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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT FOR SMALL BUSINESS ISSUERS SUBJECT
TO THE 1934 ACT REPORTING REQUIREMENTS
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
FOR THE FISCAL QUARTERLY PERIOD ENDED June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-24833
FUTURELINK CORP.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 95-4763404
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6 MORGAN, IRVINE, CALIFORNIA 92618
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(949) 837-8252
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The total number of shares of the Registrant's Common Stock outstanding as
of June 30, 2000 was 63,604,902.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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FUTURELINK CORP.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
PAGE
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements........................................... 3
Item 2. Management's Discussion and Analysis........................... 11
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings............................................. 18
Item 2. Changes in Securities......................................... 18
Item 3. Defaults Upon Senior Securities............................... 19
Item 4. Submission of Matters to a Vote of Security Holders........... 19
Item 5. Other Information............................................. 19
Item 6. Exhibits and Reports on Form 8-K.............................. 20
SIGNATURES.................................................... 21
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PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
FUTURELINK CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 5,536 $ 19,185
Restricted cash 1,141 3,099
Accounts receivable, net 28,165 14,284
Inventory, net 4,907 4,964
Prepaid expenses 2,258 536
Deferred offering and acquisition costs 3,533 543
--------- ---------
Total current assets 45,540 42,611
Property and equipment, net 19,962 10,972
Goodwill and other intangibles, net 269,625 186,866
Other assets 449 229
--------- ---------
Total assets $ 335,576 $ 240,678
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 4,746 $ 1,657
Accounts payable and accrued liabilities 33,852 15,811
Settlement payable -- 5,000
Current portion of long-term debt 19,271 8,554
Deferred revenue 1,607 1,330
--------- ---------
Total current liabilities 59,476 32,352
Long term debt, net of current portion 8,550 4,116
Convertible debentures, net 38 874
Deferred taxes 588 588
--------- ---------
Total liabilities 68,652 37,930
Commitments and contingencies
Stockholders' equity:
Preferred stock -- --
Common stock, $.0001 par value, 300,000,000 shares
authorized, 63,604,902 and 52,743,169 shares
issued and outstanding at 2000 and 1999, respectively 7 7
Common stock issuable; 3,839,823 and 1,639,850 shares at
2000 and 1999, respectively 59,005 42,636
Additional paid-in capital 245,699 146,150
Warrants 60,000 60,000
Deferred compensation (2,171) (1,393)
Loan receivable from officer -- (1,500)
Cumulative foreign currency translation adjustment (819) (77)
Accumulated deficit (94,797) (43,075)
--------- ---------
Total stockholders' equity 266,924 202,748
--------- ---------
Total liabilities and stockholders' equity $ 335,576 $ 240,678
========= =========
See notes to condensed consolidated financial statements.
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FUTURELINK CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------------------------------------
2000 1999 2000 1999
----------------------------------------------------------------
Revenue:
Hardware and software $ 24,852 $ 501 $ 42,176 $ 884
Service delivery 8,719 1,210 14,039 2,571
------------ ----------- ------------ -----------
33,571 1,711 56,215 3,455
Expenses:
Cost of hardware and software 20,629 470 34,703 822
Cost of service delivery 6,149 1,739 9,814 3,224
Selling, general and administration 18,379 2,940 32,805 4,438
Goodwill amortization 14,668 218 26,451 350
Depreciation and other amortization 1,747 460 3,241 960
------------ ----------- ------------ -----------
61,572 5,827 107,014 9,794
------------ ----------- ------------ -----------
Net loss from operations (28,001) (4,116) (50,799) (6,339)
Interest expense 803 6,408 1,232 7,406
Interest income (108) -- (334) --
------------ ----------- ------------ -----------
Net loss before income taxes and extraordinary item (28,696) (10,524) (51,697) (13,745)
Provision (benefit) for income taxes (93) (119) 25 (238)
------------ ----------- ------------ -----------
Net loss before extraordinary item (28,603) (10,405) (51,722) (13,507)
Extraordinary item -- (845) -- (845)
------------ ----------- ------------ -----------
Net loss $ (28,603) $ (11,250) $ (51,722) $ (14,352)
============ =========== ============ ===========
Net loss per share -- basic and diluted:
Net loss before extraordinary item $ (0.47) $ (1.68) $ (0.89) $ (2.25)
Extraordinary item -- (0.14) -- (0.14)
------------ ----------- ------------ -----------
Net loss $ (0.47) $ (1.82) $ (0.89) $ (2.39)
============ =========== ============ ===========
Weighted average shares -- basic and diluted 61,059,909 6,175,671 58,203,757 5,995,831
============ =========== ============ ===========
See notes to condensed consolidated financial statements.
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FUTURELINK CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
-------------------------
2000 1999
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OPERATING ACTIVITIES
Net loss $ (51,722) $(14,352)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 29,692 1,310
Deferred income taxes -- (238)
Extinguishment of debt -- 433
Amortization of deferred compensation 1,440 --
Amortization of finance fees -- 1,466
Common stock, warrants and options issued for services 250 1,955
Non-cash interest expense -- 7,235
Change in operating assets and liabilities, net of
effect of business acquisitions:
Accounts receivable (4,542) (584)
Inventory 1,590 (105)
Prepaid expenses (1,534) (1,586)
Deferred offering costs (2,990) --
Other assets (97) --
Accounts payable and accrued expenses 11,137 (1,461)
Settlement payable (5,000) --
Deferred revenue (506) --
--------- --------
NET CASH USED IN OPERATING ACTIVITIES (22,282) (5,927)
--------- --------
INVESTING ACTIVITIES
Cash paid for purchase of property and equipment (2,830) (1,383)
Cash paid for business acquisitions, net of cash balances
acquired (17,965) --
Cash advances to unconsolidated subsidiary -- (1,220)
Decrease in restricted cash 1,958 --
--------- --------
NET CASH USED IN INVESTING ACTIVITIES (18,837) (2,603)
--------- --------
FINANCING ACTIVITIES
Net cash paid under lines of credit (411) (180)
Proceeds from issuance of common shares, net 14,992 (5)
Proceeds from exercise of employee stock options 1,016 --
Proceeds from exercise of warrants 18,076 --
Proceeds from issuance of notes payable -- 248
Repayment of acquisition notes (3,624) --
Repayment of capital lease obligation (1,614) (18)
Issuance of convertible debentures, net of costs (94) 10,921
Exchange of shares in settlement of employee advance (129)
Repayment of convertible debentures and promissory notes -- (2,071)
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 28,212 8,895
--------- --------
Effect of currency rate changes (742) (114)
Decrease in cash (13,649) 251
Cash at beginning of period 19,185 7
--------- --------
CASH AT END OF PERIOD $ 5,536 $ 258
========= ========
NON CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of businesses:
Assets acquired $ 120,717 $ 42
Liabilities assumed 11,462 --
Notes payable issued 11,671 --
Common stock and options issued 79,619 42
--------- --------
Cash paid for acquisitions 17,965 --
Capital lease obligations 8,410 175
Conversion of convertible debt to equity 836 1,561
SUPPLEMENTAL INFORMATION, CASH PAID FOR:
Interest $ 734 $ 35
Income Taxes 25 --
See notes to condensed consolidated financial statements.
