US SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
PEAKSOFT CORPORATION
VANCOUVER, BRITISH COLUMBIA, CANADA
CALGARY, ALBERTA, CANADA
3614 Meridian St, #100, Bellingham, Washington 98225 USA
Securities registered or to be registered pursuant to Section 12 (b)of the Act.
Title of each class: Common Shares
Name of each exchange on which registered: Alberta Stock Exchange
Securities registered or to be registered pursuant to Section 12 (g) of the
Act: Common Shares
Securities for which there is a reporting obligation pursuant to Section 15 (d)
of the Act: None
Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by the annual
report: 13,515,464 Common Shares
Indicate the check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Page 0 of 34file such
reports) and (2) has been subject to such filing requirement for the past
90 days.
[ ] Yes [X] No
Indicate by check mark which financial statement item the Registrant has
elected to follow.
[X] Item 17 [ ] Item 18
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PAST FIVE YEARS)
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
[X] N/A [ ] Yes [ ] No
TABLE OF CONTENTS
PART I
ITEM 1 - THE CORPORATION AND DESCRIPTION OF BUSINESS
ITEM 2 - DESCRIPTION OF PROPERTY
ITEM 3 - LEGAL PROCEEDINGS
ITEM 4 - CONTROL OF REGISTRANT
ITEM 5 - NATURE OF TRADING MARKET
ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
ITEM 7 - TAXATION
ITEM 8 - SELECTED FINANCIAL DATA
ITEM 9 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT
ITEM 11 - COMPENSATION OF OFFICERS AND DIRECTORS
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
DIRECTORS, OFFICERS AND EMPLOYEES.
ITEM 13 - INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
PART II
ITEM 14 - DESCRIPTION OF SECURITIES TO BE REGISTERED
PART III
ITEM 15 - DEFAULTS UPON SENIOR SECURITIES - NOT APPLICABLE
ITEM 16 - CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES
AND USE OF PROCEEDS. - NOT APPLICABLE.
PART IV
ITEM 17 - FINANCIAL STATEMENTS
ITEM 18 - FINANCIAL STATEMENTS NOT APPLICABLE
ITEM 19 - FINANCIAL STATEMENTS - SEE ITEM 17
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
PeakSoft Corporation (hereinafter referred to variously as PeakSoft, Peak,
or the Corporation) was incorporated under the laws of the Province of British
Columbia on August 24, 1994 under the name Peak Technologies Inc., and was
continued in the Province of Alberta under the Business Corporations Act of
that province on August 16, 1996. The Canadian head office of the Corporation
is located at #501 - 675 West Hastings St. Vancouver, British Columbia. The
registered office of the Corporation is located at 2nd Floor, 5233 - 49th
Avenue, Red Deer, Alberta, Canada.
On October 27, 1997 at a Special General Meeting of the Corporation its
shareholders approved the change of the Corporations name from Peak
Technologies Inc. to PeakSoft Corporation.
At this point in time the Corporation has but one active wholly owned
subsidiary -- PeakSoft Corporation (USA) (PeakSoft USA), a Washington State
company. It has in the past had other active wholly owned subsidiaries:
(1) BREEZ Business Management Systems Inc. (BREEZ - currently inactive), a
Washington State company, which provided computer support services by
telephone and computer repair services from a depot facility;
(2) Peak Media, Inc. (currently inactive), another Washington State company
which was incorporated to develop and to publish multi-media CD-ROM works
for the consumer market; and
(3) Chameleon Bridge Technologies Corp. (CBT), a British Columbia company,
which was acquired for its computer software research and develop
capabilities, capabilities which have now been absorbed by PeakSoft, its
parent company.
PeakSoft is the main operating entity, which has utilized PeakSoft USA as its
U.S. marketing and operations division. CBT was acquired for its research and
development capabilities, which have now been transferred to PeakSoft, and is
currently not active. The Corporations senior management reside in different
localities in the United States and Canada with the focal point being the
Corporations head office in Bellingham, Washington where Mr. Douglas Foster,
PeakSofts Chief Executive Officer resides. Mr. Liam Taylor, Chief Technology
Officer, resides in the Vancouver, British Columbia area where he maintains a
home office. The senior management group maintains daily contact through
phone, fax and e-mail. In addition, management meetings are held at irregular
intervals in Bellingham.
Background of the Corporation
The Corporation was founded by Mr. Douglas Foster in the summer of 1994 to
combine the operations of Peak Media, Inc. and BREEZ. For ease of exposition,
when used herein to describe the Corporations business, the terms PeakSoft or
the Corporation shall, unless otherwise indicated, include the activities of
its subsidiaries.
In mid-1995, Peak launched its first CD-ROM product entitled Mt. Everest Quest
for The Summit of Dreams, Volume 1; The North Side. This multimedia title
tells the tale of eight international teams attempting to reach the summit of
Mt. Everest from its north side in 1994. In 1995 and early 1996, Peak
developed and began selling two additional CD-ROM products. Approximately
3,000 units of these CD-ROMs have been sold to date. In early 1996, however,
PeakSoft determined that its resources would be more profitably deployed in
the development of Internet products. The Corporation does not anticipate
creating any further content-based CD-ROM products.
PeakSoft (at the time still known as Peak Technologies Corporation) was listed
on The Alberta Stock Exchange, under the symbol PKT, on August 10, 1995.
In August 1995, Peak completed its initial public offering by exchange offering
prospectus. The Corporation issued 1,750,000 Common Shares at a price of
CDN$0.40 per common share for gross proceeds of CDN$700,000.
On November 18, 1996, Peak released its initial Internet software product
Net.Jet, since renamed and now called PeakJet. PeakJet is a Java-based
accelerator for the Internet. It is designed to reduce waiting time
significantly and to increase the speed with which a user can browse and
view pages and links within a website and travel from site to site on the
World Wide Web. Typically, browsers utilize less than 11 percent of the
total available throughput speed of a modem. With PeakJet, modem speeds of
50 percent to 90 percent of capacity are possible, resulting in reduced waiting
times and faster web browsing. PeakJet runs on any IBM-compatible computer
system running Windows 95 or Windows NT. PeakJet works as an add-on for
browsers like Netscape Navigator, Microsoft Internet Explorer, Oracle Power
Browser and other Java-enabled browsers running on a PC. On November 18, 1996,
Peak completed a private placement of 500,000 Second Special Warrants at a
price of CDN$0.75 per Second Special Warrant for gross proceeds of CDN$375,000.
The Second Special Warrants currently entitle the holders thereof to acquire an
aggregate of 550,000 Common Shares and 275,000 Share Purchase Warrants for no
additional consideration. Finders fees (inclusive of expenses) of CDN$18,953.98
were paid by the Corporation to GTL Securities (U.S.A.) Inc., a party at arms
length to the Corporation, in connection with certain subscriptions for Second
Special Warrants.
In May 1996, Peak completed the arms length acquisition of all of the capital
stock of CBT by allotting 1,500,000 common shares to those persons having a
right to CBT shares at an issue price of CDN$1.11 per share for an aggregate
purchase price of CDN$1,665,000. The Common Shares issued to the shareholders
of CBT were subject to an escrow agreement which required tjat three milestones
to be met, two which were passed shortly following the completion of the
agreement. The final milestone was also expected to be met.
It was represented to Peak that by the time of the acquisition, CBT had invested
approximately CDN$500,000 and 5 man-years in the development of certain
Java-based proprietary technology which has proved useful in advancing
functionality, interactive content, animation and ease of use of the World Wide
Web.
On May 10, 1996, Peak completed a private placement of 466,665 units at a price
of CDN$0.75 per unit, for gross proceeds of approximately CDN$350,000. Each unit
consisted of one common share and one share purchase warrant (the First
Warrants) which enabled the holder of it to purchase one common share at a price
of CDN$1.00. These warrants expired on May 9, 1998.
In May 1996, the Corporation acquired certain proprietary Java server technology
known as ExpressO in an arms length transaction from Mr. Charles T. Russell,
who was carrying on business as Innovative Desktop. This technology was
purchased in exchange for 133,890 Common Shares at an issue price of CDN$1.33
per common share for an aggregate purchase price of US$130,000. To date,
133,896 Common Shares have been issued. Two additional allotments of 15,449
shares each will be issued upon achievement of certain performance milestones.
Pursuant to a Software License and Joint Marketing Agreement dated June 5, 1996
and an Addendum dated June 24, 1996 between Peak and Infinop, Inc. (the Infinop
Agreement), the Corporation obtained an exclusive worldwide license with an
initial term of three years, subject to automatic one year renewals thereafter
(unless terminated earlier in accordance with the provisions of the Infinop
agreement), for the utilization, marketing and distribution of the Lightning
Strike program written in Java, which is a wavelet compression technology
which provides up to 200 to 1 compression for image transmission and increases
the speed of picture and graphics transmission over the Internet. Peak issued
35,700 Common Shares to Infinop for the license at a price of CDN$0.94 per
common share for an aggregate acquisition fee of CDN$33,558. Pursuant to the
Infinop agreement, Peak was required to make an advance royalty payment of
CDN$68,095 and monthly payments of CDN$13,619 for ten months in the initial
year. The parties have subsequently reached an agreement to cancel this
license, and Peak has ceased making any payments thereunder, as the Lightning
Strike program has not ultimately been incorporated into any of PeakSofts
products.
On October 7, 1996, Peak completed a private placement of 1,333,333 units at
a price of CDN$0.60 per unit for gross proceeds of approximately CDN 800,000.
Each of these units, which were referred to as "First Special Warrants",
consisted of one common share of Peak coupled with one warrant which entitled
the holder therof to acquire an additional share at a price of CDN$.70 -
unless a prospectus was not filed by Peak in provinces of Alberta, British
Columbia, and Ontario on or before December 23, 1996, in which event the holder
of a First Special Warrant became entitled to 1.1 common shares and 1.1
warrants. As this prospectus filing date was not met, the First Special
Warrants entitle the holders therof to acquire in the aggregate 1,466,667
common shares and 1,466,667 share purchase warrants. Finders fees (inclusive
of expenses) were n with certain subscriptions were paid by the Corporation of
CDN$4,282.10 to GTL Securities (U.S.A.) Inc., of CDN$12,284.46 to Chalfont
Holdings and of CDN$4,850 to Brent Harbar, each of whom is at arms length to the
Corporation, in connection with certain subscriptions for First Special
Warrants. The First Special Warrants expired on December 31, 1996.
On November 18, 1996, Peak completed a private placement of 500,000 Second
Special Warrants at a price of CDN$0.75 per Second Special Warrant for gross
proceeds of CDN$375,000. Each of these units, which were referred to as
"Second Special Warrants", consisted of one common share coupled with one
warrant which entitled the holder thereof to acquire an additional share at a
price of CDN$0.70 - unless a prospectus was not filed by Peak in each provinces
of Alberta, British Columbia, and Ontario on or before December 23, 1996, in
whhich event the holder of a First Special Warrant became entitled to 1.1 common
shares and 1.1 warrants. As this prospectus filing date was not met, the First
Special Warrants entitled the holders thereof to acquire in the aggregate
550,000 common shares and 550,000 share purchase warrants. Finders fees
(inclusive of expenses) of CDN$18,953 were paid by the Corporation to GTL
Securities (U.S.A.) Inc., a party at arms length to the Corporation, in
connection with certain subscriptions for Second Special Warrants. In the year
1996 65,518 shares were issued for services.
On January 17, 1997 Peak completed a private placement of 690,000 units at a
price of CDN$1.11 per unit for gross proceeds of CD$765,900. Each of these
units, which were referred to as "Third Special Warrants", consist of one
common share of Peak coupled with 1/3 of a warrant. A full warrant entitled
the holder thereof to acquire an additional at a price of CDN$1.35 - unless a
prospectus was not filed by Peak in each of the provinces of Alberta, British
Columbia and Ontario on or before April 21, 1997, in which event the holder of
a Third Special Warrant became entitled to 1.1 common shares and 0.367 warrants.
As this prospectus filing date was not met, the Third SPecial Warrants entitled
the holders thereof to acquire in the aggregate 759,000 common shares and
253,230 share purchase warrants. The Agents and Research Capital Corporation
(Research Capital) of Toronto, Ontario (as an additional sub-agent of GTL)
received as compensation, in part, in connection with the distribution of the
Third Special Warrants, non-assignable Brokers Warrants entitling them to
acquire an aggregate of CDN$69,000 non-assignable Agents Purchase Warrants.
Each Agents Purchase Warrant entitled the holder to acquire one common share
at the excercise price of CDN$1.35 per share at any time on or before January
16, 1998. The Common Shares and the Fourth Warrants issuable on excercise of
the Third Special Warrants and 34,500 of the Agents Purchase Warrants issuable
on excercise of the Brokers Warrants (on a pro rata basis among the holders
thereof) are qualified for distribution. The Third Special Warrants expire on
July 17, 1998.
On June 11, 1997 the Company issued and had accepted a prospectus in British
Columbia, Alberta, and Ontario and cleared the First, Second, and Third Special
Warrants. As a result on June 11, 1997 the Company issued 2,775,667 Common
Shares of these shares 63,942 were issued for services provided to the Company,
and the balance of 2,711,725 shares were issued for cash. The Company became a
reporting issuer in British Columbia, Alberta, and Ontario at that time.
On August 11, 1997 PeakSoft announced the signing of a letter of intent for a
US$2 million financing commitment with Elliott Associates LP, (Elliott), the
manager of a New York Investment group, in consideration of promissory notes
bearing interest at 12 percent per annum and warrants to purchase Common Shares.
The first stage of the financing agreement of US$1,125,000 closed on September
9, 1997. The notes payable were issued in September, 1997 and represent 12
percent senior promissory notes held by Liverpool Limited Partnership and
Westgate International L.P. Attatched to the issued notes are warrants to
purchase 3,120,075 common shares at a price of CDN$.50 per share expiring in
September 1999 and a right of first refusal on future capital raising
transactions. The notes reflect an effective interest rate of 18% per annum
and a value of CDN$173,759 has been attributed to the warrants issued and
recorded as other paid-in capital.
A second issuance of 12 percent senior promissory notes of CDN $1,207,500
(USD $875,000) were to have been issued subject to certain terms and
conditions, with warrants attached to purchase 1,879,925 common shares of the
Company at a price of $0.64 per share expiring in February, 2000. The terms
and conditions of this second purchase of notes required the Company to attain
certain targets which were not achieved, in the result of which the amount of
the second advance was renegotiated downward to USD $140,000, this advance being
made on March 19, 1998 against the issuance of a second set of promissory
notes and of 500,000 Share Purchase Warrants which are convertible into Common
Shares at a price of CDN$0.40.
PeakSoft began shipping its most recent product, NetMagnet, on January 21, 1998.
NetMagnet, which has been well received by evaluators of and commentators upon
computer software, is a web accelerator / caching / presentation utility which
substantially enhances the speed with which information can be gathered from the
World Wide Web and presented to others.
BUSINESS OF THE CORPORATION
Overview
PeakSoft is primarily a software and Internet technology company that is
developing and marketing products to enhance the browsing ability of Internet
users. Using proprietary Java-based technology, PeakSoft is developing products
that address the Internet performance concerns of consumers and businesses.
The Technology
In early 1995, the Corporation made a research and development commitment to
develop products for the Internet. The result was the development of the
Corporations Java-based technology.
As a result of its acquisition of CBT developers who were employed by that
company, the Corporation secured the ability to develop applications utilizing
the Java programming language.
PeakSofts primary proprietary technology is based on the Java server ExpressO
and is complemented by other technologies, including Javalin, a Java based
development environment. ExpressO provides the Corporation with the benefits
of a complete Java server in developing Internet applications and, in
particular, those applications which address browsing speed and performance
issues.
The acquisition of CBT brought new engineering staff and unfinished technology
to Peak. The technology known as Javalin had no guarantee of being merchantable
or completed, but in the opinion of management offered promise for the company
to establish itself in the Internet market. Approximately six months after the
acquisition Peak did, in fact, successfully commercialize the product and
continue to expand the core technology. As an example the company released
Web Animator in 1996 which was re-named Jet Effects in 1997 and continuess to
be sold by the company today. In addition the technology was applied
to the creation of NetJet in November 1996, now known as PeakJet and to the
creation of NetMagnet released in January 1998. While there is no guarantee
that the technology will continue to be marketable, the Company released
PeakJet 2000 in July 1998 and has five other products based upon this technology
underdevelopment.
Products
PeakSofts core technology has been translated into a comprehensive product
strategy.
The company announced PeakJet 2000 and commenced sales of this product on
July 2, 1998. PeakJet 2000 is a next generation of the company's original
browser accelerator offering new features and specific features for the
International marketplace.
The company licensed its technology to InfoBuild Networks Inc. InfoBuild has
released its first application targeted at the financial industry, BSmarter and
is in the process of launching its next product BFaster.
The company is preparing to release its first value added solution, LawTrack
with a price point of $395 targeted at providing Internet Research to the legal
community. The company also is developing other value added solution products
based upon its core technology.
Marketing Strategy
To capitalize on its technology, PeakSoft is addressing the needs of the rapidly
growing market of Internet users. The Corporation plans to apply its technology
to performance solutions for business in the emerging intranet marketplace, and
will shortly be releasing a product to assist members of the legal profession
to access and to organize the resources available to them on the Internet. In
addition, PeakSoft is proposing to license other companies to develop its
software for corporate and institutiona
Since its inception PeakSoft has applied its core Java based technology to
solving problems associated with the speed, ease of use and information
management issues of the Internet. PeakSofts first products; NetJet, released
in November 1996, PeakJet 1.55 released in March 1997 and Jet Effects released
in March 1997 were marketed using traditional software sales strategies.
These strategies include: 1) Sales through traditional distributors into major
retail locations across North America, 2) Bundling of the products with other
complimentary applications, 3) Offering trials of the products through
compatible distribution partnerships such as modems and other computer devices,
4) Creating a presence on the WWW for the offer to try or to purchase the
products, 5) Establishing International sales relationships.
The number of users of the Internet is projected to continue to grow through
the next 5 years. In 1998 the emergence of E-Commerce and Electronic Software
Distribution has created opportunities for the company to expand its product
offering and establish new channels of distribution. In addition to our
previous strategies, which continue to be refined, PeakSoft is establishing
Internet retail partnerships and co-marketing alliances based upon a profit
sharing model.
Marketing activities and Public relations focus on the Internet as the primary
vehicle for creating interest in the companys products followed by traditional
press and print focus.
The company plans to release new applications focused on solving specific
industry problems and allowing them to gain maximum value from the Internet.
While there is no guarantee that these applications will be accepted, the
company sees an opportunity to increase its product pricing and specialize its
products for specific industries and tasks.
Management, Staff and Facilities
PeakSoft has 19 employees who work primarily from its leased office space in
Bellingham, Washington. Certain members of management also work from home
offices in the Vancouver area of British Columbia (see The Corporation). The
Corporations Bellingham facilities are used for its inventory storage, customer
service, accounting, legal, marketing and product quality assurance functions.
PeakSofts programmers work both from the Bellingham office and from home
offices. The Corporation had at one time a British Columbia office, but this was
closed in March 1997.
Senior management of Peak possesses a strong industry background in business
management, finance, technology, sales and marketing. Peaks Board of Directors
provides a breadth of public company, software industry and corporate finance
experience. The organization and duties of the Corporations management are as
follows:
President & C.E.O. - Douglas Foster
Overall responsibility for the planning and execution of the Corporations
business with marketing being his primary focus. Mr. Foster reports to the
Board of Directors.
Chief Technology Officer - Liam Taylor
Mr. Taylor is responsible for keeping the Corporation abreast of current
technology developments and their impact on its current and impending products.
He proposes new product research and development. Mr. Taylor reports to the
President.
Chief Operations Officer - Timothy Metz
Mr. Metz is responsible for the financial operations and day-to-day management
of the Corporation.
Core Technology
Javalin Technology
PeakSofts initial investment in Java following its acquisition of CBT resulted
in the development of Javalin. Javalin is proprietary technology that allows
PeakSoft to quickly develop high performance Java applications. It incorporates
a real time multimedia enhancement for the Internet that is designed to animate
and increase the impact of content on the World Wide Web. Javalins Java-based
software framework will run in conjunction with all major browsers and Windows
95 and Windows NT computer platforms. Its modular structure requires no special
plug-ins or readers. Its layered architecture creates a steady multimedia
presentation flow. Even with todays Internet bandwidth limitations, the
problems of lengthy downloading delays are reduced.
Javalin has a graphic user interface for intuitive drag and drop authoring, and
a scripting language for simple but detailed control of the structure and
behavior of objects. Its layered architecture introduces presentation
structures in hypertext, vector metagraphics, scalable bitmaps and animation.
Sequenced effects such as movements, color and texture changes, zooms,
rotations, fades, and wipes can be applied to objects in each level. Conditional
events such as collision detection between objects and user interaction can
create independent chains of sequences. Javalins modular construction can be
layered to create multi-stated, multifaceted graphics and environments. It can
also be directed to low level programming functions.
Javalin was developed specifically for web authors, a market the Corporation
has subsequently determined to be less attractive than Internet users who want
enhanced performance. For this reason, the Corporations Javalin technology has
not been developed into a completed consumer product, but rather is used
internally by the Corporation as a tool to develop its other products.
PeakSoft ExpressO
In May 1996, PeakSoft acquired ExpressO server technology from Innovative
Desktop Inc. ExpressO is a multi threaded server written entirely in Java
and is currently perceived as an architecture that may form the basis of many
applications to come. ExpressO has a well-defined architecture and has
programming interfaces, which make it a flexible software building block.
Since 1996, PeakSoft has developed additional technology in Java which includes
agents and caching capabilities complementary to ExpressO and Javalin. The
Corporation owns all technology outright.
MARKETPLACE
Overview
According to a June, 1996 study by the Georgia Institute of Technology (reported
on the website of Forrester Research), in the first three months of 1996, nearly
35 million persons in the United States over the age of 16 used the Internet or
accessed on-line services. This represents a growth rate of 52 percent over
1995. According to Dataquest, the Internet is one of the fastest growing
markets in the world with 1997 growth of 71 percent to 82 million computers
worldwide online. Driven by increased business and international expansion the
year 2001 is projected to exceed 268 million computers online.
