US SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
PeakSoft Multinet Corp.
AJAX, ONTARIO, CANADA
VANCOUVER, BRITISH COLUMBIA, CANADA
CALGARY, ALBERTA, CANADA
1801 Roeder Avenue, #144, 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, OTC BB
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: 13,885,464 [3,680,305 post-consolidated as of 29 March
1999] 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
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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 - NOT APPLICABLE
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 (Annual Report)
ITEM 18 - FINANCIAL STATEMENTS NOT APPLICABLE
ITEM 19 - FINANCIAL STATEMENTS - SEE ITEM 17
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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. Simon Arnison, Chief Technology
Officer, resides in the Ajax, Ontario 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.
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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.
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.
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 that 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.
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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. 102,991 Common Shares were
issued in fiscal 1996. Two additional allotments of 15,449 shares each were to
be issued upon achievement of certain performance milestones.
These performance milestones were met in fiscal 1997 and these two allotments,
totaling 30,898, were issued in fiscal 1997.
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 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. The prospectus was the means whereby shares were registered in order
to issue and deliver free trading shares to the holders of the First, Second,
and Third Special Warrants pursuant to the respective agreements. As a result on
June 11, 1997 the Company issued 2,775,667 Common Shares (1,466,667 to the First
Special Warrant Holders, 550,000 to the Second Special Warrant Holders, and
759,000 to the Third Special Warrant Holders) 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$1,125,000 closed on September
9, 1997. The notes payable were issued in September, 1997 and represent 12
percent senior promissory notes held by Liverpool Limited Partnership and
Westgate International L.P. Attached to the issued notes are warrants to
purchase 3,120,075 common shares at a price of CDN$.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.
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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.
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 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
underdevelopment.
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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 announced its first value added solution, LawTrack targeted at
providing Internet Research to the legal community on October 22, 1998. The
company announced Realty Tracer on January 13, 1999, its second value added
solution product targeted at the Real Estate market, 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 institutions.
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 included: 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
partnerships and co-marketing alliances based upon a profit sharing model. The
Company opened the PeakStore on June 23, 1999 in order to focus on an e commerce
model.
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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 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 - Simon Arnison
Mr. Arnison 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. Arnison reports to the
Chief Operating Officer.
Chief Operations Officer - Timothy Metz
Mr. Metz is responsible for the financial operations and day-to-day management
of the Corporation.
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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.
NetMagnet(TM) Technology
The following is an overview of the Company's core technology (NetMagnet(TM)):
The Internet's raw potential tantalizes us with the promise of information
retrieval at a keystroke. Memories of hours and days poring over spreadsheets,
photocopying reference books or tediously searching technical journals fade in
the rapidly evolving technical wonderland of the Internet.
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The Internet has yet to deliver on the promise that has captivated the computer
world. Using the Internet is often inefficient, time-consuming and frequently
frustrating. Exponential growth of both users and Web sites compound the
organization and retrieval issues. Business users spend more time looking for
information than analyzing it...a phenomenon recognized by developers of a new
category of information technology called knowledge management.
More than a list of facts or numbers, knowledge can be defined as the
connections between disparate information. Knowledge workers, a growing
professional description, gather information, manage or organize it, and are
able to transmit and share it. The cumulative knowledge base built within an
organization becomes one of its most valuable assets.
NetMagnet(TM) technology drives straight to the core of the knowledge management
challenge. Once content or information is retrieved from the Web or from a
database, a knowledge worker can begin the management and transmission process,
essentially completing the cycle that accounts for the accumulation of a
significant knowledge base.
Research and retrieval:
Information retrieval often begins with a keyword search. Keyword refinements
can reduce overwhelming hit lists, but typically, a research path through the
undifferentiated hypertext of the Web requires frequent backtracking. The random
paths created by following links can result in locating useful information or
lead the user completely off track. Assigning relative significance to data as
it is encountered on a Web search is nearly impossible prior to a completed
search, but browsers offer only rudimentary tools to cache content during the
collection process. The retrieval process is further complicated when only
selected elements on any Web page are relevant, but there is no tool to capture
and save only these elements. Collection of useful information from the Web is
handy, but what happens when the information you need is maintained on a
proprietary database? And how do you ever keep track of data that changes
frequently?
Managing information:
Lists become meaningful when built in priority order; a report is meaningful if
extraneous data has been deleted. Managing information blends the facts and
figures with human experience. The need to edit, revise, prioritize, and explain
is what turns information into knowledge.
Sharing knowledge:
After searching, retrieving, and managing all the information, conclusions are
shared with other users as part of the normal collaborative process. The
relevant knowledge includes the facts and figures and reflects the thought
processes, methods and conclusions developed during the management and analysis
process. The need to efficiently package, summarize, and deliver knowledge to
others, and, in turn, to receive feedback from the recipient, completes the
knowledge communication cycle.
What tools are available now:
Search engines. The portal sites that lead us into the maze are valuable tools,
but stop short. The results they return are often too coarse; different engines
offer different competencies; and few present organizational aids.
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Push technologies. Channels seemed to be a solid answer to delivery of relevant
content, but in reality, they push undifferentiated editorial content, sometimes
on target but more often not. The broadcast methodology does not fulfill the
personalization potential of the Web.
Bookmarks and favorites. Simple to use, bookmarks let you put a virtual
paperclip on every page you think you'll want to visit again. But the overly
simplistic browser filing systems quickly become overrun with too many entries
often listed by obscure names.
What is needed now:
NetMagnet, originally positioned as an Internet research assistant for the savvy
Web surfer, is finding a home in work groups and enterprise dependent on
critical knowledge management processes. Built to use existing technologies like
the browsers, NetMagnet technology extends Web interface functionality to enable
users to both create and consume knowledge.
Based on access to Web and database maintained content, NetMagnet technology
delivers content management options including:
. Chronological tracking of every visited page
. Managing interesting, but off-target, links for future retrieval
and consideration
. Storage system for grouping Web pages for regular, easy access
. Updating cached content from data sources on the Web at the
user's direction
. Scheduling cache updates
. Systems to capture and manage both Web based content and desktop
files in content organizers
. Transporting content organizers efficiently and easily
NetMagnet technology brings content management and delivery to the vast
resources of data migrating to electronic format. As content is enriched on a
multimedia stage, the user can fully explore the relevance of the content, blend
it with his or her own existing knowledge and share the results.
Real-life applications:
As the borders of the Internet are constantly nudged into new territory by
rapidly evolving hardware and software tools, whether the Internet is the means
to an end or the end itself isn't always apparent. If you subscribe to the
belief that people, with all their idiosyncracies, preferences and
individuality, are driving the entire process, you'll see that what we want is a
medium that accommodates our unique needs. To that end, the trends are to
customization, personalization and one-to-one commerce.
The NetMagnet technology recognizes the individuality inherent on the Web and
that each link in the communication cycle builds relationships between senders
and recipients. Applications developed with this exciting technology can keep
agents in touch with clients and collaborative workgroups in constant
communication. As e-businesses recognize their abilities to efficiently design
and deliver personalized messages to provide service or market new products with
technologies like NetMagnet, we'll see the Web evolve beyond the broadcast model
to a new level of communication.
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Intel recognizes NetMagnet:
Intel, world's leading chip maker, has recognized the value in NetMagnet
technology in the company's recently launched "Constant Computing" initiative.
With other leading software and Web based engines, NetMagnet was selected to
demonstrate the sophisticated work that could be accomplished with the latest
generation of Intel-powered PC's, the Web, and leading software packages.
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), PeakJet 2000, has annuonced LawTrack and Realty Tracer (Company's
first 2 knowledge management solutions)and is developing other products to
address aspects of the Internet opportunity.
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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
PeakJet 2000 users now have a sophisticated intelligent caching 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, Extranet and Research
PeakSofts technology is being targeted to the growing Internet,Intranet,
Extranet 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 1999. 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.
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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.
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.
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 1999.
PeakJet 2000
A sophisticated Java-based utility that provides browser acceleration as well as
intelligent caching. PeakJet 2000 is compatible with Windows 95, 98 and NT 4.0
operating systems. It is also compatible with all current versions of both
Netscape Navigator and Microsoft Internet Explorer.
LawTrack
PeakSoft announced LawTrack on October 22, 1998. LawTrack is a breakthrough
solution for anyone doing research in the legal arena because it's a knowledge
management tool designed to marry publicly available law content from federal,
state and local governments with proprietary subscription-based Web content and
even a company's internal intranet knowledge base, into a new breed of research
brief.