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FUTURELINK CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
reflect the results of operations for FutureLink Corp. and its wholly owned
subsidiaries and have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals and
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three-month and six-month periods ended June 30, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in FutureLink's Annual
Report on Form 10-KSB for the year ended December 31, 1999 filed with the
Securities and Exchange Commission (SEC) on March 30, 2000.
FutureLink Corp. (the "Company") is a Delaware corporation headquartered in
Irvine, California. The Company provides server-based computing services, and is
an application services provider, or ASP. The Company's services enable software
applications to be deployed, managed, supported and upgraded from centrally
located servers, rather than on individual desktop computers. For server-based
computing customers, the Company installs and integrates software applications
on customers' servers. For our ASP customers, the Company hosts software
applications on servers at data centers, and rents computing services to
customers for a monthly fee. ASP customers connect to facilities over the
Internet, through a dedicated telecommunications line or by wireless connection.
ASP services were introduced in March 1999.
The Company has experienced net losses over the past two years and has an
accumulated deficit of approximately $94.8 million at June 30, 2000. Such losses
are attributable to both cash losses resulting from costs incurred in the
development of the Company's services and infrastructure, interest expense and
non-cash charges. Subsequent to June 30, 2000, the Company completed two equity
financing transactions resulting in approximately $47.4 million of proceeds to
the Company. The Company expects operating losses to continue for the
foreseeable future as it continues to develop and promote its services.
NOTE 2. ACQUISITIONS
Vertical Software, Inc.
On January 31, 2000, the Company acquired Vertical Software, Inc. ("VSI"),
a U.S. mid-Atlantic regional provider of system integration and information
technology services. The agreement provides for a merger of VSI with a
subsidiary of the Company such that all of VSI's outstanding stock was sold to
the Company in exchange for consideration of $27.6 million consisting of $8.1
million cash and 1,026,316 common shares of the Company's common stock valued at
$19.5 million. The acquisition was accounted for by the purchase method of
accounting, and the excess purchase price of $26.7 million over the estimated
fair value of net assets acquired was allocated to goodwill and is being
amortized over five years.
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MicroLAN Systems, Inc.
On February 29, 2000, the Company acquired MicroLAN Systems, Inc., doing
business as Madison Technology Group, Madison Consulting Resources, Inc. and
Madison Consulting Resources NJ, Inc. The companies were acquired for total
consideration of $57.5 million, consisting of $6.5 million cash, a note payable
in the amount of $7.3 million that is secured by the Company's shares of a new
subsidiary formed for the acquisition, and 1,975,170 shares of common stock
valued at $43.7 million. The acquisition was accounted for by the purchase
method of accounting. In connection therewith, $12.4 million of the purchase
price was allocated to assembled workforce and is being amortized over three
years, and $45.2 million of the excess purchase price over the estimated fair
value of net assets acquired was allocated to goodwill and is being amortized
over five years.
Charon Systems Inc.
On June 19, 2000, the Company acquired Charon Systems Inc. ("Charon") for
total consideration of $21.5 million, consisting of $0.7 million cash, a note
payable in the amount of $4.4 million which was paid on July 11, 2000 and
exchangeable shares convertible into 2,199,973 shares of the Company's common
stock valued at $16.4 million. The acquisition was accounted for by the purchase
method of accounting, and the excess purchase price of $20.7 million over the
estimated fair value of net assets acquired was allocated to goodwill and is
being amortized over five years.
The following pro forma results of operations give effect to the
acquisition of the above companies as if the transactions had occurred on
January 1, 1999 (dollars in millions):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
2000 1999 2000 1999
----- ----- ----- -----
(UNAUDITED) (UNAUDITED)
Revenue $37.7 $28.7 $68.7 $52.3
Net loss 28.9 25.0 59.2 42.3
Loss per share $0.46 $0.99 $0.97 $1.68
3. GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangible assets are comprised of the following at June
30, 2000 and December 31, 1999 (in thousands):
JUNE 30, DECEMBER 31,
2000 1999
--------- -----------
(UNAUDITED)
Goodwill.................................................... $286,915 $189,699
Assembled workforce......................................... 15,166 3,200
-------- --------
Total....................................................... 302,081 192,899
Less accumulated amortization............................... (32,456) (6,033)
-------- --------
Goodwill and other intangibles.............................. $269,625 $186,866
======== ========
4. LINE OF CREDIT AGREEMENTS
The Company has a credit facility agreement with a bank that allows
borrowings up to a maximum of $10 million based upon the Company meeting certain
performance criteria. Borrowings under the credit agreement at June 30, 2000
were $3.6 million and the Company had utilized an additional $1.0 million to
secure an outstanding letter of credit. The facility bears interest at rates
that vary from
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prime (9.5% at June 30, 2000) plus 1% to prime plus 3% per annum based upon the
Company maintaining certain operating performance levels, and is payable on
demand. The facility is secured by receivables and other assets of certain
subsidiaries of the Company, and guarantees and a pledge of a percentage of the
shares of those subsidiaries. The agreement contains certain financial and other
covenants or restrictions, including the maintenance of certain financial
ratios, limitations on the incurrence of indebtedness and restrictions on
dividends paid by the Company. As of June 30, 2000, the Company was either in
compliance with, or had obtained waivers for, all covenants, limitations and
restrictions. At June 30, 2000 the aggregate unused available amount under the
agreement was approximately $0.4 million.
The Company maintains lines of credit at two other banks that allow
aggregate borrowings of $1.1 million, all of which was borrowed at June 30,
2000. The lines bear interest at various rates ranging from prime plus 1% to
prime plus 3% per annum, and mature at various intervals through November 30,
2000. The lines are secured by certificates of deposits aggregating $1.1 million
(reflected as restricted cash on the accompanying consolidated balance sheet at
June 30, 2000).
