4,747 712 4,035
Computer software 1,348 674 674
------ ----- -----
11,690 1,945 9,745
====== ===== =====
Included in computer hardware at June 30, 1998 are assets under capital lease of
$84,802 (December 31, 1997 - $61,069; December 31, 1996 - $Nil) and related
accumulated depreciation of $18,727 (December 31, 1997 - $9,160).
F-26
82
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(Information as at June 30, 1998 and for the six month periods ended June 30,
1998 and 1997 is unaudited)
4. INCORPORATION COSTS
JUNE 30, 1998
-----------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
----- --- ---
Incorporation costs 1,000 600 400
===== === ===
DECEMBER 31, 1997
-----------------------------------
Accumulated Net Book
Cost Amortization Value
$ $ $
----- --- ---
Incorporation costs 1,000 400 600
===== === ===
DECEMBER 31, 1996
-----------------------------------
Accumulated Net Book
Cost Amortization Value
$ $ $
----- --- ---
Incorporation costs 1,000 200 800
===== === ===
5. LEASE COMMITMENTS
The future minimum lease payments at June 30, 1998 under capital and operating
leases are as follows:
CAPITAL OPERATING
LEASES LEASES
$ $
------ -------
1998 25,435 72,903
1999 30,414 131,740
2000 8,843 131,184
2001 1,474 124,938
2002 -- 40,952
------ -------
Total future minimum lease payments 66,166 501,717
=======
Less: imputed interest (6,497)
------
Balance of obligations under capital lease 59,669
Less: current portion (42,879)
------
Long term obligation under capital lease 16,790
======
6. NOTES PAYABLE
The notes payable are due to 679132 Alberta Ltd., a corporation controlled by a
director and officer of the Company. The notes are payable on demand on or
before December 31, 1998.
F-27
83
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(Information as at June 30, 1998 and for the six month periods ended June 30,
1998 and 1997 is unaudited)
Interest accrues on the notes at the prime rate of a Canadian chartered bank
plus 1%. These notes were repaid in full in July, 1998.
7. SHARE CAPITAL
AUTHORIZED:
Unlimited Class "A" common shares
Unlimited Class "B" non-voting common shares
Unlimited first preferred shares
ISSUED Shares $
---------- ----------
Class A common shares
Balance at December 31, 1996 3,660,000 370,329
Rollback of initial founder shares (1,400,000) (140)
Shares issued for cash during the year, net of issue costs of
$5,000 367,500 362,500
Shares issued to key employees 325,000 --
---------- ----------
Balance, December 31, 1997 2,952,500 732,689
Shares issued for cash 145,000 145,000
Shares issued as compensation 188,775 188,775
---------- ----------
Balance, June 30, 1998 3,286,275 1,066,464
========== ==========
At June 30, 1998, there were 165,000 (December 31, 1997 - 225,000) Class A
common shares reserved for issuance on exercise of stock options, of which
45,000 were exercised subsequent to June 30, 1998. These remaining 120,000
options outstanding may be exercised at a price of $1.00 per share and expire on
August 26, 1998.
8. RELATED PARTY TRANSACTIONS
At June 30, 1998, the Company had amounts due to shareholders of $15,188
(December 31, 1997 - $87,545; 1996 - $2,030).
At June 30, 1998, the Company had amounts owing to 679132 Alberta Ltd., a
corporation controlled by a director and officer of the Company of $47,000 plus
$3,037 of accrued interest (1997 - $95,500). This amount is due on or before
December 31, 1998. Interest is accumulated at the Royal Bank of Canada prime
plus 1%.
During the year, the Company received $1,859,423 of cash advances from a
significant shareholder, FutureLink Distribution Corp., a Colorado corporation,
which remains payable at June 30, 1998. The amount does not carry interest and
has no set repayment terms. The Company has been advised by its shareholder that
it does not intend to demand repayment within the next year; consequently, this
amount has been classified as long-term in the financial statements.
As at December 31, 1996 there is an amount of $104,500 including accrued
interest owing from a corporation controlled by a director of the Company. This
amount was repaid during 1997.
F-28
84
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(Information as at June 30, 1998 and for the six month periods ended June 30,
1998 and 1997 is unaudited)
Included in accounts receivable at June 30, 1998 are amounts due from two
shareholders of the Company, FutureLink Distribution Corp., a Colorado
corporation, and Chell McNeill Inc. for $18,893 and $9,681 respectively
(December 31, 1997 and 1996 - $Nil).
9. INCOME TAXES
As at December 31, 1997, the Company has approximately $950,000 of non-capital
loss carry forwards for tax purposes. The potential future benefit of these
losses has not been recognized in these financial statements. These losses
expire in 2004 and 2005.
10. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES RELATED TO OPERATING
ACTIVITIES
PERIOD FROM
SIX MONTHS ENDED JUNE 30 YEAR ENDED MARCH 28 TO
------------------------ DECEMBER 31 DECEMBER 31
1998 1997 1997 1996
$ $ $ $
-------- ------- ------- -------
Accounts receivable (21,963) (11,806) (44,964) (8,158)
Inventory (3,643) -- -- --
Prepaid expenses and deposits (75,535) (25,689) (8,767) (1,669)
Notes receivable -- -- 104,500 (104,500)
Accounts payable and accrued
liabilities (238,530) 13,012 321,123 40,458
-------- ------- ------- -------
(339,671) (24,483) 371,892 (73,869)
======== ======= ======= =======
F-29
85
FUTURELINK DISTRIBUTION CORP.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(Information as at June 30, 1998 and for the six month periods ended June 30,
1998 and 1997 is unaudited)
11. DISCONTINUED OPERATIONS
Effective April 23, 1998, the Company discontinued its operations that provided
Internet web page design services. The remaining assets and liabilities related
to these operations have been written down to $1 resulting in a loss on
discontinuance of $60,616. On July 1, 1998, the Company disposed of the
discontinued operations in exchange for an investment in 50% of the common
shares of NextClick Ltd. The fair market value of this investment has been
estimated at $1.
During the period, revenues and results of the discontinued operations were as
follows:
PERIOD FROM
SIX MONTHS ENDED JUNE 30 YEAR ENDED MARCH 28 TO
-------------------------- DECEMBER 31 DECEMBER 31
1998 1997 1997 1996
$ $ $ $
-------- ------ ------- -------
Revenue 21,190 -- 22,585 --
======== ====== ======= =======
Results of operations (159,698) (6,680) (14,179) --
Loss on discontinuance (60,616) -- -- --
-------- ------ ------- -------
(220,314) (6,680) (14,179) --
======== ====== ======= =======
12. CONTINGENCY
A statement of claim has been filed against the Company in the amount of
$285,000 seeking damages and loss of rent related to a purported lease agreement
with respect to a building in Calgary, Alberta. The Company is counter claiming
an amount of $360,000 against the claimant. It is impossible at this time for
the Company to predict with any certainty the outcome of such litigation.
However, management is of the opinion that the claim is without merit and will
defend the Company's position vigorously. These financial statements contain no
provision for loss related to the claims.
F-30
86
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1997
----------------------
(Unaudited)
F-31
87
[BUCHANAN, BARRY & CO. LETTERHEAD]
REVIEW ENGAGEMENT REPORT
To the Directors of
Riverview Management Corporation
We have reviewed the consolidated balance sheet of Riverview Management
Corporation as at June 30, 1998 and 1997 and the consolidated statements of
earnings and retained earnings and changes in financial position for the eight
months then ended. Our review was made in accordance with generally accepted
standards for review engagements and accordingly consisted primarily of enquiry,
analytical procedures and discussion related to information supplied to us by
the company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these financial statements.
Based on our review, nothing has come to our attention that causes us to believe
that these financial statements are not, in all material respects, in accordance
with generally accepted accounting principles.
/s/ BUCHANAN, BARRY & CO.
--------------------------
Calgary, Alberta BUCHANAN, BARRY & CO.
August 13, 1998 CHARTEREDACCOUNTANTS
F-32
88
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998 AND 1997
(Unaudited)
ASSETS
1998 1997
---------- ----------
CURRENT
Accounts receivable $1,510,276 $1,539,994
Prepaid expenses 15,725 15,679
Inventory 19,041 51,840
---------- ----------
1,545,042 1,607,513
CAPITAL ASSETS (Note 2) 206,577 111,552
DEPOSITS 8,183 6,663
---------- ----------
$1,759,802 $1,725,728
========== ==========
LIABILITIES
CURRENT
Bank indebtedness $ 174,124 $ 101,401
Accounts payable and accrued liabilities 937,919 1,162,768
Income taxes payable 162,250 141,550
Loan payable 28,136 33,782
Shareholder loan 128,933 24,577
Current portion of obligation under capital lease 49,821 --
---------- ----------
1,481,183 1,464,078
OBLIGATION UNDER CAPITAL LEASE (Note 3) 17,250 --
---------- ----------
1,498,433 1,464,078
MINORITY INTEREST 21,676 83,600
---------- ----------
1,520,109 1,547,678
---------- ----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 4) 40 40
RETAINED EARNINGS
239,653 178,010
---------- ----------
239,693 178,050
---------- ----------
$1,759,802 $1,725,728
========== ==========
APPROVED ON BEHALF OF THE BOARD
_______________________Director
_______________________Director
Buchanan, Barry & Co.
F-33
89
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
EIGHT MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
1998 1997
----------- -----------
REVENUE
System consulting $ 4,232,998 $ 2,863,237
Hardware and software sales 3,611,356 2,628,859
Sundry 191 577
----------- -----------
7,844,545 5,492,673
----------- -----------
EXPENSES
Advertising and promotion 85,851 52,471
Amortization 68,510 43,775
Automotive 38,590 18,662
Bad debts 7,475 3,300
Bank charges and interest 23,764 11,283
Equipment rental 7,280 8,498
Hardware and software purchases 3,314,946 2,403,900
Interest on capital lease obligation 12,161 --
Office 95,677 41,926
Professional fees 63,321 40,821
Rent 75,501 57,308
Salaries 3,500,311 2,217,073
Staff development 253,452 125,243
Telephone 109,917 78,351
Travel 14,017 8,063
----------- -----------
7,670,773 5,110,674
----------- -----------
EARNINGS BEFORE INCOME TAXES 173,772 381,999
INCOME TAXES 65,275 141,550
----------- -----------
108,497 240,449
MINORITY INTEREST (35,219) 63,065
----------- -----------
NET EARNINGS 143,716 177,384
RETAINED EARNINGS, beginning of period 141,937 46,626
----------- -----------
285,653 224,010
DIVIDENDS (46,000) (46,000)
----------- -----------
RETAINED EARNINGS, end of period $ 239,653 $ 178,010
=========== ===========
Buchanan, Barry & Co.