LawTrack enables legal researchers, administrators, librarians and paralegals to
save valuable research time and effort by efficiently organizing, adding value
to and sharing Web research results with colleagues.
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LawTrack works with either the Netscape Navigator or Microsoft Internet Explorer
Web browser to provide nearly all Internet users in the legal profession the
capability to gather, annotate, present, view and publish hard copies of
Web-based research data electronically. LawTrack's self-contained research
presentations can be provided to end users of the information via e-mail or by
diskette for viewing using a browser, even without the LawTrack application
installed.
LawTrack includes PeakSoft's award-winning Java-based Web acceleration
capabilities, which can significantly improve browsing speeds. LawTrack uses
acceleration agents to "look- ahead" and pre-load links, and creates its own
intelligent cache so users can access them quickly. Users can more thoroughly
review the gathered information offline, which saves online access and expensive
proprietary research fees.
LawTrack's PageTracer provides a complete history of each browsing session,
which allows legal professionals to maintain accurate records of time spent on
Internet research on behalf of a particular client. Users can also quickly
retrieve a list of important Web page address listings from past searches for
faster access to a particular site. These lists can be edited by deleting,
reordering and annotating every citation in each browsing session's history.
RealtyTracer (CODE NAME)
RealtyTracer is the next installment in the PeakTrack series of vertical market
Internet information management applications for small- to medium-sized
businesses. The PeakTrack series is based on the NetMagnet core technology.
Current PeakTrack applications include Small Business, Law and Realty.
Using RealtyTracer, real-estate professionals can quickly and easily find,
intelligently organize and clearly present information extracted from all
Web-accessible sources to provide the level of value-added service today's
increasingly sophisticated home buyers and sellers demand.
Standard Internet browsing tools lack powerful organization and presentation
features that are essential for today's realtors that strive to be competitive
in an increasingly 'wired' market RealtyTracer enables real-estate professionals
to quickly and efficiently utilize Web-based resources, including
multiple-listing data, internal agency information and specially, pre-loaded
real estate-specific Web sites.
RealtyTracer enables realtors to save valuable research, preparation and
presentation time and effort by efficiently organizing, adding value to and
sharing Web-based listing information with clients. RealtyTracer works with
either the Netscape Navigator or Microsoft Internet Explorer Web browsers to
provide real-estate professionals the capability to electronically gather, view,
annotate, present and publish hard copies of Web-based real-estate information.
RealtyTracer's self-contained research presentations can be provided to clients
via e-mail or on diskette for viewing on a PC using a Web browser, even without
the RealtyTracer application installed.
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RealtyTracer includes PeakSoft's award-winning Java-based Web acceleration
capabilities, which can significantly improve browsing speeds. RealtyTracer uses
acceleration agents to "look-ahead" and pre-load links, and creates its own
intelligent cache so users can quickly and more intuitively access "saved" Web
pages. This enables realtors to more conveniently and thoroughly review the
gathered information off their hard drives rather than while connected to the
Internet. This feature keeps phone lines freed up, saves online access charges
and reduces expensive proprietary research fees.
RealtyTracer's PageTracer provides a complete history of each browsing session.
Realtors can also quickly retrieve a list of important Web page address listings
from past searches for faster access to a particular site. These lists can be
edited by deleting, reordering and annotating every citation in each browsing
session's history.
RealtyTracer users can share their Web research data with others using the
product's PagePresenter technology. It enables users to create slide shows of
pages they have gathered, add comments, and share with others. While viewing the
pre-selected Web pages, clients can choose to visit a particular Web site by
simply clicking a button to activate an online browsing session.
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.
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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.
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 1999
and 2000.
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.
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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.
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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, 1998 the Company had 8 hardware and software engineers
employed full time in research and development.
Research, development and associated expenses were CDN$78,682 for first quarter
99, CDN$531,860 for 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,
1998 was CDN$9,195,707. 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, 1998
of CDN$2,780,307. 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. Subsequent to the 1998 year end, a debt
conversion occurred which eliminated approximately 93% of the Company's long
term debt. The Company also received an additional US$590,000 in operating
capital subsequent to the year end. In addition the Company obtained an accounts
receivable line of credit from Silicon Valley Bank in the amount of US$350,000.
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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.
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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
February 15, 1999 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 long-term debt has been reduced by approximately 93% and the Company
has completed a 1 for 8 share consolidation subsequent to September 30, 1998.
The Company resumed trading on the OTC-BB in March 1999. Management is also
seeking some additional external financing. The Company has obtained financing
aggregating to US$590,000 since September 30, 1998, 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 the debt conversion, there are two principal shareholders, each of
which hold 905,636 post consolidated shares in the capital stock of the
Corporation. As a result, these shareholders 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.
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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 1801 Roeder Avenue, Suite 144, Bellingham, Washington, USA,
occupy approximately 2,000 square feet. These offices were leased, effective
November 15, 1998, for a term of 12 months at an annual lease rate of US$25,200.
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, now known simply as Bennett Jones in Calgary, Alberta,
for legal services allegedly performed during the years 1995 and 1996. Following
a proceeding before a taxation officer of the court of Queen's Bench in Calgary,
the Corporation entered into an agreement to pay to Bennett Jones the sum of CDN
$105,588.65 at the rate of CDN $5,000 per month with the balance then
outstanding to be paid on June 20, 199.
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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 26, 1999, are:
Name and Municipality of Residence: Westgate International, L.P., Grand Cayman,
Cayman Islands
Type of Ownership: Legal
Number of Shares: 905,636
Percent of Common Shares: 24.19
Name and Municipality of Residence: The Liverpool Limited Partnership,
Hamilton, Bermuda
Type of Ownership: Legal
Number of Shares: 905,636
Percent of Common Shares: 24.19
The directors and officers of the Corporation beneficially own directly and
indirectly 5.8 percent of the issued and outstanding Common Shares of the
Corporation.
Title of Class Identity of Person or Group Amount Owned Percent of Class
- --------------- --------------------------- ------------ ----------------
Common Stock D. Foster (Director/Officer) 190,743 ** .05
Common Stock Donald McInnes (Director) 17,172 .004
Common Stock Peter Janssen (Director) 6,469 .002
Common Stock T.W. Metz (Officer) 8,679 .002
Common Shares All Directors/Officers 223,063 5.8
as a Group
**Includes number of shares that Mr. Foster as the sole shareholder, director,
and manager of Foster Murphy & Sons Holding Co. LTD., a British Columbia company
holds.
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:
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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
Second Quarter 0.60 0.20 1,842,227
Third Quarter 0.42 0.27 1,482,296
Fourth Quarter 0.30 0.11 1,133,505
The closing price of the Common Shares of PeakSoft on the Alberta Stock Exchange
on March 26, 1999 was CDN$2.55.
As of March 26, 1999, 29.12 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. 37,4000 Common Shares remain in escrow under the
Original Escrow Agreement.
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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.
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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.
Page 26 of 99
<PAGE>
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 three months ended of December 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.
Page 27 of 99
<PAGE>
SUMMARY OF OPERATIONS (unaudited)
Stated in Canadian Dollars
THREE MONTHS ENDED DECEMBER 31
1998 1997
---- ----
Sales $ 148,029 $ 200,210
Net Earnings (Loss) from
Continuing Operations (342,273) (858,753)
Earnings (Loss per Share)
from Continuing Operations (.02) (.05)
SUMMARY OF BALANCE SHEET (unaudited)
Stated in Canadian Dollars
THREE MONTHS ENDED DECEMBER 31
1998 1997
---- ----
Working Capital* (1,120,315) (209,841)
Total Assets 535,656 1,531,469
Total Current Liabilities 1,273,707 920,328
Long Term Debt and
Obligation Under Capital Leases 18,702 1,420,936
Shareholders Equity (Deficit) (756,753) (808,795)
Set forth below is certain selected consolidated financial data of the Company
for each year in its existence ended September 30, 1998. 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
1998 1997 1996 1995
---- ---- ---- ----
Sales 1,246,381 1,340,200 784,900 556,096
Net Earnings (Loss) from
Continuing Operations (2,780,307) (4,091,490) (927,480) 55,794
Earnings (Loss Per Share)
from Continuing Operations (.20) (.33) (.11) .02
Page 28 of 99
<PAGE>
SUMMARY OF BALANCE SHEET
Stated in Canadian Dollars
FISCAL YEAR ENDED SEPTEMBER 30
1998 1997 1996 1995
---- ---- ---- ----
Working Capital* (931,391) 341,546 (445,693) 88,060
Total Assets 522,533 2,402,271 2,118,027 570,303
Total Current Liabilities 1,063,977 1,042,639 523,681 288,858
Long Term Debt and
Obligation Under Capital Leases 28,639 1,421,918 64,044 36,164
Shareholders Equity (Deficit) (570,083) (62,286) 1,530,302 245,281
Had the Companys consolidated financial statements been prepared in accordance
with generally accepted accounting principles in the United States (see Note 15
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
1998 1997 1996 1995
---- ---- ---- ----
Sales 1,246,381 1,340,200 784,900 556,096
Net Earnings (Loss) from
Continuing Operations (1,958,178) (3,354,661) 2,577,078) 55,794
Earnings (Loss Per Share)
from Continuing Operations (.14) (.35) (.31) .02
SUMMARY OF BALANCE SHEET
Stated in Canadian Dollars
FISCAL YEAR ENDED SEPTEMBER 30
1998 1997 1996 1995
---- ---- ---- ----
Working Capital* (931,391) 341,546 (445,693) 88,060
Total Assets 522,533 1,579,972 473,429 570,303
Total Current Liabilities 1,063,977 1,042,639 523,681 288,858
Long Term Debt and Obligation
Under Capital Leases 28,639 1,369,576 12,702 36,164
Shareholders Equity (Deficit) (570,083) (975,055) (118,688) 245,281
Page 29 of 99
<PAGE>
(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.