5. LONG-TERM DEBT
Long-term debt consists of the following at June 30, 2000 and December 31,
1999 (in thousands):
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
Capital lease obligations, net of original issue discount of
$617 and $727, respectively............................... $ 13,090 $ 5,985
Notes payable to former KNS stockholders.................... 3,061 6,685
Note payable to former MicroLAN stockholders................ 7,250 --
Note payable to former Charon stockholders.................. 4,420 --
-------- -------
27,821 12,670
Less current portion of long-term debt...................... (19,271) (8,554)
-------- -------
Long-term debt.............................................. $ 8,550 $ 4,116
======== =======
Capital lease obligations are for the lease of up to $22.5 million of
computer hardware and related infrastructure costs. Aggregate monthly payments
are currently $492,000 and are based upon twenty four to sixty month
amortization periods, including interest implicit in the lease at rates ranging
from 9% to 14% per annum. As of June 30, 2000, the Company had available
borrowings of $11.4 million under the various lease lines. In addition to the
lease payments, the Company issued to the lessors warrants valued at $727,000 to
acquire 42,553 shares of common stock at $8.50 per share. The value of the
warrants has been reflected as a discount of the related debt, and is being
amortized to interest expense over the life of the debt.
Notes payable to former KNS stockholders consisted of a note of $2.7
million, which was paid in May 2000, and a note of $4.0 million, of which $1.0
million was paid in June 2000 and the remainder of the note was subsequently
paid in July 2000.
Note payable to former MicroLAN stockholders consisted of a note payable in
the amount of $7.25 million, which was subsequently paid in July 2000.
Note payable to former Charon stockholders consisted of a note payable in
the amount of $4.4 million, which was subsequently paid in July 2000.
5. STOCKHOLDERS' EQUITY
Issuance of Common Stock and Warrants for Cash
On April 28, 2000, the Company completed a private placement of common
equity with institutional private equity investors for approximately $15
million. A total of 1,764,704 restricted shares of common stock and warrants to
purchase 441,176
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shares of common stock at an exercise price of $9.25 per share were issued. The
warrants expire at the end of April 2003.
Issuance of Common Stock upon Exercise of Warrants
During the six months ended June 30, 2000, warrant holders exercised their
rights to acquire 2,630,298 shares of common stock at an effective price of
$7.50 per share for aggregate net proceeds to the Company of $18.0 million. The
warrants had an adjusted (for anti-dilution) exercise price of $8.40 per share
and the holders of these warrants effectively paid $7.50 per share after
adjustment for a warrant exercise fee of $0.90 for each warrant exercised.
Issuance of Common Stock upon Conversion of Convertible Debt
On March 30, 2000 certain note holders of convertible debt and accrued
interest thereon converted approximately $217,000 of debt into 189,160 shares of
common stock.
On April 29, 2000, certain holders of convertible debt and accrued interest
thereon converted $621,000 of debt into 676,408 shares of common stock in
accordance with the terms contained in the convertible debt agreement. The
Company incurred approximately $96,000 of costs in connection with the
conversion.
Issuance and Exercise of Stock Options
On May 26, 2000, Glen Holmes, the Company's President and Chief Operating
Officer and one of its directors, granted to the Company an option to purchase
600,000 shares of the Company's common stock at $5.50 per share, the fair market
value at the date of grant. The Company may only exercise this option to the
extent employees to whom the Company granted reciprocal options exercise those
options. On the same date, Mr. Holmes also granted to two of the Company's
employees options to purchase 2,400,000 shares of the Company's common stock at
$5.50 per share, the fair market value at the date of grant. The options were
granted covering shares personally owned by Mr. Holmes to employees who were
formerly employed at Executive LAN Management, Inc.
During the six months ended June 30, 2000, the Company recorded
approximately $2.2 million in deferred compensation for the difference between
the exercise price of certain of the Company's stock options and warrants that
were granted during the period and the fair market value of the underlying
common stock. Such amount has been presented as a reduction to stockholders'
equity and is being amortized ratably over the vesting period of the applicable
options. The Company amortized an aggregate of $1.4 million of deferred
compensation during the six months ended June 30, 2000.
Loan Receivable from Officer
On August 1, 1999, the Company loaned $2.0 million to an executive with
recourse, which was then used by the executive to purchase 232,829 common shares
of the Company. The loan receivable was recorded as a reduction of stockholders'
equity, and $250,000 of the principal amount of the loan was to be forgiven on a
quarterly basis. The shares had been escrowed and were to be released from
escrow on a quarterly basis commencing January 1, 2000. The Company released
87,349 of these shares to the employee. During the six months ended June 30,
2000, the Company recognized $250,000 as salary expense relating to the services
received from the employee in relation to the loan agreement.
On June 30, 2000 the Company and the employee agreed to terminate the loan
agreement and cancel the issuance of any further shares. In addition, the
employee returned 14,212 of these shares to the Company valued at the then
current market price of $129,000 in settlement of an employee advance.
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7. CONTINGENCIES
From time to time we are a defendant or plaintiff in litigation arising in
the ordinary course of our business. To date, other than litigation SmallCaps
OnLine Group LLC brought and the subsequent settlement of that action, no
litigation has had a material effect on us and, as of the date of this Quarterly
Report, we are not a party to any material litigation except as set forth below
or previously disclosed in our Annual Report on Form 10-KSB filed on March 29,
2000.
On July 12, 2000, Integrated Solutions Corp. filed a Statement of Claim in
the Court of Queen's Bench of Alberta, Judicial District of Calgary, against
FutureLink Alberta and Brian Greenlaw, a former employee of Integrated
Solutions, Inc., and a current employee of FutureLink Alberta. The Statement of
Claim alleges that FutureLink Alberta induced Mr. Greenlaw to breach an
employment agreement with Integrated Solutions, Inc. and to disclose to
FutureLink Alberta confidential information. Integrated Solutions, Inc., is
seeking to recover $1.5 million from FutureLink Alberta and Mr. Greenlaw,
jointly.
In July 2000, we paid Tony Bryson, a former employee, $5,000 to settle the
lawsuit he filed against us in which he sought $180,000 for the value of lost
stock options, salary and benefits we allegedly promised him, and other damages
he allegedly sustained as a result of our actions. Other than the Statement of
Defense we filed in connection with the lawsuit filed against us by Michael
Chan, and the settlement of our litigation with our former Chief Executive
Officer and a director, Mr. Cameron Chell, and various other defendants, there
have been no material developments in any material litigation except those
disclosed in our Quarterly Report on Form 10-QSB filed on May 15, 2000.
