SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
Consolidated Financial Statements
(in Canadian Dollars)
Years ended September 30, 1998 and 1997
PeakSoft Corporation
--------------------
(Translation of registrant's name into English)
1801 Roeder Avenue; Suite 144, Bellingham, WA 98225
---------------------------------------------------
(Address of principal executive offices)
[Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.]
Form 20-F ..X.. Form 40-F ____
[Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes ..X.. No ____
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-0-24069
----------
Signatures: T. W. Metz
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PeakSoft Corporation
(Registrant)
Date March 8, 1999
(Signature) By: /s/ T.W. Metz
----------------------
T.W. Metz
Chief Operating Officer
<PAGE>
Consolidated Financial Statements
PEAKSOFT CORPORATION
(in Canadian dollars)
Years ended September 30, 1998 and 1997
<PAGE>
PEAKSOFT CORPORATION
Consolidated Financial Statements
(in Canadian dollars)
Years ended September 30, 1998 and 1997
Auditor's Report 1
Financial Statements
Consolidated Balance Sheet 2
Consolidated Statement of Operations and Deficit 3
Consolidated Statement of Changes in Financial Position 4
Notes to the Consolidated Financial Statements 6
<PAGE>
GORDON K.W. GEE
CHARTERED ACCOUNTANT 488 - 625 Howe Street
An incorporated professional Vancouver, BC V6C 2T6
- --------------------------------------------------------------------------------
Telephone: (604) 689-8815
Facsimile: (604) 689-8838
AUDITOR'S REPORT
To The Shareholders of PeakSoft Corporation:
I have audited the consolidated balance sheet of PeakSoft Corporation as at 30
September 1998 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 Company's management. My
responsibility is to express an opinion on these consolidated financial
statements based on my audit.
I conducted the audit in accordance with generally accepted auditing standards.
Those standards require that I 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 my opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at 30 September 1998
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.
The consolidated financial statements as at 30 September 1997 and for the year
ended 30 September 1996 were audited by other auditors who expressed an opinion
without reservation on those statements in their report dated 12 December 1997.
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 30 September 1998
and shareholders' equity to the extent summarized in note 15 to the financial
statements.
/s/ Gordon K.W. Gee
-------------------
Gordon K.W. Gee
Vancouver, B.C., Canada Chartered Accountant
15 February 1999
-1-
<PAGE>
GORDON K.W. GEE
CHARTERED ACCOUNTANT 488 - 625 Howe Street
An incorporated professional Vancouver, BC V6C 2T6
- --------------------------------------------------------------------------------
Telephone: (604) 689-8815
Facsimile: (604) 689-8838
COMMENTS BY AUDITOR 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 Company's ability to continue as a going concern, such as those described in
note 1 to the financial statements. My report to the shareholders dated 15
February 1999 is expressed in accordance with Canadian reporting standards which
do not permit a reference to such events and conditions in the auditor's report
when these are adequately disclosed in the financial statements.
/s/ Gordon K.W. Gee
-------------------
Gordon K.W. Gee
Vancouver, B.C., Canada Chartered Accountant
15 February 1999
-2-
<PAGE>
PEAKSOFT CORPORATION
Consolidated Balance Sheet
(in Canadian dollars)
30 September 1998 and 1997
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 22,824 $1,071,366
Accounts receivable 26,479 97,645
Inventories 43,284 59,128
Prepaids and deposits 39,999 156,046
- --------------------------------------------------------------------------------
132,586 1,384,185
Investment (note 2) 284,000 --
Capital assets (note 3) 105,947 195,787
Acquired research and development (note 4) -- 822,299
- --------------------------------------------------------------------------------
522,533 2,402,271
================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities 1,304,312 893,398
Deferred revenue (note 5) -- 109,681
Current portion of long-term debt (note 6) -- 14,936
Current portion of obligations under
capital leases (note 7) 29,665 24,624
- --------------------------------------------------------------------------------
1,063,977 1,042,639
Long-term debt (note 6) -- 1,380,991
Obligations under capital leases (note 7) 28,639 40,927
Shareholders' equity:
Share capital (note 8) 6,555,704 5,779,455
Other paid-in capital (note 6) 2,069,920 173,759
- --------------------------------------------------------------------------------
8,625,624 5,953,214
Obligation to issue share capital (note 8) -- 399,900
Accumulated deficit 9,195,707 6,415,400
- --------------------------------------------------------------------------------
(570,083) (62,286)
- --------------------------------------------------------------------------------
522,533 2,402,271
================================================================================
Contingent liability (note 10)
On behalf of the Board:
"Douglas H. Foster "Peter A. Janssen"
____________________________ Director __________________________ Director
See accompanying notes to the consolidated financial statements.
