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F-17
EXECUTIVE LAN MANAGEMENT, INC.,
dba MICROVISIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a consistent basis
with that of the annual financial statements and reflect all adjustments which
are, in the opinion of management, necessary to reflect a fair presentation for
the periods being presented.
2. INCOME TAXES
On July 1, 1998, the Company changed its tax status, as defined by the Internal
Revenue Code, to Subchapter S, which eliminated the requirement for the Company
to pay federal income taxes as net income is passed through and taxable to the
individual stockholders. The March 31, 1999 income tax figure includes the
federal income taxes related to the income earned by the Company for the period.
3. SUBSEQUENT EVENTS
On June 2, 1999, the Company and the Company's shareholders signed an Agreement
and Plan of Reorganization and Merger (the "Agreement") with FutureLink
Distribution Corp. ("FutureLink"). The Agreement provides for a merger of the
Company with a subsidiary of FutureLink such that the Company's outstanding
stock shall be converted into and become a right to receive the consideration as
set forth in the agreement. The merger is to take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in the
Agreement and is anticipated to be completed by October, 1999.
F-18
FUTURELINK DISTRIBUTION CORP.
MARCH 31, 1999 PRO FORMA BALANCE SHEET
UNAUDITED
(all amounts in United States thousands of dollars except Earnings Per Share)
Pro Forma Note Pro Forma
FutureLink Micro Visions Adjustments Reference Consolidated
---------- ------------- ----------- ----------- ------------
CURRENT
Cash 5 49 -- 54
Accounts receivable 1,809 2,358 -- 4,167
Due from related parties 64 -- -- 64
Prepaid expenses 98 -- (39) (2.2) 59
Inventory 543 422 -- 965
Other current assets -- 62 -- 62
------- ------- ------- ----------- -------
2,519 2,891 (39) 5,371
------- ------- ------- ----------- -------
Capital assets 1,679 441 -- 2,120
Other assets -- 155 -- 155
Goodwill 4,822 -- 44,161 (2.1),(2.3) 48,983
Employee and consultants base 2,551 -- -- 2,551
Other investments 40 -- -- 40
------- ------- ------- ----------- -------
9,092 596 44,161 53,849
------- ------- ------- ----------- -------
TOTAL ASSETS 11,611 3,487 44,122 59,220
CURRENT
Bank debt 946 158 -- 1,104
Accounts payable and accrued liabilities 2,995 1,032 284 (2.2) 4,311
Income taxes payable -- 242 -- 242
Deferred income taxes -- 435 -- 435
Due to other related 113 -- -- 113
Due to former shareholders of Micro Visions -- -- 12,000 (2.1) 12,000
Deferred revenues -- 83 -- 83
------- ------- ------- ----------- -------
4,054 1,950 12,284 18,288
------- ------- ------- ----------- -------
Capital lease obligation 30 -- -- 30
Convertible debentures principle 4,271 -- -- 4,271
Convertible debentures discount and other (457) -- -- (457)
Accrued interest 124 -- -- 124
Other long term debt 248 -- -- 248
Deferred taxes 1,093 -- -- 1,093
------- ------- ------- ----------- -------
TOTAL LIABILITIES 9,363 1,950 12,284 23,597
------- ------- ------- ----------- -------
Paid up shares 3 10 6 (2.1)
(10) (2.2) 9
Exchangeable shares 851 -- -- 851
Capital in excess of par 9,736 -- 33,369 (2.1) 43,105
Contributed surplus 2,229 -- -- 2,229
Cumulative translation account (138) -- -- (138)
Retained Earnings/(Deficit) (10,433) 1,527 (1,527) (2.2) (10,433)
------- ------- ------- ----------- -------
2,248 1,537 31,838 35,623
------- ------- ------- ----------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 11,611 3,487 44,122 59,220
======= ======= ======= =========== =======
See accompanying notes to unaudited proforma financial statements.
F-19
FUTURELINK DISTRIBUTION CORP.