8. SUBSEQUENT EVENTS
Subsequent to June 30, 2000, the Company entered into two equity
transactions that raised an aggregate of $47.4 million as follows:
On July 6, 2000, the Company sold to Microsoft Corporation, for proceeds of
$10 million, 1,428,571 shares of FutureLink Series A Redeemable Convertible
Preferred Stock for a price of $7.00 per share. The Company will also issue to
Microsoft a warrant with a five-year term to purchase up to an additional
1,142,857 shares of preferred stock at an exercise price of $7.00 per share. The
preferred stock will provide for the voluntary and, under certain circumstances,
mandatory redemption of the preferred stock into shares of common stock on a
one-for-one basis, subject to anti-dilution adjustments. In addition, Microsoft
will have the right to nominate one director for election to FutureLink's Board
of Directors.
On July 7, 2000, the Company completed a public offering of 6,250,000
shares of its common stock at a price of $7 per share, resulting in net proceeds
of $37.4 million after deducting underwriting discounts and commissions and
offering costs.
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This Quarterly Report contains forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates" and other similar expressions or variations of
such words are intended to identify these forward-looking statements.
Additionally, statements concerning future matters such as the development of
new products, enhancements or technologies, possible changes in legislation and
other statements regarding matters that are not historical fact are
forward-looking statements. Forward-looking statements involve risks and
uncertainties. Actual results could differ materially from those projected in
the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, availability of financial resources
adequate for short-, medium- and long-term needs, demand for our products and
services and market acceptance, as well as those factors discussed in this "Item
2. Management's Discussion and Analysis of Financial Condition and Operating
Results" and elsewhere in this Report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We provide server-based computing services and are an application service
provider, or ASP. Our services enable software applications to be deployed,
managed, supported and upgraded from centrally located servers, rather than on
individual desktop computers. For our server-based computing customers, we
install and integrate software applications on our customers' servers. For our
ASP customers, we host software applications on our servers at our data centers,
and rent computing services to our customers for a monthly fee. Our ASP
customers connect to our facilities over the Internet, through a dedicated
telecommunications line or by wireless connection. Our goal is to provide our
ASP services with the speed, simplicity and reliability of a utility service.
We introduced our ASP services in March 1999 and launched our sales program
for ASP services in July 1999. Since then, we have built our server-based
computing business through seven acquisitions that we closed between October 15,
1999, and June 19, 2000 as follows:
- On October 15, 1999, we acquired Executive LAN Management, Inc. for total
consideration of $86.0 million.
- On November 5, 1999, we acquired CN Networks, Inc. for total
consideration of $19.9 million.
- On November 26, 1999, we acquired Async Technologies, Inc. for total
consideration of $35.0 million.
- On December 22, 1999, we acquired KNS Holdings Limited, for total
consideration of $44.0 million.
- On January 31, 2000, we acquired Vertical Software, Inc. for total
consideration of $27.6 million.
- On February 29, 2000, we acquired MicroLAN Systems, Inc., doing business
as Madison Technology Group, Madison Consulting Resources, Inc. and
Madison Consulting Resources N.J., Inc. for total consideration of $57.5
million.
- On June 19, 2000, we acquired Charon Systems Inc. for total consideration
of $21.5 million.
Our acquisitions reflect our strategy to rapidly expand our market
penetration and our ability to deliver ASP services. All of the companies we
have acquired to date offer their customers information technology services,
specializing in
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server-based applications relying on software from Citrix Systems, Inc. The
Citrix Systems software interacts with Windows NT Terminal Server software from
Microsoft, the same software used by us to run our ASP servers. The acquisitions
have allowed us to enter other major markets through an established market
participant, with local sales and marketing teams now able to offer both
server-based integration and outsourcing services and ASP, while allowing us to
leverage the talents of additional technical staff to deliver ASP as well as the
more traditional server-based computing solutions to a wider range of clients.
The acquisitions resulted in approximately $302 million of purchase price
in excess of net assets acquired and assembled workforce that we have allocated
to goodwill. We believe that in respect of our acquisitions we will be able to
realize the value of the goodwill acquired through the overall expansion of our
ASP business based on our strategic business plan. We will periodically evaluate
the goodwill based upon the future undiscounted cash flows using the forecasts
in our strategic business plan. If our estimate of future undiscounted cash flow
should change or our strategic business plan is not achieved, future analyses
may indicate insufficient future undiscounted cash flows to recover the carrying
value of the goodwill, in which case the goodwill would be written down to fair
value.
Our historical financial statements for the three and six month periods
ended June 30,1999 reflect FutureLink's historical Canadian business and
Canadian ASP operations and do not reflect any United States server-based
computing, ASP business or server-based computing distribution business until
the effective dates of the acquisitions listed above. These acquired businesses
now represent a significant portion of our revenue, operations and employees.
Our analysis of operations for the three and six month periods ended June
30, 2000 and 1999 follows. We have omitted a narrative comparison of operations
for the three and six month periods ended June 30, 2000 as compared to the three
and six month periods ended June 30, 1999 as our significant acquisition
activity during late 1999 and 2000 distorts the comparison.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND JUNE 30,1999
Revenue
The components of our revenue for the three months ended June 30, 2000 and
1999 were as follows (in millions):
June 30, June 30,
2000 1999
-------- --------
Sale of hardware and software............................... $24.9 $ .5
Service delivery............................................ 8.7 1.2
----- ----
Total.................................................. $33.6 $1.7
===== ====
Revenue for the three months ended June 30, 2000 consisted of $8.7 million
of information technology outsourcing revenue, of which $1.0 million related to
ASP service revenue. We also purchase and resell hardware and software to our
customers as part of our services, which accounted for $24.9 million of revenue
for the three months ended June 30, 2000.
Revenue for the three months ended June 30, 1999 consisted of $1.2 million
of information technology outsourcing revenue. The purchase and resale of
hardware and software to our customers accounted for $0.5 million of revenue for
the three months ended June 30, 1999.
Cost of Goods Sold
Cost of goods sold reflects costs of hardware and software purchased for
resale to customers. Our cost of goods sold for the three months ended June 30,
2000 was $20.6 million, or 83% of related hardware and software sales.
Cost of goods sold for the three months ended June 30, 1999 was $0.5
million, or 94% of hardware and software sales.