F-34
90
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
EIGHT MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
1998 1997
--------- ---------
OPERATING ACTIVITIES
Net earnings $ 143,716 $ 177,384
Adjustments to operations not involving cash
Amortization 68,510 43,775
Minority interest (35,219) 63,065
--------- ---------
177,007 284,224
--------- ---------
Change in non-cash working capital items
Accounts receivable (144,732) (459,733)
Prepaid expense (6,714) (15,014)
Inventory (7,368) (45,000)
Accounts payable and accrued liabilities (53,779) 245,041
Deferred revenue -- (13,778)
Income taxes payable 28,060 127,289
Bonus payable (184,500) (108,600)
--------- ---------
(369,033) (269,795)
--------- ---------
(192,026) 14,429
--------- ---------
INVESTING ACTIVITIES
Acquisition of capital assets (72,264) (88,005)
Advancement of deposits (1,520) (6,663)
--------- ---------
(73,784) (94,668)
--------- ---------
FINANCING ACTIVITIES
Advances to shareholder 126,454 21,050
Repayment of loan payable (5,646) --
Repayment of capital lease obligation (21,053) --
Repayment of long-term debt -- (5,555)
Dividends paid (46,000) (46,000)
--------- ---------
53,755 (30,505)
--------- ---------
NET CHANGE IN CASH (BANK INDEBTEDNESS) (212,055) (110,744)
CASH, beginning of period 37,931 9,343
--------- ---------
BANK INDEBTEDNESS, end of period $(174,124) $(101,401)
========= =========
Buchanan, Barry & Co.
F-35
91
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
JUNE 30, 1998 AND 1997
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
company, its wholly-owned subsidiary Sysgold Inc. and Sysgold Ltd., an
entity controlled by the company. The consolidated financial statements
are prepared in accordance with accounting principles generally accepted
in Canada. The consolidated financial statements represent nine months of
the parent company and eight months of the subsidiaries as a result of
different fiscal year-ends.
INVENTORY
Inventory has been valued at the lower of cost or net realizable value.
Cost being determined on a first-in first-out basis.
CAPITAL ASSETS
Capital assets are recorded at cost. Amortization is provided annually at
rates calculated to write-off the assets over their estimated useful lives
as follows:
Cellular phones 2.7% per month straight line
Computer hardware 4% per month straight line
Computer software 100% per annum declining balance
Leasehold improvements straight-line over the term of the lease
Office equipment 20% per annum declining balance
Equipment under capital lease 20% per annum declining balance
MEASUREMENT UNCERTAINTY
The amount recorded for amortization of capital assets is based on
estimates. Management requires estimates to forecast economic indicators
for determining the net recoverable amount of such assets under generally
accepted accounting principles. By their nature, these estimates are
subject to measurement uncertainty and the effect of any changes in such
estimates on the financial statements of future periods could be material.
Management periodically reviews the useful lives of these assets to
determine the adequacy of the amortization policy.
2. CAPITAL ASSETS
1998 1997
--------------------------------------------------------
Accumulated Net Book Net Book
Cost Amortization Value Value
-------- ------------ -------- --------
Cellular phones $ 44,529 $ 23,007 $ 21,522 $ 15,844
Computer hardware 254,812 201,962 52,850 49,339
Computer software 28,752 25,883 2,869 4,354
Leasehold improvements 39,081 11,692 27,389 30,795
Office equipment 24,564 7,945 16,619 11,220
Equipment under capital lease 104,377 19,049 85,328 --
-------- -------- -------- --------
$496,115 $289,538 $206,577 $111,552
======== ======== ======== ========
Buchanan, Barry & Co.
F-36
92
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(Unaudited)
3. OBLIGATION UNDER CAPITAL LEASE
1998 1997
-------- ---------
The following is a schedule of future minimum
lease payments under capital leases expiring
between July 1999 and July 2000.
Year ending October 31,
1998 $ 49,819 $ --
1999 30,222 --
2000 2,090 --
-------- ---------
Total minimum lease payments 82,131 --
Less amount representing interest imputed at
rates of 14 - 34% (15,060) --
-------- ---------
Balance of obligation 67,071 --
Less current portion (49,821) --
-------- ---------
Long-term portion of
obligation $ 17,250 $ --
======== =========
4. SHARE CAPITAL
Authorized 1998 1997
---------- ----------
Unlimited number of
Class A common voting shares
Class B common non-voting shares
Class C common non-voting redeemable shares
Class D common non-voting 8% cumulative
preferred shares with a redemption
price of $1 per share
Issued
100 Class A shares $ 10 $ 10
100 Class B shares 10 10
100 Class C shares 10 10
10 Class D shares 10 10
---------- ----------
$ 40 $ 40
========== ==========
Buchanan, Barry & Co.