Users expect the Internet to be fast and easy to use. While the Internet is the
fastest growing communications, entertainment and marketing medium in the world,
most people find it frustrating to use. Access is slow, content is static, and
information is often difficult to find and access.
According to Forrester Research, Internet software revenue will increase from an
estimated US$1.4 billion in 1997 to US$8.5 billion by 1999. These revenues will
be generated in the following market categories (according to a 1996 industry
study by I/PRO reported on the Forrester Research website):
Fast growth and transition to non-technical use has created technical
(bandwidth) problems for the Internet. As reported by most industry
publications, and confirmed by PeakSofts focus groups, the primary frustration
with the Internet is the slow speed of navigation followed by ease of access,
ease of searching for information and underwhelming content.
Users do not want to wait long minutes to view pages and graphics, and they are
not willing and often not capable of going through the tedious and confusing
process of down-loading and setting up plug-ins and players in order to view
interesting content. What they really want is the experience to be as easy as
dealing with other household appliances, with instantaneous results.
PeakSoft has recognized these problems, and has released Peak Net.Jet (now known
as PeakJet) and NetMagnet, and is developing other products to address aspects
of the Internet opportunity.
Target Markets
Primary - Consumers and Small Business, Internet Research
The largest potential market for PeakSoft products is the large and growing
group of individuals who, and businesses and households which, want access to
the Internet. PeakSoft intends to address this market through traditional
consumer-based distribution channels, World Wide Web based distribution
programs, and direct to business marketing.
PeakSoft is launching a series of products targeted at solving key problems
which users are experiencing on the Web - those relating to speed of access,
ease of use and productivity. PeakJet addresses the biggest problem by
increasing the speed of information delivery to users. The Peak Jet Effects is
targeted to web-site authors and graphic artists. With the introduction of
NetMagnet users now have a sophisticated caching and presentation tool as well
as a web browser accelerator.
High quality, Java-based products combined with impulse level pricing have
helped to reduce PeakSofts barriers to entry in the distribution channel. High
impact packaging, promotion and advertising programs lead retailers to place
PeakSofts products in high profile areas. Additionally, World Wide Web
marketing programs help develop the market and provide initial feedback as well
as permit the offering of limited use versions at little or no cost.
Corporate Intranet and Research
PeakSofts technology is being targeted to the growing intranet market as well.
PeakSofts server technology is being bundled into a product strategy, with the
planned launch into the intranet market of work group and information
management products later in 1998. These products and tools will be targeted at
corporations as well as Web service and site providers.
PRODUCTS
The following is an overview of PeakSofts initial products.
PeakJet 1.5
PeakJet (formerly called Peak Net.Jet) is an accelerator for the Internet. It
directly addresses the primary problem with the Internet: lack of speed while
viewing the World Wide Web. PeakJet can significantly reduce the waiting time
and increase the speed with which a user can view pages and links within a site
and when traveling from site to site.
PeakJets performance enhancement varies, depending upon the users activity.
Users will notice speed increases beyond their normal browser capacity, both for
sites browsed for the first time and for those previously visited and cached.
PeakJet reduces waiting time regardless of the content type being loaded whether
text, sound or images. PeakJet reduces access time to all sites, Java or
otherwise. Additional speed gains are realized when accessing sites utilizing
Peaks ExpressO Java server. PeakJet boosts Web surfing performance on both 14.4
and 28.8 modems, as well as on ISDN, T3 and TI connections.
PeakJet works with PC (Windows 95 and Windows NT) compatible systems and runs
with any Java-enabled browser, including Netscape 2.0 or later, Microsoft
Internet Explorer 3.0 or later, JavaSofts HotJava, and Oracles Power Browser.
PeakJet was released on November 18, 1996 at a suggested retail price of US
$29.95. PeakSoft has plans to release PeakJet 2.0 during the latter part of
1998.
JetEffects
A Java-based tool for World Wide Web authors, JetEffects allows animations,
special effects and sounds to be added to text and graphics. JetEffects provides
a graphic user interface, allowing non-programmers to bring static Web sites to
life.
JetEffects began selling separately over the Internet for US $49.95 beginning in
November 1996 and was released into the retail channel on March 10, 1997. This
product also offers potential bundling and original equipment manufacturer
opportunities.
NetMagnet (consumer) from PeakSoft
NetMagnet is a new software suite of products that improves the efficiency of
the Internet and WWW as an information tool. NetMagnet is a research tool that
enables the user to obtain information that is located on the Internet and
offers options to annotate, edit, organize and save Web searches, and has
functionality to publish or send those searches to other Web users. PeakJet
1.5 users can be upgraded to combine with NetMagnet to enable the user to
significantly accelerate the searches and retrieval of Internet information.
This technology is currently being enhanced for distribution in the professional
and financial markets.
ExpressO from PeakSoft
ExpressO is a full-featured easily customized Java Web server that enables peer
to peer communication between users. Its small size and cross-platform
compatibility allows it to reside on a broad range of computer platforms
supporting a Java interpreter. Ideal for both Internet and intranet users,
ExpressO products include Commercial Web Server, a Lite Personal Web Server, the
ExpressO Programmer Kit and the Server Construction Kit.
ExpressO products will be sold to corporations, through original equipment
manufacturer agreements and to World Wide Web developers. These products are
expected to be released in 1998.
MARKETING AND DISTRIBUTION
Main Channels
A number of trends are changing the face of distribution for software companies.
Since PeakSoft sells Internet solutions it is important to understand the trends
in this category as well. Below we will briefly introduce the trends and how
they effect PeakSoft strategies.
1. Growth of Internet Commerce in all markets. E-Commerce is experiencing
substantial growth as consumers become more confident about conducting
financial transactions over the Web. PeakSofts strategy is to develop
Internet retail locations where its product may be purchased using secure
commerce technology and delivered electronically or in disk form.
2. Internet software sales are increasing on the Web. It follows that Internet
users are tending to purchase software on the Web. The result has been
lower than expected performance of Internet software and utilities in the
traditional retail channel, and a corresponding increase in sales on-line.
PeakSoft has upgraded its e-commerce capability and opened the PeakStore at
www.peak.com to take advantage of this trend.
3. Increase in e-commerce has led to increase in Web based retail
opportunities. Non-traditional companies are entering the e-commerce market
as a way to increase profits. Firms that are not thought of as traditional
retailers are creating partnerships and profit sharing arrangements. As an
example, software and other products can be purchased at Web boutiques on
sites such as The Wall Street Journal, Ziff Davis, CBS and others. PeakSoft
has established an Alliance Program to increase its participation in these
forms of retail opportunities.
4. Retailers have moved to the Web, Egghead, Comp USA and others. Peak has
established over 20 retail locations so far and is seeking to improve its
terms of payment in these new markets.
5. Direct to Customer strategies are producing promising results, firms like
Dell, Gateway, RealNetworks and others have established substantial
improvement in margins and sales through these programs. PeakSoft alliance
programs are based upon a profit sharing strategy through partnerships that
can reach directly to potential customers.
PeakSoft Web Site
The Corporation has developed and maintains high profile website: www.peak.com.
This site, complete with product and corporate information, is where visitors
can see samples of PeakSofts products, read press releases and critical reviews.
PeakSoft offers customer support, forums for feedback and links to other topical
sites. Guests can even get a current stock quote, view the Corporations chart
or calculate the value of their PeakSoft holdings. Since April 1996, the
Corporation has positioned teaser samples of Javalin animations on the site,
which have been very active and growing in popularity.
PeakSoft has developed well its presence into a showcase for its products and
technology and a gathering place for consumers. PeakSoft regards the Internet
and its websites as low cost marketing tools and has developed a focused plan
to take advantage of this opportunity. In 1996 and 1997 the Corporation has
uploaded to consumers over 100,000 units of its products.
All of PeakSofts current and planned products are World Wide Web-enabled. This
means that every PeakSoft software program has an automatic launch capability to
www.peak.com where it could be automatically updated with minor releases of the
software. Currently, upgrades have been unspecified and are expected to be
minimal and infrequent. This automatic update function provides PeakSoft with
a continuing access to its customer base.
Direct distribution software is one of the few products that can take
advantage of the low cost distribution channel of the Internet. Most PeakSoft
products and services can be sold and distributed via the Internet, (although
PeakSofts more advanced products will be sold by licensees dedicated to their
professional and institutional markets). PeakSoft provides direct consumer
delivery for all of its consumer products by the simple expedient of their being
downloaded from one of PeakSofts websites. ExpressO, the Corporations Java
server, is also deliverable via the Internet. Product upgrade programs
requiring small program extensions are promoted and delivered directly over the
Internet as well, a practice which will be extended to PeakSofts more
sophisticated products. Currently, upgrades have been unspecified and are
expected to be minimal and infrequent. While PeakSoft expects modest results
in the short term, the Corporation expects this area to grow into a
significant revenue center in 1998 and 1999.
Support
PeakSofts support programs are geared toward developing brand awareness in
addition to providing a high level of support. The first level and highest
priority for support calls will be through the World Wide Web sites. Users can
enter their support issues directly in the support area of the site.
Additionally, they can view the frequently asked questions area where most of
the common support issues will be answered. Responses to the customers support
issues are most commonly made via e-mail.
Phone calls for support, unless critical, receive a secondary priority behind
World Wide Web support calls. Whenever possible PeakSoft emails the response
or calls back if required. If the solution were available in the frequently
asked questions area or more easily attainable through the World Wide Web,
PeakSoft mentions that fact to urge the customer to use electronic support in
the future.
Implementation of this plan addresses a number of issues. It provides an
efficient low cost support structure. Directing a response back to the customer
will be easier and faster as it will not be dependent on the customers
availability and doesnt require a long distance phone call. Additionally, it
brings people to the site where the Corporation can utilize each connection as
an opportunity to market additional products and services.
MANUFACTURING
PeakSoft Corporation has contracted with Saturn Solutions of Toronto, Ontario
and Essex, Vermont, to manufacture and assemble the software products for
distribution in the retail channel. Saturn Solutions replicates CD-ROMs and
produces packaging for all Peak software products, which are shipped out of the
Essex, Vermont, fulfillment facility. PeakSoft Corporation has also entered
into a similar agreement with Hart Graphics of Austin, Texas.
COMPETITION
Browser Accelerators
Currently there are a small number of competitors that have entered the market
with software products that include some features similar to PeakJet. Speed
Surfer from ViaSoft, based in Australia, markets a shareware program that
claims to speed browser performance on the Web. Because Speed Surfer is
designed to run totally in the background and has no user interface, evaluating
user benefit is difficult. Speed Surfer is priced at about US$30. GoAhead from
GotIt has similar features to PeakJet, including look-ahead agents, cache
fresheners and automatic software updates. GotIt users can browse offline and
the software will initiate an Internet connection if a page is requested that is
not in the cache. The user interface resembles a TV remote control that
enables the user to determine the benefit of the product. GotIt is available
on-line only with no retail distribution. Net Accelerator from IMSI was
shipping in July to most retailers. Priced at US $29.95 this product makes many
claims similar to PeakJet. PeakSofts testing indicates that this product does
not contain caching technology. PeakSofts tests show PeakJet is 5-15 times
faster. A recent evaluation of browser accelerator software by CNET, a major
evaluator and purveyor of software on the Internet, concluded unequivocally that
PeakJet was the fastest product of its type.
While there is currently no direct competitive product to NetMagnet in the
market, the Company believes that as more favorable reviews are published and
sales increase; competitive products will arrive in the market. The Company
plans to maintain its lead in the market through new technology.
Animation Tools
JetEffects, retailing at US $49.95, entered a highly competitive market with
similar animation tools such as Jamba from Aimtech, Liquid Motion Pro and Liquid
Reality from DimensionX. Jamba allows creation of applets similar to any other
applet author. It has been awarded best of the test in a comparison of seven
animation software products in Internet World (Feb/97) and is priced at US
$299.00. Liquid Motion Pro is an applet authoring tool which allows the
creation of interactive 2D animations. This product has been well received by
the press and is priced at US $725.00 with a free trial available. Liquid
Reality enables users to create interactive 3D VRML Java environments. A free
beta version is available, but no retail price has been announced.
RESEARCH AND DEVELOPMENT
As of September 30, 1997 the Company had 8 hardware and software engineers
employed full time in research and development.
Research, development and associated expenses were CDN$180,413 for 1st. Qtr.
Fiscal 98, CDN$641,426 for fiscal 97, CDN$321,740 for fiscal 96, and CDN$31,871
for fiscal 1995.
RISK FACTORS
The purchase of Common Shares of the Corporation must be considered highly
speculative due to the nature of the Corporations business, its relatively early
stage of development and the intensely competitive, rapidly changing nature of
the Internet industry which has a number of participants which possess greater
resources than the Corporation.
The Corporation is a development stage company, which has not yet achieved
profitability. Its accumulated deficit, in accordance with generally accepted
accounting principles in Canada, as of September 30, 1997 was CDN$6,415,400.
There can be no assurance that the Corporation will be able to achieve or
sustain profitable operations. The Corporation expects to continue to incur
significant operating losses as it continues to devote significant financial
resources to the commercialization of its products, the expansion of the
Corporations operations and product development activities. There can be no
assurance that the Corporation will successfully commercialize such products and
reach break-even or profitability in the near future, or ever. Due to extensive
development costs and marketing expenses for its proprietary products, there was
a loss incurred for the fiscal year ended September 30, 1997 of CDN$4,091,490.
As a result of the foregoing, investors could lose their entire investment in
the Corporation.
While the Corporation has established sales revenues they should be considered
early stage. In September of 1997, the Corporation concluded a US$1.125
million financing, a financing which was augmented by a second advance of
US$140,000, during the third week of March 1998. The Corporations future
capital requirements will depend on many factors, including the amount and the
timing of future revenues and continued progress in its research and
development. There can be no assurance that any necessary additional financing
will be available when required by the Corporation for product commercialization
on acceptable terms or at all. If adequate funds are not available, the
Corporation may be required to change, delay, reduce or eliminate its planned
product commercialization strategy or take other actions to raise funds, which
could have a materially adverse effect on the Corporations business, the results
of its operations, and hence its financial condition. To date, the Corporation
has relied on sales of its equity capital for the largest measure of its
financing, and is likely to remain reliant thereon in the near term. To the
extent further equity financings are available, they may result in substantial
dilution to existing shareholders.
The production of technology-based products such as computer software carries
with it a high risk of the emergence of new competitive products in the same
market niches as those being targeted by the Corporation. There is in this
industry a substantial risk of unforeseen change in the underlying technologies
during the development of technology-based products, which may have negative
effects on the marketability of such products. The Corporation has no
technological advantage over any other competitor. There can be no assurance of
market acceptance of the Corporations products, or if there is acceptance, that
such acceptance will be sustained. Internet markets are new and relatively
unproven, and thus carry higher risk than more established markets.
The technology involved in the development of software for Internet users is
subject to constant, often rapid, development. This technology and the products
developed therefrom may, even within a short time, become obsolete or superseded
by technology with a greater market acceptance. As a result, the Corporation
could be required to expend significant amounts for research and development in
order to maintain its competitive edge. There can be no assurance that the
Corporation will be able to develop or improve its existing technology or to
develop new technology. Hence there can be no assurance that it will continue
to have access to adequate financial resources to fund necessary research and
development.
The market for the Corporations products is relatively new, and its potential
has not yet been determined. The Corporation believes that the market for its
products has significant growth potential, but whether that potential will be
realized depends upon numerous factors outside the Corporations control. Even
if the market for Internet products were to develop as anticipated, the success
of the Corporations products will depend upon the Corporations ability to
anticipate and to respond to trends in the demands of the marketplace for such
products.
The Internet products industry is ferociously competitive. The Corporation
competes against a large number of companies of varying size and resources,
including large companies with substantially greater financial, technical and
marketing resources than PeakSoft. The Corporation believes that competition in
its business depends largely upon sustained technological advancement and the
development of appropriate channels for the marketing of its products. The
Corporation is attempting to meet these needs through the expansion of its
technical expertise and by developing multiple sales channels for its
products. There can be no assurance, however, that the Corporation will be
successful in these efforts.
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when financial
statements are affected by conditions and events that cast substantial doubt on
the Companys ability to continue as a going concern, such as those described in
note 1 to the financial statements. The auditors report to the directors
dated December 12, 1997 is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditors report when these are adequately disclosed in the financial statements.
Accordingly, the auditors included a notice to US readers to this effect.
Existing external financing remains in place and has been increased. Management
is also seeking some additional external financing. The Company has obtained
financing aggregating to $545,206 since September 30, 1997, and is attempting
to raise further financing at this time. Accordingly, the Company has concluded
that the going-concern assumption is appropriate.
Management is aggressively taking steps to remedy its current financial
situation. Implemented cost reduction programs have reduced operating cost by
44% and fulfillment cost by 31% since December 31, 1997. Terms and conditions
of sales have been modified in order to enhance cash flow. Management is
implementing a new strategic marketing and sales program, both domestically and
internationally, to increase sales while reducing costs. The Company plans to
maximize the potential of its technology by simultaneously addressing both
vertical and horizontal markets with existing and new scheduled products.
The Corporation has not registered trademarks and service marks with respect to
all of its products. In June 1997, the Corporation settled a lawsuit alleging
infringement upon a trademark in connection with the use of the name Net.Jet.
See Legal Proceedings. There can be no assurance that others will not assert
infringement claims against the Corporation in the future. Such claims, even
if unfounded, can be costly to defend, and could have a materially adverse
effect upon the Corporations operations.
The Corporation is dependent upon the management and leadership skills of Mr.
Douglas Foster and its existing management. The Corporation is not party to
material contracts of employment with Mr. Foster or key members of current
management. There is intense competition for qualified personnel in the
software industry, and the loss of key personnel or an inability to attract,
retain and motivate key personnel could adversely affect the Corporations
business. The Corporation does maintain policy of key man insurance on the life
of Mr. Foster having a value of US$500,000. There is no assurance that the
Corporation will be able to retain its existing senior management personnel or
to attract additional qualified personnel.
Following exercise of the First Special Warrants, Second Special Warrants and
Third Special Warrants, the Corporations principal shareholder will, in the
aggregate, beneficially own approximately 6.86 percent of the Corporations
outstanding Common Shares (excluding Common Shares issuable upon exercise of
stock options, Agents Purchase Warrants, First Warrants, Second Warrants, Third
Warrants and Fourth Warrants). As a result, such shareholder may be able to
influence materially most matters requiring approval by the shareholders of the
Corporation, including the election of a majority of the directors. The voting
power of the principal shareholder under certain circumstances could have the
effect of delaying or preventing a change in control of the Corporation, which
in turn could affect the market price of the Common Shares.
There has been significant volatility in the market price of securities of
technology companies. Factors such as technology and product announcements by
the Corporation or its competitors, disputes relating to proprietary rights and
variations in quarterly operating results have had, in the past, and may
continue to have in the future, a significant impact on the market price of the
Common Shares. In addition, the securities markets have experienced volatility,
which is often unrelated to the operating performance of particular companies.
To the extent that external sources of capital, including the issuance of
additional Common Shares, might be limited or become unavailable, PeakSofts
ability to make the necessary capital, development and marketing expenditures
to create and distribute new products will be impaired.
The Corporation has not paid any dividends since its inception and does not
contemplate that any dividends will be paid in the foreseeable future.
The Corporation sells a substantial part of its products and services outside
of the United States and Canada. Its profitability may therefore be subject
to fluctuations in exchange rates. The Company does not manage the risks
related to foreign currency, interest rates or inflation by using hedging
arrangements.
There are potential conflicts of interest to which the directors of the
Corporation may be subject to, from time to time, in connection with the
operations of PeakSoft. Conflicts, if any, will be subject to the procedures
and remedies mandated by the Business Corporations Act (Alberta) and the common
law of Alberta.
ITEM 2 - DESCRIPTION OF PROPERTY
The executive offices and support facilities of PeakSoft USA, which are located
at 3614 Meridian Street, Suite 100, Bellingham, Washington, USA, occupy
approximately 5,392 square feet. These offices were leased, effective September
15, 1997, for a term of 54 months at an annual lease rate of US$67,100. The
Company at one time leased commercial space located at 100 Park Royal, West
Vancouver, British Columbia, Canada for research and development and business
development offices. These offices have been sublet, but a shortfall between
the rent received from the subtenant and that due to the landlord of
CDN$1,518.46 per month must be made up.
ITEM 3 - LEGAL PROCEEDINGS
On December 4, 1996, the Corporation was served with a formal complaint from
Netjet Communications, Inc., a California corporation, alleging trademark
infringement with respect to the Corporations Internet software product, Peak
Net.Jet, and commencing legal proceedings with respect thereto in the U.S.
District Court, Northern District of California. The complaint sought
unspecified damages, profits, injunctive and other equitable relief. A
settlement of the complaint, the terms of which are confidential, was reached by
the parties on June 10, 1997. Payment was made in full on September 13, 1997.
In the spring of 1997, the Corporation received a series of bills totaling
CDN$71,884.60 from its then general and securities counsel, the law firm of
Bennett Jones Verchere in Calgary, Alberta, for legal services allegedly
performed during the years 1995 and 1996. PeakSoft believes that these invoices
have been remitted improperly, and is contesting them in a taxation proceeding
which is ongoing before an officer of the Court of Queens Bench of Alberta.
ITEM 4 - CONTROL OF REGISTRANT
PRINCIPAL SHAREHOLDERS
The only persons who own of record, or who are known to the directors of the
Corporation to own beneficially, directly or indirectly, more than 10 percent of
the issued and outstanding Common Shares, as at March 23, 1998, are:
Name and Municipality of Residence: Douglas H. Foster, Bellingham, Washington
(1)
Type of Ownership: Legal and beneficial, indirect
Number of Shares: 1,470,050
Percent of Common Shares: 10.88
Percent of Common Shares after giving effect to the exercise of the First
Warrants, the First Special Warrants, the Second Special Warrants, the Third
Special Warrants (2) and the Fourth Special Warrants: 6.86
Notes:
(1) Mr. Foster holds 115,000 shares personally and is the sole shareholder,
director and manager of Foster Murphy & Sons Holding Co. Ltd., a British
Columbia company which is the registered holder of 1,355,050 Common Shares.