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Cost of Service Delivery
Our cost of service delivery for the three months ended June 30, 2000 was
$6.1 million, or 71% of service delivery revenue. Our cost of service delivery
reflects payroll and benefit costs for our outsourcing consultants who support
the information technology activities of our clients and payroll, benefit, and
operational costs related to testing and operating our data center and
installing and supporting software applications related to our ASP and
information technology outsourcing businesses.
Our cost of service delivery for the three months ended June 30, 1999 was
$1.7 million, or 144% of service delivery revenue. This includes amounts related
to the cost of service delivery of information technology outsourcing and the
direct cost related to the development of our ASP services, including operating
a "beta test" data center for early customers.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses include travel, payroll,
operations, advertising, and marketing expenses to secure customers and to
develop business partnerships, as well as for meeting and developing
relationships with industry analysts and financiers. Selling, general and
administrative expenses for the three months ended June 30, 2000 increased $15.5
million to $18.4 million, from $2.9 million in the comparable period in 1999.
The increase in such costs results from the expansion of our ASP business which
resulted in increased payroll and operating costs, additional costs for our
financing and marketing activities, and the additional selling, general and
administrative costs of the subsidiaries that we acquired during 1999 and the
first quarter of 2000. The 2000 amount also includes $2 million we incurred on a
marketing and advertising campaign designed to generate consumer awareness of
our product and $0.5 million of non-cash compensation charges relating to the
issuance of our common stock, options and warrants.
Our selling, general and administrative expenses for the three months ended
June 30, 1999 were $2.9 million. The 1999 amount also includes $1.4 million of
non-cash compensation charges relating to the issuance of our common stock,
options and warrants.
Depreciation and Amortization of Goodwill and Other Intangible Assets
Our depreciation and amortization costs for the three months ended June 30,
2000 and 1999 are comprised of the following (in millions):
June 30 June 30,
2000 1999
------- -------
Goodwill amortization....................................... $14.7 $0.2
Depreciation and other amortization......................... 1.7 0.5
------- ----
$16.4 $0.7
======= ====
Amortization of goodwill for the three months ended June 30, 2000 relates
to the acquisitions made during 1999 and the six months ended June 30, 2000. Our
depreciation and other amortization expense for the three months ended June 30,
2000 includes depreciation on the expansion of our Irvine and Canadian data
centers, software user licenses, and office and leasehold improvements, and
amortization of our assembled workforce.
Our amortization of intangible assets for the three months ended June 30,
1999 relates to the amortization of the assembled workforce that we acquired
during 1998.
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Interest Expense
Our interest expense of $0.8 million for the three months ended June 30,
2000 relates to interest on bank indebtedness and lines of credit, capital lease
obligations and convertible debt outstanding during the three months.
Our interest expense of $6.4 million for the three months ended June 30,
1999 includes a non-cash $6.3 million charge related to amortization of
intrinsic value of conversion features related to convertible debenture
financing and $0.1 million related to interest on bank indebtedness and lines of
credit, capital lease obligations and convertible debt outstanding during the
three months.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30,1999
Revenue
The components of our revenue for the six months ended June 30, 2000 and
1999 were as follows (in millions):
June 30, June 30,
2000 1999
-------- --------
Sale of hardware and software............................... $42.2 $ .9
Service delivery............................................ 14.0 2.6
----- ----
Total.................................................. $56.2 $3.5
===== ====
Revenue for the six months ended June 30, 2000 consisted of $14.0 million
of information technology outsourcing revenue, of which $1.5 million related to
ASP service revenue. We also purchase and resell hardware and software to our
customers as part of our services, which accounted for $42.2 million of revenue
for the six months ended June 30, 2000.
Revenue for the six months ended June 30, 1999 consisted of $2.6 million of
information technology outsourcing revenue. The purchase and resale of hardware
and software to our customers accounted for $0.9 million of revenue for the six
months ended June 30, 1999.
Cost of Goods Sold
Cost of goods sold reflects costs of hardware and software purchased for
resale to customers. Our cost of goods sold for the six months ended June 30,
2000 was $34.7 million, or 82% of related hardware and software sales.
Cost of goods sold for the six months ended June 30, 1999 was $0.8 million,
or 93% of hardware and software sales.
Cost of Service Delivery
Our cost of service delivery for the six months ended June 30, 2000 was
$9.8 million, or 70% of service delivery revenue. Our cost of service delivery
reflects payroll and benefit costs for our outsourcing consultants who support
the information technology activities of our clients and payroll, benefit, and
operational costs related to testing and operating our data center and
installing and supporting software applications related to our ASP and
information technology outsourcing businesses.
Our cost of service delivery for the six months ended June 30, 1999 was
$3.2 million, or 125% of service delivery revenue. This includes amounts related
to the cost of service delivery of information technology outsourcing and the
direct cost related to the development of our ASP services, including operating
a "beta test" data center for early customers.
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Selling, General and Administrative Expenses
Our selling, general and administrative expenses include travel, payroll,
operations, advertising, and marketing expenses to secure customers and to
develop business partnerships, as well as for meeting and developing
relationships with industry analysts and financiers. Selling, general and
administrative expenses for the six months ended June 30, 2000 increased $28.4
million to $32.8 million, from $4.4 million in the comparable period in 1999.
The increase in such costs results from the expansion of our ASP business which
resulted in increased payroll and operating costs, additional costs for our
financing and marketing activities, and the additional selling, general and
administrative costs of the subsidiaries that we acquired during 1999 and the
first quarter of 2000. The 2000 amount also includes $1.7 million of non-cash
compensation charges relating to the issuance of our common stock, options and
warrants.
Our selling, general and administrative expenses for the six months ended
June 30, 1999 were $4.4 million. The 1999 amount also includes $1.5 million of
non-cash compensation charges relating to the issuance of our common stock,
options and warrants.
Depreciation and Amortization of Goodwill and Other Intangible Assets
Our depreciation and amortization costs for the six months ended June 30,
2000 and 1999 are comprised of the following (in millions):
JUNE 30, JUNE 30
2000 1999
-------- -------
Goodwill amortization....................................... $26.5 $0.4
Depreciation and other amortization......................... 3.2 1.0
----- ----
$29.7 $1.4
===== ====
Amortization of goodwill for the six months ended June 30, 2000 relates to
the acquisitions made during 1999 and the six months ended June 30, 2000. Our
depreciation and other amortization expense for the six months ended June 30,
2000 includes depreciation on the expansion of our Irvine and Canadian data
centers, software user licenses, and office and leasehold improvements, and
amortization of our assembled workforce.