-3-
<PAGE>
PEAKSOFT CORPORATION
Consolidated Statement of Operations and Deficit
Years ended 30 September 1998, 1997 and 1996
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Sales $1,246,381 $1,340,200 $ 784,900
Cost of goods sold 233,763 448,537 428,141
- --------------------------------------------------------------------------------
1,012,618 891,663 356,759
Expenses:
Amortization 991,017 1,050,965 118,968
General and administrative 1,392,633 1,245,114 312,361
Marketing 951,724 1,682,437 531,170
Research and development 531,860 641,426 321,740
- --------------------------------------------------------------------------------
3,867,234 4,619,942 1,284,239
- --------------------------------------------------------------------------------
Earnings (loss) before the undernoted (2,854,616) (3,728,279) (927,480)
Other earnings (expenses):
Debt settlement with creditors (Note 16) 259,618 -- --
Gain on sale of Subsidiary (Note 17) 51,879 -- --
Interest on longterm debt (237,188) -- --
Loss on settlement of lawsuit (note 10) -- (310,042) --
Write-off of assets -- (53,169) --
- --------------------------------------------------------------------------------
74,309 (363,211) --
- --------------------------------------------------------------------------------
Earnings (loss) from continuing operations (2,780,307) (4,091,490) (927,480)
Loss from discontinued operations (note 18) -- -- (745,844)
- --------------------------------------------------------------------------------
Loss (2,780,307) 4,091,490 1,673,324
Accumulated deficit, beginning of year 6,415,400 2,323,910 650,586
- --------------------------------------------------------------------------------
Accumulated deficit, end of year 9,195,707 6,415,400 2,323,910
================================================================================
Loss per common share (0.20) (0.42) (0.20)
================================================================================
See accompanying notes to the consolidated financial statements.
-4-
<PAGE>
PEAKSOFT CORPORATION
Consolidated Statement of Operations and Deficit
Years ended 30 September 1998, 1997 and 1996
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net earnings (loss) $(2,780,307) $(4,091,490) $ (927,480)
Items not involving cash:
Loss from discontinued operations -- -- (745,844)
Amortization 991,017 1,050,965 118,968
Write-off of assets -- 53,169 --
Change in non-cash operating
working capital 181,719 253,980 404,452
- --------------------------------------------------------------------------------
(1,607,571) (2,733,376) (1,149,904)
Financing:
Repayments of long-term debt (1,380,991) (21,273) (23,462)
Increase (decrease) in obligations
under capital leases (12,288) (1,661) 51,342
Issuance of long-term debt 1,896,161 1,554,750 --
Increase (decrease) in obligation to
issue shares (399,900) (55,408) 455,308
Issuance of share capital 776,249 2,380,551 2,503,037
- --------------------------------------------------------------------------------
879,231 3,856,959 2,986,225
Investments:
Acquisition of investment (284,000) -- --
Purchase of capital assets (36,202) (82,180) (150,486)
Acquisition of licences -- -- (33,559)
Business combination (note 4) -- -- (1,644,598)
Acquisition of software technology -- -- (136,979)
- --------------------------------------------------------------------------------
(320,202) (82,180) (1,965,622)
- --------------------------------------------------------------------------------
Increase (decrease) in cash position (1,048,542) 1,041,403 (129,301)
Cash, beginning of year 1,071,366 29,963 159,264
- --------------------------------------------------------------------------------
Cash, end of year 22,824 1,071,366 29,963
================================================================================
See accompanying notes to the consolidated financial statements.