(2) This does not include Common Shares issuable upon exercise of stock options,
Agents Purchase Warrants, Second Warrants, Third Warrants or Fourth
Warrants.
The directors and officers of the Corporation beneficially own directly and
indirectly 13.0 percent of the issued and outstanding Common Shares of the
Corporation.
<TABLE>
<S> <C> <C> <C>
Title of Class Identity of Person or Group Amount Owned Percent of Class
Common Stock D. Foster (Individual) 115,000 .9
Common Stock Foster Murphy & Sons- 1,355,050 10.0
Doug Foster (Individual)
Common Stock Carl Conti (Individual) 112,000 .8
Common Stock Donald McInnes (Individual) 85,000 .6
Common Stock Peter Janssen (Individual) 51,750 .4
Common Stock Nick Vermeulen 33,000 .2
Common Stock Thomas Taylor 1 .0
Common Shares All Directors/Officers 1,751,801 13.0
as a Group
</TABLE>
ITEM 5 - NATURE OF TRADING MARKET
TRADING HISTORY OF COMMON SHARES
The Common Shares of PeakSoft are listed and posted for trading on The
Alberta Stock Exchange under the trading symbol PKT.A. The following table
sets forth the reported high and low sale prices and volume of trading of the
Common Shares as reported by The Alberta Stock Exchange for the periods
indicated:
<TABLE>
<S> <C> <C> <C>
1996 Price Range Trading Volume
High $ Low $
First Quarter 1.55 0.45 2,885,900
Second Quarter 1.85 1.20 1,615,806
Third Quarter 1.45 0.50 2,211,441
Fourth Quarter 1.60 0.60 3,659,653
1997
First Quarter 1.30 0.80 2,598,231
Second Quarter 1.18 0.57 1,714,955
Third Quarter 0.93 0.40 2,048,481
Fourth Quarter 0.90 0.40 1,160,214
1998
First Quarter 0.61 0.50 1,676,102
</TABLE>
The closing price of the Common Shares of PeakSoft on the Alberta Stock Exchange
on March 25, 1998 was $0.43.
As of March 27, 1998, 39.2 percent of the registered shares were held in the
U.S.
ESCROW
Pursuant to an agreement dated July 12, 1995 among the Corporation, Montreal
Trust Company of Canada, Foster Murphy & Sons Holding Co. Ltd., McGillicutty
Management Corp. - and - Eric Simonson and Kathy Simonson, (the Original Escrow
Agreement), an aggregate of 2,461,523 Common Shares owned by these shareholders
were placed in escrow with Montreal Trust Company of Canada. The Original
Escrow Agreement provides that the shares held in escrow are released as to 10
percent immediately after the expiry of nine months from the date of the final
receipt of the initial exchange offering prospectus of the Corporation (July 12,
1995), as to 20 percent at the end of each of the first, second and third
anniversaries from the date of the initial release of escrowed Common Shares and
30 percent at the end of the fourth anniversary from the date of the initial
release of escrowed Common Shares. 1,723,066 Common Shares remain in escrow
under the Original Escrow Agreement.
Pursuant to an agreement dated May 31, 1996 among the Corporation, Montreal
Trust Company of Canada and James Bickel, Gwen Cameron, Robert Casilio, Glenn
Guthrie, Elliot Holden, Ashley Holden, Cuthbert Huckvale, Edna Anne Judge,
Cliff Kondratiuk, Frank Lang, Stefan Liere, Carolyn May MacDonald, Dick
McKenzie, Allison McKenzie, Shonna McKenzie, Hashim Mitha, Sadru Mitha,
Gulshan Mitha, Joseph Gerard Monaghan, Alice Monaghan, Thomas Jacob Monaghan,
Matthew John Monaghan, Julie Marie Monaghan, Warwick Parker, John Taylor,
Liam Taylor, Harry Weatherill, Thomas Taylor, RBP Business Systems Inc.,
G.S.K. Investments Ltd., Hasker Management Ltd., Headline Technologies Ltd.
and Wunderware Software Corp. (the New Escrow Agreement), an aggregate of
897,568 Common Shares owned by these shareholders were placed in escrow with
Montreal Trust Company of Canada in connection with the acquisition of CBT by
the Corporation. The shares held in escrow are to be released on the
following basis:
(a) one-third of the Common Shares held by each shareholder shall be releasable
upon the confirmation by the Corporation to The Alberta Stock Exchange of
completion of a beta release of a product by the Corporation employing the
Javalin-based technology previously belonging to CBT;
(b) one-third of the escrowed Common Shares held by each shareholder shall be
releasable upon the confirmation by the Corporation to the ASE of
commercial release of a product by the Corporation employing the
Javalin-based technology previously belonging to CBT; and
(c) one-third of the escrowed Common Shares held by each shareholder shall be
releasable upon the Corporation achieving total revenues of CDN$1 million or
greater in any six-month period. Notwithstanding the terms of paragraphs
(a) and (b) above, the maximum number of Common Shares to be released from
escrow to a shareholder from the original number of Common Shares held in
escrow on behalf of such shareholder shall be one-third within the first
six months from the date of the agreement, two-thirds during the first
twelve months from the date of the agreement and the total original number
within the first eighteen months from the date of the agreement. The first
two-thirds of the Common Shares escrowed under the New Escrow Agreement
have now been released.
ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no governmental laws, decrees or regulations in Canada relating to
restrictions on the export or import of capital into Canada which affect the
remittances of interest, dividends or other payments to non-resident holders of
shares of the Companys stock. Any such remittances to US residents, however,
are subject to withholding tax under the Income Tax Act (Canada) (the Tax Act),
which is generally reduced to a rate of 15 percent pursuant to Articles X and
XI of the Canada-US Income Tax convention.
Except as provided in the Investment Canada Act (the Investment Act), as
amended by the Canada-United States Free Trade Agreement Implementation Act
(Canada) (the FTA Implementation Act), there are no limitations under the laws
of Canada, the Province of Alberta or in the charter of any other constituent
documents of the Company with respect to the right of foreigners to hold and/or
vote the shares of the Companys stock.
The Investment Act requires a non-Canadian making an investment to acquire
control of a Canadian business, the gross assets of which exceed certain defined
threshold levels, to file an application for review with Investment Canada, the
federal agency created by the Investment Act. Under the provisions of the
Investment Act, an investment by a non-Canadian (other than an American, as
defined in the Investment Act) in a Canadian business is reviewable if it is
(i) a direct acquisition, which is defined as the acquisition of the assets or
voting shares of a Canadian business or control of its Canadian parent in Canada
or a Canadian business with assets of CDN$5,000,000 or more, or (ii) an indirect
acquisition, which is defined as the acquisition of control of a Canadian
business with assets of CDN$50,000,000 or more, where the assets of the Canadian
business represent 50 percent or less of the value of the total assets acquired,
through control of its Canadian parent entity outside Canada. Where the value
of the assets of the Canadian business represents 50 percent or more of the
value of the total assets acquired, the direct acquisition threshold applies.
As a result of the FTA Implementation Act, the threshold for review of
acquisition by Americans has been increased. The threshold is presently
CDN$25,000,000 for direct acquisitions and CDN$100,000,000 for indirect
acquisitions. Acquisitions of control of certain types of Canadian businesses
are excluded from these higher thresholds. An acquisition of a Canadian
business, the gross assets of which do not exceed the above-threshold amounts,
will not be subject to review and the non-Canadian will simply be required to
notify Investment Canada within certain prescribed time limits.
The Investment Act also requires the filing of a notice with Investment Canada
by a non-Canadian making an investment to establish a Canadian business. Where
the business activity is, in Investment Canadas opinion, related to Canadas
cultural heritage or national identity, an order can be issued making the
investment renewable.
If Investment Canada is satisfied that the investment is likely to be of net
benefit to Canada (as compared with the test under the prior investment act that
the investment is of significant benefit to Canada), then the non-Canadian may
proceed to complete the investment. If Investment Canada is not satisfied that
the investment is likely to be of net benefit to Canada, then the non-Canadian
may not make the proposed investment or, if the investment has been implemented,
shall divest itself of control of the Canadian business that is the subject of
the investment.
ITEM 7 - TAXATION
The following discussion summarizes some of the primary Canadian income tax
considerations to non-residents of Canada owning Common Shares of a corporation
resident in Canada. The comments are confined to consideration of the Tax Act,
the regulations thereunder and PeakSofts counsels understanding of the current
administrative practices of Revenue Canada Taxation.
Cash dividends paid by a corporation resident in Canada on Common Shares held
by non-residents of Canada will generally be subject to Canadian withholding tax
under the Tax Act. This withholding tax is levied at the basic rate of 25
percent, but may be reduced by the terms of any applicable tax treaty. For
residents of the United States not having a permanent establishment in Canada,
the Canada-US Income Tax Convention reduces the rate of withholding tax to 15
percent generally and to 6 percent for corporations owning at least 25 percent
of the voting stock of the payer corporation.
Stock dividends paid by Canadian public companies are treated as taxable
dividends and are subject to withholding tax as discussed above. The amount of
a stock dividend paid by a corporation is deemed to be equal to the amount of
the increase in the paid-up capital of the corporation arising by virtue of the
payment of the stock dividend. A shareholder receiving a stock dividend is
deemed to acquire the shares that are the subject of the dividend at a cost
equal to the amount of the dividend.
A non-resident of Canada who holds Common Shares as capital property will not be
subject to tax in Canada under the Tax Act on capital gains realized on the
disposition of the shares, unless the shares are taxable Canadian property
within the meaning of the Tax Act. Generally, the Common Shares of a public
company would not be taxable Canadian property unless the non-resident used the
shares in carrying on a business in Canada, the non-resident was previously a
resident of Canada and elected to deem the Common Shares to be taxable Canadian
property on ceasing to be a Canadian resident or, at any time during the five
years before the disposition of the shares, the non-resident owned, together
with other persons with whom he did not deal at arms length, greater than 25
percent of the issued shares of any class of the capital stock of the public
company. The Canada-US Income Tax Convention provides that US residents will be
subject to tax in Canada under the Tax Act on capital gains realized on the
disposition of shares in a Canadian resident public company where such shares
comprise taxable Canadian property as discussed above and where more than 50
percent of the share value is derived from real property situated in Canada.
ITEM 8 - SELECTED FINANCIAL DATA
Set forth below is certain selected consolidated financial data of the Company
for the six months ended of March 31, 1998, and the comparable period in 1997.
The selected consolidated financial information is derived from the Companys
unaudited consolidated financial statements for such periods. The Companys
consolidated financial statements are prepared in accordance with Canadian GAAP.
The information set forth below should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations.
SUMMARY OF OPERATIONS (unaudited)
Stated in Canadian Dollars
SIX MONTHS ENDED MARCH 31
<TABLE>
<S> <C> <C>
1998 1997
Sales 899,582 709,384
Net Earnings (Loss) from
Continuing Operations (1,262,607) (1,782,304)
Earnings (Loss per Share)
from Continuing Operations (.09) (.20)
</TABLE>
SUMMARY OF BALANCE SHEET (unaudited)
Stated in Canadian Dollars
SIX MONTHS ENDED MARCH 31
<TABLE>
<S> <C> <C>
1998 1997
Working Capital* (396,348) (465,789)
Total Assets 1,355,088 2,505,249
Total Current Liabilities 879,791 1,162,050
Long Term Debt and
Obligation Under Capital Leases 1,667,210 49,571
Shareholders Equity (Deficit) (1,191,913) 1,293,628
</TABLE>
Set forth below is certain selected consolidated financial data of the Company
for each year in its existence ended September 30, 1997. The selected
consolidated financial information is derived from the Companys audited
consolidated financial statements for such periods. The Companys consolidated
financial statements are prepared in accordance with Canadian GAAP. The
information set forth below should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations and
the Companys audited financial statements.
SUMMARY OF OPERATIONS
Stated in Canadian Dollars
FISCAL YEAR ENDED SEPTEMBER 30
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Sales 1,340,200 784,900 556,096
Net Earnings (Loss) from
Continuing Operations (4,091,490) (927,480) 55,794
Earnings (Loss Per Share)
from Continuing Operations (.33) (.11) .02
</TABLE>
SUMMARY OF BALANCE SHEET
Stated in Canadian Dollars
FISCAL YEAR ENDED SEPTEMBER 30
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Working Capital* 341,546 (445,693) 88,060
Total Assets 2,402,271 2,118,027 570,303
Total Current Liabilities 1,042,639 523,681 288,858
Long Term Debt and
Obligation Under Capital Leases 1,421,918 64,044 36,164
Shareholders Equity (Deficit) (62,286) 1,530,302 245,281
</TABLE>
Had the Companys consolidated financial statements been prepared in accordance
with generally accepted accounting principles in the United States (see Note 14
to the audited financial statements), selected consolidated financial
information would have been as follows:
SUMMARY OF OPERATIONS
Stated in Canadian Dollars
FISCAL YEAR ENDED SEPTEMBER 30
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Sales 1,340,200 784,900 556,096
Net Earnings (Loss) from
Continuing Operations (3,354,661) (2,577,078) 55,794
Earnings (Loss Per Share)
from Continuing Operations (.35) (.31) .02
</TABLE>
SUMMARY OF BALANCE SHEET
Stated in Canadian Dollars
FISCAL YEAR ENDED SEPTEMBER 30
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Working Capital* 341,546 (445,693) 88,060
Total Assets 1,579,972 473,429 570,303
Total Current Liabilities 1,042,639 523,681 288,858
Long Term Debt and Obligation
Under Capital Leases 1,369,576 12,702 36,164
Shareholders Equity (Deficit) (975,055) (118,688) 245,281
</TABLE>
(a) CANADIAN AND US DOLLAR EXCHANGE RATES
A history of US-Canadian dollar exchange rates, as of September 30, for the
indicated years is set forth below. All amounts shown represent noon buying
rates for cable transfers in New York City certified funds for customs purposes
by the Federal Reserve Bank of New York. The source for this data is the Federal
Reserve Bulletin and Digest.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
HIGH SCAN LOW SCAN AVERAGE
CAN/US US/CAN CAN/US US/CAN CAN/US US/CAN
1991 1.1229 .8906 1.1589 .8628 1.1457 .87283
1992 1.1748 .8512 1.2858 .7777 1.214 .8237
1993 1.2497 .8002 1.3367 .7481 1.2901 .7751
1994 1.3408 .7458 1.4086 .7099 1.3736 .7280
1995 1.3507 .7404 1.4074 .7105 1.3686 .7307
1996 1.3852 .7219 1.3290 .7525 1.3630 .7337
1997 1.4395 .6947 1.3364 .7483 1.3850 .7220
1998* 1.4395 .6947 1.4314 .6986
</TABLE>
*The exchange rate stated for the year 1998 was as of April 15th.
(b) DIVIDENDS
The Company has not paid any cash dividends since its inception. The Company
does not intend to pay any cash dividends in the foreseeable future, but
intends to retain all earnings, if any, for use in its business operations.
ITEM 9 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto.
The Companys financial statements are prepared in accordance with generally
accepted accounting principles in Canada and are presented in Canadian dollars.
Significant differences between generally accepted accounting principles in
Canada and the United States are disclosed in note 14 to the financial
statements.
The Company chose to launch a new application NetMagnet ahead of its planned
next generation PeakJet. The delay in releasing PeakJet 2000, let that demand
for that product slip. The resulting decrease in sales reflects the impact of
a) not shipping NetMagnet on time and b) declining sales of PeakJet 1.55 due
to the anticipation that a new version would be coming. Subsequent to the
quarter end PeakSoft released NetMagnet (Jan 98) and released its next
generation PeakJet 2000 (Jul 98).
Six Months Ended March 31, 1998 Compared to Six Months Ended March 31, 1997.
The acquisition of CBT brought new engineering staff and unfinished technology
to Peak. The technology known as Javalin had no guarantee of being
merchantable or completed, but in the opinion of management offered promise
for the company to establish itself in the Internet market. Subsequent to the
acquisition Peak did, in fact, successfully commercialize the product and
continue to expand the core technology. As an example the company released Web
Animator in 1996 which was re-named JetEffects in 1997 and continues to be sold
by the company today. In addition the technology was applied to the creation
of NetJet in November 1996, now known as PeakJet and to the creation of
NetMagnet released in January 1998. While there is no guarantee that the
technology will continue to be marketable, the company released PeakJet 2000 in
July 1998 and has five other products based upon this technology under
development.
Revenue for the six months ended March 31, 1998 increased from $709,384 in the
comparable period in 1997, to $899,582, an increase of $190,198 or 26.8%, and
was due primarily to the growing sales volume of Peaks Internet software
products. The operating loss decreased from $1,782,304 to $1,262,607,
reflecting higher sales volume and a significant reduction in operating
expenses. Management has drastically reduced expenditures in all areas,
especially in cost of goods sold, research and development, and selling and
marketing. These reductions reflect managements ability to produce and sell a
more cost-efficient product with minimal marketing. The Company is actively
creating budgets to place emphasis on marketing its current and future products
in the next quarters to capture a higher sales volume. The amortization expense
includes the amortization on the research and development that was acquired in
1996 from Chameleon Bridge Technologies Corp, which is capitalized according to
Canadian GAAP. The Companys cash position was decreased from $110,784 in 1997,
to $61,084 in 1998 and remains an area of critical importance and is being
actively addressed by management. The Company does not have access to any
unused lines of credit at this time. Due to managements increased control
over cash flow, there are no expected non-operating expenditures that are
accounted for. In general, the results for the six months reflect the Companys
continuing growth in this fast-paced, rapidly expanding Internet market.
Management expects that the activity level for the Company will continue to
increase, with operating expenses in excess of income, for at least the next
quarter. In order to reduce the overall costs of maintaining its presence in
the retail sales channel, the Company has entered into a contract with a third
party, Re:Launch, based in Berkeley, California, to manage this activity. The
Company plans to direct the major portion of its marketing resources in 1998 to
corporate, international, educational, and other institutional sales
opportunities for its products, Net Magnet, PeakJet, and JetEffects.
March of 1998 witnessed a further infusion of investment capital in the amount
of US$140,000. Thus the Company has obtained financing aggregating to $545,206
since Septmeber 30, 1997.
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. The Year 2000 problem
is the result of computer programs being written using two digits rather than
four to define the applicable year. Time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a major system failure or miscalculations. The Company presently believes that,
with modifications to existing software and converting to new software, the Year
2000 problem will not pose significant operational problems for the Companys
computer systems as so modified and converted. The Company has completed the
required modifications and conversions. The Company is in the process of
obtaining Year 2000 compliance statements from vendors, suppliers, and all other
third parties that do business with the Company.
Year Ended September 30, 1997 Compared to Year Ended September 30, 1996
The acquisition of CBT brought new engineering staff and unfinished technology
to Peak. The technology known as Javalin had no guarantee of being merchantable
or completed, but in the opinion of management offered promise for the company
to establish itself in the Internet market. Subsequent to the acquisition Peak
did, in fact, successfully commercialize the product and continue to expand
the core technology. As an example the company released Web Animator in 1996
which was re-named JetEffects in 1997 and continues to be sold by the company
today. In addition the technology was applied to the creation of NetJet
(now known as PeakJet) in November 1996, and to the creation of NetMagnet
released in January 1998. While there is no guarantee that the technology will
continue to be marketable, the Company released PeakJet 2000 in July 1998 and
has five other products based upon this technology under development.
In 1997, PeakSoft Corporation completed its first full year totally focused on
its goal of becoming a leading Internet/intranet software company. During this
year, PeakSoft Corporation (formerly Peak Technologies Inc.) introduced two new
Internet software products, PeakJet and JetEffects, and started developing a
third major productivity suite, NetMagnet, for release in early 1998. As of
September 30, 1997, PeakJet and JetEffects have sold over 40,000 units through
top software retailers in the USA as well as into international markets in Japan
and the United Kingdom.
The costs associated with building a management and technical team, launching
PeakJet and JetEffects into retail and Internet sales channels, developing new
products and establishing the foundation for growth are reflected in this years
financial statements. These costs represent the Companys investment in building
the future success of PeakSoft in the fast growing and challenging
Internet/intranet software industry.
Operations
Sales for 1997 were CDN$1,340,200 versus CDN$784,900 in 1996, an increase of
CDN$555,300 or 71%. The increase was due primarily to increased retail
sales/volume of the companys Internet software products, PeakJet and JetEffects,
which were launched in the first and second quarters of fiscal 1997. The gross
profit margin increased from 45.5% in 1996 to 66.5% in 1997, reflecting the
higher margins available in the software industry.
General and administrative expenses were CDN$1,245,114 in 1997 and CDN$312,361
in 1996, an increase of CDN$932,753. This was due primarily to significantly
higher costs for professional fees, communications costs, additional staff
salaries and the general expenses associated with building an infrastructure to
support the Company.
Marketing and sales expenses increased from CDN$531,170 in 1996 to CDN$1,682,437
in 1997, an increase of CDN$1,151,267 or 217% due mainly to the higher
advertising and promotion expenses associated with introducing two new products
into the consumer retail channel. In addition, the Company incurred increased
salary expenses resulting from hiring new senior staff members to carry out the
sales and marketing program. Costs associated with pursuing bundling
opportunities with channel partners and supporting international distribution
were also factors in the increase.
Research and development expenses increased from CDN$321,740 in 1996 to
CDN$641,426 in 1997, an increase of CDN$319,686 or 99%. This increase resulted
from hiring additional technical staff and allocating more resources to this
area in order to develop and bring new products to market.
Amortization increased significantly from CDN$118,968 in 1996 to CDN$1,050,965
in 1997, an increase of CDN$931,997. The increase occurred as a result of the
amortization of the acquisition of Chameleon Bridge Technologies Corp. in 1996.
Research (valued at CDN$1,644,598) acquired in the transaction, is being
amortized over its estimated useful life of two years.
In 1997 the Company wrote off CDN$53,169 of assets that were obsolete or no
longer functional.
The Company incurred an expense of CDN$310,042 for the settlement of a name
infringement lawsuit in 1997. This amount includes legal, settlement and
product recall costs associated with this matter.