F-37
93
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
JUNE 30, 1998 AND 1997
(Unaudited)
5. SUBSEQUENT EVENT
The company purchased the remaining 33% interest in its subsidiary Sysgold
Ltd. from the minority shareholder for cash proceeds of $315,000 on July
24, 1998. The shareholder buy-out was based on an effective valuation date
of April 30, 1996. The purchase was accounted for using the purchase
method. The purchase price allocation is estimated as follows:
NET ASSETS ACQUIRED
Current assets $514,182
Capital assets 67,257
Other assets 20,728
Goodwill 222,886
--------
825,053
--------
Current liabilities 411,740
Other liabilities 98,313
--------
510,053
--------
Net Assets $315,000
========
6. COMMITMENTS
The company is committed under various operating leases including: office
equipment lease; $930 per month expiring May 2000, premises lease; $3,653
per month expiring January 2002 and vehicle lease; $1,693 expiring March
2001. The basic minimum lease payments for the duration of the agreements
is as follows:
1999 $ 75,311
2000 74,381
2001 59,068
2002 25,571
--------
$234,331
========
Buchanan, Barry & Co.
F-38
94
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 and 1996
-------------------------
F-39
95
[BUCHANAN, BARRY & CO. LOGO]
AUDITORS' REPORT
To the Directors of
Riverview Management Corporation
We have audited the consolidated balance sheet of Riverview Management
Corporation as at October 31, 1997 and 1996 and the consolidated statements of
earnings and retained earnings and changes in financial position for the years
then ended. These consolidated financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at October 31, 1997
and 1996 and the results of its operations and the changes in its financial
position for the years then ended in accordance with generally accepted
accounting principles.
Calgary, Alberta Buchanan, Barry & co.
August 13, 1998 CHARTERED ACCOUNTANTS
F-40
96
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1997 AND 1996
ASSETS
1997 1996
---------- ----------
CURRENT
Cash $ 37,931 $ 9,343
Accounts receivable 1,365,544 1,080,261
Prepaid expenses 9,011 665
Inventory 11,673 6,840
---------- ----------
1,424,159 1,097,109
CAPITAL ASSETS (Note 2) 202,823 67,319
DEPOSITS 6,663 --
---------- ----------
$1,633,645 $1,164,428
========== ==========
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 991,698 $ 917,725
Bonus payable 184,500 108,600
Income taxes payable 134,190 14,261
Deferred revenue -- 13,778
Loan payable 33,782 33,782
Shareholder loans 2,479 3,527
Current portion of obligation under capital lease 32,821 --
Current portion of long-term debt (Note 3) -- 5,555
---------- ----------
1,379,470 1,097,228
OBLIGATION UNDER CAPITAL LEASE (Note 4) 55,303 --
---------- ----------
1,434,773 1,097,228
MINORITY INTEREST 56,895 20,534
---------- ----------
1,491,668 1,117,762
---------- ----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 5) 40 40
RETAINED EARNINGS 141,937 46,626
---------- ----------
141,977 46,666
---------- ----------
$1,633,645 $1,164,428
========== ==========
APPROVED ON BEHALF OF THE BOARD
_______________________Director
_______________________Director
Buchanan, Barry & Co.
F-41
97
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
YEARS ENDED OCTOBER 31, 1997 AND 1996
1997 1996
----------- -----------
REVENUE
System consulting $ 4,587,504 $ 2,309,576
Hardware and software sales 4,929,610 2,967,732
Sundry 3,675 9,949
----------- -----------
9,520,789 5,287,257
----------- -----------
EXPENSES
Advertising and promotion 97,897 42,430
Amortization 73,747 57,218
Automotive 37,860 25,947
Bad debts 5,878 3,556
Bank charges and interest 15,986 13,474
Employee benefits 343,976 173,462
Equipment rental 12,720 --
Hardware and software purchases 4,500,816 2,724,037
Interest on long-term debt and capital lease obligation 4,629 4,150
Management fees -- 74,357
Memberships and subscriptions 26,161 27,351
Office 58,304 37,917
Out sourced administration 3,802 12,679
Professional fees 86,990 74,264
Rent 100,935 32,520
Repairs and maintenance 2,770 3,177
Salaries 2,589,611 1,386,708
Staff development 171,853 69,812
Supplies 18,727 23,067
System consultants 901,976 354,185
Telephone 132,503 78,360
Travel 21,056 18,097
----------- -----------
9,208,197 5,236,768
----------- -----------
EARNINGS BEFORE INCOME TAXES 312,592 50,489
INCOME TAXES 134,920 14,991
----------- -----------
177,672 35,498
MINORITY INTEREST 36,361 8,822
----------- -----------
NET EARNINGS 141,311 26,676
RETAINED EARNINGS, beginning of year 46,626 65,950
----------- -----------
187,937 92,626
DIVIDENDS (46,000) (46,000)
----------- -----------
RETAINED EARNINGS, end of year $ 141,937 $ 46,626
=========== ===========
Buchanan, Barry & Co.