-5-
<PAGE>
PEAKSOFT CORPORATION
Notes to the Consolidated Financial Statements
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
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 Company's ability to continue as a going concern is
dependent upon obtaining additional external financing and on the attainment
of profitable operations. Management is of the opinion that external
financing will remain in place and that as a result of their current product
launches and concentration on providing software for vertical markets,
sufficient profits will be obtained to meet the Company's obligations and
commitments as they become due. For this reason, 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 subsidiaries, PeakSoft Corporation
(U.S.A.), 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 Company recorded an approximate 10% interest in Infobuild Networks,
Inc. (hereinafter referred to as "InfoBuild") at cost of $284,000. As
the Company has no significant influence upon the management of
InfoBuild, InfoBuild's Financial Statements have not been included
herein or consolidated herewith.
(b) Revenue recognition:
Revenue from product sales is recognized as the products are sold and
title to the product is transferred. Revenue from service contracts is
recognized when the work is completed.
(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.
-6-
<PAGE>
PEAKSOFT CORPORATION
Notes to the Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(d) Capital assets:
Capital assets are stated at cost. Amortization is provided on the
declining balance basis using the following annual rates:
------------------------------------------------------------------------
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:
Research costs are expensed as incurred. Development costs are expensed
as incurred unless they meet the criteria for deferral under generally
accepted accounting principles.
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.
-7-
<PAGE>
PEAKSOFT CORPORATION
Notes to the Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
3. Capital assets:
-----------------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------------
Accumulated Net book Net book
Cost amortization value value
-----------------------------------------------------------------------------
Furniture and equipment $ 87,255 $ 54,657 $ 32,598 $ 33,637
Computer equipment 207,761 150,363 57,398 64,833
Computer software 178,073 178,073 -- 89,036
Leasehold improvements 152,462 136,511 15,951 8,281
-----------------------------------------------------------------------------
625,551 519,604 105,947 195,787
=============================================================================
Assets acquired under capital leases in the amount of $91,628 (1997 -
$79,148) and related accumulated amortization of $60,809 (1997 - $54,614 and
1996 - $18,474) are included in furniture and equipment as well as computer
equipment.
4. Acquired research and development:
1998 1997
- --------------------------------------------------------------------------------
Accumulated Net book Net book
Cost amortization value value
- --------------------------------------------------------------------------------
Research and development $1,644,598 $1,644,598 -- $822,299
================================================================================
-8-
<PAGE>
PEAKSOFT CORPORATION
Notes to the Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
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 of regulatory approval and exchange of shares was $1.11 per
share. Accordingly, the research and development is calculated as follows:
Purchase value based on shares issued in May, 1996 1,665,000
Other net assets acquired (20,402)
-----------------------------------------------------------------------------
Acquired research and development 1,644,598
=============================================================================
5. Deferred revenue:
Deferred revenue consists primarily of advance quarterly billings for a
computer service agreement.
6. Long-term debt:
- --------------------------------------------------------------------------------
1998 1997
$ $
-----------------------------------------------------------------------------
Renovation loan, secured by a charge on leasehold
improvements, bearing interest at 11.5% per annum,
maturing on March 15, 1998 -- 14,936
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. $1,563,000) 2,025,740 1,554,750
Less: other paid-in capital (2,025,740) (173,759)
-----------------------------------------------------------------------------
-- 1,395,927
Current portion of long-term debt -- 14,936
-----------------------------------------------------------------------------
-- 1,380,991
-----------------------------------------------------------------------------
Subsequent to the year end, the notes payable along with accrued interest
have been agreed to be converted to shares. This however is subject to
regulatory approval.
