May 28, 1999

RECOMMENDATION: BUY

FutureLink Distribution Corp. (OTC: FLNK)

FLNK to Offer Microsoft Back Office Products - Significant Development for FLNK and the ASP Industry; Reiterating BUY Recommendation

Exchange Symbol............................................FLNK (OTC)
Price of Common Stock (05/27/99).................$1.26
30-Day Average Trading Volume...............~500,000
Shares Outstanding........................approx. 95 million
...................................................................(see note below) 
52-Week High/Low....................................$1.93/$0.24

Address.................250 Sixth Avenue SW, Suite 300
...........................Calgary, Alberta CANADA   T2P 3H7 
Telephone...............................................(877) 216-0001
Chairman, President & CEO................Cameron Chell
VP Finance & CFO....................................Raghu Kilambi
Website...........................................www.futurelink.net

Recent Developments

FutureLink Distribution Corp. ("FLNK") recently announced that it will offer subscriptions to Microsoft ("MSFT") Back Office products such as MS SQL Server, MS Exchange and MS Windows NT Server to the new software rental, or ASP, market (see below for a description of the ASP market). FLNK is the first ASP in the industry to begin a pilot study with MSFT, which we view as a significant validation of FLNK’s business strategy, management team and the quality of service provided. As part of this agreement, MSFT agrees to offer its back-office products on a monthly Server License Subscription basis for at least two years. Benefits to FLNK include:

• Potential for Margin Expansion: One of the most significant capital expenditures for FLNK and other ASPs is the build-out of server farms and the licensing of "back-end" server operating systems. We believe FLNK’s agreement with MFST will enable FLNK to price its ASP offerings more competitively, will reduce capital expenditures on server farm build-outs and will allow FLNK to better accommodate short-term users. This should enhance FLNK’s marketing efforts and should provide for margin expansion over time.

• Validation for FLNK & ASP Model: We believe MSFT’s decision to offer its Back Office product suite to FLNK on a monthly subscription basis is a very significant endorsement for the ASP market in general, and FLNK specifically. Many enterprise software packages, and "front-end" business office software, are built to run Microsoft operating systems. The ability to offer monthly subscriptions to the Microsoft Back Office systems (which will be essentially transparent to the end-user) should greatly enhance pricing flexibility for FLNK and other ASPs, and expand the breadth of "front-end" applications that can be offered on a rental basis. This appears to be recognition, on the part of Microsoft, of the emerging ASP market and the growing demand by consumers, particularly small businesses which FLNK targets, to license software on a "rental" or "subscription" basis, and to leverage the economies of server-based computing.

FLNK is building a leader in the emerging new industry called Application Service Provision (ASP), or the provision of software applications to users on a rental basis, either over the Internet or through traditional networking means. Independent market research firms estimate that the market for application software rentals will grow from virtually nothing a couple months ago to several billion dollars in two to three years. We continue to recommend purchase of FLNK common stock by investors tolerant of the risks associated with small-cap equity investments.

Note on Shares Outstanding: Fully diluted shares outstanding is approximately 155 million, of which 65 million are warrants and options the exercise of which would result in proceeds of $15 to $20 million. A one-for-five reverse split, previously announced, should occur in the first week of June 1999.

Company Background & Overview

FutureLink Distribution Corp. ("FLNK") is at the forefront of two emerging segments of the Information Technology (IT) services industry: Applications Service Provision ("ASP"), and Server-based Computing and Outsourcing. Since its founding in 1996, FLNK has been engaged in the research and development of application software hosting, and server-based (or thin-client) computing solutions. FLNK offers a set of services, it calls "Computer Utility Services," which allow users to compute in a simple, cost effective manner. FLNK is changing the computing paradigm, from one of "ownership" to rental or outsourcing, and is positioned as The Computer Utility CompanyÔ .

The traditional model of network computing consists of computers, each with its own hard drive, and an installed copy of the operating system and multiple software applications. FLNK offers the ability to move to "net-centric," or server-based, computing, whereby all of a client’s files and applications are stored at FLNK’s server farm and accessed remotely via traditional networking connections or the Internet. By hosting applications and storing data on FLNK’s servers, and providing access to these applications or the client’s data via the Internet or traditional networking means, FLNK is able to provide comprehensive computing services in a cost effective manner.