F-42
98
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
YEARS ENDED OCTOBER 31, 1997 AND 1996
1997 1996
--------- ---------
OPERATING ACTIVITIES
Net earnings $ 141,311 $ 26,676
Adjustments to operations not involving cash
Amortization 73,747 57,218
Minority interest 36,361 8,822
--------- ---------
251,419 92,716
--------- ---------
Change in non-cash working capital items
Accounts receivable (285,283) (636,392)
Prepaid expense (8,346) 335
Inventory (4,833) 16,528
Accounts payable and accrued liabilities 73,973 552,704
Deferred revenue (13,778) (496)
Income taxes payable 119,929 (6,017)
Bonus payable 75,900 78,600
--------- ---------
(42,438) 5,262
--------- ---------
208,981 97,978
--------- ---------
INVESTING ACTIVITIES
Acquisition of capital assets (209,251) (66,001)
Advancement of deposits (6,663) --
--------- ---------
(215,914) (66,001)
--------- ---------
FINANCING ACTIVITIES
Advances (to) from shareholders (1,048) 5,423
Dividends paid to minority shareholders -- (2,128)
Advancement of capital lease obligation 104,376
Repayment of capital lease obligation (16,252)
Repayment of long-term debt (5,555) (13,332)
Dividends paid (46,000) (46,000)
--------- ---------
35,521 (56,037)
--------- ---------
NET CHANGE IN CASH 28,588 (24,060)
CASH, beginning of year 9,343 33,403
--------- ---------
CASH, end of year $ 37,931 $ 9,343
========= =========
Buchanan, Barry & Co.
F-43
99
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
OCTOBER 31, 1997 AND 1996
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
company, its wholly-owned subsidiary Sysgold Inc. and Sysgold Ltd., an
entity controlled by the company. The consolidated financial statements
are prepared in accordance with accounting principles generally accepted
in Canada. The fiscal year of the parent company is September 30th and the
fiscal year of the two subsidiaries is October 31st.
INVENTORY
Inventory has been valued at the lower of cost or net realizable value.
Cost being determined on a first-in first-out basis.
CAPITAL ASSETS
Capital assets are recorded at cost. Amortization is provided annually at
rates calculated to write-off the assets over their estimated useful lives
as follows:
Cellular phones 2.7% per month straight line
Computer hardware 4% per month straight line
Computer software 100% per annum declining balance
Leasehold improvements straight-line over the term of the lease
Office equipment 20% per annum declining balance
Equipment under capital lease 20% per annum declining balance
MEASUREMENT UNCERTAINTY
The amount recorded for amortization of capital assets is based on
estimates. Management requires estimates to forecast economic indicators
for determining the net recoverable amount of such assets under generally
accepted accounting principles. By their nature, these estimates are
subject to measurement uncertainty and the effect of any changes in such
estimates on the financial statements of future periods could be material.
Management periodically reviews the useful lives of these assets to
determine the adequacy of the amortization policy.
2. CAPITAL ASSETS
1997 1996
--------------------------------------------------------
Accumulated Net Book Net Book
Cost Amortization Value Value
-------- -------- -------- --------
Cellular phones $ 31,125 $ 15,551 $ 15,574 $ 11,323
Computer hardware 215,111 167,779 47,332 44,460
Computer software 21,896 19,444 2,452 1,723
Leasehold improvements 36,272 6,676 29,596 204
Office equipment 15,071 5,658 9,413 9,609
Equipment under capital lease 104,377 5,921 98,456
-------- -------- -------- --------
$423,852 $221,029 $202,823 $ 67,319
======== ======== ======== ========
Buchanan, Barry & Co.
F-44
100
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
3. LONG-TERM DEBT
1997 1996
------------- -------
Bank loan bearing interest at prime plus 1%, secured by general
assignment of book debts and a chattel mortgage over equipment $ -- $ 5,555
Less current portion -- (5,555)
------------- -------
$ -- $ --
============= =======
4. OBLIGATION UNDER CAPITAL LEASE
1997 1996
--------- --------
The following is a schedule of future minimum lease payments
under capital leases expiring between July 1999 and July 2000.
Year ending October 31,
1998 $ 49,819 $ --
1999 46,155 --
2000 19,370 --
--------- --------
Total minimum lease payments 115,344 --
Less amount representing interest imputed at rates of 14 - 34% (27,220) --
--------- --------
Balance of obligation 88,124 --
Less current portion of obligation 32,821 --
--------- --------
Long-term portion of obligation $ 55,303 $ --
========= ========
5. SHARE CAPITAL
Authorized 1997 1996
-------- --------
Unlimited number of
Class A common voting shares
Class B common non-voting shares
Class C common non-voting shares
Class D common non-voting 8% non-cumulative preferred shares with a
redemption price of $1 per share
Issued
100 Class A shares $ 10 $ 10
100 Class B shares 10 10
100 Class C shares 10 10
10 Class D shares 10 10
-------- --------
$ 40 $ 40
======== ========
Buchanan, Barry & Co.