-9-
<PAGE>
PEAKSOFT CORPORATION
Notes to the Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
6. Long-term debt (continued):
The notes payable in fiscal 1997 compromise of 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 pai in capital.
In the 1998 fiscal year, additional promissory notes were issued and held by
private individuals, Liverpool Limited Partnership, and Westgate
International, L.P. Some of the issued notes are attached with warrants to
purchase common shares.
USD $140,000 senior promissory notes, with interest at 12% per annum, due
09 September 1999 and attached with warrants to acquire 500,000 common
shares at CDN $0.40 per share. The warrants expire 15 March 2000.
USD $88,000 demand promissory notes with interest at 12% per annum and
attached with warrants to acquire 422,060 common shares at CDN $0.30
per share. The warrants expire 27 April 2000.
USD $150,000 senior promissory notes with interest at 12% per annum due
10 June 2000.
USD $60,000 demand promissory notes with interest at 12% per annum.
USD $30,333 demand promissory notes without interest converted from
deferred management remuneration.
Subsequent to the year end additional USD $340,000 was received and supported
by promissory notes bearing interest at 12% per annum.
Subsequent to the year end all of the above debt are waiting for regulatory
approval for conversion to shares.
7. Obligations under capital leases:
The Company has capital leases on equipment expiring at various dates through
2001 requiring the following minimum lease payments:
-----------------------------------------------------------------------------
1998 1997
$ $
-----------------------------------------------------------------------------
1998 -- 32,713
1999 39,385 24,180
2000 28,575 19,965
2001 -- 4,430
-----------------------------------------------------------------------------
Total minimum lease payments 67,960 81,288
Less imputed interest at varying rates (9,656) (15,737)
-----------------------------------------------------------------------------
Present value of net minimum capital lease payments 58,304 65,551
Current portion of obligations under capital lease 29,665 24,624
----------------------------------------------------------------------------
28,639 40,927
=============================================================================
-10-
<PAGE>
PEAKSOFT CORPORATION
Notes to the Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
8. Share capital:
-----------------------------------------------------------------------------
Shares Amount
# $
-----------------------------------------------------------------------------
Authorized:
Unlimited voting common shares without par value
Unlimited non-voting preferred shares without par value
Issued:
Balance, 01 October 1994 656,293 94,580
Issued amount year ended 30 September 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 30 September 1996:
Issued for cash 1,151,147 667,500
Issued for services and technology 1,704,210 1,835,537
Issued amount year ended 30 September 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)
Issued amount year ended 30 September 1998
Issued for cash 1,691,976 623,281
-----------------------------------------------------------------------------
13,937,439 6,402,736
-----------------------------------------------------------------------------
Included in shares issued for cash during 1998 are 390,000 (1997 - 833,541,
1996 - 750,000) shares for approximately $102,400 (1997 - $556,898, 1996 -
$317,500) issued pursuant to the exercise of management, employees and
directors' stock options. The remaining shares of 1,301,976 (1997 -2,711,725,
1996 - 401,147) for $520,881 (1997 - $1,940,000 and 1996 - $350,000) were
issued pursuant to private placements.
(a) Management, employees and directors' stock options:
At September 30, 1998, the Company had 1,121,000 management, employees
and directors' options outstanding:
776,000 options expiring 18 December 1999, exercisable to acquire
776,000 shares at $0.40 each
275,000 options expiring 26 May 2000, exercisable to acquire 275,000
shares at $0.30 each.
25,000 options expiring 27 May 2000, exercisable to acquire 25,000
shares at $0.30 each.
55,000 options expiring 10 July 2000, exercisable to acquire 55,000
shares at $0.22 each.
Subsequent to the year end, all of the above management, employees and
directors' stock options were cancelled.
-11-
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
8. Share Capital (continued):
(b) Warrants:
At September 30, 1998, the Company had 4,042,135 warrants outstanding.