Our amortization of intangible assets for the six months ended June 30,
1999 relates to the amortization of the assembled workforce that we acquired
during 1998.
Interest Expense
Our interest expense of $1.2 million for the six months ended June 30, 2000
relates mainly to interest on bank indebtedness and lines of credit, capital
lease obligations and convertible debt outstanding during the six months.
Our interest expense of $7.4 million for the six months ended June 30, 1999
includes a non-cash $7.2 million charge related to amortization of intrinsic
value of conversion features related to convertible debenture financing and $0.2
million relates to interest on bank indebtedness and lines of credit, capital
lease obligations and convertible debt outstanding during the six months.
15
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LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2000, we had net cash outflows from
operating activities of $22.2 million and utilized another $18.0 million for
acquisitions. These outflows related mainly to the expansion of our ASP
business, our significant acquisition activity and a payment of $5.0 million to
SmallCaps Online Group LLC. In addition, during the six months ended June 30,
2000 we invested $2.8 million in property and equipment, mostly in expanding our
existing data centers, and for the acquisition of software, hardware and other
infrastructure costs necessary to host our ASP customers. These net cash
outflows are significantly greater than net cash outflows for the same period in
1999.
During the six months ended June 30, 2000 we acquired three companies. The
total consideration for these acquisitions was $106.5 million consisting of
$15.2 million cash; 5,201,459 shares of common stock valued at $79.6 million;
and notes payable of $11.7 million, all of which were paid subsequent to June
30, 2000.
We used the following sources of financing to fund operations, our
acquisitions, expansion of our ASP business, our expansion into the United
States and the United Kingdom, investments in property and equipment, and for
the acquisition of software, hardware and other infrastructure costs necessary
to host our ASP customers:
Issuance of common stock and warrants -- During 1999, we completed a
private placement of $50.0 million of common equity with institutional private
equity investors and received net proceeds of approximately $46.1 million after
deducting commissions and fees. As part of this placement, we issued warrants to
acquire 2,401,041 shares of common stock to the investors and the placement
agent. The holders exercised these warrants in February 2000, resulting in net
proceeds to the Company of $18.0 million. On April 28, 2000, the Company
completed a private placement of approximately $15 million common equity with
institutional private equity investors. As part of this placement, the Company
issued to the investors 1,764,706 shares of common stock and warrants to
purchase 441,176 shares of common stock at an exercise price of $9.25 per share.
On July 6, 2000, the Company sold to Microsoft Corporation, for proceeds of $10
million, 1,428,571 shares of FutureLink Series A Convertible Preferred Stock for
a price of $7.00 per share. The Company will also issue to Microsoft a warrant
with a five-year term to purchase up to an additional 1,142,857 shares of
preferred stock at an exercise price of $7.00 per share. On July 7, 2000, the
Company completed a public offering of 6,250,000 shares of its common stock at a
price of $7 per share. The Company received net proceeds of $37.4 from this
offering after deducting underwriting discounts, commissions and offering costs.
Lease Financing -- During the six months ended June 30, 2000, we utilized
several capital asset lease lines with financial lenders and computer hardware
vendors. These lines allow us to lease up to $22.5 million of computer hardware
and related infrastructure. As of June 30, 2000, we have used $11.1 million of
these lines. Aggregate monthly payments under these lines are currently $0.4
million, including interest implicit in the lease at rates ranging from 9% to
14% per annum. We have available borrowings of $11.4 million under the various
lease lines as of June 30, 2000. These lines have been partially used to build
and expand our Irvine, Canadian and United Kingdom data centers.
Bank Financing --- The Company has a credit facility agreement with a bank
that allows borrowings up to a maximum of $10 million based upon the Company
meeting certain performance criteria. Borrowings under the credit agreement at
June 30, 2000 were $3.6 million and the Company had utilized an additional $1.0
million to secure an outstanding letter of credit. The facility bears interest
at rates that vary from prime (9.5% at June 30, 2000) plus 1% to prime plus 3%
per annum based upon the Company maintaining certain operating performance
levels, and is payable on demand. The facility is secured by receivables and
other assets of certain subsidiaries of the Company, and guarantees and a pledge
of a percentage of the shares of those subsidiaries. The agreement contains
certain financial and other covenants or restrictions, including the maintenance
of certain financial ratios, limitations on the incurrence of indebtedness and
restrictions on dividends paid by the Company. As of June 30, 2000, the Company
was either in compliance with, or had obtained waivers
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17
for, all covenants, limitations and restrictions. At June 30, 2000 the unused
available amount under the agreement was approximately $0.4 million.
The Company maintains lines of credit at two other banks that allow
aggregate borrowings of $1.1 million, all of which was borrowed at June 30,
2000. The lines bear interest at various rates ranging from prime plus 1% to
prime plus 3% per annum, and mature at various intervals through November 30,
2000. The lines are secured by certificates of deposit aggregating $1.1 million.
We believe that our available cash will be sufficient to meet our
anticipated cash needs to fund our operating losses, working capital and capital
expenditures for at least the next twelve months. However, we may need
additional capital to fund our operations and our expansion. This financing may
involve incurring debt or selling equity securities. We cannot assure you that
additional financing will be available to us on commercially reasonable terms or
at all. If we incur debt, the risks associated with our business and with owning
our common stock should increase. If we raise capital through the sale of equity
securities, the percentage ownership of our shareholders would be diluted. In
addition, any new equity securities may have rights, preferences or privileges
senior to those of our common stock. If we are unable to obtain additional
financing, our ability to fund our operations and meet our current plans for
expansion could be materially adversely affected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has debt subject to interest rate fluctuation during the period
covered by this Quarterly Report. The Company has not entered into any hedging
transactions or acquired any derivative instruments during the period covered by
this Quarterly Report.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we are a defendant or plaintiff in litigation arising in
the ordinary course of our business. To date, other than litigation SmallCaps
OnLine Group LLC brought and the subsequent settlement of that action, no
litigation has had a material effect on us and, as of the date of this Quarterly
Report, we are not a party to any material litigation except as set forth below
or previously disclosed in our Annual Report on Form 10-KSB filed on March 29,
2000.