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 1.5845 .7304 1.3686 .6307 1.4598 .6857
(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 15 to the financial
statements.
Page 30 of 99
<PAGE>
LETTER TO SHAREHOLDERS
1998 was a pivotal year for PeakSoft, inasmuch as the Company overcame major
obstacles to potential growth. Early in the year, we recognized that the
Company's focus had to be reevaluated. PeakSoft had been positioned to address
the usual technology retail channel. The market typically requires large amounts
of capital and a long time to achieve growth and profitabily. The dynamics of
the retail channel continue to change. This last year witnessed the growth of
electronic commerce and a more efficient and profitable electronic software
distribution.
In our evaluation, we recognized that we had to take a completely new approach.
We stepped back, took a fresh look at the Company and the market opportunities
presented by the Internet. It was clear that we needed to reduce operating and
fulfillment costs, to improve cash flow, to increase sales and to re-define the
focus of the Company. We developed and are implementing this plan of action.
During the year, the Company redirected the sales activity focus of its utility
products toward e-commerce and strategic alliances, such as RealNetworks,
Symantec and others. The results of this are reduced costs, improved cash flow,
and increased sales. We also opened the PeakStore for direct electronic sales.
At the same time the Company is developing new solutions for the Internet,
Intranets, Extranets, and e- commerce. A pre-release version and a Web site for
a new solution, LawTrack, were announced during the quarter. Subsequent to the
end of the quarter a pre-release version and Website for another new solution,
RealtyTracer, was announced.
Subsequent to the end of the first quarter, the Company received conditional
regulatory approval of the debt conversion approved by the shareholders on
December 15, 1998, which reduces long debt of the Company by 93 %. The
conversion makes Westgate International LP and The Liverpool Limited
Partnership, our largest shareholders (in the high 40% range if their respective
holdings are totaled). Elliott and Associates, a $1.4 billion fund in New York
represents both entities. The shareholders also voted in favor of a 1 for 8
share consolidation in the same meeting and name change to PeakSoft Multinet
Corp., which was subsequently approved by The Alberta Stock Exchange on February
18, 1999. Trading on the Alberta Stock Exchange commenced under the new name and
trading symbol PKS February 22, 1999.
During the quarter the Company negotiated a $350,000 US accounts receivable line
of credit with Silicon Valley Bank. In addition the Company obtained an
additional $500,000 US in operating capital subsequent to end of the quarter.
Sales in December lead management to believe that the redefined focus of the
Company will be successful.
The Company is in the final stages of a listing on The OTC BB.
Sincerely yours,
/s/ Timothy Metz
- ------------------
TIMOTHY W. METZ
Chief Operating Officer
February 26, 1999
Page 31 of 99
<PAGE>
QUARTERLY REVIEW
The first quarter of fiscal 1999 shows a continuation of expense cutbacks in all
areas of operations. Net loss for the quarter ended December 31, 1998 decreased
from CDN $858,753 in the comparable period in 1998, to CDN $342,273 a decrease
of CDN $516,480. The decrease is due primarily to significant decreases in
selling and marketing, research and development, and amortization costs for the
quarter.
Revenue decreased from CDN $200,210 in the quarter ended December 31, 1997 in
the comparable period in 1998, to CDN $148,029 a decrease of CDN $52,181. The
decrease is due primarily to the implementation of the Company's redefined
selling and marketing focus. There was a significant increase in sale during
December. While gross sales were down, net sales (gross sales minus costs of
goods sold) were up from CDN $137,732 for the quarter ended December 31, 1997 to
CDN $139,933 in the comparable period in 1998 an increase of CDN $2,201. The
increase was due to the continued reduction in costs of goods sold.
General and administration expenses decreased from CDN $380,526 for the quarter
ended December 31, 1997 in the comparable period in 1998, to CDN $299,059 a
decrease of CDN $81,467. The decrease is due primarily to management's continued
reduction in non-essential expenses.
Amortization expenses decreased from CDN $253,734 for the quarter ended December
31, 1997 in the comparable period in 1998, to CDN $12,741 a decrease of CDN
$240,993. The decrease is due primarily to the research and development that was
acquired from Chameleon Bridge Technologies Corp., which was capitalized
according to Canadian GAAP, and was fully amortized at the end of the 1998
fiscal year.
Selling and marketing expenses decreased from CDN $434,374 for the quarter ended
December 31, 1997 in the comparable period in 1998, to CDN $91,724 a decrease of
CDN $342,650. The decrease is due primarily to decrease in product advertising
and promotion and a reduction in non-essential staff, as well as the reduced
costs associated with the Company's new selling and marketing focus.
Research and development expenses decreased from CDN $180,413 for the quarter
ended December 31, 1997 in the comparable period in 1998, to CDN $78,682 a
decrease of CDN $101,731. The decrease is due primarily to management's
continued reduction in non-essential expenses.
YEAR 2000
In response to the Year 2000 compliance rule established by the Board of
Governors of the Alberta Stock Exchange; 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 Company's 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
Page 32 of 99
<PAGE>
statements from vendors, suppliers, and all other third parties that do business
with the Company.
Based upon the foregoing, PeakSoft does not believe it necessary to undertake
any special measures to cope with the turn of the century. PeakSoft backs up all
critical data as a matter of routine.
PeakSoft does not believe that its computer systems require remediation to
render them Y2K compliant.
For the reasons set out above, PeakSoft has not incurred, and does not expect to
incur, any costs relating to remediation of Y2K issues.
PeakSoft has concluded that it faces no material Y2K implications to its
business operations because its computers and the programs being run on them are
of recent vintage and are being marketed as being Y2K compliant.
Year Ended September 30, 1998 Compared to Year Ended September 30, 1997
1998 was a pivotal year for PeakSoft. The Company overcame major obstacles to
its potential growth. Early in the year we recognized that the Company's focus
had to be re-evaluated, as it had been positioned to address the usual
technology retail channel. This market typically requires very large amounts of
capital and a long time to achieve growth and profitability. The dynamics of the
retail channel continue to change. The year witnessed the growth of electronic
commerce and a more efficient and profitable electronic software distribution
model.
In its evaluation, the Company recognized that it had to take a completely new
approach. Management, stepped backed, took a fresh look at the Company and at
the market opportunities presented by the Internet. It was clear that the
Company needed to reduce its debt, to improve its capital structure, and revise
its business model. Our objective was to reduce operating and fulfillment costs,
improve cash flow, increase sales and re-define the focus of the Company.
Accordingly, we have developed and are implementing this plan of action.
During the year, the Company redirected the sales activity focus of its utility
products toward e-commerce and strategic alliances, such as Real Networks,
Symantec and others. The results of this have been reduced costs and improved
cash flow. We also opened the PeakStore for direct electronic sales. At the same
time the Company is developing new solutions for the Internet, Intranets,
Extranets, and e-commerce. Pre-release versions and websites for two new
solutions, LawTrack and RealtyTracer, were announced subsequent to year-end.
Subsequent to the 1998 year-end, a debt conversion was approved, which reduces
long-term debt of the Company by 93%. The shareholders also voted in favor of a
1 for 8 share consolidation in the same meeting. The Company also received
shareholder and regulatory approval for a name change. Effective February 17,
1999 the Company's name was changed to PeakSoft Multinet Corp. with a new
trading symbol of PKS on the Alberta Stock Exchange. The Company also resumed
trading on the OTC:BB on March 10, 1999 under the symbol of PEAMF.