3,120,075 first warrants from a debt conversion, entitling the holder to
acquire one additional share for $0.50 each. The warrants expire in
September 1999. Subsequent to the year the company has sought regulatory
approval for repricing to acquire one additional share at $0.20 each.
500,000 warrants from a debt conversion entitling the holder to acquire
one additional share for $0.40 each. The warrants expire in March 2000.
422,060 warrants entitling the holder to acquire one additional share at
$0.30 each. The warrants expire April 2000 and are subsequent to
regulatory approval.
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 financial assets and liabilities are a
reasonable estimate of the fair values. Long-term financial liabilities
comprise long-term debt and obligations under capital leases and other
paid-in capital (see note 6).
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. The Product, in this situation, was certain CD ROM (CDR) programs that
were the subject of a trade name lawsuit. As a result of the lawsuit,
PeakSoft was forced to abandon the name used on the software and recall such
products sold to distributors as well as Company inventory held at a
fulfillment house. Since the programs were on CDRs, the name was "burned"
into the CDR. The text burned into the CDR could not be modified to change
the disputed name. This rendered all the CDRs with the disputed trade name
"obsolete" and therefore the recalled CDRs required destruction.
As a result of the lawsuit, this product was destroyed and the write off was
included in the financial statements as "loss on settlement of lawsuit".
Returned product that had been previously recognized as sales and included in
revenues was appropriately adjusted through Sales and Cost of Sales.
-12-
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended September 30, 1998 and 1997
- --------------------------------------------------------------------------------
11. Contingent liabilities:
In November 1998, the company relocated its premises. Under the Lease
Agreement for the abandoned premises, the Company is liable for the lease
payments of the abandoned premises until the premises are released by the
landlord. Under this Agreement, the minimum lease payments are USD $83,226
per annum until 31, March 2002. The maximum exposure is $290,000.
12. Subsequent events:
In addition to the subsequent events discussed elsewhere in these notes to
the financial statements, the following subsequent events occurred:
The company has agreed with the individuals, management, Liverpool Limited
Partnership, Westgate International L.P. to convert CDN $2,800,316 (USD
$1,776,400, plus accrued interest to 15 October 1998) to 15,557,310 Shares
at CDN $0.18. the conversion is subject to regulatory approval.
On 28 October 1998, the company incorporated PeakSoft Multinet Corp. (U.S.A)
under the laws of Washington State in the United States of America. The new
corporation is a wholly owned subsidiary of PeakSoft Corporation, and has
yet to begin operations.
In the first quarter of the 1999 fiscal year, the Company issued a private
placement for 514,800 shares at CDN $0.18 each totaling CDN $92,664 (USD
$60,000).
Subsequent to the year end, regulatory authorities approved the
consolidation of shares on a 8 shares to 1 share basis. This consolidation
was approved by the shareholders on December 15, 1998 at an Extraordinary
General Shareholders Meeting.
13. Loss per common share:
Loss per common share is based on the weighted average number of common
shares outstanding during the year.
14. Related party transactions:
The following are related party transactions, not already disclosed
elsewhere in the notes to the financial statements:
----------------------------------------------------------------------------
1998 1997
$ $
----------------------------------------------------------------------------
Salaries to directors and officers 94,000 212,000
Consulting fees and expense reimbursements to directors 92,600 64,000
Salary paid to a relative of one of the directors 54,500 33,000
----------------------------------------------------------------------------
241,100 309,000
============================================================================
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.