On July 12, 2000, Integrated Solutions Corp. filed a Statement of Claim in
the Court of Queen's Bench of Alberta, Judicial District of Calgary, against
FutureLink Alberta and Brian Greenlaw, a former employee of Integrated
Solutions, Inc., and a current employee of FutureLink Alberta. The Statement of
Claim alleges that FutureLink Alberta induced Mr. Greenlaw to breach an
employment agreement with Integrated Solutions, Inc. and to disclose to
FutureLink Alberta confidential information. Integrated Solutions, Inc. is
seeking to recover $1.5 million from FutureLink Alberta and Mr. Greenlaw,
jointly.
In July 2000, we paid Tony Bryson, a former employee, $5,000 to settle the
lawsuit he filed against us in which he sought $180,000 for the value of lost
stock options, salary and benefits we allegedly promised him, and other damages
he allegedly sustained as a result of our actions. Other than the Statement of
Defense we filed in connection with the lawsuit filed against us by Michael
Chan, and the settlement of our litigation with our former Chief Executive
Officer and a director, Mr. Cameron Chell, and various other defendants, there
have been no material developments in any material litigation except those
disclosed in our Quarterly Report on Form 10-QSB filed on May 15, 2000.
ITEM 2. CHANGES IN SECURITIES
(c) Sales of Unregistered Securities during the Quarter
1. On April 28, 2000, we issued 1,746,704 shares of common stock and warrants
to purchase up to 441,176 shares of common stock to two U.S.-based
investment funds. In exchange for the issuances, we received total
consideration of $15.0 million. We issued these securities under an
exemption provided by Rule 506 of Regulation D under the Securities Act
Rules. Each purchaser of these securities certified that it was an
"accredited investor" as defined in Rule 501 of Regulation D, was acquiring
the securities as an investment and not with a view to distribution, and
would not resell the securities unless they became registered or another
exemption from registration was available. The securities issued by us were
appropriately legended to reflect these restrictions.
2. Between April 29 and May 7, 1999, we issued 8% Senior Subordinated
Convertible Notes totaling $8,038,500 to various investors, including
$433,000 in notes to certain members of management. We also issued warrants
to acquire up to 3,802,750 shares of common stock to the various investors
and warrants to purchase 216,500 shares to members of our management.
Commonwealth Associates, L.P. acted as our placement agent and advisor in
the offering in exchange for $723,465 (9% of the gross proceeds of the
offering) and 4,000,001 agent's warrants. Between August 23, 1999 and
November 8, 1999 we issued 8,579,020 shares upon the conversion of
$7,418,000 of principal outstanding on the notes. We also issued 7,329,782
shares upon the exercise of 7,709,001 warrants and agent's warrants.
Effective April 29, 2000, the remaining $620,500 of notes converted into
676,408 shares of our common stock. Between May 1 and May 31, 2000, 20,704
shares of common stock were issued upon the exercise of a further 22,500
warrants. These securities were issued by us pursuant to an exemption from
registration requirements provided by Rule 506 of Regulation D under the
Securities Act Rules. The purchasers of these securities certified that
they were "accredited investors" as defined in Rule 501 of Regulation D,
were acquiring the securities as an investment and not with a view to
distribution, and would not resell the securities unless they became
registered or another exemption from registration was available. The
securities issued by us were appropriately legended to reflect these
restrictions.
3. Between May 1 and May 31, 2000, 20,704 shares of common stock were issued
to various investors upon the exercise of 22,500 warrants issued in
connection with our private placement in May 1999 for which Commonwealth
Associates, L.P. acted as placement agent. These securities were issued by
us pursuant to an exemption from registration requirements provided by Rule
506 of Regulation D under the Securities Act Rules. The purchasers of these
securities certified that they were "accredited investors" as defined in
Rule 501 of Regulation D, were acquiring the securities as an investment
and not with a view to distribution, and would not resell the securities
unless they became registered or another exemption from registration was
available. The securities issued by us were appropriately legended to
reflect these restrictions.
4. On May 7, 1999, we issued a 10% convertible debenture in the amount of
$278,160 and a warrant to purchase up to 44,505 shares of common stock to a
non-U.S. entity. We made these issuances in satisfaction of a debt in the
amount of $278,160 owed to that entity. On March 30, 2000, this entity
elected to convert $200,000 of the principal amount of its convertible
debenture plus accrued interest into 189,160 shares of common stock. We
issued these securities pursuant to an exemption provided by Rule 903 of
Regulation S under the Securities Act Rules. We made no directed selling
efforts of these securities within the United States. The purchaser of the
securities certified that it is not a U.S. person, was not acquiring the
securities for the account or benefit of any U.S. person and would not
resell the securities in the U.S. for at least one year. The securities
issued by us were appropriately legended to reflect these restrictions and
we have the right to refuse to register any transfer of these securities
not made in accordance with Regulation S.
5. On June 19, 2000, one of our Canadian subsidiaries issued 2,199,973
exchangeable shares convertible into shares of our common stock to the
selling shareholders of Charon Systems Inc. In exchange for the issuances
and certain other consideration, we acquired all of the outstanding shares
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19
of Charon Systems Inc. We issued these securities under an exemption
provided by Rule 903 of Regulation S under the Securities Act Rules. We
made no directed selling efforts of these securities within the United
States. The purchasers of the securities certified that they were not U.S.
persons, were not acquiring the securities for the account or benefit of
any U.S. person and would not resell the securities in the U.S. for at
least one year. The securities issued by us were appropriately legended to
reflect these restrictions and we have the right to refuse to register any
transfer of these securities not made in accordance with Regulation S.
6. Between April 1, 2000 and June 30, 2000, we issued an aggregate of
2,599,200 stock options to officers and employees at various exercise
prices. We issued these securities under Rule 701 of Regulation E under
the Securities Act Rules.