Application Service Provider (ASP) Industry Consortium — Of particular interest to ASP industry followers is the formation of the ASP Industry Consortium. The ASP Consortium is an international advocacy group founded to raise awareness of the ASP industry, and to sponsor research, foster standards and articulate the benefits of the ASP business model. FLNK’s CEO, Cameron Chell, was recently elected by the members to serve as President of the Consortium. The founding members include FLNK, AT&T, Cisco Systems, Citrix Systems, Compaq, GTE, Great Plains Software, JAWS Technologies Onyx Software and Sun Microsystems, among others. Investors can get additional information at the consortium’s website at www.aspindustry.org.

Application Service Provision (ASP) — Rent, don’t buy, Software

Application Service Provision (ASP) is the next wave in computing: the provision of software applications to users on a rental basis, such as price per month, price per desktop, etc. ASPs host the software applications on centralized servers, called server farms. By hosting, ASPs keep the file, print, database and application software on high performance, multi-user enabled servers housed at the server farm. Users can then use thin-client software to connect to the server farm and run the hosted applications. Customer data and information can be stored locally, or hosted at the ASPs server farm, with the highest levels of availability, performance, and security.

Market Drivers: Forrester Research estimates that the total market for application software rentals will grow to $21.1 billion in two years. There are a number of developments that have, and will continue, to drive the ASP market.

• Growth in Server-based Computing, Networking and the Internet — in the last five years there has been explosive growth in server-based computing, the deployment of networks and use of the Internet. Networking, and the Internet, has developed the concept of shared applications and information across desktops, among clients, and across servers. Connectivity of networks to the Internet has created a common infrastructure and one where information can be shared very cost-effectively.
• Standardization of Software — business applications and productivity software is becoming increasingly standardized, rather than customized by business or desktop. This standardization facilitates the rental model.
• Enterprise Software Providers Going Down Market — the enterprise software producers (such as Oracle, SAP, PeopleSoft and Siebel) that develop packaged business applications for large companies need to find ways to increase their market penetration of small and medium-sized businesses. Provision of their applications through ASPs is being implemented or considered by almost all of these vendors
• IT Outsourcing / Scarcity of Talent — businesses are finding it increasingly difficult and expensive to manage IT departments and equipment internally, and the industry of IT outsourcing is poised to grow dramatically. Equipment is expensive, and IT talent is in short supply, making recruiting and retention very costly. According to EDS, the market for IT outsourcing in the United States alone is expected to generate $70 billion by 2000.
• Growth in E-Commerce — e-commerce is growing dramatically, and many companies consider it to be a critical part of their business strategy. Ordering, billing, and payment transaction information is increasingly transmitted over the Internet. There are many forecasts for growth in Internet and e-commerce revenue growth, all of which are staggering. Generally, e-commerce revenues were estimated to be approximately $10 billion in 1998, with most forecasts exceeding $175 billion by 2001.
• Thin Client Capability — FLNK will be able to deliver its services in a "thin client" environment. A thin-client desktop consists of a monitor, CPU, mouse, and keyboard that is connected to a network. Thin clients have no hard drive, CD-ROM, or other moving parts, which greatly reduces maintenance and operating costs to companies; this eliminates the need for constant computer upgrades, reduces the initial capital investment of buying PCs and reduces the time and money spent on computer maintenance.
• Tele-commuting - companies are using the Internet more and more to communicate with employees who are dispersed geographically. Forrester Research estimates that there are presently 30 to 40 million telecommuters and home-based workers in the United States, and the numbers are growing annually.

We believe these trends are becoming more, not less, significant in the market, and their impact will drive demand for the ASP industry.

FutureLink’s Service Offerings — ASP & Traditional IT Management and Consulting

FLNK offers, or is planning to offer, three categories of ASP services, as well as comprehensive IT Management and Consulting Services. We believe that a key competitive advantage for an ASP will be the ability to provide comprehensive IT support services to their ASP clients. A description of services is below:

ASP-1, Application Portal: ASP-1 is not commercially available currently, although the technology and systems are basically in place for the provision of the service, and are currently being used by FLNK and selected customers on a trial basis. ASP-1 is being designed as a consumer service. ASP-1 customers will be able to access branded consumer applications, small business and specialty applications (e.g. gaming), via the Internet, hosted on FLNK’s servers on a monthly subscriber, or per-use fee basis.