-13-
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1998
- --------------------------------------------------------------------------------
15. 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:
-----------------------------------------------------------------------------
1998 1997 1996
$ $ $
-----------------------------------------------------------------------------
Loss in accordance with Canadian GAAP (2,780,307) (4,091,490) (1,673,324)
Difference in accounting for acquired
research and development (note d) 822,229 822,299 (1,644,598)
Stock options (note e) -- (85,470) (5,000)
Loss in accordance with
United States GAAP (1,958,078) (3,354,661) (3,322,922)
-----------------------------------------------------------------------------
Loss per common share (0.14) (0.35) (0.40)
-----------------------------------------------------------------------------
Weighted average number of shares used
for calculation 13,612,947 9,615,270 8,294,805
-----------------------------------------------------------------------------
(b) Balance sheet:
The amounts in the consolidated balance sheet that differ from those
reported under Canadian GAAP are as follows:
September 30, 1998 September 30, 1997
Canadian United States Canadian United States
GAAP GAAP GAAP GAAP
$ $ $ $
-----------------------------------------------------------------------------
Assets:
Acquired research and
development -- -- 822,299 --
Liabilities:
Other paid-in capital 173,759 264,229 173,759 264,229
Accumulated deficit 9,195,707 8,373,478 6,415,400 7,328,169
=============================================================================
(c) Statement of cash flows:
Cash used in operations and cash provided by financing activities would
decrease by 1997 - $75,969 and 1996 - $1,874,848 because shares issued
for services and technology would be considered non-cash transactions.
-14-
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
15. United States GAAP reconciliation (continued):
(c) Statement of cash flows (continued):
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, NIL compensation expense has been recognized for its stock
based compensation plans in 1998 (1997 - $85470, 1996 - $5,000).
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:
------------------------------------------------------------------------
1998 1997 1996
$ $ $
------------------------------------------------------------------------
Loss - as reported 1,958,078 3,354,661 3,322,922
Loss - stock option value adjusted 2,052,578 3,475,718 3,510,536
Loss per common share - as reported 0.14 0.35 0.40
Loss per common share - adjusted 0.15 0.36 0.42
========================================================================
(e) Stock based compensation (continued):
The fair value of each option grant is estimated on the date of the
grant using the following assumptions:
------------------------------------------------------------------------
1998 1997 1996
$ $ $
------------------------------------------------------------------------
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 2 yrs. 1 yr. 2 yrs.
The weighted average fair value of the options granted is 1997 - $0.26
and 1996 - $0.22 per option.
-15-
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1998
- --------------------------------------------------------------------------------
(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 $3,000,000 (1997 -
$2,140,000 and 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.
16. Debt Settlement with Creditors
During the year, management negotiated with trade and other creditors to
realize a reduction of liabilities.
17. Gain on sale of subsidiary
During the year, the Company incorporated a State of Washington company to
perform ongoing service work for clients. In the year, the Company sold the
company for USD $100,000.
18. 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:
----------------------------------------------------------------------------
$
----------------------------------------------------------------------------
Revenue (43,818)
Marketing 332,835
Research and development 368,119
General and administrative 88,708
----------------------------------------------------------------------------
745,844
============================================================================
19. Commitments:
The company has entered into a one year operating lease for facilities
expiring November 1999 for which the annual lease payments is USD $28,449.
The lease is renewable on an annual basis.
-16-
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1998
- --------------------------------------------------------------------------------
20. Income taxes:
The Company has non-capital losses from foreign and canadian operation
available for offset against future taxable income totaling approximately
USD $3,900,000 in the United States and CDN $3,600,000 in Canada.
21. Comparative figures:
Certain of the comparative amounts have been reclassified to conform with
the financial presentation adopted in 1998.
22. Uncertainty due to the Year 2000 issue
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the Year 2000 as 1900 or some other date, resulting in errors when
information using Year 2000 is processed. In addition, similar problems may
arise in some systems which use certain dates in 1999 to represent something
other than a date. The effects of the Year 2000 issue may be experienced
before, on, or after 01 January 2000, and, if not addressed, the impact on
operations and financial reporting may range from minor errors to
significant systems failure which could affect the company's ability to
conduct normal business operations. However, management does not anticipate
difficulties with the company's compliance. It is not possible to be certain
that all aspects of the Year 2000 issue affecting the company, including
those related to the efforts of customers, suppliers, or other third
parties, will be fully resolved.
-17-