During 1996, the Company discontinued its Multi-Media Division and has charged
the net loss from this activity to the Statement of Operations. This resulted
in a deficit of CDN$745,844 for 1996.
The loss for 1997 was CDN$4,091,490 ($.42 per share) versus CDN$1,673,324
($.20 per share) in 1996, a difference of CDN$2,418,166. The increased loss
resulted primarily from the significant costs associated with building a larger
organization including additional management and technical staff and launching
software products into the retail channel.
Liquidity and Capital Resources
As of September 30, 1997, the Company had a cash balance of CDN$1,071,366. The
Company issued 3,640,106 Common Shares during 1997, raising CDN$2,380,551. The
Company also issued promissory notes for cash proceeds of CDN$1,554,760 (see
note 6). An additional 1,250,000 shares were issued after year end for proceeds
of CDN$500,000($399,900 of which had been received prior to September 30, 1997.)
The company has no available lines of credit.
Accounts receivable decreased by CDN$45,917 during the year ended September 30,
1996. This was mainly due to the effect of discontinuing the Multi-Media
Division, which had generated accounts receivable at September 30, 1995. It is
anticipated that accounts receivable will grow significantly next year as the
Internet Software Division begins selling its products through retail channels.
Accounts receivable increased by CDN$70,918 from CDN$26,727 in 1996 to
CDN$97,645 due primarily to the increased sales to wholesalers of the Companys
software.
Inventory increased from CDN$13,362 in 1996 to CDN$59,128 in 1997, a difference
of CDN$45,766 due to the buildup of retail packages of software in anticipation
of increasing sales.
The increase in prepaid expenses and deposits from CDN$7,936 in 1996 to
CDN$156,046 in 1997 was primarily due to the deposits required for trade shows
in the next fiscal year and prepaid product marketing costs.
Net fixed assets were reduced by CDN$174,485 from CDN$370,272 in 1996 to
CDN$195,787 in 1997 due to the write-off of obsolete equipment and normal
amortization. The Company made only minor purchases of computer equipment and
furniture during the year but invested CDN$41,094 in software. The major portion
of the software purchased was attributable to the Companys acquisition of
ExpressO; a Java based server software, which is utilized in the Companys own
software products.
Accounts payable and accrued expenses increased from CDN$380,119 in 1996 to
CDN$893,398 in 1997, an increase of CDN$513,279. The increase resulted from the
additional overall size of the Companys operation and a buildup at year-end just
prior to completing the issuance of promissory notes. Subsequent to year-end,
the amount was reduced by CDN$210,000 as a result of negotiated settlements of
trade accounts with 12 different suppliers to one of the Companys subsidiaries
and resumption of normal payments under trade credit terms. One of these
settlements was reached on September 30, 1997, 10 were effected on October 20,
1997, and the last was concluded on November 6, 1997. Each of the creditors
with whom a settlement was effected accepted an immediate lump sum payment in
satisfaction of its account in preference to having a balance paid out over
time.
The increase in long term debt from CDN$12,702 in 1996 to CDN$1,380,991 in 1997
is attributable to the issuance of promissory notes during the year. The
current portion of long-term debt also decreased from CDN$23,507 in 1996 to
CDN$14,936 in 1997 as a result of the issuance of notes.
Year Ended September 30, 1996 Compared to Year Ended September 30, 1995
The Companys primary business in the year ending September 30, 1995 was in the
fields of computer services and multi-media products. The Company provided
on-line diagnostics and on-site repair of a network of computer equipment for
retail chains. It also developed multi-media CD-ROM products.
In June 1996, the Company added to its technology base by acquiring the Java
server software owned by Innovative Desktop, a Pennsylvania based software
business. It also exclusively licensed the Java version of Lightning Strike,
a proprietary compression technology from Infinop, Inc. With all these
technology tools available, the Company set out aggressive development targets
to capitalize on the fast growing Internet marketplace. In particular, the
Companys first consumer product, Peak Net.Jet, was designed for Internet users
who wanted to increase the speed at which they surfed the Net. Significant
progress was made in bringing this product to the release stage, which occurred
subsequent to year-end (late November 1996). An additional consumer product,
JetEffects (previously named Peak Web Animator) was also developed and will be
introduced in the first calendar quarter of 1997.
In order to fund the development of applications from the base technology, the
Company sold additional shares in a private placement, which closed in April
1996. While revenue from the service business was solidly maintained, the
additional expenses incurred in engineering, marketing development and the
necessary additions to infrastructure to support a significant product launch
made additional infusions of capital necessary and thus, subsequent to year-end
the Company completed three more private placements.
In May 1996, the Company acquired Chameleon Bridge Technologies Corporation; a
company with an advanced Java-based software development environment, Javalin,
which facilitated the rapid development of Java-based Internet software. This
provided the Company with a solid entry into the Internet software business with
a technological lead in a fast growing marketplace. It was determined by the
Companys directors and management that the highest growth potential for the
Company would come from marketing Internet software using the Javalin
technology. As a result, a decision was made to discontinue the adventure
travel CD-ROM division of the Company and to dedicate all available resources to
the Internet Software Division.
In August of 1995, the Company completed an initial public offering, raising
CDN$700,000 on the Alberta Stock Exchange in order to finance the growth of its
multi-media CD-ROM division, which specialized in adventure travel titles.
During 1996, the Company completed and published three CD-ROM titles.
The following discussion should be read in conjunction with the financial
statements and notes thereto:
Operations
Sales for 1996 were $781,345, an increase of $225,249 or 41% over the $556,096
reported in 1995. This resulted from a large upgrade program, resulting in
increased volumes, conducted by one of the Companys major customers as well as
the introduction of a preventative maintenance program for all of this clients
retail locations. Gross profit in 1996 was $353,204, which represents 45.2%
gross profit margin compared to 35.6% gross profit margin of $198,157 in 1995.
Gross profit margins increased by 9.6% due mainly to a change in the mix.
General and Administrative expenses decreased from $58,306 in 1995 to $58,004
in 1996, a decrease of $302. While the overall decrease is insignificant, there
are variations in individual items within this category. An increase in
salaries and benefits of $28,705 occurred as the Company hired additional
support staff and a reduction in facilities costs from $21,573 in 1995 to
$12,845 was due primarily to the Company moving into less expensive offices in
Bellingham, WA, and reductions in professional fees and general office costs
also tended to offset the increases in other areas.
Start-up of Software Division
There were a number of items which significantly impacted the statement of
operations in 1996. Startup costs associated with the new Internet Software
Division of the Company resulted in a total charge of $1,079,384 in the current
year and $31,872 in 1995. The Company earned $18,305 from a third party for
software customization as part of its development in 1996 and spent $531,170 for
the startup cost on marketing development, $321,740 on additional research and
development and $244,779 on general and administrative costs. These costs have
been charged to the income statement in the year incurred and represent the
initial costs of preparing a new division of the Company to become fully
operational in the next fiscal year.
During 1996, the Company discontinued its Multi-Media Division and has charged
the net loss from this activity to the statement of operations. This resulted
in a charge to the statement of operations and deficit of CDN$745,844 in 1996
and CDN$598,448 in 1995.
Liquidity and Capital Resources
At September 30, 1996, the Company had CDN$29,963 of cash in the bank. The
Company issued 1,151,147 shares during 1996, raising CDN$628,189 of cash to
finance the startup of its Internet Software Division. An additional
1,704,210 shares were issued, valued at CDN$1,874,848 in order to purchase CBT,
ExpressO and an exclusive Java version software license to Lightning Strike
compression software. These formed the major assets of the Companys Internet
Software Division.
Subsequent to year-end, three additional rounds of financing were completed for
total gross proceeds of CDN$1,940,900. The Company anticipates that additional
financing over the course of the next year will be required in order to fund the
anticipated growth of the Internet Software Division.
Accounts receivable decreased by CDN$45,917 during the year ended September 30,
1996. This was mainly due to the effect of discontinuing the Multi-Media
Division, which had generated accounts receivable at September 30, 1995. It is
anticipated that accounts receivable will grow significantly next year as the
Internet Software Division begins selling its products through retail channels.
Inventory was reduced by CDN$129,926 from CDN$143,288 in 1995 to CDN$13,362 in
1996 due primarily to the one time buildup of inventory at September 30, 1995
to support a major installation program for a client. In addition, the write
down of the inventory associated with the Multi-Media Division served to
reduce the net realizable value of the inventory on hand at September 30, 1996.
The Company purchased CDN$150,486 of fixed assets in the year ended September 30
1996, both as direct purchases and as capital leases. These purchases of
furniture, computer equipment and software were primarily to support the
increased staff and activity of the Internet Software Division.
While cash resources at year end were low, management believes that it will
continue to be successful in attracting the cash resources necessary to fund the
anticipated growth of the Company over the next fiscal year through additional
private placements of Common Stock, the exercise of warrants and options, and
expect to receive cash generated from operations.
ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT
Directors and Officers
The current directors and officers of the Corporation, their respective
positions held with the Corporation and the principal occupation of each are set
forth in the table below. The directors were elected at the annual general
meeting of the Corporation held March 16, 1998, to hold office until the close
of the first annual meeting of shareholders following their election: Business
Corporations Act (Alberta) subsection 101(6). Officers of the Corporation hold
office at the pleasure of the board of directors.
<TABLE>
<S> <C>
Name and Municipality Positions Held with
Of Residence the Corporation
Douglas H. Foster President, Chief Executive Officer
Bellingham, Washington and Director
Principal Occupation: President and Chief Executive Officer of PeakSoft.
Donald McInnes Secretary and Director
Vancouver, British Columbia
Principal Occupation: President of Blackstone Resources, Inc., a public mining
company.
William Baker Director
North Vancouver, British Columbia
Principal Occupation: President of Willabeth Capital Corporation, a private
financial consulting firm.
Peter Janssen Director
Seattle, WA
Principal Occupation: President of Peter Janssen & Associates, a private
consulting firm (newly appointed in September of 1997)
Carl Conti Director
South Salem, New York
Principal Occupation: Independent Management Consultant
</TABLE>
A detailed summary of the background of each director and officer of the
Corporation setting forth their principal occupation within the five preceding
years is set forth below.
Doug Foster, President and Chief Executive Officer, since 1994
Mr. Foster is one of the founders of the Corporation and has been President,
Chief Executive Officer and a director of the Corporation since its
incorporation in August 1994. Mr. Foster has over 16 years of sales and
management experience in the computer industry. From 1991 to 1994, Mr. Foster
was President of BREEZ. From 1989 to 1991, Mr. Foster was a director and
President of Lynxx Microsystems Inc., a systems integration company, which had
operations in Vancouver, British Columbia, Seattle, Washington and San Francisco
California. Prior to 1989, Mr. Foster was Western Region Financial Branch
Manager with Unisys Corporation and a Senior Sales Representative with AES Data
Inc. and Xerox Corporation.
Donald McInnes, Secretary and Director, since 1995
Mr. McInnes has been Secretary and a director of the Corporation since February
1995. Since 1993, Mr. McInnes has been President of McGillicutty Management
Corp., a public management company that is involved in venture finance and
business consulting. He is currently President of Blackstone Resources Inc.,
a public mining company, whose shares trade on The Alberta Stock Exchange. He
currently also manages and is a director of another public company, Western
Keltic Mines Inc., whose shares are listed on the Vancouver Stock Exchange.
Prior to 1993, Mr. McInnes was Project Manager for Equity Engineering Ltd., a
mineral exploration consulting firm.
William Baker, Director, since 1997
Mr. Baker is a Chartered Accountant who has provided financial consulting
services through Willabeth Capital Corporation since 1979. Mr. Baker was also
Chief Executive Officer of Pop-Media Ltd., a private electronic
point-of-purchase media company, from 1986 to 1994.
Peter Janssen, Director, since 1997
Peter Janssen has spent the last thirty years in a series of marketing,
merchandising, and sales roles for both retailers and technology manufacturers.
Mr. Janssen runs a consulting firm focused on helping high tech companies bring
their products to market. This includes providing services to Software
Publishers, PC and Peripheral manufacturers in the areas of product marketing,
marketing strategies and tactics, and sales and distribution strategies. During
the past year, Peter Janssen & Associates have completed consulting assignments
for both small companies and major corporations including: Acer, Toshiba,
Capital One Financial Corporation, Design Intelligence, Netscape, HumanCAD
Systems, Motorola, and Phillips.
Carl Conti, Director, since 1997
Mr. Conti is currently an independent management consultant. Prior thereto,
Mr. Conti, who was the originator of the concepts underlying modern cache
memory, spent 32 years at IBM in various capacities, including as Vice President
of the General Technology division, President of the Data Systems Division,
group executive for the Information and Storage Group, member of the IBM
Corporate Management Board, and finally as IBM Senior Vice President and General
Manager of IBM Enterprise Systems where Mr. Conti directed an organization of
30,000 employees with annual revenues in excess of $20 billion. Mr. Conti is
also a director of Adaptec Corporation, a NASDAQ traded company.
ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS
Executive Compensation
PeakSoft currently has two executive officers (following the resignation of one
executive officer in April 1997), none of whom received, directly or indirectly,
compensation exceeding US$100,000. The aggregate cash compensation paid to the
two executive officers of PeakSoft, directly or indirectly, during the year
ended September 30, 1997 was CDN$212,000. There are no funds set aside or
accrued by the Company for pension, retirement, or similar benefits.
Compensation Summary
The table below sets forth information concerning the compensation of the
Corporations Chief Executive Officer for the fiscal years ended September 30,
1997, 1996, 1995, and 1994.
<TABLE>
<S> <C> <C> <C> <C>
Name and Annual Compensation
Principal Position Year Salary Bonus All Other
Compensation
Douglas H. Foster 1997 85,000 - -
President and 1996 82,800 - -
Chief Executive Officer 1995 82,800 - -
& Director 1994 70,400
</TABLE>
Long-Term Compensation
Awards:
Securities Under Options/SARs Granted:
<TABLE>
<S> <C>
1997 302,000
1996 321,250
1995 250,000
1994 -
</TABLE>
Restricted Shares or Restricted Share Units: none
Payouts:
LTIP Payouts: none
All Other Compensation: none
The following information concerns individual grants of options to purchase
or acquire securities of the Corporation made during the year ended September
30, 1997 to the Corporations Chief Executive Officer.
<TABLE>
<S> <C> <C> <C>
Name Securities percent of Total Exercise or
Under Options Options Granted Option Price
Granted (#) to Employees in ($/Security)
Financial Year
Douglas H. Foster 130,625 16.81 percent $0.64
Common Shares per share
</TABLE>
Market Value of Securities Underlying Options on Date of Grant ($/Security):
$0.64 per share
Expiration date: May 12, 1998
The following information concerns the cash exercise of options during the
year ended September 30, 1997 by the Corporations Chief Executive Officer and
the year-end value of unexercised options held, on an aggregate basis.
<TABLE>
<S> <C> <C>
Name Securities Acquired on Aggregate Value Realized
Exercise (#)
Douglas H. Foster 321,250 240,938
Unexercised Options Value of Unexercised in
at Year End (#) the Money Options at
Year-end ($)
130,625 83,600
</TABLE>
Payments to Directors: None.
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
Stock Option Plan
On February 7, 1996, the shareholders of the Corporation approved a stock option
plan (the Stock Option Plan), pursuant to which options to acquire an aggregate
of 86,000 Common Shares have been issued and are currently outstanding. The
Corporation has also conditionally reserved for allotment options to purchase
an additional 832,000 Common Shares, subject to receipt of regulatory approvals.
Under the terms of the Stock Option Plan, options to acquire Common Shares may
be granted by the directors of the Corporation, subject to the restriction that
the aggregate number of Common Shares issuable upon the exercise of options
granted under the Stock Option Plan shall not exceed 10 percent of the
outstanding Common Shares. The exercise price associated with any options
granted under the Stock Option Plan shall be determined by the directors in
compliance with the applicable laws, rules and regulations and shall not be less
than the market price of the Common Shares on The Alberta Stock Exchange less
the discount permitted by the rules of The Alberta Stock Exchange. The options
vest on the date of grant and expire at the time set by the directors, being
not more than 10 years from the date of grant, provided that any outstanding
options will expire on the 90th day following the date that the holder ceases to
be an officer, director, employee or consultant of the Corporation or six
months following the death of the holder. Options granted are non-assignable.
Outstanding options granted under the Stock Option Plan may be adjusted in
certain events, as to exercise price and number of Common Shares, to prevent
dilution.
At September 30, 1997, the following options to acquire Common Shares are
outstanding:
<TABLE>
<S> <C> <C> <C>
Group Number of Common Date of Grant Exercise Price Per
Shares Under Option Common Share
Management, 86,000 April 30, 1996 $0.60
employees, 646,375 May 1, 1997 $0.64
and directors
Expiry Date
August 30, 1998
May 1, 1998
</TABLE>
ITEM 13 - INTEREST OF MANAGEMENT IN MATERIAL CERTAIN
TRANSACTIONS
The directors, officers and principal shareholders of the Corporation (and the
known associates and affiliates of such persons) have had no direct or indirect
interest in any material transaction involving the Corporation during the 36
month period preceding the date hereof not otherwise disclosed herein, except
as follows:
1. On May 15, 1996, the Corporation acquired all of the issued and outstanding
shares and entitlements to shares of CBT, in exchange for the issuance of an
aggregate of 1,500,000 Common Shares of the Corporation at a deemed price of
CDN$1.11 per common share. See The Corporation - Background of the
Corporation. Thomas Taylor, who for a period of time subsequent to this
transaction became a director and officer of the Corporation, was formerly
the sole director and officer of CBT and held, directly or indirectly,
approximately 31 percent of the shares and share entitlements of CBT, for
which he received, directly or indirectly, 460,886 Common Shares of the
Corporation pursuant to that transaction. The initial cost of Mr. Taylors
holding in CBT was CDN$80,000.
2. In May 1996, the Corporation acquired the Java server technology known as
ExpressO from Mr. Charles Russell, who was carrying on business as Innovative
Desktop. The technology was purchased for 133,890 Common Shares at an issue
price of CDN$1.33 per Common Share for an aggregate purchase price of
US$130,000. To date, 133,890 Common Shares have been issued. Two additional
allotments of 15,449 shares each will be issued upon achievement of certain
performance milestones. Mr. Russell subsequently became Vice President of
Software Systems of the Corporation, but has since resigned that position.
See The Corporation - Background of the Corporation.
3. During the 1996 fiscal year, consulting fees and expense reimbursements
totaling CDN$19,283 were paid by the Corporation to a former director. A salary
of CDN$49,000 was also paid by the Corporation to Lorena Foster who is also a
relative of Douglas Foster, the President of the Corporation.
4. During the 1997 fiscal year, consulting fees and expense reimbursements
totaling CDN$64,000 were paid by the Corporation to directors. A salary of
CDN$33,000 was also paid by the Corporation to an administrative employee who is
also a relative of one of the directors.
5. Foster Murphy & Sons Holding Co. Ltd. of Bellingham, Washington sold all of
its 4,900,000 shares in BREEZ to the Corporation on October 1, 1994 in exchange
for 490,000 Common Shares of the Corporation. Mr. Douglas Foster, President of
PeakSoft, was then the sole director and the manager of Foster Murphy & Sons
Holding Co. Ltd. That company then had four shareholders, two of which were
members of Mr. Fosters family. Mr. Foster, then, substantially controlled the
Corporation. The transaction had a deemed value of CDN$98,000, or CDN$0.20 per
common share of the Corporation. Foster Murphy & Sons Holding Co. Ltd. acquired
the BREEZ shares for approximately CDN$200.
6. Pursuant to an Interactive Media Rights Agreement dated December 19, 1994,
Eric Simonson, a former director of the Corporation, and Kathryn Simonson, his
wife, both of Ashford, Washington granted the Corporation the right to use the
Summit of Dreams documentary which was a component of the Corporations Mt.
Everest CD-ROM product. PeakSoft issued 459,000 Common Shares to Mr. Simonson
and Ms. Simonson for the Summit of Dreams documentary. This transaction had a
deemed value of approximately CDN$20,000.
Director/Officer Indebtedness: None.
PART II
ITEM 14 - Description of Securities to be Registered.
The Articles of Continuance of PeakSoft Corporation provide as follows:
The Common Shares shall have attached thereto the following rights, privileges,
restrictions and conditions:
(i)the right to one vote at all meetings of shareholders of the Corporation,
except meetings at which only holders of a specified class of shares are
entitled to vote;
(ii)subject to the prior rights and privileges attaching to any other class
of shares of the Corporation, the right to receive any dividend declared
by the Corporation; and
(iii)subject to the prior rights and privileges attaching to any other class
of shares of the Corporation, the right to receive the remaining property
and assets of the Corporation upon dissolution.
The Articles provide for the issuance of preferred shares by the directors of
the Company, but as of this writing no preferred shares have been allotted.
PART III
ITEM 15 - Defaults upon Senior Securities - Not Applicable
ITEM 16 - Changes in Securities, Changes in Security for Registered Securities
and Use of Proceeds. - Not Applicable.
PART IV
ITEM 17 - Financial Statements
PEAKSOFT CORPORATION
SECOND QUARTER REPORT (unaudited)
For the Six Months Ended
March 31, 1998
Letter to Shareholders
During this quarter, the Company focused on the fundamentals. Our major
objectives included the launch of NetMagnet, a reduction in non-essential
expenses, the development of strategic partnerships in key areas, and increased
revenue. The Company also conducted a thorough review of its product, marketing
and sales strategies in an effort to gain maximum value for its technology and
products.
NetMagnet was launched on January 21, 1998. The product is available through
leading retailers including CompUSA, Fry's and Best Buy. In addition, it is
being sold on the Company's Web site and through Internet retail and banner
partnerships. Initial response to NetMagnet has been favorable, with a number
of positive reviews and an "A List" placement in PC Computing. The product is
very leading edge and the target market is sophisticated early adopters and
innovators. Those who use the Internet as an essential business tool
will see great benefits from NetMagnet.