MARCH 31, 1999 PRO FORMA STATEMENT OF INCOME AND LOSS
UNAUDITED
(all amounts in United States thousands of dollars except Earnings Per Share)
Pro Forma Note Pro Forma
FutureLink Micro Visions Adjustments Reference Consolidated
---------- ------------- ----------- --------- ------------
REVENUES
Consulting 1,197 1,838 -- 3,035
Hardware and software sales 383 2,013 -- 2,396
Server farm sales 164 -- -- 164
Other -- 181 -- 181
---------- ------ ------ ---- -----------
1,744 4,032 -- 5,776
---------- ------ ------ ---- -----------
EXPENSES
Contracts, payroll and benefits 1,596 609 -- 2,205
Hardware and software purchases 353 1,678 2,031
Selling, general and administration 770 1,500 -- 2,270
Interest expense 998 2 -- 1,000
Depreciation 132 20 -- 152
Goodwill and other amortization 529 -- 2,208 (3.1) 2,737
Other expenses 587 -- -- 587
---------- ------ ------ ---- -----------
4,965 3,809 2,208 10,982
---------- ------ ------ ---- -----------
NET PROFIT/(LOSS) BEFORE TAX (3,221) 223 (2,208) (5,206)
Deferred tax benefit 119 (90) -- 29
---------- ------ ------ ---- -----------
NET PROFIT/(LOSS) AFTER TAX (3,102) 133 (2,208) (5,177)
========== ===========
LOSS PER COMMON SHARE $ (0.53) $ (0.44)
========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 5,813,793 (4) 11,813,993
========== ===========
See accompanying notes to unaudited proforma financial statements.
F-20
FUTURELINK DISTRIBUTION CORP.
DECEMBER 31, 1998 PRO FORMA STATEMENT OF INCOME AND LOSS
UNAUDITED
(all amounts in United States thousands of dollars except Earnings Per Share)
Pro Forma Note Pro Forma
FutureLink Micro Visions Adjustments Reference Consolidated
---------- ------------- ----------- --------- ------------
REVENUES
Consulting 1,471 5,088 -- 6,559
Hardware and software sales 963 8,071 -- 9,034
Other 3 510 -- 513
---------- ------- ------ ---- ----------
2,437 13,669 -- 16,106
---------- ------- ------ ---- ----------
EXPENSES
Contracts, payroll and benefits 3,662 2,092 -- 5,754
Hardware and software purchases 880 6,775 -- 7,655
Selling, general and administration 691 3,898 -- 4,589
Interest expense 1,304 10 -- 1,314
Depreciation 119 39 -- 158
Amortization 697 -- 8,832 (3.1) 9,529
Other expenses 295 -- -- 295
---------- ------- ------ ---- ----------
7,648 12,814 8,832 29,294
---------- ------- ------ ---- ----------
PROFIT/(LOSS) FROM OPERATIONS (5,211) 855 (8,832) (13,188)
Loss on sale of assets (48) -- -- (48)
Equity loss of affiliate (860) -- -- (860)
Minority interest 34 -- -- 34
---------- ------- ------ ---- ----------
(874) -- -- (874)
---------- ------- ------ ---- ----------
PROFIT/(LOSS) BEFORE INCOME TAXES (6,085) 855 (8,832) (14,062)
Provision for income taxes 205 (178) -- 27
---------- ------- ------ ---- ----------
NET PROFIT/(LOSS) AFTER TAX (5,880) 677 (8,832) (14,035)
---------- ------- ------ ---- ----------
LOSS PER COMMON SHARE $ (1.86) $ (1.53)
========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 3,169,314 (4) 9,169,314
========== ==========
See accompanying notes to unaudited proforma financial statements.
F-21
FUTURELINK DISTRIBUTION CORP.
NOTES TO UNAUDITED PRO FROMA CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in United States dollars)
MARCH 31, 1999
On June 2, 1999, FutureLink Distribution Corp. ("FutureLink") entered into an
Agreement and Plan of Reorganization and Merger (the "Agreement") with Executive
LAN Management, Inc. ("Micro Visions"). The Agreement provides for a merger of
Micro Visions with FutureLink such that Micro Visions' outstanding stock shall
be sold to FutureLink in exchange for $12,000,000 cash and 6,000,000 FutureLink
common shares, as well as contingent consideration of 2,400,000 common shares
subject to the achievement of certain targets. The merger is to take place as
soon as practicable after the satisfaction or waiver of the conditions set forth
in the Agreement and is anticipated to be completed by October 1999.
1. The accompanying unaudited pro forma consolidated financial statements have
been prepared by management from the unaudited financial statements of
FutureLink and Micro Visions as at March 31, 1999 for the three month
period then ended and the audited financial statements of FutureLink and
Micro Visions as at December 31, 1998 and for the year then ended, together
with other information available to the companies. In the opinion of the
management of FutureLink, these pro forma consolidated financial statements
include all adjustments necessary for fair presentation in accordance with
accounting principles generally accepted in the United States. These pro
forma consolidated financial statements may not be indicative of the
financial position or the results of operations that actually would have
occurred if the events reflected therein had been in effect on the dates
indicated nor of the financial position or the results of operations which
may be obtained in the future.