Page 33 of 99
<PAGE>
The following discussion should be read in conjunction with the financial
statements and the notes thereto:
Operations
Revenue decreased from CDN $1,340,200 for the year ended September 30, 1997 in
the comparable period in 1998, to CDN $1,246,381 a decrement of CDN $93,819. The
decrement is due primarily to the implementation of the Company's redefined
selling and marketing focus. While gross sales were down, net sales (gross sales
minus costs of goods sold) were up from CDN $891,663 for the year ended
September 30, 1997 to CDN $1,012,618 in the comparable period in 1998, an
increase of CDN $120,955. The increase was due to the continued reduction in
costs of goods sold.
General and administration expenses increased from CDN $1,245,114 for the year
ended September 30, 1997 in the comparable period in 1998, to CDN $1,392,633, an
increase of CDN $147,519. The increase is due primarily to the addition of
senior management personnel.
Selling and marketing expenses decreased from CDN $1,682,437 for the year ended
September 30, 1997 in the comparable period in 1998, to CDN $951,724 a decrement
of CDN $730,713. This saving is due primarily to a drop in product advertising
and promotion and a reduction in staff, as well as the reduced costs associated
with the Company's new selling and marketing focus.
Research and development expenses diminished from CDN $641,426 for the year
ended September 30, 1997 in the comparable period in 1998, to CDN $531,860 a
decrease of CDN $109,566. This decrement is due primarily to management's
continued reduction in expenses.
Amortization expenses diminished from CDN $1,050,965 for the year ended
September 30, 1997 in the comparable period in 1998, to CDN $991,017 a reduction
of CDN $59,948. This reduction is due primarily to reflecting the diminishing
value of the assets.
The loss for 1998 was CDN $2,780,307 ($0.20 per share) versus CDN $4,091,490
($0.42 per share) in 1997, a decrease of CDN $1,311,183 ($0.22 per share). This
lesser loss resulted primarily from reduced expenses associated with the
Company's redirected sales activity focus of its utility products toward
e-commerce and strategic alliances, such as Real Networks, Symantec and others,
as well as reduction in expenses. The lower amount of this loss was also due to
a debt settlement with creditors which reduced payables by CDN $259,618, the
gain on the sale of a Subsidiary (CDN $51,879), and interest on long-term debt
(CDN $237,188). According to U.S. GAAP, the loss per share in 1998 would be CDN
$0.14 and in 1997 would be CDN $0.35.
Liquidity and Capital Resources
As of September 30, 1998, the Company had a cash balance of CDN $22,824. The
Company issued 1,691,976 common shares during 1998, raising CDN $623,281.
Included in the shares issued for cash during 1998 are 390,000 shares for
approximately CDN $102,400 issued pursuant to the exercise of management,
employees and directors' stock options. The Company also issued promissory notes
Page 34 of 99
<PAGE>
for cash proceeds of USD $468,333 (see note 6). Subsequent to the year end an
additional USD $590,000 was received and supported by promissory notes. The
Company also negotiated a USD $350,000 accounts receivable line of credit with
Silicon Valley Bank.
Accounts receivable decreased by CDN $71,166 during the year ended September 30,
1998. This was mainly due to the transition to the redirected sales activity
focus of utility products toward e-commerce and strategic alliances, such as
Real Networks, Symantec and others, as well as the development of new solutions
for the Internet, Intranets, Extranets, and e- commerce. It is anticipated that
accounts receivable will grow significantly next year as a result of the
Company's new sales strategy.
Inventory was reduced from CDN $59,128 in 1997 to CDN $43,284 in 1998, a
difference of CDN $15,844 due to sales and the Company's move to the electronic
software distribution model.
The decrease in prepaid expenses and deposits from CDN $156,046 in 1997 to CDN
$39,999 was primarily due to the reduction in trade show participation as a
result of the Company's redirected sales focus.
Net assets were reduced by CDN $1,879,738 from CDN $2,402,271 in 1997 to CDN
$522,533 in 1998 due to the write off of obsolete equipment and normal
amortization.
Accounts payable and accrued liabilities increased from CDN $893,398 in 1997 to
CDN $1,304,312 in 1998, an increase of CDN $410,914. Primarily the accounts
payable increase was due to increased professional fees, accounting and legal,
related to the debt settlement and the Form 20-F registration statement filed
with the United States Securities and Exchange Commission (SEC). Reaching a "no
comment" stage with the SEC was a prerequisite for the Company to resume trading
on The OTC-BB. In addition, the accounts payable also include approximately CDN
$225,000 in accrued interest on long term debt, which was subsequently converted
to shares.
YEAR 2000
In response to the Year 2000 compliance rule established by the Board of
Governors of the Alberta Stock Exchange; 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 the conversion to new software, the Year 2000 problem will
not pose significant operational problems for the Company's 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.
Page 35 of 99
<PAGE>
Based upon the foregoing, PeakSoft does not believe it is necessary to
undertake any special measures to cope with the turn of the century. PeakSoft
backs up all critical data as a matter of routine.
PeakSoft does not believe that its computer systems require remediation to
render them Y2K compliant.
For the reasons set out above, PeakSoft has not incurred, and does not expect to
incur, any costs relating to remediation of Y2K issues.
PeakSoft has concluded that it faces no material Y2K implications to its
business operations because its computers and the programs being run on them are
of recent vintage, marketed as being Y2K compliant.
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 agreements with RealNetworks,
Inc.; Symantec Corporation; MP Technologies, Inc.; Software Builders, LLC;
Peruzzo Informatica; Softline AG; Boomerang Software Inc.; Cyenta and InfoBuild
Networks, Inc. as well as others. The Company plans to direct the major portion
of it's marketing resources in 1999 to corporate and international customers,
developing new solutions for the Internet, Intranets, Extranets, and e-commerce.
/s/ Tim Metz
- ------------------------
Tim Metz
Chief Operating Officer
Page 36 of 99
<PAGE>
Third and Fourth Quarter 1998 Financing:
On April 27, 1998 the Company received a loan of US$22,000 from a private
individual. The loan bears 12% interest per annum and is in the form of a demand
promissory note. As further consideration for the loan, the Company granted the
lender warrants to purchase 105,515 shares of the Companys stock at an exercise
price of CDN$0.30 per share. The warrants expire April 27, 2000.
On April 27, 1998 the Company received another loan of US$22,000 from a second
private individual. The loan bears 12% interest per annum and is in the form of
a demand promissory note. As further consideration for the loan, the Company
granted the lender warrants to purchase 105,515 shares of the Companys stock at
an exercise price of CDN$0.30 per share. The warrants expire April 27, 2000.
On April 27, 1998 the Company received another loan of US$22,000 from a third
private individual. The loan bears 12% interest per annum and is in the form of
a demand promissory note. As further consideration for the loan, the Company
granted the lender warrants to purchase 105,515 shares of the Companys stock at
an exercise price of CDN$0.30 per share. The warrants expire April 27, 2000.
On April 27, 1998 the Company received another loan of US$22,000 from a fourth
private individual. The loan bears 12% interest per annum and is in the form of
a demand promissory note. As further consideration for the loan, the Company
granted the lender warrants to purchase 105,515 shares of the Companys stock at
an exercise price of CDN$0.30 per share. The warrants expire April 27, 2000.
On June 10, 1998 the Company received a loan US$75,000 from The Liverpool
Limited Partnership. The loan bears 12% interest per annum and is in the form of
a senior promissory note due June 10, 2000.
On June 10, 1998 the Company received another loan US$75,000 from Westgate
International, L.P.. The loan bears 12% interest per annum and is in the form of
a senior promissory note due June 10, 2000.
On June 30, 1998 the deferment of management, Douglas Foster, Calvin Patterson,
and Timothy Metz, salaries, from March 15, 1998 through June 30, 1998,
aggregating to US$30,333.36 was converted to a no interest loan to the Company.
The loans are in the form of demand promissory notes.
Page 37 of 99
<PAGE>
On September 21, 1998 the Company reached agreement in principle with The
Liverpool Limited Partnership and Westgate International, L.P., entities under
common management (not common control) with Elliott Associates, L.P., and
individuals to convert their senior notes and interest owing of CDN $2,752,477
($1,781,403 US) at a rate of CDN $0.18 per share for a total of 15,291,538
shares, and to purchase new notes in the aggregate principal amount of CDN
$231,750 ($150,000 US). Two members of management, Calvin Patterson and Timothy
Metz, also agreed on September 21, 1998 to convert a portion, aggregating to
CDN$24,993.72 ($18,000 US) in partial satisfaction of their demand promissory
notes owing at a rate of CDN $0.18 per share for a total of 138,854 shares. The
agreements have received shareholder approval.