ASP-2, Application Hosting — ASP-2 is the hosting of branded, enterprise software applications, such as accounting software (Great Plains) and contact management (Onyx), and provision of those applications on a "price per desktop" basis. It is anticipated that although the customer will outsource some or all of its applications, there will still need in-house server capabilities and support. This service is targeted at small businesses that have some IT ability but are looking for a cost-effective way to access more powerful enterprise applications. ASP-2 services will be marketed directly, and through the marketing channels of the software partners (such as Great Plains’ Value Added Reseller channel, and Onyx’ internal sales force).

ASP-3, Hosted Outsourcing — ASP-3 is the complete outsourcing of the IT department to FLNK. All applications and data management is handled off-site, at FLNK server farms, from which it is also supported. We believe that most small- to mid-sized business clients will start as ASP-2 users, outsourcing only certain applications as they develop a working relationship with FLNK. As clients get comfortable with the level of service, support capabilities, and issues such as data security, we foresee a significant percentage of ASP-2 customers transitioning to ASP-3 customers. ASP-3 customers are distinguished from ASP-2 customers by being managed entirely off-site by the FLNK server-farm and support personnel (all data and applications managed off-site).

In addition to the three levels of ASP services, FLNK provides comprehensive IT management services and strategic consulting through two additional business units. We believe there are significant synergies between the ASP and traditional IT management services, and that the experience and technical capabilities of the IT management and consulting business will be critical to the successful provision of ASP services.

Risk Considerations

This section of the document is provided to remind potential investors to undertake a prudent level of due diligence prior to making an investment in the securities of FutureLink Distribution Corp. Inc. For a complete description of risks and uncertainties to FLNK’s business, see the "Risk Factors" section in FLNK’s SEC filings, which can be accessed directly from the SEC Edgar filings at www.SEC.gov on the Internet. Other potential risks include:

• Market risk: Investors should consider technical risks common to many small-cap or micro-cap stock investments, and OTC equities, including liquidity levels, small float, risk of dilution, dependence upon key personnel, dependence upon single products or technologies, and the strength of competitors that may be larger, better capitalized and hold dominant market positions.
• Business risk: FLNK has limited experience in emerging business of applications service provision and thin-client computing. Many of its products and services are in the early stage of commercialization. There can be no assurance that FLNK’s business or the markets in which it competes will materialize or achieve the desired levels of revenues or profitability as expected.
• Competitive risk: The emerging ASP industry is expected to be characterize by intense competition, and many perceive the barriers to entry to be low. Added competition could lead to price competition and lower margins.

For Additional Information

Contact SmallCaps Online LLC — 212-554-4158

Sources for Additional Information

The following are website addresses offering related information, and links to other sources of information.

www.FutureLink.net FutureLink’s corporate website

www.SmallCapsOnline.com SmallCaps Online’s site for company information and research

www.aspindustry.org The ASP Industry Consortium’s website

www.SEC.gov U.S. Securities and Exchange Commission, with links to EDGAR filings

www.aspnews.com ASP Industry newsletter

www.greatplains.com Great Plains Software

www.onyxcorp.com Onyx Software Corporation

www.applix.com Applix, Inc.

www.galleoninc.com Galleon Distributed Technologies, Inc.

www.citrix.com Citrix, Inc.

The information in this report has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by SmallCaps Online LLC for the purchase or sale of any securities. SmallCaps Online LLC, or its affiliates, has performed investment banking, consulting or other services for or may solicit investment banking, consulting or other business from, any company mentioned in this report. SmallCaps Online LLC or its affiliates or persons associated with SmallCaps Online LLC or its affiliates may at anytime be long or short any of the securities referred to herein and may make purchases or sales thereof while this report is in circulation or posted on the SmallCaps Online LLC website at www.SmallCapsOnline.com. This material, or any portion thereof, may not be reproduced without prior permission from SmallCaps Online LLC. SmallCaps Online LLC is not responsible for the contents of this document which is intended for electronic transmission and could be thus subjected to tampering or alteration. Copyright © 1999 by SmallCaps Online LLC. All rights reserved.