Expenses for administration, selling and marketing, and research and development
decreased by 30.3% over the same period a year ago and by 22.3% over the
previous quarter ended December 31, 1997. Revenue increased by 74% over the
same period last year and by 250% over the quarter ended December 31, 1997.
The sales growth resulted largely from licensing agreements with Macmillan and
InfoBuild. The Company believes it can continue to streamline its costs in the
coming quarter through new partnerships that reduce expenses but provide
powerful marketing and sales benefits.
The Company received approval from the OTC-BB to commence trading in the U.S.
under the symbol PEAFF on March 13, 1998. The company then filed Form 20-F
to become a reporting foreign issuer with the SEC, via EDGAR, on April 10,
1998. Once our Form 20-F achieves a "No Comment" status with the SEC we will
be in a position to trade fully on the Bulletin Board in conjunction with the
Alberta Stock Exchange, symbol PKT.
Canadian and U.S. GAAP (Generally Accepted Accounting Principles) regulations
differ regarding the acquisition of research and development from Chameleon
Bridge Technologies. This leads to a significant reduction in loss per share
when our financial statements are reconciled for U.S. GAAP. According to U.S.
GAAP, the acquisition is expensed as incurred, not amortized over a period of
time.
The Company continues to evaluate market opportunities and positioning in the
fast paced market of intranets and the Internet. We are committed to adding
value to our existing applications and to bringing new products to market.
We hope to continue the trend started in the last quarter and accomplish even
greater improvements through the remainder of the year.
Sincerely yours,
Douglas H. Foster
President and CEO
May 4, 1998
PeakSoft Corporation
Consolidated Balance Sheet
(Prepared by Management - unaudited))
March 31, 1998 and 1997
<TABLE>
<S> <C> <C>
1998 1997
(in Canadian dollars)
Assets
Current assets:
Cash $ 61,084 $ 110,784
Accounts receivable 281,734 429,913
Inventories 98,051 39,557
Prepaids and deposits 42,574 116,007
710,487 379,465
Capital assets 176,496 350,731
Acquired research and development 411,149 1,439,023
Licenses - 19,234
Investment in InfoBuild 284,000 -
$ 1,355,088 $ 2,505,249
Liabilities and Shareholders Equity
Current liabilities:
Demand loan $ - $ 20,756
Accounts payable and accrued
liabilities 797,449 1,010,768
Deferred revenue - 84,337
Reserve for returns & allowances 54,208 -
Current portion of long-term debt - 24,573
Current portion of obligations under
capital leases 28,134 21,616
$ 879,791 $ 1,162,050
Long-term debt 1,622,951 -
Obligations under capital leases 44,259 49,571
Shareholders equity:
Share capital 6,312,335 3,458,942
Other paid-in capital 173,759 -
$ 6,486,094 $ 3,458,942
Obligation to issue share capital - 1,940,900
Accumulated deficit 7,678,007 4,106,214
(1,191,913) 1,293,628
$ 1,355,088 $ 2,505,249
</TABLE>
PeakSoft Corporation
Consolidated Statement of Operations and Deficit (unaudited)
Six months ended March 31, 1998 and 1997
<TABLE>
<S> <C> <C>
1998 1997
Sales $ 899,582 $ 709,384
Cost of goods sold 158,840 231,232
740,742 478,152
Expenses:
General and administrative 870,107 472,734
Selling and marketing 695,999 1,148,054
Research and development 324,010 374,690
1,890,116 1,995,478
Earnings (loss) before the
undernoted $ (1,149,374) $ (1,517,326)
Amortization 500,593 264,978
Recovery of expenses from
settlements of liabilities 252,562 -
Earnings (loss) from
operations (1,397,558) (1,782,304)
Gain on sale of contract 134,951 -
Net Earnings (loss) (1,262,607) (1,782,304)
Accumulated deficit,
beginning of period (6,415,400) (2,323,910)
Accumulated deficit,
end of period $ (7,678,007) $ (4,106,214)
Loss per common share $ (0.09) $ (0.20)
</TABLE>
PeakSoft Corporation
Statement of Changes in Financial Position (unaudited)
Six months ended March 31, 1998 and 1997
<TABLE>
<S> <C> <C>
1998 1997
Cash provided by (used in):
Operations:
Net earnings (loss) $ (1,262,607) $ (1,782,304)
Items not involving cash:
Amortization 500,693 264,978
Change in non-cash operating
working capital (236,470) 98,871
(998,384) (1,418,455)
Financing:
Funds transferred to escrow -
Repayments of long-term debt (14,936) (12,702)
Decrease in obligations under
capital leases 6,842 (1,771)
Decrease in obligation to issue
shares (399,900) -
Issuance of share capital 512,144 1,545,632
104,150 1,531,159
Investments:
Purchase of capital assets (116,048) (31,883)
Increase (decrease) in cash
position (1,010,282) 80,821
Cash, beginning of period 1,071,366 29,963
Cash, end of period $ 61,084 $ 110,784
</TABLE>
Second Quarter Review
Net loss for the quarter ended March 31, 1998 decreased from $1,098,334 in the
comparable period in 1997, to $335,228 a decrease of $763,106, or 69.9%.
Management has drastically reduced expenditures this past quarter in all areas,
especially in cost of goods sold, research and development, and selling and
marketing. The Company is actively creating budgets to place emphasis on
marketing in the next quarters to capture a higher sales volume. Revenue
reflects an increase of 74.2% over second quarter 1997 reported revenue. The
increase is primarily due to the recent launch of Peak's third Internet product,
NetMagnet, various licensing agreements, and the growing sales volume of
PeakJet. The Company has received 800,000 shares of InfoBuild as a partial
consideration for a $300,000 license agreement, which is valued at its most
recent funding share value. PeakSoft recognizes that there is no guarantee
that this value can be realized in the short-term. In general, this quarters
results reflect the Companys continuing growth in
y expanding Internet market.
Six Month Review
Revenue for the six months ended March 31, 1998 increased from $709,384 in the
comparable period in 1997, to $899,582, an increase of $190,198 or 26.8%, and
was due primarily to the growing sales volume of Peak's Internet software
products. The operating loss decreased from $1,782,304 to $1,262,607,
reflecting higher sales volume and a significant reduction in operating
expenses. The decreases in expenses reflect a reduction in expenditures,
while continuing to keep a significant investment in marketing for Netmagent and
future products.
The amortization expense includes the amortization on the research and
development that was acquired in 1996 from Chameleon Bridge Technologies Corp,
which is capitalized according to Canadian GAAP. (In accordance with United
States GAAP, research and development costs, including the costs of research and
development acquired in a business combination is expensed as incurred. The
results would be a lower loss per common share of $0.06 compared with $0.09).
In addition, for US GAAP purposes, the settlement of liabilities is recorded
as an extraordinary item of $252,562.
The Companys cash position was decreased from $110,784 in 1997, to $61,084 in
1998 while accounts receivable decreased from $429,913 to $281,734. Cash
remains an area of critical importance and is being actively addressed by
management. In general, the results for the quarter are indicative of the
Companys increasing level of marketing activity and its stage of development.
Consolidated Financial Statements of
PEAK TECHNOLOGIES INC.
(in Canadian dollars)
Years ended September 30, 1997 and 1996
AUDITORS REPORT TO THE DIRECTORS
We have audited the consolidated balance sheet of Peak Technologies Inc. as at
September 30, 1997 and the consolidated statements of operations and deficit
and changes in financial position for the year then ended. These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at September 30,
1997 and the consolidated results of its operations and the changes in its
financial position for the year then ended in accordance with generally accepted
accounting principles.
Accounting principles generally accepted in Canada vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations for the year ended September 30, 1997
and shareholders equity to the extent summarized in note 14 to the financial
statements.
Chartered Accountants
KPMG
New Westminster, Canada
December 12, 1997
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADIAN-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Companys ability to continue as a going concern, such as those described in
note 1 to the financial statements. Our report to the shareholders dated
December 12, 1997 is expressed in accordance with Canadian reporting standards
which do not permit a reference to such events and conditions in the auditors
report when these are adequately disclosed in the financial statements.
Chartered Accountants
KPMG
New Westminster, Canada
December 12, 1997
PEAK TECHNOLOGIES INC.
Consolidated Balance Sheet
(in Canadian dollars)
September 30, 1997 and 1996
<TABLE>
<S> <C> <C>
1997 1996
Assets
Current assets:
Cash $ 1,071,366 $ 29,963
Accounts receivable 97,645 26,727
Inventories 59,128 13,362
Prepaids and deposits 156,046 7,936
1,384,185 77,988
Capital assets (note 3) 195,787 370,272
Acquired research and
development (note 4) 822,299 1,644,598
Licences - 25,169
$ 2,402,271 $ 2,118,027
Liabilities and Shareholders Equity
Current liabilities:
Demand loan $ - $ 23,152
Accounts payable and
accrued liabilities 893,398 380,119
Deferred revenue (note 5) 109,681 81,033
Current portion of
long-term debt (note 6) 14,936 23,507
Current portion of
obligations under capital
leases (note 7) 24,624 15,870
1,042,639 523,681
Long-term debt (note 6) 1,380,991 12,702
Obligations under capital
leases (note 7) 40,927 51,342
Shareholders equity:
Share capital (note 8) 5,779,455 3,398,904
Other paid-in capital
(note 6) 173,759 -
5,953,214 3,398,904
Obligation to issue share
capital (note 8) 399,900 455,308
Accumulated deficit 6,415,400 2,323,910
(62,286) 1,530,302
$ 2,402,271 $ 2,118,027
</TABLE>
Continuing operations (note 1)
Subsequent events (note 11)
See accompanying notes to consolidated financial statements.
PEAK TECHNOLOGIES INC.
Consolidated Statement of Operations and Deficit
Years ended September 30, 1997, 1996 and 1995
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Sales $ 1,340,200 $ 784,900 $ 556,096
Cost of goods sold 448,537 428,141 357,939
$ 891,663 $ 356,759 $ 198,157
Expenses:
Amortization 1,050,965 118,968 45,635
General and
administrative 1,245,114 312,361 64,857
Marketing 1,682,437 531,170 -
Research and development 641,426 321,740 31,871
4,619,942 1,284,239 142,363
Earnings (loss) before
the undernoted (3,728,279) (927,480) 55,794
Other earnings (expenses):
Write-off of assets (53,169) - -
Loss on settlement of
lawsuit (note 10) (310,042) - -
$ (363,211) - -
Earnings (loss) from
continuing operations (4,091,490) (927,480) 55,794
Loss from discontinued
operations (note 15) - (745,844) (598,448)
Loss 4,091,490 1,673,324 542,654
Accumulated deficit,
beginning of year 2,323,910 650,586 107,932
Accumulated deficit,
end of year $ 6,415,400 $ 2,323,910 $ 650,586
Loss per common share $ (0.42)$ (0.20) $ (0.16)
</TABLE>
See accompanying notes to consolidated financial statements.
PEAK TECHNOLOGIES INC.
Statement of Changes in Financial Position
Years ended September 30, 1997, 1996 and 1995
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Cash provided by (used in):
Operations:
Net earnings (loss) $ (4,091,490) $ (927,480) $ 55,794
Items not involving cash:
Loss from discontinued
operations - (745,844) (598,448)
Amortization 1,050,965 118,968 45,635
Write-off of assets 53,169 - -
Change in non-cash
operating working capital 253,980 404,452 22,283
(2,733,376) (1,149,904) (474,736)
Financing:
Repayments of long-term debt (21,273) (23,462) -
Increase (decrease) in obligations
under capital leases (1,661) 51,342 -
Issuance of long-term debt 1,554,750 - -
Increase (decrease) in obligation to
issue shares (55,408) 455,308 36,163
Issuance of share capital 2,380,551 2,503,037 801,287
3,856,959 2,986,225 837,450
Investments:
Purchase of capital assets (82,180) (150,486) (220,296)
Acquisition of licences - (33,559) -
Business combination (note 4) - (1,644,598) -
Acquisition of software technology - (136,979) -
(82,180) (1,965,622) (220,296)
Increase (decrease) in cash position 1,041,403 (129,301) 142,418
Cash, beginning of year 29,963 159,264 16,846
Cash, end of year $ 1,071,366 $ 29,963 $ 159,264
</TABLE>
See accompanying notes to consolidated financial statements.
PEAK TECHNOLOGIES INC.
Notes to Consolidated Financial Statements
Years ended September 30, 1997 and 1996
The Company is incorporated under the laws of Alberta and its principal business
activities are providing Internet software to corporate and individual users.
1. Continuing operations:
These consolidated financial statements have been prepared using generally
accepted accounting principles that are applicable to a going concern, not
withstanding that the Company incurred significant operating losses in the
current and prior years. This basis of preparation may be inappropriate because
significant doubt exists about the appropriateness of the going concern
assumption. The Companys ability to continue as a going concern is dependent
upon obtaining additional external financing and by reducing costs. Management
is of the opinion that additional external financing will be obtained by
achieving certain predetermined targets previously agreed upon in a loan
agreement as a result of their new product launch or by renegotiating the
terms under which such financing will be made available. Management is also
in the process of renegotiating fulfillment costs as well as significantly
reducing operating costs. For these reasons, the financial statements do not
reflect adjustments in the carrying values of the assets and liabilities, the
reported revenues and expenses and the balance sheet classifications used that
would be necessary if the going concern assumption were not appropriate.
2. Significant accounting policies:
(a) Principles of consolidation:
The consolidated financial statements include the accounts of the Company and
its wholly-owned American subsidiary Peak Media, Inc. and its wholly-owned
Canadian subsidiary Chameleon Bridge Technologies Corporation. All significant
inter-company transactions and balances have been eliminated on
consolidation. The 1996 consolidation includes the accounts of Breez
Business Management Systems Inc. which was no longer active in 1997.
(b) Revenue recognition:
Revenue from product sales is recognized as products are shipped, title to
the product is transferred, no significant obligations remain, and
collectibility is probable. An allowance for product returns is recognized
at the time of the sale. The Company provides customers with a telephone
support line at no cost to the customer, which it is not contractually obligated
to provide. A provision is made at the time of the sale for the cost of such
services.
Revenue from service contracts is recognized when the work is completed.
Deferred revenue represents payments received from customers for services not
yet performed.
The Companys revenue recognition policies are consistent with the American
Institute of Certified Public Accountants Statement of Position ("SOP"91-1),
"Software Revenue Recognition".
(c) Foreign currency translation:
Foreign currency transactions entered into directly by the Company as well as
the financial statements of the integrated foreign operations are translated
using the temporal method. Under this method, monetary assets and liabilities
are translated at year end exchange rates. Other balance sheet items are
translated at historical exchange rates. Income statement items are translated
at average rates of exchange prevailing during the year except for depreciation
expense which is translated at historical rates. Translation gains and losses
are included in income except for unrealized gains and losses arising from the
translation of long-term monetary assets and liabilities which are deferred and
amortized over the remaining lives of related items.
(d) Capital assets:
Capital assets are stated at cost. Amortization is provided on the declining
balance basis using the following annual rates:
<TABLE>
<S> <C>
Asset Rate
Furniture and equipment 4 years
Computer equipment 4 years
Computer software 3 years
Leasehold improvements 4 years
(e) Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is
determined on a first-in, first-out basis.
(f) Research and development:
The costs of the Companys research and development activities are expensed as
incurred except for development costs which meet the criteria for deferral under
generally accepted accounting principles ("GAAP") in Canada.
Specifically, GAAP requires all of the following criteria to be satisfied:
(a) The product is clearly defined and the costs attributable are identified.
(b) The technical feasibility of the product or prices has been established.
(c) Management has the intention to produce and market the product.
(d) The future market is clearly defined.
(e) Adequate resources exist.
As at September 30, 1997 no costs have been deferred.
Acquired research and development is capitalized and amortized over its
estimated useful life beginning in the period such acquired technology is
placed in commercial production or use. The acquired research and development
represents technology and advances purchased in the acquisition of Chameleon
Bridge Technologies Inc. in 1996. These assets are being amortized over their
estimated useful life of two years.
(g) Use of estimates:
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant areas requiring the use of management estimates relate to the
determination of net recoverable value of assets, in particular as it relates
to acquired research and development, useful lives for amortization, recognition
of revenue and the determination of deferred revenue.
(h) Financial instruments:
The Company has applied retroactively the new accounting standard with respect
to the presentation of financial instruments. The retroactive adoption of the
new standard had no impact in the financial statements except the additional
disclosures in note 9.
3. Capital assets:
</TABLE>
<TABLE>
1997
<S> <C> <C> <C>
Accumulated Net book
Cost amortization value
Furniture and equipment $ 73,731 $ 40,094 $ 33,637
Computer equipment 155,974 91,141 64,833
Computer software 178,073 89,037 89,036
Leasehold improvements 131,057 122,776 8,281
$ 538,835 $ 343,048 $ 195,787
1996
Accumulated Net book
Cost amortization value
Furniture and equipment $ 115,067 $ 63,233 $ 45,783
Computer equipment 192,477 74,938 122,208
Computer software 136,979 34,245 102,734
Leasehold improvements 131,057 31,510 99,547
$ 575,580 $ 203,926 $ 370,272
</TABLE>
Assets acquired under capital leases in the amount of $79,148 (1996 - $73,377)
and related accumulated amortization of $54,614 (1996 - $18,474) are included in
furniture and equipment as well as computer equipment.
4. Acquired research and development:
<TABLE>
1997
<S> <C> <C> <C>
Accumulated Net book
Cost amortization value
Research and development $ 1,644,598 $ 822,299 $ 822,299
1996
Accumulated Net book
Cost amortization value
Research and development $ 1,644,598 $ - $ 1,644,598
</TABLE>
On May 16, 1996, the Company acquired research in the amount of $1,644,598
through the acquisition of Chameleon Bridge Technologies Corp. The Company
acquired all of the 1,950,000 issued and outstanding shares of Chameleon Bridge
Technologies Corporation in exchange for 1,500,000 shares of Peak Technologies
Inc. The fair market value of Peak Technologies Inc.s shares at the date the
transaction was announced, regulatory approval was obtained, and the shares
were exchanged at $1.11 per share. Accordingly, the allocation of the purchase
price is as follows:
<TABLE>
<S> <C>
Acquired research and development $1,644,598
Other net assets acquired 20,402
Purchase value based on shares issued in May, 1996: $ 1,665,000
</TABLE>
5. Deferred revenue:
Deferred revenue consists primarily of advance quarterly billings for a computer
service agreement.
6. Long-term debt:
<TABLE>
<S> <C> <C>
1997 1996
Renovation loan,
secured by a charge on leasehold improvements,
bearing interest at 11.5% per annum,
maturing on March 15, 1998 $ 14,936 $ 36,209
Notes payable,
secured by the Company's inventory and
accounts receivable, bearing interest
at 12% per annum with interest paid quarterly,
maturing on September 9, 1999 (U.S. $1,125,000) 1,554,750 -
Less: other paid-in capital (173,759) -
1,395,927 36,209
Current portion of long-term debt 14,936 23,507
$ 1,380,991 $ 12,702
</TABLE>
The notes payable were issued in September, 1997 and represent 12% senior
promissory notes held by Liverpool Limited Partnership and Westgate
International L.P.. Attached to the issued notes are warrants to purchase
3,120,075 common shares at a price of $0.50 per share expiring in September,
1999 and a right of first refusal on future capital raising transactions. The
notes reflect an effective interest rate of 18% per annum and a value of
$173,759 has been attributed to the warrants issued and recorded as other
paid-in capital.
The terms and conditions of the notes payable include an escrow agreement
whereby the Company is required to deposit funds into an escrow account in
order to satisfy the debt payment obligations as they become due. The amount
of deposits required is equal to 25% of all cash received from revenues and
25% of proceeds form the exercise of options and warrants. The maximum amount
to be contributed to the escrow account is equal to the principal and
accumulated interest outstanding on the notes. The first escrow deposit is
required in October, 1997.
A second amount of 12% senior promissory notes of $1,207,500 (US $875,000)
were to be issued subject to certain terms and conditions, with warrants
attached to purchase 1,879,925 common shares of the Company at a price of
$0.64 per share expiring in February, 2000. The terms and conditions of this
second purchase of notes required the Company to attain certain targets which
have not been achieved.
7. Obligations under capital leases:
The Company has capital leases on equipment expiring at various dates through
2001 requiring the following minimum lease payments:
<TABLE>
<S> <C> <C>
1997 1996
1997 $ - $ 28,246
1998 32,713 25,019
1999 24,180 17,194
2000 19,965 17,194
2001 4,430 1,433
Total minimum lease payments 81,288 89,086
Less imputed interest at
varying rates (15,737) (21,874)
Present value of net
minimum capital lease
payments 65,551 67,212
Current portion of obligations
under capital lease 24,624 15,870
$ 40,927 $ 51,342
</TABLE>
8. Share capital:
<TABLE>
<S> <C> <C>
Shares Amount
Authorized:
Unlimited voting common shares without par value
Unlimited non-voting preferred shares without par value
Common shares issued:
Balance, October 1, 1994 656,293 $ 94,580
Issued amount year ended September 30, 1995:
Issued to founders 2,344,148 -
Issued for cash 2,594,302 948,865
Issue for services and technology 155,257 45,700
Less share issuance costs - (193,278)
Issued amount year ended September 30, 1996:
Issued for cash 1,151,147 667,500
Issued for services and technology 1,704,210 1,835,537
Issued amount year ended September 30, 1997:
Issued for cash 3,545,266 2,496,498
Issued for services and technology 94,840 75,969
Less share issuance costs - (191,916)
Balance, September 30, 1997 12,245,463 $ 5,779,455
</TABLE>
No preferred shares have been issued.
During 1995, and prior to the initial public offering, the Company's share
capital was reorganized in the nature of a stock split resulting in 2,344,148
shares being issued to its founders in proportion to their original
shareholdings.
Included in shares issued for cash during 1997 are 833,541 (1996 - 750,000,
1995 - Nil) shares for approximately $556,498 (1996 - $317,500, 1995 - $Nil)
issued pursuant to the exercise of management, employees and directors' stock
options. The remaining shares of 2,711,725 (1996 - 401,147, 1995 - 2,594,302)
for $1,940,000 (1996 - $350,000, 1995 - $948,865) were issued pursuant to
private placements.