On September 24, 1998 the Company received another loan US$30,000 from Westgate
International, L.P., per the agreement reached on September 21, 1998. The loan
bears 12% interest per annum and is in the form of a demand
promissory note.
On September 24, 1998 the Company received another loan US$30,000 from The
Liverpool Limited Partnership, per the agreement reached on September 21, 1998.
The loan bears 12% interest per annum and is in the form of a demand promissory
note.
Subsequent Events after September 30, 1998
On October 13, 1998 the Company received another loan US$45,000 from Westgate
International, L.P., per the agreement reached on September 21, 1998. The loan
bears 12% interest per annum and is in the form of a demand
promissory note.
On October 13, 1998 the Company received another loan US$45,000 from The
Liverpool Limited Partnership, per the agreement reached on September 21, 1998.
The loan bears 12% interest per annum and is in the form of a demand promissory
note.
On November 13, 1998 the Company $24,015 through a private placement. Per the
agreement, the subscriber agreed to purchase 171,600 shares. The subscriber also
received warrants allowing the subscriber to purchase one common share at $.20.
On December 15, 1998, the shareholders approved a debt conversion of CDN
$2,802,735 at CDN $0.18, a 1 for 8 share consolidation, and a name change to
PeakSoft Multinet Corp. All of which received regulatory approval.
Subsequent Events after December 31, 1998
On January 15, 1999 the Company received a loan of US$125,000 from The Liverpool
Limited Partnership. The loan bears 12% interest per annum and is in the form of
a senior promissory note due June
10, 2000.
On January 15, 1999 the Company received a loan of US$125,000 from Westgate
International, L.P. The loan bears 12%interst per annum and is in the form of a
senior promissory note due June 10, 2000.
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<PAGE>
On February 11, 1999 the Company cancelled all outstanding (active) stock
options.
On March 9, 1999 the Company received a loan of US$125,000 from The Liverpool
Limited Partnership. The loan bears 12% interest per annum and is in the form of
a senior promissory note due June
10, 2000.
On March 9, 1999 the Company received a loan of US$125,000 from Westgate
International, L.P. The loan bears 12%interst per annum and is in the form of a
senior promissory note due June 10, 2000.
Expenses:
In January 1998, the Management of the Company agreed with the Directors to
reduce operating costs. As of the end of fiscal year ending September 30, 1998
compared to fiscal year end September 30, 1997, expenses have been reduced 16.2
percent and end of first quarter December 31, 1998 compared to end of first
quarter December 31, 1997, expenses have been reduced approximately 61.39%.
Management believes reducing operating and fulfillment costs enables the Company
to be more cost effective. It is reasonably likely that this will improve
results of operations and cash on hand.
Personnel:
On October 21, 1998 Simon Arnison accepted the position of Chief Technical
Officer, replacing Liam Taylor.
Business Address:
On November 7, 1998, the Company moved its business and mailing address to 1801
Roeder Avenue; Suite 144; Bellingham, WA 98227.
Business:
On May 14, 1998, The Company announced its new product, PeakJet 2000.
On June 23, 1998, the Company announced the opening of PeakStore, a direct
purchase location of Company products on the Internet.
On July 2, 1998, the Company released PeakJet 2000.
On July 13, 1998, the Company announced the signing of an agreement with
Symantec to bundle and sell the Companys products.
On July 30, 1998, the Company announced the signing of an agreement with
RealNetworks to bundle and sell the Companys products.
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<PAGE>
On August 28, 1998, the Company entered into a licensing agreement with TriNet
Solutions Corp. to develop and deliver vertical market multinet solutions to
certain vertical markets. The agreement provides that the Company will receive a
$100,000 US license fee, 20% equity position in TriNet, and 40% of gross
revenues after the first $250,000 US.
On September 15, 1998, the Company announced the signing of an agreement with
Peruzzo Informatica to distribute the Companys products in Italy.
On September 30, 1998, the Company announced the signing of an agreement with
Media Gold to distribute the Companys products in Germany and the United
Kingdom.
Subsequent Events after September 30, 1998
On October 22, 1998, the Company announced the released the Beta version of
LawTrack, a knowledge management solution for the legal profession.
On October 26, 1998, the Company announced the signing of an e commerce
agreement with Xoom.com to market and sell the Companys products over the
Internet.
On January 13, 1999, the Company announced Realty Tracer (CODE NAME), a
knowledge management solution for the realty profession.
On March 11, 1999, the Company resumed trading on the OTC-BB as PeakSoft
Multinet Corp. under the symbol "PEAMF".
On March 29, 1999, PeakSoft Multinet Corp. (ASE:PKS; OTC-BB:PEAMF) and Novell,
Inc. (Nasdaq: NOVL) jointly announced the formation of a co-marketing alliance
to provide superior software and Internet solutions to the small business
market.
Auditor:
On February 2, 1999 the Company appointed Gordon K. W. Gee, Chartered Accountant
as auditor, as disclosed in the 6-K filed with the United States Securities and
Exchange Commission via EDGAR on February 5, 1999.
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.
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<PAGE>
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.
Simon Arnison Chief Technology Officer and Director
Ontario, Canada
Principal Occupation: President of Classwave.com, a software
development company.
Peter Janssen Director
Seattle, WA
Principal Occupation: President of Peter Janssen & Associates, a
private consulting firm
Colin Morse Director
Vancouver, British Columbia
Principal Occupation: President of Feel Free Charters, LTD
Timothy W. Metz Chief Operating Officer
Bellingham, Washington
Principal Occupation: Chief Operating Officer of PeakSoft.
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
Page 41 of 99
<PAGE>
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.
Simon Arnison, Director and Chief Technology Officer since 1999
Mr. Arnison has held positions as a computer software developer and product
manager since 1982. During the past 17 years, Mr. Arnison has held positions as
Product Marketing Manager, Technical Director, VP Research and Development, and
more recently Chief Technology Officer for Innotech Multimedia Corporation. He
was one of the founders of Innotech, which has been a leading producer of
information technology software for CD-ROM and the Inernet and Java based search
applications.
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.
Colin Morse, Director, since 1999
Mr. Morse is currently president of Feel Free Charter Ltd., (formerly Combat
Sound Ltd.). Mr. Morse has experience in a broad range of business activities.
He has during the past decade focused his activities on real estate development
and finance.
Page 42 of 99
<PAGE>
Tim Metz, Chief Operating Officer since 1998
Mr. Metz joined PeakSoft as the Chief Operations Officer in January 1998,
bringing with him 30 years of experience in operations, business development and
financing for manufacturing and high technology companies. Mr. Metz founded,
financed and owned D&J Manufacturing (1976-1983) and ALKIRK Corporation (1990-
1992). For both companies, he developed state-of-the-art high tech automated
agile manufacturing and assembly plants, and managed operations, finance,
business development, engineering, manufacturing, purchasing and R&D
departments. Through successful contract negotiations Metz increased profits
dramatically while reducing costs. In 1992, Mr. Metz joined Leading-Edge Earth
Products in Seattle, Washington as President/CEO/Director. There he prepared and
completed a successful registration of common stock and listed the company on
the NASDAQ OTC-BB. From 1995- 1997, Mr. Metz worked as a private consultant with
various manufacturing companies and an international trading 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, 1998 was US$96,288.48. There are no funds set aside or
accrued by the Company for pension, retirement, or similar benefits.
Compensation Summary
The table below sets forth information concerning the compensation of the
Corporations Chief Executive Officer for the fiscal years ended September 30,
1998, 1997, 1996, 1995 and 1994.
Annual Compensation
Name and ------------------- All Other
Principal Position Year Salary Bonus Compensation
- -------------------- ---- ------ ----- ------------
Douglas H. Foster 1998 90,538
President and 1997 85,000 - -
Chief Executive 1996 82,800 - -
Officer & Director 1995 82,800 - -
1994 70,400
Long-Term Compensation Awards:
Securities Under Options/SARs Granted:
1998 320,000
1997 302,000
1996 321,250
1995 250,000
1994 -
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<PAGE>
On February 11, 1999 the Company cancelled all outstanding (active) stock
options.
Restricted Shares or Restricted Share Units: none
Payouts:
LTIP Payouts: none
All Other Compensation: none
The following information concerns individual grants of options to purchase or
acquire securities of the Corporation made during the year ended September 30,
1998 to the Corporations Chief Executive Officer.