F-45
101
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
OCTOBER 31, 1997 AND 1996
6. SUBSEQUENT EVENT
The company purchased the remaining 33% interest in its subsidiary Sysgold
Ltd. from the minority shareholder for cash proceeds of $315,000 on July
24, 1998. The shareholder buy-out was based on an effective valuation date
of April 30, 1996. The purchase was accounted for using the purchase
method. The purchase price allocation is estimated as follows:
NET ASSETS ACQUIRED
Current assets $514,182
Capital assets 67,257
Other assets 20,728
Goodwill 222,886
--------
825,053
--------
Current liabilities 411,740
Other liabilities 98,313
--------
510,053
--------
Net assets $315,000
========
7. COMMITMENTS
The company is committed under various operating leases including: office
equipment lease; $930 per month expiring May 2000, premises lease; $3,653
per month expiring January 2002 and vehicle lease; $1693 per month
commencing March 1998 and expiring March 2001. The basic minimum lease
payments for the duration of the agreements are as follows:
1998 $ 68,535
1999 75,311
2000 70,661
2001 64,151
2002 10,958
--------
$289,616
========
Buchanan, Barry & Co.
F-46
102
================================================================================
NO DEALER, SALES REPRESENTATIVE OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY.......................................
THE OFFERING.............................................
RISK FACTORS.............................................
USE OF PROCEEDS..........................................
DIVIDEND POLICY..........................................
CAPITALIZATION...........................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............
BUSINESS.................................................
MANAGEMENT...............................................
CERTAIN TRANSACTIONS.....................................
SELLING SHAREHOLDERS.....................................
DESCRIPTION OF CAPITAL STOCK.............................
PLAN OF DISTRIBUTION.....................................
LEGAL OPINION............................................
EXPERTS..................................................
INDEX TO FINANCIAL STATEMENTS............................ F-1
================================================================================
14,907,052 SHARES
FUTURELINK DISTRIBUTION CORP.
4,250,000 SHARES OF COMMON STOCK
UNDERLYING BIALIK EXCHANGEABLE SHARES
9,615,384 SHARES OF COMMON STOCK
UNDERLYING $5,000,000 CONVERTIBLE DEBENTURES
1,041,667 SHARES OF COMMON STOCK UNDERLYING THOMSON KERNAGHAN WARRANTS
----------------
PROSPECTUS
----------------
August 24, 1998
103
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
FUTURELINK USA
FutureLink USA's Articles and bylaws provide that it may indemnify and advance
expenses to any person who incurs liability or expense by reason of such person
acting as a director, officer, employee or agent of FutureLink USA, to the
fullest extent allowed by the Colorado Business Corporation Act.
Sections 7-109-102 and 7-109-107 of the Colorado Business Corporation Act
provide that a corporation may indemnify its current and former officers,
directors, employees and agents against reasonable expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in settlement
which, in each case, were incurred in connection with actions, suits, or
proceedings in which such persons are parties by reason of the fact that they
are or were an officer, director, employee or agent of the corporation, if: (i)
they acted in good faith; (ii) in the case of conduct in an official capacity
with the corporation; the conduct was in the corporation's best interests; (iii)
in all other cases, the conduct was at least not opposed to the corporation's
best interests; and (iv) in the case of a criminal proceeding, they had no
reasonable cause to believe the conduct was unlawful. The corporation may not
indemnify an officer, director, employee or agent of the corporation: (i) in
connection with a proceeding by the corporation or enforcing rights of the
corporation in which such person is adjudged liable to the corporation or (ii)
in connection with any proceeding charging improper personal benefit, whether or
not acting in an official capacity, in which such person is adjudged liable on
the basis that personal benefit was improperly received. Unless limited by its
articles of incorporation, a corporation shall be required to indemnify an
officer, director, employee, or agent who was wholly successful in defense of a
proceeding, against reasonable attorneys' fees.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
Effective July 1, 1998, FutureLink USA purchased Directors and Officers
Liability insurance with coverage of $2,000,000 from AON Financial Management
out of Denver, CO.
FUTURELINK ALBERTA
FutureLink Alberta's Articles state that it may, in its sole discretion
indemnify and advance expenses to any person who incurs liability or expense by
reason of such person acting as a director, officer, employee or agent of the
Corporation, to the fullest extent allowed by the Business Corporations Act
(Alberta).
The Business Corporations Act (Alberta) provides that a corporation may
indemnify its current and former officers and directors against reasonable
expenses which, in each case, were incurred in connection with actions, suits,
or proceedings in which such persons are parties by reason of the fact that they
are or were an officer or director of the corporation, if: (i) they acted
honestly and in good faith; (ii) in the case of a criminal or administrative
proceeding, they had no reasonable cause to believe the conduct was unlawful.
Unless limited by its articles of incorporation, a corporation shall
II-1
104
be required to indemnify an officer or who was wholly successful in defense of a
proceeding, against reasonable attorneys' fees.
RIVERVIEW MANAGEMENT CORPORATION
RMC's Articles state that it may, in its sole discretion indemnify and advance
expenses to any person who incurs liability or expense by reason of such person
acting as a director, officer, employee or agent of the Corporation, to the
fullest extent allowed by the Business Corporations Act (Alberta).
The Business Corporations Act (Alberta) provides that a corporation may
indemnify its current and former officers and directors against reasonable
expenses which, in each case, were incurred in connection with actions, suits,
or proceedings in which such persons are parties by reason of the fact that they
are or were an officer or director of the corporation, if: (i) they acted
honestly and in good faith; (ii) in the case of a criminal or administrative
proceeding, they had no reasonable cause to believe the conduct was unlawful.