(a) Management, employees and directors' options:
During 1997, the Company issued 777,000 options expiring May 12, 1998,
exercisable to acquire 777,000 shares at $0.64 each.
During 1996, the Company issued 888,916 options expiring between December 22,
1997 and August 30, 1998, exercisable to acquire 888,916 shares ranging from
$0.40 to $1.35 each.
During 1995 the Company issued 650,000 options expiring between August 9, 1997
and May 16, 1998, exercisable to acquire 650,000 shares at $0.40 each.
At September 30, 1997, the Company had the following management, employees and
directors' options outstanding:
86,000 options expiring August 30, 1998, exercisable to acquire 86,000 shares at
$0.60 each
646,375 options expiring May 1, 1998, exercisable to acquire 646,375 shares at
$0.64 each.
(b) Warrants:
At September 30, 1997, 466,665 first warrants from a private placement are
outstanding, entitling the holder to acquire one additional share for $1.00
each. The warrants expire in May, 1998.
At September 30, 1997, 1,466,667 first special warrants from a private placement
issuance are outstanding, entitling the holder to acquire one additional share
for $0.70 each. The warrants expire in March, 1998.
At September 30, 1997, 275,000 second special warrants from a private placement
issuance are outstanding, entitling the holder to acquire one additional share
for $1.00 each. The warrants expire in November, 1997.
At September 30, 1997, 253,230 third special warrants from a private placement
issuance are outstanding, entitling the holder to acquire one additional
share for $1.35 each. The warrants expire in January, 1998.
At September 30, 1997, 3,120,075 first warrants were attached to the notes
payable (see note 6) entitling the holder to acquire one additional share for
$0.50 each. The warrants expire in September, 1999.
(c) Subsequent transaction:
Subsequent to September 30, 1997, the Company issued 1,250,000 common shares at
$0.40 per share for an aggregate amount of $500,000. At the year end, the
Company had received proceeds from the share issue in advance in the amount of
$399,900 and the balance subsequent to year end.
9. Fair value of financial instruments:
The methods and assumptions used to estimate the fair value of each class of
financial instruments for which it is practical to estimate a value are as
follows:
(a) Short-term financial assets and liabilities:
The carrying amount of these financial assets and liabilities are a reasonable
estimate of the fair values because of the short maturity of these instruments.
Short-term financial assets comprise cash and accounts receivable. Short-term
financial liabilities comprise accounts payable and accrued liabilities.
(b) Long-term financial liabilities:
The carrying value of long-term debt is a reasonable estimate of the fair value
due to the recency of the issuance of the debt.
10. Loss on settlement of lawsuit:
This amount represents the costs of a settlement, including legal fees and
product returns, causing the Company to cease the use of a certain trade name.
11. Subsequent events:
Subsequent to September 30, 1997, the Company changed its legal name from Peak
Technologies Inc. to PeakSoft Corporation.
In addition, subsequent to September 30, 1997, the Company has negotiated a
settlement with certain creditors to repay accounts payable and accrued
liabilities at amounts of approximately $210,000 less than recorded in the
financial statements. This settlement has not been reflected in the financial
statements and will be recorded in the 1998 year end.
12. Loss per common share:
Loss per common share is based on the weighted average number of common shares
outstanding during the year.
13. Related party transactions:
The following are related party transactions, not already disclosed elsewhere in
the notes to the financial statements:
<TABLE>
<S> <C> <C>
1997 1996
Salaries to directors and officers $ 212,000 $ 104,000
Consulting fees and expense reimbursements
to directors 64,000 19,283
Salary paid to a relative of one of the directors 33,000 49,000
$ 309,000 $ 172,283
</TABLE>
These transactions are in the normal course of operations and are measured at
the exchange amount which is the amount of consideration established and agreed
to by related parties.
14. United States GAAP reconciliation:
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These principles
differ in the following material respects from those in the United States as
summarized below:
(a) Loss and loss per share:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Loss in accordance with Canadian GAAP $ (4,091,490) $ (1,673,324) $ (542,655)
Difference in accounting for acquired
research and development (note d) 822,299 (1,644,598) -
Stock options (note e) (85,470) (5,000) -
Loss in accordance with
United States GAAP $ (3,354,661) $ (3,322,922) $ (542,655)
Loss per common share (0.35) (0.40) (0.16)
Weighted average number of shares used
for calculation 9,615,270 8,294,805 3,391,593
</TABLE>
(b) Balance sheet:
The amounts in the consolidated balance sheet that differ from those reported
under Canadian GAAP are as follows:
<TABLE>
<S> <C> <C> <C> <C>
September 30, 1997 September 30, 1996
Canadian United States Canadian United States
GAAP GAAP GAAP GAAP
Assets:
Acquired research and
development $ 822,299 $ - $ 1,644,598 $ -
Acquired research and
development $ 822,299 $ - $ 1,644,598 $ -
Shareholders equity:
Other paid-in capital 173,759 264,229 - 5,000
Obligation to issue share 399,900 500,000 - -
capital
Subscription receivable - (100,100) - -
Accumulated deficit 6,415,400 7,328,169 2,323,302 3,972,900
</TABLE>
(c) Statement of cash flows:
Cash used in operations and cash provided by financing activities would decrease
by $75,969 (1996 - $1,874,848, 1995 - $45,700) because shares issued for
services and technology would be considered non-cash transactions.
Under United States GAAP, cash used in investments and cash provided by
financing activities in 1996 would decrease $51,342 for obligations under
capital lease and $1,665,000 for common share consideration on an acquisition.
(d) Research and development:
In accordance with United States GAAP, research and development costs, including
the costs of research and development acquired in a business combination is
expensed as it is incurred.
(e) Stock based compensation:
The Company records compensation expense for United States GAAP purposes
following the intrinsic value principles of Accounting Principles Board Opinion
25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for the
options issued under the Company's stock option plan. Under APB 25, $85,470
compensation expense has been recognized for its stock based compensation plans
in 1997 (1996 - $5,000, 1995 - Nil).
The Company has elected the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation", for United States GAAP purposes. Had compensation cost for the
Company's stock option plan been determined based on the fair value at the
grant date for awards under those plans consistent with the measurement
provisions of FAS 123, the Company's loss and loss per share under United States
GAAP would have been adjusted as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Loss - as reported $ 3,354,661 $ 3,322,922 $ 547,655
Loss - stock option value adjusted 3,475,718 3,510,536 672,950
Loss per common share - as reported 0.35 0.40 0.16
Loss per common share - adjusted 0.36 0.42 0.20
</TABLE>
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Expected dividend yield 0% 0% 0%
Expected stock price volatility 70% 70% 70%
Risk-free interest rate 5.5% 5.5% 5.5%
Expected life of options 1 yr. 2 yrs. 2-3 yrs.
</TABLE>
The weighted average fair value of the options granted is $0.26 (1996 - $0.22,
1995 - $0.20) per option.
(f) Taxation:
For U.S. GAAP purposes, income taxes are accounted for in accordance with
Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting
for Income Taxes". FAS 109 requires the asset and liability method whereby
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing asset and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided on deferred tax assets
to the extent it is not more likely than not that such deferred tax assets will
be realized. Under FAS 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
The Company has deferred tax assets of approximately $2,140,000
(1996 - $750,000) arising from losses carried forward (see note 17). The
Company has provided a valuation allowance against the entire deferred tax asset
amount as it is more likely than not that they will not be realized.
15. Loss from discontinued operations
During 1996, the company discontinued its multi-media segment of its business.
The costs related to this are summarized as follows, and the 1995 comparative
amounts have been reclassified to reflect this change in direction.
<TABLE>
<S> <C> <C>
1996 1995
Revenue $ (43,818) $ (4,274)
Marketing 332,835 197,724
Research and development 368,119 317,564
General and administrative 88,708 87,434
$ 745,844 $ 598,448
</TABLE>
16. Commitments:
The Company has entered into a long-term operating lease for facilities
expiring August 31, 1999 for which the annual lease payments are $64,308.
17. Income taxes:
The Company has non-capital losses from foreign and Canadian operations
available for offset against future taxable income totaling approximately
$2,900,000 in the United States and $2,500,000 in Canada.
18. Comparative figures:
Certain of the comparative figures have been reclassified to conform with the
financial presentation adopted in 1997.
GORDON K.W. GEE
Chartered Accountant
An incorporated professional
488-625 Howe St.
Vancouver, BC V6T 2T6
Telephone (604) 689-8815
Facsimile (604) 689-8838
AUDITORS REPORT
To the Directors of Peak Technologies Inc.
I hav audited the consolidated balance sheet of Peak Technologies Inc. as at
September 30, 1996 and 1995 and the consolidated statements of operations and
deficit and changes in cash flow for the years ended September 30, 1996 and
1995. These consolidated financial statements are the responsibility of the
companys management. My responsibility is to express an opinion on these
consolidated financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require I plan an perform an audit to obtain reasonable
assurance whether the consolidated finacial statements are free from material
mistatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation.
In my opinion, these consolidated finacial statements present fairly, in all
material respects, the finacial position of the company at September 30, 1996
and 1995 and the results of its operations and the changes in its financial
position for the years ended September 30, 1996 and 1995 in accordance with
generally accepted accounting principles.
Accounting principles generally acepted in Canada vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operation for the year ended September 30, 1996
and September 30, 1995 and shareholders equity to the extent summarized in note
14 to the financial statements.
"original signed"
CHARTERED ACCOUNTANT
GORDON K.W. GEE
ITEM 18 - Financial Statements See Item 17.
ITEM 19 - Financial Statements and Exhibits
See Item 17 above for the following:
(A) Financial Statements
Peak Technologies Inc.
Supplementary Data: Quarterly Financial Data (unaudited)
Report of Independent Auditors
Consolidated Balance Sheets as of September 30, 1997 and 1996
Consolidated Statements of Operations and Deficit for the Years
Ended September 30, 1997, 1996 and 1995
Consolidated Statement of Changes in Financial Position for the
Years Ended September 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
1996 Auditors Report
(B) Exhibits
Exhibit 1 - Articles and By-Laws
Exhibit 2 - Registration Rights Agreement - September 9, 1997
Exhibit 3 - PeakSoft Corporation Register of Options - June 8, 1998
Exhibit 4 - Opinion of Legal Counsel Regarding Shares of Registrant
- July 23, 1998
Exhibit 5 - Valuation of Chameleon Bridge Technologies Corp. -
April 26, 1996
Exhibit 6 - Security Agreement - September 9, 1997
Exhibit 7 - Note Purchase Agreement - September 9, 1997
Exhibit 8 - Escrow Agreement - September 9, 1997
Exhibit 9 - Senior Promissory Note - September 9, 1997
Exhibit 10 - Senior Promissory Note - September 9, 1997
Exhibit 11 - Guaranty of Peak Media Inc. - September 9, 1997
Exhibit 12 - Amendment Agreement - March 1998
Exhibit 13 - Amendment to Note Purchase Agreement - March 1998
Exhibit 14 - Senior Promissory Note - March 1998
Exhibit 15 - Guaranty of PeakSoft Corporation (USA) Inc. - March
1998
Exhibit 16 - Note Purchase Agreement - June 10, 1998
Exhibit 17 - Senior Promissory Note - June 10, 1998
Exhibit 18 - Senior Promissory Note - June 10, 1998
Exhibit 19 - Guaranty of PeakSoft Corporation (USA) Inc. - June 1998
Exhibit 20 - Guaranty of PeakSoft Corporation (USA) Inc. and the
Liverpool Limited Partnership - June 1998
Exhibit 1 - Articles and By-Laws
INDEX
Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
REGISTERED OFFICE. . . . . . . . . . . . . . . . . . . . . . . . . . 1
SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Number . . . . . . . . . . . . . . . . . . . . . . 2
Vacancies. . . . . . . . . . . . . . . . . . . . . 2
Powers . . . . . . . . . . . . . . . . . . . . . . 2
Duties . . . . . . . . . . . . . . . . . . . . . . 2
Qualification. . . . . . . . . . . . . . . . . . . 2
Term of Office . . . . . . . . . . . . . . . . . . 3
Election . . . . . . . . . . . . . . . . . . . . . 3
Consent to Election. . . . . . . . . . . . . . . . 3
Removal. . . . . . . . . . . . . . . . . . . . . . 4
Vacation of Office . . . . . . . . . . . . . . . . 4
Validity of Acts . . . . . . . . . . . . . . . . . 4
MEETINGS OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . 4
Place of Meeting . . . . . . . . . . . . . . . . . 4
Notice . . . . . . . . . . . . . . . . . . . . . . 4
Waiver of Notice . . . . . . . . . . . . . . . . . 5
Omission of Notice . . . . . . . . . . . . . . . . 5
Telephone Participation. . . . . . . . . . . . . . 5
Adjournment. . . . . . . . . . . . . . . . . . . . 5
Quorum and Voting. . . . . . . . . . . . . . . . . 5
Resolution in Lieu of Meeting. . . . . . . . . . . 5
COMMITTEES OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . 6
General. . . . . . . . . . . . . . . . . . . . . . 6
Audit Committee. . . . . . . . . . . . . . . . . . 7
REMUNERATION OF DIRECTORS, OFFICERS AND EMPLOYEES. . . . . . . . . . 7
SUBMISSION OF CONTRACTS OR TRANSACTIONS TO . . . . . . . . . . . . . 8
SHAREHOLDERS FOR APPROVAL. . . . . . . . . . . . . . . . . . . . . . 8
CONFLICT OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . 8
FOR THE PROTECTION OF DIRECTORS AND OFFICERS . . . . . . . . . . . . 8
INDEMNITIES TO DIRECTORS AND OTHERS. . . . . . . . . . . . . . . . . 9
OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Appointment of Officers . . . . . . . . . . . . . 10
Removal of Officers and Vacation of Office. . . . 10
Vacancies . . . . . . . . . . . . . . . . . . . . 10
Chairman of the Board . . . . . . . . . . . . . . 10
President . . . . . . . . . . . . . . . . . . . . 10
Vice-President. . . . . . . . . . . . . . . . . . 11
Secretary . . . . . . . . . . . . . . . . . . . . 11
Treasurer . . . . . . . . . . . . . . . . . . . . 11
Assistant Secretary and Assistant Treasurer . . . 11
Managing Director . . . . . . . . . . . . . . . . 12
Duties of Officers may be Delegated . . . . . . . 12
SHAREHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . . . . . 12
Annual Meeting. . . . . . . . . . . . . . . . . . 12
Special Meetings. . . . . . . . . . . . . . . . . 12
Meeting on Requisition of Shareholders. . . . . . 12
Notice. . . . . . . . . . . . . . . . . . . . . . 12
Waiver of Notice. . . . . . . . . . . . . . . . . 13
Omission of Notice. . . . . . . . . . . . . . . . 13
Record Dates. . . . . . . . . . . . . . . . . . . 13
Chairman of the Meeting . . . . . . . . . . . . . 14
Votes . . . . . . . . . . . . . . . . . . . . . . 14
Right to Vote . . . . . . . . . . . . . . . . . . 14
Proxies . . . . . . . . . . . . . . . . . . . . . 15
Telephone Participation . . . . . . . . . . . . . 16
Adjournment . . . . . . . . . . . . . . . . . . . 16
Quorum. . . . . . . . . . . . . . . . . . . . . . 16
Resolution in Lieu of Meeting . . . . . . . . . . 17
SHARES AND TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . 17
Issuance. . . . . . . . . . . . . . . . . . . . . 17
Security Certificates . . . . . . . . . . . . . . 17
Agent . . . . . . . . . . . . . . . . . . . . . . 17
Dealings with Registered Holder . . . . . . . . . 17
Surrender of Security Certificates. . . . . . . . 17
Defaced, Destroyed, Stolen or Lost
Security Certificates . . . . . . . . . . . . . . 18
Enforcement of Lien for Indebtedness. . . . . . . 18
DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
VOTING SECURITIES IN OTHER BODIES CORPORATE . . . . . . . . . . . . 19
NOTICES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Service . . . . . . . . . . . . . . . . . . . . . 19
Failure to Locate Shareholder . . . . . . . . . . 19
Shares Registered in More than one Name . . . . . 20
Persons Becoming Entitled by Operation of Law . . 20
Deceased Shareholder. . . . . . . . . . . . . . . 20
Signatures upon Notices . . . . . . . . . . . . . 20
Computation of Time . . . . . . . . . . . . . . . 20
Proof of Service. . . . . . . . . . . . . . . . . 20
CUSTODY OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . 20
EXECUTION OF CONTRACTS, ETC . . . . . . . . . . . . . . . . . . . . 21
FISCAL PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PEAK TECHNOLOGIES INC.
BY-LAW NO. 1
A by-law relating generally to the conduct of the business and affairs of PEAK
TECHNOLOGIES INC. (hereinafter called the "Corporation").
IT IS HEREBY ENACTED as a by-law of the Corporation as follows:
DEFINITIONS
1. In this by-law and all other by-laws of the Corporation, unless the context
otherwise specifies or requires:
(a) "Act" means the Business Corporations Act (Alberta) and the regulations
made thereunder, as from time to time amended, and in the case of such amendment
any reference in the by-laws shall be read as referring to the amended
provisions thereof;
(b) "board" means the board of directors of the Corporation;
(c) "by-laws" means the by-laws of the Corporation from time to time in force
and effect;
(d) all terms contained in the by-laws which are defined in the Act shall have
the meanings given to such terms in the Act;
(e) words importing the singular number only shall include the plural and vice
versa; words importing the masculine gender shall include the feminine and
neuter genders; and
(f) the headings used in the by-laws are inserted for reference purposes only
and are not to be considered or taken into account in construing the terms or
provisions thereof or to be deemed in any way to clarify, modify or explain the
effect of any such terms or provisions.
REGISTERED OFFICE
2. The Corporation shall at all times have a registered office within Alberta.
Subject to subsection (4) of section 19 of the Act, the directors of the
Corporation may at any time:
(a) change the address of the registered office within Alberta;
(b) designate, or revoke or change a designation of, a records office
within Alberta; or
(c) designate, or revoke or change a designation of, a post office box within
Alberta as the address for service by mail of the Corporation.
SEAL
3. The corporate seal of the Corporation shall be such as the directors may by
resolution from time to time adopt.
DIRECTORS
4. Number. The number of directors shall be the number fixed by the articles,
or where the articles specify a variable number, the number shall be not less
than the minimum and not more than the maximum number so specified and shall
be determined from time to time within such limits by resolution of the
shareholders or the board of directors. Subject to subsection (4) of section
100 of the Act, at least half of the directors shall be resident Canadians.
5. Vacancies. Subject to section 106 of the Act, a quorum of directors may fill
a vacancy among the directors, except a vacancy resulting from an increase in
the number or minimum number of directors or from a failure to elect the number
or minimum number of directors required by the articles. If there is not a
quorum of directors, or if there has been a failure to elect the number or
minimum number of directors required by the articles, the directors then in
office shall forthwith call a special meeting of shareholders to fill
the vacancy and, if they fail to call a meeting or if there are no directors
then in office, the meeting may be called by any shareholder. If the
shareholders have adopted an amendment to the articles to increase the number
or minimum number of directors, and have not, at the meeting at which they
adopted the amendment, elected an additional number of directors authorized by
the amendment, the directors then in office shall forthwith call a special
meeting of shareholders to fill the vacancy.
A director appointed or elected to fill a vacancy holds office for the unexpired
term of his predecessor.
6. Powers. Subject to any unanimous shareholder agreement, the directors shall
manage the business and affairs of the Corporation and may exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation and are not expressly directed or required to be done in some other
manner by the Act, the articles, the by-laws, any special resolution of the
Corporation, a unanimous shareholder agreement or by statute.
7. Duties. Every director and officer of the Corporation in exercising his
powers and discharging his duties shall:
(a) act honestly and in good faith with a view to the best interests of the
Corporation; and
(b) exercise the care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances.
8. Qualification. The following persons are disqualified from being a
director of the Corporation:
(a) anyone who is less than 18 years of age;
(b) anyone who
(i) is a dependent adult as defined in the Dependent Adults Act or is the
subject of a certificate of incapacity under that Act,
(ii) is a formal patient as defined in the Mental Health Act,
(iii) is the subject of an order under The Mentally Incapacitated
Persons Act appointing a committee of his person or estate
or both, or
(iv) has been found to be a person of unsound mind by a court
elsewhere than in Alberta;
(c) a person who is not an individual; and
(d) a person who has the status of bankrupt.
Unless the articles otherwise provide, a director of the Corporation is not
required to hold shares issued by the Corporation.
9. Term of Office. A directors term of office (subject to the provisions,
if any, of the Corporations articles or any unanimous shareholder agreement,
and subject to his election for an expressly stated term) shall be from the date
of the meeting at which he is elected or appointed until the close of the first
annual meeting of shareholders following his election or appointment or until
his successor is elected or appointed.
10. Election. Subject to sections 101 and 102 of the Act, shareholders of the
Corporation shall, by ordinary resolution at the first meeting of shareholders
and at each succeeding annual meeting at which an election of directors is
required, elect directors to hold office for a term expiring not later than
the close of the next annual meeting of shareholders following the election.
A director not elected for an expressly stated term ceases to hold office at
the close of the first annual meeting of shareholders following his election
but, if qualified, is eligible for re-election. Notwithstanding the
foregoing, if directors are not elected at a meeting of shareholders, the
incumbent directors continue in office until their successors are elected.
If a meeting of shareholders fails to elect the number or the minimum number
of directors required by the articles by reason of the disqualification or death
of any candidate, the directors elected at that meeting may exercise all the
powers of the directors if the number of directors so elected constitutes a
quorum.
11. Consent to Election. A person who is elected or appointed a director is
not a director unless he was present at the meeting when he was elected or
appointed and did not refuse to act as a director or, if he was not present at
the meeting when he was elected or appointed, he consented to act as a director
in writing before his election or appointment or within 10 days after it or he
has acted as a director pursuant to the election or appointment.
12. Removal. Subject to sections 102 and 104 of the Act, the shareholders of
the Corporation may by ordinary resolution at a special meeting remove any
director from office before the expiration of his term of office and may, by
a majority of votes cast at the meeting, elect any person in his stead for the
remainder of his term.