Name Securities Percent of Total Exercise or
Under Options Options Granted Option Price
Granted (#) to Employees in ($/Security)
Financial Year
- --------------------------------------------------------------------------------
Douglas H. Foster 320,000 100.00 percent $0.22
Common Shares per share
Market Value of Securities Underlying Options on Date of Grant
($/Security): $0.22 per share
Expiration date: July 10, 2000
The following information concerns the cash exercise of options during the year
ended September 30, 1998 by the Corporations Chief Executive Officer and the
year-end value of unexercised options held, on an aggregate
basis.
Name Securities Acquired on Aggregate Value Realized
Exercise (#)
- --------------------------------------------------------------------------------
Douglas H. Foster 320,000 70,400
Unexercised Options Value of Unexercised in
at Year End (#) the Money Options at
Year-end ($)
- --------------------------------------------------------------------------------
00 0.00
On February 11, 1999 the Company cancelled all outstanding (active) stock
options.
Payments to Directors: None.
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<PAGE>
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, 1998, the following options to acquire Common Shares are
outstanding:
Group Number of Common Date of Grant Exercise Price Per
Shares Under Option Common Share
- --------------------------------------------------------------------------------
Management, 776,000 December 18, 1997 $0.40
employees, 275,000 $0.30
and directors 25,000 $0.30
55,000 $0.22
Expiry Date
December 18,1999
May 26, 2000
May 27, 2000
July 10, 2000
On February 11, 1999 the Company cancelled all outstanding (active) stock
options.
Page 45 of 99
<PAGE>
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. During the 1998 fiscal year, consulting fees and expense reimbursements
totaling CDN$92,600 were paid by the Corporation to directors. A salary of
CDN$54,500 was also paid by the Corporation to an administrative employee
who is also a relative of one of the directors.
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<PAGE>
6. 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.
7. 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 - NOT APPLICABLE
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
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<PAGE>
PEAKSOFT CORPORATION FIRST QUARTER REPORT
(unaudited) For the Three Months Ended
December 31,1998
Letter to Shareholders
1998 was a pivotal year for PeakSoft, inasmuch as the company overcame major
obstacles to potential growth. Early in the year, we recognized that the
Company's focus had to be re-evaluated. PeakSoft had been positioned to address
the usual technology retail channel. This market typically requires large amount
of capital and a long time to achieve growth and profitability. The dynamics of
the retail channel continue to change. This last year witnessed the growth of
electronic commerce and a more efficient and profitable electronic software
distribution model.
In our evaluation, we recognized that we had to take a completely new approach.
We stepped back, took a fresh look at the Company and the market opportunities
presented by the Internet. It was clear that we needed to reduce debt, to
improve our capital structure, and to revise our business model. Our objective
was to reduce operating and fulfillment costs, to improve cash flow, to increase
sales and to re-define the focus of the Company. We developed and are
implementing this plan of action.
During the year, the Company redirected the sales activity focus of its utility
products toward e-commerce and strategic alliances, such as RealNetworks,
Symantec and others. The results of this are reduced costs, improved cash flow,
and increased sales. We also opened the PeakStore for direct electronic stores.
At the same time the Company is developing new solutions for the Internet,
Intranets, Extranets, and e-commerce. A pre-release version and a Web site for a
new solution, LawTrack, were announced during the quarter. Subsequent to the end
of the quarter a pre-release version and a Web site for an another new solution,
RealtyTracer, was announced.
Subsequent to the end of the first quarter, the Company received conditional
regulatory approval of the debt conversion approved by the shareholders on
December 15, 1998, which reduces long debt for the Company by 93%. The
conversion makes Westgate International LP and The Liverpool Limited
Partnership, our largest shareholders (in the high 40% range if their respective
holdings are totaled). Elliott and Associates, a $1.4 billion fund in New York
represents both entities. The shareholders also voted in favor of a 1 for 8
share consolidation in the same meeting and name change to PeakSoft Multinet
Corp., which was subsequently approved by The Alberta Stock Exchange on February
18, 1999. Trading on the Alberta Stock Exchange commences under the new name and
trading symbol PKS February 22, 1999.
During the quarter, the Company negotiated a $350,000 US accounts receivable
line of credit with Silicon Valley Bank. In addition, the Company obtained an
additional $500,000 US in operating capital subsequent to end of the quarter.
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<PAGE>
Sales in December lead management to believe that the redefined focus of the
Company will be successful.
The Company is in the final stages of a listing on The OTC BB.
Sincerely yours,
/s/ TIMOTHY W. METZ
- -----------------------
Timothy W. Metz
Chief Operating Officer
February 26, 1999
Page 49 of 99
<PAGE>
PeakSoft Corporation
Consolidated Balance Sheet
(Prepared by Management - unaudited))
December 31, 1998 and 1997
1998 1997
---- ----
(in Canadian dollars)
Assets
Current assets:
Cash $ -- $ 247,556
Funds held in escrow -- 154,350
Accounts receivable 88,921 156,668
Inventories 43,373 66,246
Prepaids and deposits 21,098 85,667
153,392 710,487
Capital assets 98,264 204,258
Acquired research and development -- 616,724
Investment in InfoBuild 284,000 --
$ 535,656 $ 1,531,469
Liabilities and Shareholders Equity
Current liabilities:
Bank Indebtedness $ 5,660 $ --
Accounts payable and accrued
liabilities 1,235,457 760,090
Deferred revenue -- 77,252
Reserve for returns & allowances -- 52,461
Current portion of long-term debt -- 6,678
Current portion of obligations under
capital leases 32,950 23,887
$ 1,273,707 $ 920,328
Long-term debt -- 1,380,991
Obligations under capital leases 18,702 39,945
Shareholders equity:
Share capital 8,781,227 6,465,358
Accumulated deficit (9,537,980) (7,274,153)
$ 535,656 $ 1,531,469
Page 50 of 99
<PAGE>
Consolidated Statement of Operations and Deficit
(unaudited) December 31, 1998 and 1997
Quarter Quarter
ended ended
Dec. 31, 1998 Dec. 31, 1997
------------- -------------
(In Canadian dollars)
Sales $ 148,029 $ 200,210
Cost of goods sold 8,096 62,478
- --------------------------------------------------------------------------------
139,933 $ 137,732
Operating Expenses:
General and administration 299,059 137,732
Selling and marketing 91,724 434,374
Research and development 78,682 180,413
Amortization 12,741 253,734
- --------------------------------------------------------------------------------
482,206 1,249,047
- --------------------------------------------------------------------------------
Loss before extraordinary item $ (342,273) $(1,111,315)
- --------------------------------------------------------------------------------
Recovery of expenses from settlement
of liabilities -- 252,562
Loss for the quarter (342,273) (858,753)
Deficit, beginning of period $(9,195,707) (6,415,400)
- --------------------------------------------------------------------------------
Deficit, end of period (9,537,980) $(7,274,153)
- -------------------------------------------------------------------------------
Loss per common share (0.02) (0.05)
Page 51 of 99
<PAGE>
Statement of Changes in Financial Position
(unaudited) December 31, 1998 and 1997
Quarter Quarter
ended ended
Dec. 31, 1998 Dec. 31, 1997
------------- -------------
(In Canadian dollars)
Cash provided by (used in):
Operations:
Net earnings (loss) $ (342,273) $ (858,753)
Items not involving cash:
Amortization 12,741 253,734
Change in non-cash operating
working capital 160,440 60,934
- --------------------------------------------------------------------------------
(169,092) (665,953)
Financing:
Funds transferred to escrow -- (154,350)
Repayment of long-term debt -- (8,258)
Obligation under capital leases (9,937) (2,729)
Decrease in obligation to issue shares -- (399,900)
Issuance of share capital 155,603 512,144
- --------------------------------------------------------------------------------
145,666 (53,093)
Investments:
Purchase of capital assets (5,058) (104,764)
- --------------------------------------------------------------------------------
Increase (decrease) in cash (28,484) (823,810)
Cash, beginning of period 22,824 1,071,366
- --------------------------------------------------------------------------------
Cash, end of period $ (5,660) $ 247,566
- --------------------------------------------------------------------------------
Page 52 of 99
<PAGE>
QUARTERLY REVIEW
The first quarter of fiscal 1999 shows a continuation of expense cutbacks in all
areas of operations. Net loss for the quarter ended December 31, 1998 decreased
from CDN $858,753 in the comparable period in 1998, to CDN $342,273 a decrease
of CDN $516,480. The decrease is due primarily to significant decreases in
selling and marketing, research and development, and amortization costs for the
quarter.