Except as otherwise set forth above, no underwriters were engaged in the
sales of securities described above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 27, 2000, we held our Annual Meeting of Stockholders. The following
is a brief description of each matter voted upon at the meeting and the number
of votes cast for, withheld or against, as well as the number of abstentions and
broker non-votes as to each matter:
(a) The stockholders reelected the entire board of directors with the votes
being cast as follows:
DIRECTOR FOR WITHHELD
-------- ---------- --------
Phillip R. Ladouceur 44,417,159 45,493
Glen C. Holmes 44,417,159 45,493
Raghu N. Kilambi 44,417,159 45,493
F. Bryson Farrill 44,417,159 45,493
Michael S. Falk 44,417,159 45,493
Timothy P. Flynn 44,417,159 45,493
Gerald A. Poch 44,417,159 45,493
James P. McNiel 44,417,159 45,493
(b) The stockholders approved the proposed Second Amended and Restated
Stock Option Plan and the First and Second Amendments to the Second
Amended and Restated Stock Option Plan, with the votes being cast as
follows:
FOR AGAINST ABSTAIN BROKER NON-VOTES
---------- ------- ------- ----------------
43,875,339 410,746 176,567 -0-
(c) The stockholders approved the appointment of Ernst & Young LLP as our
independent public accountants for fiscal 2000, with the votes being
cast as follows:
FOR AGAINST ABSTAIN BROKER NON-VOTES
---------- ------- --------- ----------------
42,966,190 14,956 1,481,506 -0-
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1.1 Form of Underwriting Agreement(2)
2.1 Acquisition and Amalgamation Agreement dated June 16, 2000 between
and among FutureLink Corp., FutureLink Distribution Corp. 3045207
Nova Scotia Company, 1423280 Ontario Inc., 1423281 Ontario Inc.,
Charon Systems Inc., Allan Sherk, Edward Mathewson, Joe Da Silva,
Layne Harris, Jason Yetman, David Fung, Blair Collins, Arron Fu,
Mark Palangio, Ho Wai Fung, Edward Chi Wai Fung, Malcolm Robins,
Dataspec Telecom Multimedia Inc. and The Charon Employee Trust (5)
10.1 Second Amendment to Second Amended and Restated Stock Option
Plan (3)
10.2 Loan Agreement dated May 4, 2000 among Canadian Imperial Bank of
Commerce, FutureLink Corp. and FutureLink Distribution Corp. (4)
10.3 Share Pledge Agreement dated May 4, 2000 among FutureLink Corp.
and Canadian Imperial Bank of Commerce (4)
10.4 Amended and Restated Registration Rights Agreement dated April 28,
2000 between FutureLink Corp., Pequot Private Investment Fund II,
L.P., and certain other investors (blacklined to the Registration
Rights Agreement dated October 15, 1999 between the parties which
was filed as an Exhibit to the Registration Statement on Form SB-2
filed on February 11, 2000)(1)
10.5 Securities Purchase Agreement dated April 28, 2000 between
FutureLink Corp., Pequot Private Equity Investment Fund II, L.P.
and Pequot Endowment Fund, L.P.(1)
27.0** Financial Data Schedule
- -------------------------
** Filed herewith.
(1) Included as an Exhibit to FutureLink's Second Amendment to Registration
Statement on Form SB-2 filed May 3, 2000.
(2) Included as an Exhibit to FutureLink's Fourth Amendment to Registration
Statement on Form SB-2 filed June 9, 2000.
(3) Included as an Exhibit to FutureLink's Definitive Proxy Statement filed on
June 13, 2000.
(4) Included as an Exhibit to FutureLink's Sixth Amendment to Registration
Statement on Form SB-2 filed June 28, 2000.
(5) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
June 30, 2000.
(b) REPORTS ON FORM 8-K IN LAST FISCAL QUARTER.
(1) On May 10, 2000, we filed a Current Report on Form 8-K reporting (i)
the settlement of our lawsuit with Cameron Chell, various other former employees
of and consultants to our company and various other defendants, and (ii) our
issuance to Pequot Private Equity Fund II, L.P. and Pequot Endowment Fund, L.P.,
of 1,746,704 shares of common stock together with warrants to purchase 441,176
shares of common stock at an exercise price of $9.25 per share in exchange for
just under $15,000,000.
(2) On June 9, 2000, we filed a Current Report on Form 8-K reporting (i)
the undertaking of our public offering of 6,000,000 shares of our common stock,
and (ii) that we were considering selling preferred stock to a strategic
investor following that offering.
(3) On June 30, 2000, we filed a Current Report on Form 8-K reporting that
we entered into a definitive agreement with Microsoft Corporation to sell
Microsoft Series A Convertible Preferred Stock and warrants to purchase the
same.
(4) On June 30, 2000, we filed a Current Report on Form 8-K reporting the
closing of our acquisition of Toronto-based Charon Systems Inc.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FUTURELINK CORP.
Date: August 9, 2000 By: /s/ R. KILAMBI
-------------------------------
Raghu Kilambi,
Executive Vice-President &
Chief Financial Officer
Date: August 9, 2000 By: /s/ Jeffrey S. Marks
-------------------------------
Jeffrey S. Marks, Secretary
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1.1 Form of Underwriting Agreement(2)
2.1 Acquisition and Amalgamation Agreement dated June 16, 2000 between
and among FutureLink Corp., FutureLink Distribution Corp. 3045207
Nova Scotia Company, 1423280 Ontario Inc., 1423281 Ontario Inc.,
Charon Systems Inc., Allan Sherk, Edward Mathewson, Joe Da Silva,
Layne Harris, Jason Yetman, David Fung, Blair Collins, Arron Fu,
Mark Palangio, Ho Wai Fung, Edward Chi Wai Fung, Malcolm Robins,
Dataspec Telecom Multimedia Inc. and The Charon Employee Trust (5)
10.1 Second Amendment to Second Amended and Restated Stock Option
Plan (3)
10.2 Loan Agreement dated May 4, 2000 among Canadian Imperial Bank of
Commerce, FutureLink Corp. and FutureLink Distribution Corp. (4)
10.3 Share Pledge Agreement dated May 4, 2000 among FutureLink Corp.
and Canadian Imperial Bank of Commerce (4)
10.4 Amended and Restated Registration Rights Agreement dated April 28,
2000 between FutureLink Corp., Pequot Private Investment Fund II,
L.P., and certain other investors (blacklined to the Registration
Rights Agreement dated October 15, 1999 between the parties which
was filed as an Exhibit to the Registration Statement on Form SB-2
filed on February 11, 2000)(1)
10.5 Securities Purchase Agreement dated April 28, 2000 between
FutureLink Corp., Pequot Private Equity Investment Fund II, L.P.
and Pequot Endowment Fund, L.P.(1)
27.0** Financial Data Schedule
- -------------------------
** Filed herewith.
(1) Included as an Exhibit to FutureLink's Second Amendment to Registration
Statement on Form SB-2 filed May 3, 2000.
(2) Included as an Exhibit to FutureLink's Fourth Amendment to Registration
Statement on Form SB-2 filed June 9, 2000.
(3) Included as an Exhibit to FutureLink's Definitive Proxy Statement filed on
June 13, 2000.
(4) Included as an Exhibit to FutureLink's Sixth Amendment to Registration
Statement on Form SB-2 filed June 28, 2000.
(5) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
June 30, 2000.