13. Vacation of Office. A director of the Corporation ceases to hold office
when:
(a) he dies or resigns;
(b) he is removed from office; or
(c) he becomes disqualified.
A resignation of a director becomes effective at the time a written resignation
is sent to the Corporation, or at the time specified in the resignation,
whichever is later.
14. Validity of Acts. An act of a director or officer is valid notwithstanding
an irregularity in his election or appointment or a defect in his qualification.
An act of the directors or a committee of directors is valid notwithstanding
non-compliance with paragraphs 4, 21 or 23 hereof.
MEETING OF DIRECTORS
15. Place of Meeting. Unless the articles otherwise provide, meetings of
directors and of any committee of directors may be held at any place. A
meeting of directors may be convened by the Chairman of the Board (if any), the
President or any director at any time and the Secretary shall upon direction of
any of the foregoing convene a meeting of directors.
16. Notice. Notice of the time and place for the holding of any meeting of
directors or of any committee of directors shall be sent to each director or
each director who is a member of such committee, as the case may be, not less
than forty-eight (48) hours before the time of the meeting; provided that a
meeting of directors or of any committee of directors may be held at any time
without notice if all the directors or members of such committee are present
(except where a director attends the meeting for the express purpose of
objecting to the transaction of any business on the grounds that the meeting is
not lawfully called) or if all the absent directors waive notice of the meeting.
The notice of a meeting of directors shall specify any matter referred to in
subsection (3) of section 110 of the Act that is to be dealt with at the
meeting, but need not specify the purpose or the business to be transacted at
the meeting.
For the first meeting of directors to be held following the election of
directors at an annual or special meeting of the shareholders or for a meeting
of directors at which a director is appointed to fill a vacancy in the board, no
notice of such meeting need be given to the newly elected or appointed director
or directors in order for the meeting to be duly constituted, provided a quorum
of the directors is present.
17. Waiver of Notice. Notice of any meeting of directors or of any committee of
directors or the time for the giving of any such notice or any irregularity in
any meeting or in the notice thereof may be waived by any director in writing or
by telecopy, telegram, cable or telex addressed to the Corporation or in any
other manner, and any such waiver may be validly given either before or after
the meeting to which such waiver relates. Attendance of a director at any
meeting of directors or of any committee of directors is a waiver of notice
of such meeting, except when a director attends a meeting for the
express purpose of objecting to the transaction of any business on the grounds
that the meeting is not lawfully called.
18. Omission of Notice. The accidental omission to give notice of any meeting
of directors or of any committee of directors to or the non-receipt of any
notice by any person shall not invalidate any resolution passed or any
proceeding taken at such meeting.
19. Telephone Participation. A director may participate in a meeting of
directors or of any committee of directors by means of telephone or other
communication facilities that permit all persons participating in the meeting
to hear each other, and a director participating in a meeting by those means is
deemed for the purposes of the Act and this by-law to be present at that
meeting.
20. Adjournment. Any meeting of directors or of any committee of directors
may be adjourned from time to time by the chairman of the meeting, with the
consent of the meeting, to a fixed time and place. Notice of an adjourned
meeting of directors or committee of directors is not required to be given if
the time and place of the adjourned meeting is announced at the original
meeting. Any adjourned meeting shall be duly constituted if held in accordance
with the terms of the adjournment and a quorum is present thereat. The
directors who formed a quorum at the original meeting are not required to
form the quorum at the adjourned meeting. If there is no quorum present at
the adjourned meeting, the original meeting shall be deemed to have terminated
forthwith after its adjournment. Any business may be brought before or dealt
with at the adjourned meeting which might have been brought before or dealt
with at the original meeting in accordance with the notice calling the same.
21. Quorum and Voting. Subject to the articles, a majority of the number of
directors constitutes a quorum at any meeting of directors and, notwithstanding
any vacancy among the directors, a quorum of directors may exercise all the
powers of the directors. Subject to subsections (3) and (4) of section 109
of the Act, directors shall not transact business at a meeting of directors
unless a quorum is present and at least half of the directors present are
resident Canadians. Questions arising at any meeting of directors shall be
decided by a majority of votes. In the case of an equality of votes,
the chairman of the meeting in addition to his original vote shall have a
second or casting vote.
22. Resolution in Lieu of Meeting. Subject to the articles or a unanimous
shareholder agreement, a resolution in writing, signed by all the directors
entitled to vote on that resolution at a meeting of directors or committee of
directors, is as valid as if it had been passed at a meeting of directors or
committee of directors. A resolution in writing dealing with all matters
required by the Act or this by-law to be dealt with at a meeting of directors,
and signed by all the directors entitled to vote at that meeting, satisfies
all the requirements of the Act and this by-law relating to meetings of
directors.
COMMITTEES OF DIRECTORS
23. General. The directors may from time to time appoint from their number a
managing director, who must be a resident Canadian, or a committee of directors,
at least half of whom shall be resident Canadians, and may delegate to the
managing director or such committee any of the powers of the directors,
except that no managing director or committee shall have the authority to:
(a) submit to the shareholders any question or matter requiring the
approval of the shareholders;
(b) fill a vacancy among the directors or in the office of auditor;
(c) issue securities except in the manner and on the terms authorized
by the directors;
(d) declare dividends;
(e) purchase, redeem or otherwise acquire shares issued by the
Corporation, except in the manner and on the terms authorized
by the directors;
(f) pay a commission referred to in section 39 of the Act;
(g) approve a management proxy circular;
(h) approve any annual financial statements to be placed before the
shareholders of the Corporation; or
(i) adopt, amend or repeal by-laws of the Corporation.
Notwithstanding the foregoing and subject to the articles or any unanimous
shareholder agreement, the directors may, by resolution, delegate to a
director, managing director or committee of directors the power to:
(a) borrow money on the credit of the Corporation;
(b) issue, reissue, sell or pledge debt obligations of the
Corporation;
(c) subject to section 42 of the Act, give a guarantee on behalf of
the Corporation to secure performance of an obligation of any
person; and
(d) mortgage, hypothecate, pledge or otherwise create a security
interest in all or any property of the Corporation, owned or
subsequently acquired, to secure any obligation of the
Corporation.
24. Audit Committee. Subject to subsection (3) of section 165 of the Act, if
any of the issued share of the Corporation, or securities of the Corporation
which may or might be exchanged for or converted into shares of the Corporation,
were part of a distribution to the public and the Corporation has more than
fifteen shareholders, the directors shall elect annually from among their
number an audit committee to be composed of not fewer than three directors, a
majority of whom are not officers or employees of the Corporation or any of its
affiliates.
Each member of the audit committee shall serve during the pleasure of the board
of directors and, in any event, only so long as he shall be a director. The
directors may fill vacancies in the audit committee by election from among their
number.
The audit committee shall have power to fix its quorum at not less than a
majority of its members and to determine its own rules of procedure subject
to any regulations imposed by the board of directors from time to time and to
the following paragraph.
The auditor of the Corporation is entitled to receive notice of every meeting
of the audit committee and, at the expense of the Corporation, to attend and be
heard thereat, and, if so requested by a member of the audit committee, shall
attend every meeting of the committee held during the term of office of the
auditor. The auditor of the Corporation or any member of the audit committee
may call a meeting of the committee.
The audit committee shall review the financial statements of the Corporation
prior to approval thereof by the board and shall have such other powers and
duties as may from time to time by resolution be assigned to it by the board.
REMUNERATION OF DIRECTORS, OFFICER AND EMPLOYEES
25. Subject to the articles or any unanimous shareholder agreement, the
directors of the Corporation may fix the remuneration of the directors, officers
and employees of the Corporation. Any remuneration paid to a director of the
Corporation shall be in addition to the salary paid to such director in his
capacity as an officer or employee of the Corporation. The directors may
also by resolution award special remuneration to any director in undertaking
any special services on the Corporations behalf other than the routine work
ordinarily required of a director of the Corporation. The confirmation of any
such resolution by the shareholders shall not be required. The directors,
officers and employees shall also be entitled to be paid their travelling and
other expenses properly incurred by them in connection with the affairs of the
Corporation.
The aggregate remuneration paid to the directors and the aggregate remuneration
paid to the five highest paid officers and employees, other than directors,
shall be disclosed to the shareholders at every annual meeting.
SUBMISSION OF CONTRACTS OR TRANSACTIONS TO SHAREHOLDERS FOR APPROVAL
26. The directors in their discretion may submit any contract, act or
transaction for approval, ratification or confirmation at any annual meeting
of the shareholders or at any special meeting of the shareholders called for
the purpose of considering the same and any contract, act or transaction that
shall be approved, ratified or confirmed by resolution passed by a majority of
the votes cast at any such meeting (unless any different or additional
requirement is imposed by the Act or by the Corporations articles or by any
other by-law) shall be as valid and as binding upon the Corporation and upon
all the shareholders as though it had been approved, ratified and/or confirmed
by every shareholder of the Corporation.
CONFLICT OF INTEREST
27. A director or officer of the Corporation who is party to a material contract
or proposed material contract with the Corporation, or is a director or an
officer of or has a material interest in any person who is a party to a material
contract or proposed material contract or proposed material contract with the
Corporation shall disclose the nature and extent of his interest at the time and
in the manner provided in the Act. Except as provided in the Act, no such
director of the Corporation shall vote on any resolution to approve such
contract. If a material contract is made between the Corporation and one or
more of its directors or officers, or between the Corporation and another
person of which a director or officer of the Corporation is a director or
officer or in which he has a material interest, (i) the contract is neither
void nor voidable by reason only of that relationship, or by reason only that
a director with an interest in the contract is present at or is counted to
determine the presence of a quorum at a meeting of directors or committee of
directors that authorized the contract, and (ii) a director or officer or
former director or officer of the Corporation to whom a profit accrues as a
result of making of the contract is not liable to account to the Corporation
for that profit by reason only of holding office as a director or officer,
if the director or officer disclosed his interest in accordance with the
provisions of the Act and the contract was approved by the directors or the
shareholders and it was reasonable and fair to the Corporation at the time it
was approved. This paragraph is subject to any unanimous shareholder agreement.
FOR THE PROTECTION OF DIRECTORS AND OFFICERS
28. No director of officer for the time being of the Corporation shall be
liable to the Corporation for the acts, receipts, neglects or defaults of any
other director or officer or employee or for joining in any receipt or act for
conformity or for any loss, damage or expense happening to the Corporation
through the insufficiency or deficiency of title to any property acquired by the
Corporation or for or on behalf of the Corporation or for the insufficiency or
deficiency of any security in or upon which any of the monies of or belonging
to the Corporation shall be placed out or invested or for any loss or damage
arising from the bankruptcy, insolvency or tortious act of any person, firm or
corporation including any person, firm or corporation with whom or which any
monies, securities or effects shall be lodged or deposited or for any loss,
conversion, misapplication or misappropriation of or any damage resulting from
any dealings with any monies, securities or other assets belonging to the
Corporation or for any other loss, damage or misfortune whatever which may
happen in the execution of the duties of his respective office of trust or in
relation thereto, unless the same shall happen by or through his failure to
exercise the powers and to discharge the duties of his office honestly, in good
faith with a view to the best interests of the Corporation, and in connection
therewith to exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances, provided that nothing herein
contained shall relieve a director or officer from the duty to act in accordance
with the Act or relieve him from liability under the Act. The directors for the
time being of the Corporation shall not be under any duty or responsibility in
respect of any contract, act or transaction whether or not made done or entered
into in the name or on behalf of the Corporation, except such as shall have been
submitted to and authorized or approved by the directors. If any director or
officer of the Corporation shall be employed by or shall perform services for
the Corporation otherwise than as a director or officer or shall be a member of
a firm or a shareholder, director or officer of a body corporate which is
employed by or performs services for the Corporation, the fact of his being a
shareholder, director or officer of the Corporation or body corporate or member
of the firm shall not disentitle such director or officer or such firm or body
corporate, as the case may be, from receiving proper remuneration for such
services.
INDEMNITIES TO DIRECTORS AND OTHERS
29. (1) Subject to section 119 of the Act, except in respect of an action by or
on behalf of the Corporation or body corporate to procure a judgment in its
favour, the Corporation shall indemnify a director or officer of the
Corporation, a former director or officer of the Corporation or a person who
acts or acted at the Corporation's request as a director or officer of a body
corporate of which the Corporation is or was a shareholder or creditor, and his
heirs and legal representatives, against all costs,
(a) he acted honestly and in good faith with a view to the best
interests of the Corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds
for believing that his conduct was lawful.
(2) The Corporation shall, subject to the approval of a Court (as defined in
the Act), indemnify a person referred to in subparagraph 29(1) hereof in respect
of an action by or on behalf of the Corporation or a body corporate to procure a
judgment in its favour, to which he is made a party by reason of being or having
been a director or an officer of the corporation or body corporate, against all
costs, charges and expenses reasonably incurred by him in connection with such
action if he fulfills the conditions set out in subparagraph 29(1)(a) and (b)
hereof.
(3) Notwithstanding anything in this paragraph 29, a person referred to in
subparagraph 29(1) shall be entitled to indemnity from the Corporation in
respect of all costs, charges and expenses reasonably incurred by him in
connection with the defence of any civil, criminal or administrative action or
proceeding to which he is made a party by reason of being or having been a
director or officer of the Corporation or body corporate, if the person seeking
indemnity:
(a) was substantially successful on the merits of his defence of the
action or proceeding; and
(b) fulfills the conditions set out in subparagraph 29(1)(a) and (b)
hereof.
OFFICERS
30. Appointment of Officers. Subject to the articles or any unanimous
shareholder agreement, the directors annually or as often as may be required may
appoint from among themselves a Chairman of the Board and shall appoint a
President and a Secretary and if deemed advisable may appoint one or more
Vice-Presidents, a Treasurer and one or more Assistant Secretaries and/or one or
more Assistant Treasurers. None of such officers except the Chairman of the
Board need be a director of the Corporation although a director may be
appointed to any office of the Corporation. Two or more offices of the
Corporation may be held by the same person. In case and whenever the same
person holds the offices of Secretary and Treasurer he may but need not be
known as the Secretary-Treasurer. The directors may from time to time
appoint such other officers, employees and agents as they shall deem necessary
who shall have such authority and shall perform such functions and duties as
may from time to time be prescribed by resolution of the directors. The
directors may from time to time and subject to the provisions of the Act, vary,
add to or limit the duties and powers of any officer, employee or agent.
31. Removal of Officers and Vacation of Office. Subject to the articles or any
unanimous shareholder agreement, all officers, employees and agents, in the
absence of agreement to the contrary, shall be subject to removal by resolution
of the directors at any time, with or without cause.
An officer of the Corporation ceases to hold office when he dies, resigns or is
removed from office. A resignation of an officer becomes effective at the time
a written resignation is sent to the Corporation, or at the time specified in
the resignation, whichever is later.
32. Vacancies. If the office of President, Vice-President, Secretary, Assistant
Secretary, Treasurer, Assistant Treasurer, or any other office created by the
directors pursuant to paragraph 30 hereof shall be or become vacant by reason of
death, resignation or in any other manner whatsoever, the directors shall, in
the case of the President and Secretary, and may, in the case of any other
officers, appoint an individual to fill such vacancy.
33. Chairman of the Board. The Chairman of the Board (if any) shall, if
present, preside as chairman at all meetings of the board and of shareholders.
He shall sign such contracts, documents or instruments in writing as require his
signature and shall have such other powers and shall perform such other duties
as may from time to time be assigned to him by resolution of the directors.
34. President. The President shall be the chief executive officer of the
Corporation (except as may otherwise be specified by the board of directors) and
shall, subject to the direction of the board of directors, exercise general
supervision and control over the business and affairs of the Corporation. In
the absence of the Chairman of the Board (if any), and if the President is also
a director of the Corporation, the President shall, when present, preside as
chairman at all meetings of directors and shareholders. He shall sign
such contracts, documents or instruments in writing as require his signature
and shall have such other powers and shall perform such other duties as may from
time to time be assigned to him by resolution of the directors or as are
incident to his office.
35. Vice-President. The Vice-President or, if more than one, the
Vice-Presidents in order of seniority, shall be vested with all the powers and
shall perform all the duties of the President in the absence or inability or
refusal to act of the President, provided, however, that a Vice-President who is
not a director shall not preside as chairman at any meeting of directors or
shareholders. The Vice-President or, if more than one, the Vice-Presidents
shall sign such contracts, documents or instruments in writing as require his or
their signatures and shall have such other powers and shall perform such other
duties as may from time to time be assigned to him or them by resolution of the
directors.
36. Secretary. The Secretary shall give or cause to be given notices for all
meetings of directors, any committee of directors and shareholders when directed
to do so and shall, subject to the provisions of the Act, maintain the records
referred to in subsections (1), (3) and (5) of section 20 of the Act. He shall
sign such contracts, documents or instruments in writing as require his
signature and shall have such other powers and shall perform such other duties
as may from time to time be assigned to him by resolution of the directors or
as are incident to his office.
37. Treasurer. Subject to the provisions of any resolution of the directors,
the Treasurer shall have the care and custody of all the funds and securities of
the Corporation and shall deposit the same in the name of the Corporation in
such bank or banks or with such other depositary or depositaries as the
directors may by resolution direct. He shall prepare and maintain adequate
accounting records. He shall sign such contracts, documents or instruments in
writing as require his signature and shall have such other powers and shall
perform such other duties as may from time to time be assigned to him by
resolution of the directors or as are incident to his office. He may be
required to give such bond for the faithful performance of his duties as the
directors in their uncontrolled discretion may require and no director shall be
liable for failure to require any such bond or for the insufficiency of any such
bond or for any loss by reason of the failure of the Corporation to receive any
indemnity thereby provided.
38. Assistant Secretary and Assistant Treasurer. The Assistant Secretary or, if
more than one, the Assistant Secretaries in order of seniority, and the
Assistant Treasurer or, if more than one, the Assistant Treasurers in order of
seniority, shall be vested with all the powers and shall perform all the duties
of the secretary and Treasurer, respectively, in the absence or inability or
refusal to act of the Secretary or Treasurer as the case may be. The Assistant
Secretary or, if more than one, the Assistant Secretaries and the Assistant
Treasurer or, if more than one, the Assistant Treasurers shall sign
such contracts, documents or instruments in writing as require his or their
signatures respectively and shall have such other powers and shall perform such
other duties as may from time to time be assigned to him or them by resolution
of the directors.
39. Managing Director. The directors may from time to time appoint from their
number a Managing Director who must be a resident Canadian and may delegate to
the Managing Director any of the powers of the directors subject to the limits
on authority provided by subsection (3) of section 110 of the Act. The Managing
Director shall conform to all lawful orders given to him by the directors and
shall at all reasonable times give to the directors or any of them all
information they may require regarding the affairs of the Corporation.
Any agent or employee appointed by the Managing Director shall be subject to
discharge by the directors.
40. Duties of Officers may be Delegated. In case of the absence or inability or
refusal to act of any officer of the Corporation or for any other reason that
the directors may deem sufficient, the directors may delegate all or any of
the powers of such officer to any other officer or to any director for the time
being.
SHAREHOLDERS MEETINGS
41. Annual Meeting. Subject to sections 126 and 127 of the Act, the annual
meeting of shareholders shall be held at the registered office of the
Corporation or at a place elsewhere within Alberta determined by the directors
on such day in each year and at such time as the directors may determine.
42. Special Meetings. The directors of the Corporation may at any time call a
special meeting of shareholders to be held on such day and at such time and,
subject to section 126 of the Act, at such place within Alberta as the directors
may determine.
43. Meeting on Requisition of Shareholders. The holders of not less than five
percent (5%) of the issued shares of the Corporation that carry the right to
vote at a meeting sought to be held may requisition the directors to call a
meeting of shareholders for the purposes stated in the requisition. The
requisition shall state the business to be transacted at the meeting and shall
be sent to each director and to the registered office of the Corporation.
Subject to subsection (3) of section 137 of the Act, upon receipt of the
requisition, the directors shall call a meeting of shareholders to transact the
business stated in the requisition. If the directors do not within twenty-one
days after receiving the requisition call a meeting, any shareholder who signed
the requisition may call the meeting.
44. Notice. A notice in writing of a meeting of shareholders stating the day,
hour and place of meeting and if special business is to be transacted thereat,
stating (i) the nature of that business in sufficient detail to permit the
shareholder to form a reasoned judgment on that business and (ii) the text of
any special resolution to be submitted to the meeting, shall be sent to each
shareholder entitled to vote at the meeting, who on the record date for notice
is registered on the records of the Corporation or its transfer agent
as a shareholder, to each director of the Corporation and to the auditor of the
Corporation not less than 21 days and not more than 50 days (exclusive of the
day of mailing and of the day for which notice is given) before the date of the
meeting; provided that a meeting of shareholders may be held for any purpose on
any day and at any time and, subject to section 126 of the Act, at any place
without notice if all the shareholders and all other persons entitled to attend
such meeting are present in person or represented by proxy at
the meeting (except where a shareholder or other person attends the meeting
for the express purpose of objecting to the transaction of any business on the
grounds that the meeting is not lawfully called) or if all the shareholders and
all other persons entitled to attend such meeting and not present in person nor
represented by proxy thereat waive notice of the meeting.
A director of the Corporation is entitled to receive notice of and to attend and
be heard at every meeting of shareholders of the Corporation.
The auditor of the Corporation is entitled to receive notice of every meeting of
shareholders of the Corporation and, at the expense of the Corporation, to
attend and be heard at every meeting on matters relating to his duties as
auditor.
45. Waiver of Notice. Notice of any meeting of shareholders or the time for the
giving of any such notice or any irregularity in any meeting or in the notice
thereof may be waived by any shareholder, the duly appointed proxy of any
shareholder, any director or the auditor of the Corporation in writing or by
telecopy, telegram, cable or telex addressed to the Corporation or in any other
manner, and any such waiver may be validly given either before or after the
meeting to which such waiver relates. Attendance of a shareholder or any other
any other person entitled to attend a meeting of shareholders is a waiver of
notice of such meeting, except when he attends a meeting for the express purpose
of objecting to the transaction of any business on the grounds that the meeting
is not lawfully called.