Revenue decreased from CDN $200,210 in the quarter ended December 31, 1997 in
the comparable period in 1998, to CDN $148,029 a decrease of CDN $52,181. The
decrease is due primarily to the implementation of the Company's redefined
selling and marketing focus. There was a significant increase in sale during
December. While gross sales were down, net sales (gross sales minus costs of
goods sold) were up from CDN $137,732 for the quarter ended December 31, 1997 to
CDN $139,933 in the comparable period in 1998 an increase of CDN $2,201. The
increase was due to the continued reduction in costs of goods
sold.
General and administration expenses decreased from CDN $380,526 for the quarter
ended December 31, 1997 in the comparable period in 1998, to CDN $299,059 a
decrease of CDN $81,467. The decrease is due primarily to management's continued
reduction in non-essential expenses.
Amortization expenses decreased from CDN $253,734 for the quarter ended December
31, 1997 in the comparable period in 1998, to CDN $12,741 a decrease of CDN
$240,993. The decrease is due primarily to the research and development that was
acquired from Chameleon Bridge Technologies Corp., which was capitalized
according to Canadian GAAP, and was fully amortized at the end of the 1998
fiscal year.
Selling and marketing expenses decreased from CDN $434,374 for the quarter ended
December 31, 1997 in the comparable period in 1998, to CDN $91,724 a decrease of
CDN $342,650. The decrease is due primarily to decrease in product advertising
and promotion and a reduction in non-essential staff, as well as the reduced
costs associated with the Company's new selling and marketing focus.
Research and development expenses decreased from CDN $180,413 for the quarter
ended December 31, 1997 in the comparable period in 1998, to CDN $78,682 a
decrease of CDN $101,731. The decrease is due primarily to management's
continued reduction in non-essential expenses.
YEAR 2000
In response to the Year 2000 compliance rule established by the Board of
Governors of the Alberta Stock Exchange; 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
Page 53 of 99
<PAGE>
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 Company's 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.
Based upon the foregoing, PeakSoft does not believe it necessary to undertake
any special measures to cope with the turn of the century. PeakSoft backs up all
critical data as a matter of routine.
PeakSoft does not believe that its computer systems require remediation to
render them Y2K compliant.
For the reasons set out above, PeakSoft has not incurred, and does not expect to
incur, any costs relating to remediation of Y2K issues.
PeakSoft has concluded that it faces no material Y2K implications to its
business operations because its computers and the programs being run on them are
of recent vintage and are being marketed as being Y2K compliant.
Page 54 of 99
<PAGE>
A Letter to PeakSoft Multinet Corp. Shareholders
I want to start this letter by thanking our shareholders for their patience and
support during the year 1998. It is early March as I write these words, and we
in the Northwest are finally seeing our first glimpse of the sun this year. Much
has happened subsequent to the fiscal 1998 year-end that significantly improves
the range and quality of the opportunities available to the company, but I will
discuss this below. First let me offer a brief perspective on the astounding
developments of the Internet marketplace.
The phenomenal growth of the internet has created a "Gold Rush" mentality.
According to Forester Research over 140 million people are now connected! The
growth rate of the internet and all of the goods and services adjuvant to it
(including the distribution of internet software, and e-commerce) makes it the
fastest growing market in the world in our lifetimes. Given this opportunity,
how can any company fail to succeed? Far from being a level playing field, the
Internet market requires a well capitalized effort and a completely new business
model. The new rules have sent many of us scrambling back to the white board.
Success needs tenacity, flexibility, a good team and a truly great idea.
We have crossed the chasm at PeakSoft. Our shareholders, our team and our
supporters have demonstrated the qualities it takes to bring into being a
fabulous success story. We understand the market, we have pioneered some of the
concepts inherent in internet software, and we have a clear vision of the
objective. The enthusiasm within the company and among our shareholders is very
high.
We believe that early 1999 will come to be considered the turning point of this
company -- the point in time at which its strategies started producing
significant results -- the point in time at which its perseverance generated
incredible opportunities, and at which the company began executing its tactics
with precision.
Why am I feeling so optimistic? Most of the reasons are becoming clear
subsequent to the company's 1998 fiscal year end.
Capitalization and market issues have been dealt with. The company has completed
its consolidation and has resumed its joint listing on the OTC:BB. Now our
shareholders can follow the company's progress from home in either the United
States or Canada. In the process, we eliminated significant debts and gained
strong new shareholders through the conversion of The Liverpool Limited
Partnership and Westgate International, L.P. into our largest shareholders.
Strong partnerships have started to produce results. While the revenue from
utilities is modest, unit sales of our PeakJet 2000 browser accelerator through
Real Networks, Software Builders, Cyenta and Internet retail have risen 300
percent over the previous quarter, creating over 20,000 new customers a month
and are on track to continue to build. We understand that PeakJet 2000 is now
the world's leading selling and installed browser acceleration software.
Page 55 of 99
<PAGE>
New products and services are planned. PeakSoft announced pre-release versions
of its newest knowledge application in the first quarter of fiscal year '99, and
is preparing for the full release of 4 of these applications very shortly. These
products are targeted at selected vertical markets, providing important tools
for finding, organizing, keeping and sharing critical information using the
Internet. We expect these applications to be combined with a variety of internet
services to develop significant revenue while diversifying our business model
from pure software sales to a hybrid of software and Internet services.
PeakSoft is breaking ground with a new class of products and services. PeakSoft
is offering the first business and knowledge solution that utilizes a seamless
combination of software and the Internet to provide small to medium businesses
with Intranet/Internet capabilities previously reserved for only large
enterprises. The company intends to deliver additional services and content over
the Internet to its building customer base. Marketing partnerships and a strong
Internet offering form the pillars of our plan.
The PeakSoft "Multinet" Corp. market opportunity is only just beginning. With a
strong economic forecast and continued expansion of the Internet a certainty,
business prospects are excellent for the company. A recent survey indicated that
10 percent of companies currently conduct commerce on the Net, and forecasts
that some 73 percent will be doing so within three years. PeakSoft intends to
establish a leadership position in this market.
OUR MISSION STATEMENT
To develop and market leading Internet communications solutions that empower
businesses to build knowledge, e-commerce and relationships.
Thank you for your continued support and interest. The PeakSoft team is
enthusiastic and is diligently working to deliver great results to our
shareholders.
/s/ Doug Foster
- --------------------
Doug Foster
Chief Executive Officer
Page 56 of 99
<PAGE>
Consolidated Financial Statements
PEAKSOFT MULTINET CORP.
(formally PeakSoft Corporation)
(in Canadian dollars)
Years ended September 30, 1998 and 1997
Page 57 of 99
<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 3
Consolidated Statement of Operations and Deficit 4
Consolidated Statement of Changes in Financial Position 5
Notes to the Consolidated Financial Statements 6
Page 58 of 99
<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.
"Gordon K.W. Gee"
Vancouver, B.C., Canada Chartered Accountant
15 February 1999
-1-
Page 59 of 99
<PAGE>
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.
"Gordon K.W. Gee"
Vancouver, B.C., Canada Chartered Accountant
15 February 1999
-2-
Page 60 of 99
<PAGE>
PEAKSOFT CORPORATION.
Consolidated Balance Sheet (in Canadian dollars)
September 30, 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 61 of 99
<PAGE>
PEAKSOFT CORPORATION
Consolidated Statement of Operations and Deficit
Years ended September 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
Sales $ 1,246,381 $ 1,340,200 $ 784,900
Cost of goods sold,
Exclusive of inventory
write-offs from loss on
settlement of lawsuit 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 1,682,437 531,171
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 long term debt (237,188) -- --
Loss on settlement of
lawsuit -- (310,042) --
Write-off assets -- (53,169) --
$ 74,309 (363,211) --
Earnings (loss) from
continuing operations (2,780,307) (4,927,480) (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 consolidated financial statements.
-4-
Page 62 of 99
<PAGE>
PEAKSOFT CORPORATION
Statement of Changes in Financial Position
Years ended September 30, 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(note4) -- -- (1,644,598)
Acquisition of software (136,979)
(320,202) (982,180) (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 consolidated financial statements.
-5-
Page 63 of 99
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements
Years ended September 30, 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.
-6-
Page 64 of 99
<PAGE>
(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.
-7-
Page 65 of 99
<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.
-8-
Page 66 of 99
<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
-9-
Page 67 of 99
<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.
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 paid-in capital.
-10-
Page 68 of 99
<PAGE>
PEAKSOFT CORPORATION
Notes to the Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
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
============================================================================
-11-
Page 69 of 99
<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.
-12-
Page 70 of 99
<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
-13-
Page 71 of 99
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended September 30, 1998 and 1997
- --------------------------------------------------------------------------------
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.