Unless limited by its articles of incorporation, a corporation shall be required
to indemnify an officer or who was wholly successful in defense of a proceeding,
against reasonable attorneys' fees.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following tables sets forth the various expenses in connection with the sale
and distribution of the securities being registered, other than underwriting
discounts and commissions and non-accountable expense allowance. All of the
amounts shown are estimates, except the Securities and Exchange Commission
registration and NASD filing fees.
Securities and Exchange Commission registration fee............................ $ 4,385.29
Accounting fees and expenses................................................... $ 5,000.00
Printing and engraving expenses................................................ $ 5,000.00
Transfer agent and registrar (fees and expenses)............................... $ 2,000.00
Blue sky fees and expenses (including counsel fees)............................ $ 2,000.00
Other legal fees and legal expenses............................................ $25,000.00
Miscellaneous expenses......................................................... $ 8,000.00
----------
Total.......................................................................... $51,385.29
==========
II-2
105
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES.
Since December 2, 1997 the following FutureLink USA Common Shares have been
issued and remain outstanding (adjusted for all consolidations):
NUMBER ISSUE PRICE AGGREGATE CONSIDERATION
DATE OF SHARES PER SHARE ISSUE PRICE RECEIVED
- ---- --------- --------- ----------- --------
December 2, 1997 (post 200:1 203,500 N/A $1,286,737 Services
consolidation) and post 30:1
consolidation
December 18, 1997 10,000,000 $0.01 $100,000 Cash
SUB-TOTAL-DEC 31, 1997 10,203,500 $1,386,737
January 20, 1998 83,334 $3.00 $250,000 Cash
January 20, 1998 1,540,000 $0.22 $338,800 Share Exchange
April 3, 1998 68,480 $3.75 $256,800 Cash
April 3, 1998 37,333 $3.75 $140,000 Cash
April 22, 1998 46,666 $3.00 $140,000 Cash
April 22, 1998 20,000 $3.00 $60,000 Cash
---------- ----- ---------
SUB-TOTAL - MAY 31, 1998 11,999,313(1) $2,572,337
July 7, 1998 3,500,000 $0.001 $3,500 Services
TOTAL- JULY 31, 1998 15,499,313(1) $2,575,837
Notes:
(1) The figures in this schedule reconcile to the audited financial
statements and the records of the Corporation. The records of the
transfer agent vary and are shown as the following as issued and
outstanding: December 31, 1997 10,231,025; May 31, 1998 11,826,834; and
July 20, 1998 15,499,303.
ITEM 27. EXHIBITS.
(a) EXHIBITS
The following exhibits pursuant to Rule 601 of Regulation SB are included
herein.
3.1.1 Articles of Incorporation of Cortez Uranium and Mining Co. (now
known as FutureLink USA), as amended dated April 4, 1955 (to be
filed by amendment).
3.1.2 Articles of Incorporation of FutureLink Alberta dated March 28,
1996 as amended dated June 13, 1996 and November 17, 1997.
3.1.3 Articles of Incorporation of Riverview Management Corporation
dated August 18, 1987, as amended.
3.2.1 ByLaws of Core Ventures, Inc. (now known as FutureLink USA), as
adopted July 20, 1997.
3.2.2 By-Laws of FutureLink Alberta.
3.2.3 By-Laws of Riverview Management Corporation, as adopted
September 9, 1987.
4.1.1 Agreement by and between FutureLink and Thomson Kernaghan & Co.
Ltd. dated August 14, 1998.
4.1.2 Share Purchase Agreement by and among FutureLink USA, Donald A.
Bialik, Olivia B. Bialik, Bialik Family Trust, Riverview
Management Corporation, SysGold Ltd., and FutureLink Alberta
dated August 4, 1998.
4.1.3 Targetco Acquisition Agreement by and between FutureLink USA
and FutureLink Alberta, dated August 3, 1998.
5 Jeffer, Mangels, Butler & Marmaro LLP Legal Opinion (to be filed
by amendment).
10.1.1 Commercial Insurance Policy with Financial Management Alberta
Ltd., dated February 10, 1998.
10.1.2 Indemnity Agreement by and between Core Ventures, Inc. (now
known as FutureLink USA) and John Anastasios Xinos, dated
January 19, 1998.
10.1.3 Letter of Intent from Core Ventures, Inc. (now known as
FutureLink USA) to Printscan International, Inc., dated
August 22, 1997.
10.1.4 Lease Agreement, as amended by and between Coffee.Com
Interactive Cafe Corp. (now known as FutureLink Alberta) and
Manufacturers Life Insurance Company, dated March 20, 1997.
10.1.5 Employment Agreement by and between SysGold Ltd. and Apprentice
of Calgary dated January 1, 1998.
10.1.6 Consulting and Confidentiality Agreement by and between
SysGold, Inc. and S.1.Systems Ltd., dated August 13, 1997.
10.1.7 Independent Contractor Agreement by and SysGold Ltd. and BV
Ridge Consulting dated March 10, 1997.
10.1.8 Revised Offer to Lease by and between SysGold Ltd. and Bow
Valley Square Management Ltd., dated March 24, 1998.
10.1.9 Generic Contract Information Systems Services Agreement by and
between UMC Resources CANADA Ltd. and SysGold Ltd., dated
July 1, 1998.