46. Omission of Notice. The accidental omission to give notice of any meeting of
shareholders to or the non-receipt of any notice by any person shall not
invalidate any resolution passed or any proceeding taken at any such meeting.
47. Record Dates. The directors may fix in advance a date as the record date
for the determination of shareholders (i) entitled to receive payment of a
dividend, (ii) entitled to participate in a liquidation distribution or (iii)
for any other purpose except the right to receive notice of or to vote at a
meeting of shareholders, but such record date shall not precede by more than 50
days the particular action to by taken.
The directors may also fix in advance a date as the record date for the
determination of shareholders entitled to receive notice of a meeting of
shareholders, but such record date shall not precede by more than 50 days or by
less than 21 days the date on which the meeting is to be held.
If no record date is fixed,
(a) the record date for the determination of shareholders
entitled to receive notice of a meeting of shareholders shall be
(i) at the close of business on the last business day
preceding the day on which the notice is sent; or
(ii) if no notice is sent, the day on which the meeting is held, and
(b) the record date for the determination of shareholders for any
purpose other than to establish a shareholders right to receive notice of a
meeting or to vote shall be at the close of business
on the day on which the directors pass the resolution relating to that purpose.
48. Chairman of the Meeting. In the absence of the Chairman of the Board (if
any), the President and any Vice-President who is a director, the shareholders
present entitled to vote shall elect another director as chairman of the meeting
and if no director is present or if all the directors present decline to take
the chair then the shareholders present shall elect one of their number to be
chairman.
49. Votes. Votes at meetings of shareholders may be given either personally or
by proxy. Every question submitted to any meeting of shareholders shall be
decided on a show of hands except when a ballot is required by the chairman of
the meeting or is demanded by a shareholder or proxyholder entitled to vote at
the meeting. A shareholder or proxyholder may demand a ballot either before or
on the declaration of the result of any vote by show of hands. At every meeting
at which he is entitled to vote, every shareholder present in person and every
proxyholder shall have one (1) vote on a show of hands. Upon a ballot in which
he is entitled to vote every shareholder present in person or by proxy shall
(subject to the provisions, if any, of the articles) have one (1) vote for every
share registered in his name. In the case of an equality of votes the chairman
of the meeting shall not, either on ashow of hands or an a ballot, have a second
or casting vote in addition to the vote or votes to which he may be entitled
as a shareholder or proxyholder.
At any meeting, unless a ballot is demanded by a shareholder or proxyholder
entitled to vote at the meeting a declaration by the chairman of the meeting
that a resolution has been carried unanimously or by a particular majority or
lost or not carried by a particular majority shall by conclusive evidence of the
fact without proof of the number of proportion of votes recorded in favour of or
against the resolution.
If at any meeting a ballot is demanded on the election of a chairman or on the
question of adjournment or termination, the ballot shall be taken forthwith
without adjournment. If a ballot is demanded on any other question or as to the
election of directors, the ballot shall be taken in such manner and either at
once or later at the meeting or after adjournment as the chairman of the meeting
directs. The result of a ballot shall be deemed to be the resolution of the
meeting at which the ballot was demanded. A demand for a ballot may be
withdrawn.
50. Right to Vote. Subject to section 132 of the Act or unless the articles
otherwise provide, each share of the Corporation entitles the holder of it to
one vote at a meeting of shareholders.
Where a body corporate or association is a shareholder of the Corporation, any
individual authorized by a resolution of the directors or governing body of the
body corporate or association to represent it at meetings of shareholders of the
Corporation is the person entitled to vote at all such meetings of shareholders
in respect of the shares held by such body corporate or association.
Where a person holds shares as a personal representative, such person or his
proxy is the person entitled to vote at all meetings of shareholders in respect
of the shares so held by him.
Where a person mortgages, pledges or hypothecates his shares, such person or his
proxy is the person entitled to vote at all meetings of shareholders in respect
of such shares so long as such person remains the registered owner of such
shares unless, in the instrument creating the mortgage, pledge or hypothec, he
has expressly empowered the person holding the mortgage, pledge or hypothec to
vote in respect of such shares, in which case, subject to the articles, such
holder or his proxy is the person entitled to vote in respect of the shares.
Where two or more persons hold shares jointly, one of those holders present at a
meeting of shareholders may in the absence of the others vote the shares, but if
two or more of those persons who are present, in person or by proxy, vote, they
shall vote as one on the shares jointly held by them.
51. Proxies. Every shareholder, including a shareholder that is a body
corporate, entitled to vote at a meeting of shareholders may by means of a proxy
appoint a proxyholder and one or more alternate proxyholders, who are not
required to be shareholders, to attend and act at the meeting in the manner and
to the extent authorized by the proxy and with the authority conferred by the
proxy.
An instrument appointing a proxyholder shall be in written or printed form and
shall be executed by the shareholder or by his attorney authorized in writing
and is valid only at the meeting in respect of which it is given or any
adjournment of that meeting.
An instrument appointing a proxyholder may be in the following form or in any
other form which complies with the requirements of the Act:
The undersigned shareholder of ______________________ hereby
appoints _________________ of _________________, whom failing,
________________ of ________________ as the nominee of the undersigned to attend
and act for and on behalf of the undersigned at the meeting of the shareholders
of the said Corporation to be held on the ___ day of _______, 19___ and at any
adjournment thereof in the same manner, to the same extent and with the same
power as if the undersigned were personally present at the said meeting or such
adjournment thereof.
Dated the ___ day of __________, 19____.
____________________________
Signature of Shareholder
The directors may specify in a notice calling a meeting of shareholders a time
not exceeding forty-eight (48) hours, excluding Saturdays, Sundays and holidays,
preceding the meeting or an adjournment of the meeting before which time proxies
to be used at the meeting must be deposited with the Corporation or its agent.
The chairman of the meeting of shareholders in his discretion accept any written
communication (including without limitation any telecopy, telegram, cable or
telex) as to the authority of anyone claiming to vote on behalf of and to
represent a shareholder notwithstanding that no instrument of proxy conferring
such authority has been deposited with the Corporation, and any votes given in
accordance with such written communication accepted by the chairman of the
meeting shall be valid and shall be counted.
52. Telephone Participation. A shareholder or any other person entitled to
attend a meeting of shareholders may participate in the meeting by means of
telephone or other communication facilities that permit all persons
participating in the meeting to hear each other and a person participating in
such a meeting by those means is deemed for the purposes of the Act and this
by-law to be present at the meeting.
53. Adjournment. The chairman of the meeting may with the consent of the meeting
adjourn any meeting of shareholders from time to time to a fixed time and place
and if the meeting is adjourned by one or more adjournments for an aggregate of
less than thirty (30) days it is not necessary to give notice of the adjourned
meeting other than by announcement at the time of an adjournment. If a meeting
of shareholders is adjourned by one or more adjournments for an aggregate of
thirty (30) days or more, notice of the adjourned meeting shall be given
given as for an original meeting but, unless the meeting is adjourned by
one or more adjournments for an aggregate of more than ninety (90) days,
subsection (1) of section 143 of the Act does not apply.
Any adjourned meeting shall be duly constituted if held in accordance with the
terms of the adjournment and a quorum is present thereat. The persons who
formed a quorum at the original meeting are not required to form the quorum at
the adjourned meeting. If there is no quorum present at the adjourned meeting,
the original meeting shall be deemed to have terminated forthwith after its
adjournment. Any business may be brought before or dealt with at the original
meeting which might have been brought before or dealt with at the
original meeting in accordance with the notice calling the same.
54. Quorum. Two (2) persons present and each holding or representing by proxy at
least one (1) issued share of the Corporation shall be a quorum at any meeting
of shareholders for the election of a chairman of the meeting and for the
adjournment of the meeting to a fixed time and place but not for the transaction
of any other business; for all other purposes two (2) persons present and
holding or representing by proxy one-twentieth of the shares entitled to vote at
the meeting shall be a quorum. If a quorum is present at the opening
of a meeting of share-holders, the shareholders present may proceed with the
business of the meeting, notwithstanding that a quorum is not present throughout
the meeting.
Notwithstanding the foregoing, if the Corporation has only one shareholder, or
one shareholder holding a majority of the shares entitled to vote at the
meeting, that shareholder present in person or by proxy constitutes a meeting
and a quorum for such meeting.
55. Resolution in Lieu of Meeting. A resolution in writing signed by all the
shareholders entitled to vote on that resolution is as valid as if it had been
passed at a meeting of the shareholders. A resolution in writing dealing with
all matters required by the Act or this by-law to be dealt with at a meeting of
shareholders, and signed by all the shareholders entitled to vote at that
meeting, satisfies all the requirements of this Act or the by-law relating to
meetings of shareholders.
SHARES AND TRANSFERS
56. Issuance. Subject to the articles, any unanimous shareholder agreement and
to section 28 of the Act, shares in the Corporation may be issued at the times
and to the persons and for the consideration that the directors determine;
provided that a share shall not be issued until the consideration for the share
is fully paid in money or in property or past service that is not less in value
than the fair equivalent of the money that the Corporation would have received
if the share had been issued for money.
57. Security Certificates. A security holder is entitled at his option to a
security certificate that complies with the Act or a non-transferable written
acknowledgement of his right to obtain a security certificate from the
Corporation in respect of the securities of the Corporation held by him.
Security certificates shall (subject to compliance with section 45 of the Act)
be in such form as the directors may from time to time by resolution approve and
such certificates shall be signed by at least one director or officer of the
Corporation, or by or on behalf of a registrar, transfer agent or branch
transfer agent of the Corporation, or by a trustee who certifies it in
accordance with a trust indenture. Any signatures required on a security
certificate may be printed or otherwise mechanically reproduced on it. If a
security certificate contains a printed or mechanically reproduced signature of
a person, the Corporation may issue the security certificate, notwithstanding
that the person has ceased to be a director or an officer of the Corporation,
and the security certificate is as valid as if he were a director or an officer
at the date of its issue.
58. Agent. The directors may from time to time by resolution appoint or remove
(i) one or more trust companies registered under the Trust Companies Act as its
agent or agents to maintain a central securities register or registers or
(ii) an agent or agents to maintain a branch secureceived a new, reissued or
re-registered security, a new security certificate may be issued in re
sident, a Vice-President, the Secretary or the Treasurer of the Corporation or
by resolution of the directors.
59. Dealings with Registered Holder. Subject to the Act, the Corporation may
treat the registered owner of a security as the person esclusively entitled
to vote, to receive notices, to receive any interest, dividen or other payments
in respect of the security, and otherwise to excercise all the rights and
powers of an owner of the security.
60. Surrender of Security Certificates. Subject to the Act, no transfer of a
security issued byt the Corporation shall be registered unless or until the
security certificate representing the security to be transferred has been
presented for registration or, if no security certificate has been issued by the
Corporation in respect of such security, unless or until a duly executed
transfer in respect thereof has been presented for registration.
61. Defaced, Destroyed, Stolen or Lost Security Certificates. In case of the
defacement, destruction, theft or loss of a security certificate, the fact of
such defacement, destruction, theft or loss shall be reported by the owner to
the Corporation or to an agent of the Corporation (if any), on behalf of the
Corporation, with a statement verified by oath or statutory declaration as to
the defacement, destruction, theft or loss and the circumstances concerning the
same and with a request for the issuance of a new security certificate to
replace the one so defaced, destroyed, stolen or lost. Upon the giving to
the Corporation (or if there be an agent, hereinafter in this paragraph referred
to as the "Corporation's agent", then to the Corporation and the Corporation's
agent) of a bond of a surety company (or other security approved by the
directors) in such form as is approved by the directors or by the Chairman of
the Board (if any), the President, a Vice-President, the Secretary or the
Treasurer of the Corporation, indemnifying the porations agent if any) against
all loss, damage or expense, which the Corporation and/or the Corporations
agent may suffer or be liable for by reason of the issuance of a new security
certificate to such owner, and provided the Corporation or the Corporations
agent does not have notice that the security has been acquired by a bona fide
purchaser and before a purchaser described in section 64 of the Act has
received a new, reissued or re-registered security, a new security certificate
may be issued in replacement of the one defaced, destroyed, stolen or lost,
if such issuance is ordered and authorized by any one of the Chairman of the
Board (if any), the President, a Vice-President, the Secretary or the
Treasurer of the Corporation or by resolution of the directors.
62. Enforcement of Lien and Indebtedness. Subject to subsection (8) of section
45 of the Act, if the articles of the Corporation provide taht the Corporation
has a lien on the shares registered in the name of a shareholder or his legal
representative for a debt of that shareholder to the Corporation, the directors
of the Corporation may sell any such shares in such manner as they think fit
until the debt has beenpaid in full. No sale shall be made until such time as
the debt ought to be paid and until a demand and notice in writing stating the
amount due and demanding payment and giving notice of intention to sell in
default shall have been served on the holder or his legal representative of
the shares subject to the lien and default shall have been made in payment
of such debt for seven days after service of such notice. Upon any such sale,
the proceeds shall be applied, firstly, in payment of all costs of such sale,
and, secondly, in satisfaction of such debt and the residue (if any) shall be
paid to such shareholder or his legal representative or as he shall direct.
Upon any such sale, the directors may enter or causse to be entered the
purchasers name in the securities register of the Corporation as a holder of
shares, and the purchaser shall not be bound to see to the regularity or
validity of, or be effective by, any irregularity or invalidity in the
proceedings or be bound to see to the application of the purchase money,
and after his name or the name of his legal representative has been entered
in the securities register, the regularity and validity of the sale shall not
be impeached by a person.
DIVIDENDS
63. The directors may from time to time by resolution declare and the
Corporation may pay dividends on its issued shares, subject to the provisions
(if any) of the Corporations articles.
The directors shall not declare and the Corporation shall not pay a dividend
if there are reasonable grounds for believing that:
(a) the Corporation is, or would be after the payment be, unable
to pay its liabilities as they become due; or
(b) the realizable value of the Corporations assets would
thereby be less than the aggregate of its liabilities and stated capital of all
classes.
The Corporation may pay a dividend by issuing fully paid shares of the
Corporation and, subject to section 40 of the Act, the Corporation may pay a
dividend in money or property.
64. In case several persons are registered as the joint holders of any
securities of the Corporation, any one of such persons may give effectual
receipts for all dividends and payments on account of dividends, principal,
interest and/or redemption payments in respect of such securities.
VOTING SECURITIES IN OTHER BODIES CORPORATE
65. All securities of any other body corporate carrying voting rights held form
time to time by the Corporation may be voted at all meetings of shareholders,
bondholders, debenture holders or holders of such securities, as the case may
be, of such other body corporate and in such manner and by such person or
persons as the directors of the Corporation shall from time to time determine
and authorize by resolution. The duly authorized signing officers of the
Corporation may also from time to time execute and deliver for and on behalf
of the Corporation proxies and arrange for the issuance of voting
certificates or other evidence of the right to vote in such names as they may
determine without the necessity of a resolution or any other action by the
directors.
NOTICES, ETC.
66. Service. Any notice or document required by the Act, the articles or the
by-laws to be sent to any shareholder or director of the Corporation may be
delivered personally to or sent by mail addressed to:
(a) the shareholder at his latest address as shown
in the records of the Corporation or its transfer agent; and
(b) the director at his latest address as shown in the records of
the Corporation or in the last notice filed under section 101 or 108 of the Act.
Such notice or document shall be deemed to have been sent on the day of personal
delivery or mailing. With respect to every notice or document sent by mail it
shall be sufficient to prove that the envelope or wrapper containing the notice
or document was properly addressed and put into a post office or into a post
office letter box.
67. Failure to Locate Shareholder. If the Corporation sends a notice or document
to a shareholder and the notice or document is returned on three consecutive
occasions because the shareholder cannot be found, the Corporation is not
required to send any further notices or documents to the shareholder until he
informs the Corporation in writing of his new address.
68. Shares Registered in More than one Name. All notices or documents shall,
with respect to any shares in the capital of the Corporation registered in more
than one name, be sent to whichever of such persons is named first in the
records of the Corporation and any notice or document so sent shall be deemed to
have been duly sent to all the holders of such shares.
69. Persons Becoming Entitled by Operation of Law. Every person who by
operation of law, transfer or by any other means whatsoever shall become
entitled to any shares in the capital of the Corporation shall be bound by every
notice or document in respect of such shares which prior to his name and address
being entered on the records of the Corporation in respect of such shares shall
have been duly sent to the person or persons from whom he derives his title to
such shares.
70. Deceased Shareholder. Any notice or document sent to any shareholder in
accordance with paragraph 66 hereof shall, notwithstanding that such shareholder
be then deceased and whether or not the Corporation has notice of his decease,
be deemed to have been duly sent in respect of the shares held by such
shareholder (whether held solely or with other persons) until some other person
be entered in his stead in the records of the Corporation as the holder or one
of the holders thereof and shall be deemed to have been duly sent to his
heirs, executors, administrators and legal representatives and all persons
(if any) interested with him in such shares.
71. Signatures upon Notices. The signature of any director or officer of the
Corporation upon any notice may be written, stamped, typewritten or printed or
partly written, stamped, typewritten or printed.
72. Computation of Time. All computations of time required to be made pursuant
to the articles or by-laws of the Corporation shall be made (i) in accordance
with the provisions of the Interpretation Act, to the extent such provisions are
applicable, and (ii) in any other case, in accordance with the customary
meaning ascribed to the words requiring such computation of time.
73. Proof of Science. A certificate of any officer of the Corporation in office
at the time of the making of the certificate or of an agent of the Corporation
as to facts in relation to the sending of any notice or document to any
shareholder, director, office or auditor or publication of any notice or
document shall be conclusive evidence thereof and shall be binding on every
shareholder, director, officer or auditor of the Corporation, as the case may
be.
CUSTODY OF SECURITIES
74. All securities (including without limitation warrants) owned by the
Corporation may be lodged (in the name of the Corporation) with a chartered bank
or a trust company or in a safety deposit box or, if so authorized by resolution
of the directors, with such other depositaries or in such other manner as may be
determined from time to time by the directors.
All securities (including without limitation warrants) belonging to the
Corporation may be issued and held in the name of a nominee or nominees of the
Corporation (and if issued or held in the names of more than one nominee shall
be held in the names of the nominees jointly with right of survivorship) and
shall be endorsed in blank with endorsement guaranteed in order to enable
transfer thereof to be completed and registration thereof to be effected.
EXECUTION OF CONTRACTS, ETC.
75. Contracts, documents or instruments in writing requiring the signature of
the Corporation may be signed by the President alone or any person or persons
authorized by resolution of the directors and all contracts, documents or
instruments in writing so signed shall be binding upon the Corporation without
any further authorization or formality. The directors are authorized from time
to time by resolution to appoint any person or persons on behalf of the
Corporation either to sign contracts, documents or instruments in writing
generally or to sign specific contracts, documents or instruments in writing.
The corporate seal of the Corporation may, when required, be affixed by the
President to contracts, documents or instruments in writing signed by him as
aforesaid or by the person or persons appointed as aforesaid by resolution of
the directors.
The term "contracts, documents or instruments in writing" as used in this by-law
shall include deeds, mortgages, hypothecs, charges, cheques, drafts, orders for
the payment of money, notes, acceptances, bills of exchanges, conveyances,
transfers and assignments of property, real or personal, immovable or movable,
agreements, releases, receipts and discharges for the payment of money or other
obligations, conveyances, transfers and assignments of securities and all paper
writings.
The signature or signatures of the President or any person or persons appointed
as aforesaid by resolution of the directors may, if specifically authorized by
resolution of the directors, be printed, engraved, lithographed or otherwise
mechanically reproduced upon all contracts, documents or instruments in writing
or bonds, debentures or other securities of the Corporation executed or issued
by or on behalf of the Corporation and all contracts, documents or instruments
in writing or securities of the Corporation on which the signature or
signatures of any of the foregoing persons shall be so reproduced, by
authorization by resolution of the directors, shall be deemed to have been
manually signed by such persons whose signature or signatures is or are so
reproduced and shall be as valid to all intents and purposes as if they had been
signed manually and notwithstanding that the persons whose signature or
signatures is or are so reproduced may have ceased to hold office at the date
of the delivery or issue of such contracts, documents or instruments in writing
or securities of the Corporation.
FISCAL PERIOD
76. The fiscal period of the Corporation shall terminate on such day in each
year as the board of directors may from time to time by resolution determine.
ENACTED the 16th day of August, 1996.
- ------------------------------------------------
- ----------------------------------------------- President Secretary
PEAK TECHNOLOGIES INC.
BY-LAW NO. 2
A by-law respecting the borrowing of money, the giving of guarantees and the
giving of security by PEAK TECHNOLOGIES INC. (hereinafter called the
"Corporation").
IT IS HEREBY ENACTED as a by-law of the Corporation as follows:
The directors of Corporation may from time to time:
(a) borrow money on the credit of the Corporation;
(b) issue, reissue, sell or pledge debt obligations of the
Corporation, including without limitation, bonds, debentures, notes or other
evidences of indebtedness or guarantee of the Corporation, whether secured or
unsecured;
(c) give a guarantee on behalf of the Corporation to secure
performance of an obligation of any individual, partnership, association, body
corporate, trustee, executor, administrator or legal representative;
(d) mortgage, hypothecate, pledge or otherwise create an interest
in or charge on all or any property of the Corporation, owned or subsequently
acquired, to secure payment of a debt or performance of any other obligation
of the Corporation;
(e) delegate to one or more directors, a committee of directors
or one or more officers of the Corporation as may be designated by the
directors, all or any of the powers conferred by
the foregoing clauses of this by-law to such extent and in such
manner as the directors shall determine at the time of each such delegation.
In the event any provision of any other by-law of the Corporation now in force
is inconsistent with or in conflict with any provision of this by-law, the
provisions of this by-law shall prevail to the extent necessary to remove the
inconsistency or conflict.
This by-law shall remain in force and be binding upon the Corporation as regards
any party acting on the faith thereof until a copy, certified by the Secretary
of the Corporation, of a by-law repealing of replacing this by-law shall have
been received by such party and duly acknowledged in writing.
ENACTED the 16th day of August, 1996.
[Execution blocks omitted.]