These pro forma financial statements should be read in conjunction with the
audited and unaudited financial statements of the companies.
2. The pro forma consolidated balance sheet at March 31, 1999 gives effect to
the following assumptions and transactions, all of which will become
effective on the date of the fulfillment or waiver of the conditions of the
Micro Visions Acquisition Agreement as if the effective date of that
agreement was March 31, 1999:
2.1 The acquisition of all of the outstanding common shares of Micro
Visions in exchange for cash consideration of $12,000,000 and
6,000,000 common shares of FutureLink with an ascribed value of
$33,375,000 ($6,000 to paid up shares and $33,369,000 to capital in
excess of par).
F-22
FUTURELINK DISTRIBUTION CORP.
NOTES TO UNAUDITED PRO FROMA CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in United States dollars)
MARCH 31, 1999
The acquisition has been accounted for in these pro forma consolidated
financial statements by the purchase method. The purchase price has
been allocated to the net assets acquired based on their estimated
fair values, as follows:
Purchase
Allocation
$(000's)
----------
Net assets acquired 1,537
Goodwill 44,161
-------
Purchase price $45,698
-------
Consideration:
Cash 12,000
Common shares of FutureLink 33,375
Acquisition costs 323
-------
Total consideration $45,698
-------
2.2 The allocation to goodwill of the estimated costs of the acquisition
described in 2.1 above, in the amount of $323,000, $284,000 of which
was payable and $39,000 of which had been incurred prior to March 31,
1999 and the elimination of the share capital ($10,000) and retained
earnings ($1,527,000) of Micro Visions on its acquisition.
2.3 Additional consideration payable to the former shareholders of Micro
Visions has not been reflected in the pro forma consolidated financial
statements as the outcome of the contingency cannot be reasonably
determined at this time. The additional share consideration, which
will be recorded as additional purchase price consideration (goodwill)
if and when it becomes payable, is based upon the achievement of the
following performance criteria as described in the Agreement for the
period from January 1, 1999 to December 31, 1999:
a) 1,200,000 FutureLink common shares to be issued if Micro Visions
achieves sales in excess of $18,000,000;
b) 720,000 FutureLink common shares to be issued if FutureLink and
Micro Visions together enlist 100 new customers; and
c) 480,000 FutureLink common shares to be issued if FutureLink and
Micro Visions together install and integrate at least 200 new
servers.
2.4 A dividend which may be declared by Micro Visions prior to closing has
not been reflected in the pro forma consolidated financial statements
as the amount cannot be reasonably estimated at this time. As per the
Agreement, the dividend amount, if any, will be equivalent to the
federal and state income tax in respect of income earned by Micro
Visions from the beginning of the current fiscal year of Micro Visions
(being October 1, 1998) through to closing of the Agreement. The
amount of any dividend paid would result in a corresponding amount
being allocated to goodwill.
F-23
FUTURELINK DISTRIBUTION CORP.
NOTES TO UNAUDITED PRO FROMA CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in United States dollars)
MARCH 31, 1999
3. The pro forma consolidated statements of income for the three months ended
March 31, 1999 and the year ended December 31, 1998 give effect to the
acquisition of Micro Visions as described in 2.1 and 2.2 above which will
become effective on the date of the fulfillment or waiver of the conditions
of the Agreement as if the transactions had occurred January 1, 1999, and
January 1, 1998, respectively. The following adjustments are reflected:
3.1 The amortization of goodwill attributable to the allocation of the
purchase price of Micro Visions in excess of the carrying value of the
net assets acquired (see 2.1 and 2.2 above) calculated on a straight
line basis over a period of 5 years.
4. The weighted average number of shares outstanding and the loss per share
give retroactive effect to the share consolidation of 5 to 1 on June 1,
1999.
The weighted average number of shares outstanding has been adjusted to give
effect to the shares issued upon acquisition of Micro Visions as though
they had been outstanding as at the beginning of the period. The weighted
average number of shares outstanding does not include the contingent share
consideration.
Fully diluted earnings per share does not differ from basic earnings per
share.
F-24
EXHIBIT INDEX
Exhibit No: Page
----------- ----
10.1* Agreement and Plan of Reorganization and Merger
dated June 2, 1999 among the Registrant, FutureLink
California Acquisition Corp., Executive LAN Management, Inc.
(d.b.a. Micro Visions), and Holmes Trust, Glen C. Holmes and
Christine M. Holmes (without schedules).
99.1* News Release of the Registrant dated June 3, 1999
* Previously filed.
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