10.1.10 Business Partner Agreement with addendum by and between SysGold
Ltd. and Lotus Development Canada Limited.
10.1.11 Final Invoice/Enrollment Contract by and between SysGold Ltd.
and Microsoft Certified Solution Provider, dated
December 12, 1997.
10.1.12 Agreement of understanding by and between SysGold Ltd. and
Seanix.
10.1.13 Industry Partner Agreement by and between MISSolutions D.B.A.
ETI Solutions and SysGold Ltd.
II-3
106
10.1.14 Arbor Systems Integration Partner Agreement by and between Arbor
Software Corporation and SysGold, Inc., dated March 1, 1998.
10.1.15 Citrix Solutions Network Membership Agreement by and between
Citrix Systems, Inc. and FutureLink Alberta, dated May 5, 1998.
10.1.16 Solution Provider Contract by and between IBM Canada Ltd. and
SysGold Ltd. dated July 17, 1998.
10.1.17 Distributor Authorized Reseller Agreement by and between
Hewlett Packard and SysGold, Inc., dated March 19, 1998.
10.1.18 Security Agreement by and between Canadian Imperial Bank of
Commerce and Riverview Management Corporation, dated
December 11, 1997.
10.1.19 Letter Agreement by and between FutureLink USA and NTN Network,
dated April 29, 1998.
10.1.20 Enrollment Agreement by and between Microsoft Corporation and
FutureLink, dated April 28, 1998.
10.1.21 Service Agreement by and between FutureLink and Willson
Stationers Ltd., dated June 1, 1998.
10.1.22 Service Agreement by and between FutureLink and Jaws
Technologies, Inc., dated June 1, 1998.
10.1.23 Service Agreement by and between FutureLink and Financial
Management Alberta, Ltd.
10.1.24 Service Agreement by and between FutureLink and Chell McNeill,
Inc., dated April 17, 1998.
10.1.25 Service Agreement by and between FutureLink and Sheraton
Business Forms Ltd. dated July 1, 1998.
10.1.26 Service Agreement by and between FutureLink and Bankton
Financial Corporation, dated April 17, 1998.
10.1.27 Business Credit Agreement by and between Canadian Imperial Bank
of Commerce and SysGold Ltd., dated April 16, 1998.
10.1.28 Share Purchase Agreement by and among Core Ventures, Inc. (now
known as FutureLink USA), FutureLink Alberta, Cameron Chell, and
Linda Carling, dated January 20, 1998.
10.1.29 FutureLink USA Stock Option Plan dated June 29, 1998.
21 Subsidiaries of Issuer include:
1. FutureLink Alberta
2. Riverview Management Corporation
23.1 Consent of Jeffer, Mangels, Butler & Marmaro LLP.
23.2 Consent of Ernst & Young.
23.2.2 Consent of Halpin Antony Owen Mayer.
23.2.3 Consent of Buchanan Barry & Co.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) To include any Prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the
Registration Statement (or the most recent
post-effective amendment thereof) which,
individually, or in the aggregate, represent a
fundamental change in the information set forth
in the Registration Statement; notwithstanding
the foregoing, any increase or decrease in
volume of securities offered (if the total
dollar value of securities offered would not
exceed that which was registered) and any
deviation from the low or high end of the
estimated maximum Offering range may be
reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b)
(Section 230.424(b) of this Chapter) if, in the
aggregate, the changes in volume and price
represent no more than a 20% change in the
maximum aggregate Offering price set forth in
the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) To include any material information with respect
to the plan of distribution not previously
disclosed in the Registration Statement or any
material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein,
and the Offering of such securities at that time shall
be deemed to be the initial bona fide Offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the Offering.
Insofar as indemnification for liabilities arising from the Securities Act of
1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
107
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Calgary,
Province of Alberta on the 24th day of August, 1998.
FUTURELINK DISTRIBUTION CORP.
By: /s/ CAMERON CHELL
--------------------------------------------
Cameron Chell, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Cameron Chell or Raghu Kilambi, or either of them, his true and lawful
attorney-in-fact and agent, acting alone, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, any Amendments thereto and any Registration
Statement for the same Offering which is effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, each acting
alone, full powers and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent, acting alone, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Company in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ CAMERON CHELL CEO and Director August 24, 1998
- ----------------------------------------
Cameron Chell
/s/ ROBERT KUBBERNUS Director August 24, 1998
- ----------------------------------------
Robert Kubbernus
Director August 24, 1998
- ----------------------------------------
Bryson Farrill
/s/ RAGHU KILAMBI Director, Vice President Corporate August 24, 1998
- ---------------------------------------- Finance, Corporate Secretary,
Raghu Kilambi CFO and Chief Accounting Officer
/s/ LINDA M. MURRAY Assistant Corporate August 24, 1998
- ---------------------------------------- Secretary
Linda M. Murray
/s/ PHILIP LADOUCEUR Director August 24, 1998
- ----------------------------------------
Philip Ladouceur
/s/ DON BIALIK President August 24, 1998
- ---------------------------------------
Don Bialik
/s/ ROBERT H. KOHN Director August 24, 1998
- ---------------------------------------
Robert H. Kohn
II-5