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).
-14-
Page 72 of 99
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
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.
-15-
Page 73 of 99
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
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
----------------------------------------------------------------------------
-16-
Page 74 of 99
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
(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.
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
========================================================================
-17-
Page 75 of 99
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
(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.
(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-
Page 76 of 99
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
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.
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.
-19-
Page 77 of 99
<PAGE>
CARD-SMART CORP.
(FORMERLY KMP CAPITAL INC.)
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
December 31, 1997
December 31, 1996
December 31, 1995
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITOR'S
REPORT........................................................................1
ASSETS........................................................................2
LIABILITIES AND STOCKHOLDERS' EQUITY..........................................3
STATEMENT OF OPERATIONS.......................................................4
STATEMENT OF STOCKHOLDERS' EQUITY.............................................5
STATEMENT OF CASH FLOW........................................................6
NOTES TO FINANCIAL STATEMENTS.............................................7 - 8
Page 78 of 99
<PAGE>
BARRY L. FRIEDMAN, P.C.
Certified Public Accountant
1582 TULITA DRIVE OFFICE (702) 361-8414
LAS VEGAS, NEVADA 89123 FAX NO.(702) 896-0278
INDEPENDENT AUDITORS' REPORT
Board of Directors
Card-Smart Corp. February 3, 1999
Las Vegas, Nevada
I have audited the accompanying Balance Sheets of Card- Smart Corp.
(Formerly KMP Capital Inc.), (A Development Stage Company), as of December 31,
1997, December 31, 1996, and December 31, 1995, and the related statements of
operations, stockholders' equity and cash flows the three years ended December
31, 1997,December 31, 1996 and December 31, 1995. These financial statements are
the responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about 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 statement presentation. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Card- Smart Corp.,
(Formerly KMP Capital, Inc.), (A Development Stage Company), as of December 31,
1997, December 31, 1996, and December 31, 1995, and the results of its
operations and cash flows for the three years ended December 31, 1997, December
31, 1996 and December 31, 1995, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has no established source of revenue. This
raises substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
"Barry L. Friedman"
__________(*signature)_______
Barry L. Friedman
Certified Public Accountant
-1-
Page 79 of 99
<PAGE>
CARD-SMART CORP.
(Formerly KMP Capital Inc.)
(A Development Stage Company)
BALANCE SHEET
ASSETS
December December December
31, 1997 31, 1996 31, 1995
CURRENT ASSETS:
Cash $ 2,486 $ 0 $ 0
------- ------- -------
TOTAL CURRENT ASSETS $ 2,486 $ 0 $ 0
------- ------- -------
FIXED ASSETS:
Equipment $ 3,802 $ 2,802 $ 0
Less: Depreciation - 655 - 70 0
------- ------- -------
TOTAL FIXED ASSETS $ 3,147 $ 2,732 $ 0
------- ------- -------
OTHER ASSETS:
Organization Costs $ 1,000 $ 1,000 $ 1,000
Less: Amortization -733 -583 -383
------- ------- -------
TOTAL OTHER ASSETS $ 217 $ 417 $ 617
------- ------- -------
TOTAL ASSETS $ 5,850 $ 3,149 $ 617
======= ======= =======
See accompanying notes to financial statements.
-2-
Page 80 of 99
<PAGE>
CARD-SMART CORP.
(Formerly KMP Capital Inc.)
(A Development Stage Company)
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
December December December
31, 1997 31, 1996 31, 1995
CURRENT LIABILITIES:
TOTAL CURRENT LIABILITIES $ 0 $ 0 $ 0
------- ------- -------
STOCKHOLDERS' EQUITY: (Note 1)
Common Stock, no par value
authorized 100 shares;
issued and outstanding at
December 31, 1995 - 100 shares $23,650
December 31, 1996 - 100 shares $53,176
Common stock, par value $0.01
authorized 25,000,000 shares
issued and outstanding at
December 31, 1997 - 6,000,000 shs $ 6,000
Additional paid in Capital 73,866
Accumulated loss -74,016 -50,027 -23,033
TOTAL STOCKHOLDERS' EQUITY $ 5,850 $ 3,149 $ 617
------- ------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,850 $ 3,149 $ 617
======= ======= =======
See accompanying notes to financial statements.
-3-
Page 81 of 99
<PAGE>
CARD-SMART CORP.
(Formerly KMP Capital Inc.)
(A Development Stage Company)
STATEMENT OF OPERATIONS
Year Year Year Feb. 9, 1994
Ended Ended Ended (inception)
Dec. 31, Dec. 31 Dec. 31, Oct. 10,
1997 1996 1995 1997
-------- ------- -------- --------
INCOME:
Revenue $ 0 $ 0 $ 0 $ 0
---------- ---------- ---------- ----------
EXPENSES:
Accounting $ 1,800 $ 0 $ 0 $ 1,800
Amortization 200 200 $ 200 $ 783
Consulting Fees 18,000 12,500 15,000 45,500
Depreciation 585 70 0 655
Legal Fees 1,300 1,300
Office Expense 511 2,215 912 3,878
Resident Agent 605 0 0 605
Travel 988 12,009 318 19,495
---------- ---------- ---------- ----------
Total Expenses $ 23,989 $ 26,994 $ 16,430 $ 74,016
---------- ---------- ---------- -----------
Net Losses $ -23,989 -26,994 -16,430 -74,016
========= ========= ========= ===========
Net Profit
or Loss (-)
per weighted
share (Note 1) $ -.0005 $ -.0054 $ -.0033 $ -.0146
========= ========= ========= ==========
Weighted average
Shares
outstanding 5,252,055 5,000,000 5,000,000 5,064,698
========= ========= ========= =========
See accompanying notes to financial statements.
-4-
Page 82 of 99
<PAGE>
CARD-SMART CORP.
(Formerly KMP Capital Inc.)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Additional
Stock paid-in
Accumulated
Shares Amount Capital Deficit
------ ------ ------- -------
Balance
December 31, 1994 100 $ 7,420 $ 0 -6,603
Capital contributed
During the years 1995 16,230
Net loss year ended
December 31, 1995 -16,430
--------- --------- --------- --------
Balance,
December 31, 1995 100 $ 23,650 $ 0 -23,033
Capital contributed
During the year 1996 29,529
Net loss year ended
December 31, 1996 -26,994
--------- --------- --------- --------
Balance,
December 31, 1996 100 $ 53,176 $ 0 -50,027
June 30, 1997
Forward stock
Split 5,000 : 1 4,999,900
June 30, 1997
Changed from no
Par value to
$.001 par value -48,176 +48,176
October 1, 1997
Stock issued for cash 1,000,000 +1,000 +24,000
Capital contributed
During the year 1997 +1,690
Net loss year ended
December 31, 1997 -23,989
--------- --------- --------- --------
Balance
December 31, 1997 6,000,000 $ 6,000 $ 73,866 $-74,016
========= ========= ========= ========
See accompanying notes to financial statements
-5-
Page 83 of 99
<PAGE>
CARD-SMART
(Formerly KMP Capital Inc.)
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Year Year Year Feb. 9, 1994
Ended Ended Ended (inception)
Dec. 31, Dec. 31, Dec. 31, Oct. 10,
1997 1996 1995 1997
-------- ------- -------- --------
Cash Flows from
Operating Activities:
Net Loss $-23,989 $-26,994 $-16,430 $-74,016
Adjustment to
reconcile net loss
to net cash
provided by operating
activities:
Organizational Costs 1,000
Equipment Purchase -1,000 -2,802 0 -3,802
Amortization +200 +200 +200 +783
Depreciation +585 +70 +655
Changes in assets and
liabilities:
Increase in current
liabilities: 0 0 0 0
--------- --------- --------- ---------
Net cash used in
operating activities: $-24,204 $-29,526 $-16,230 $-77,380
Cash Flows from
investing activities $ 0 $ 0 $ 0 $ 0
-------- --------- --------- --------
Cash Flows from
Financing Activities:
Additional
Contributed capital +1,690 +29,526 +16,230 +53,866
Issuance of common
Stock for Cash +25,000 0 0 +26,000
Net increase (decrease)
in cash $ 2,486 $ 0 $ 0 $ 2,486
-------- --------- --------- --------
Cash, beginning of
Period 0 0 0 0
-------- --------- --------- --------
Cash, end of period $ 2,486 $ 0 $ 0 $ 2,486
======== ========= ========= ========
See accompanying notes to financial statements.
-6-
Page 84 of 99
<PAGE>
CARD-SMART CORP.
(Formerly KMP Capital Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, December 31, 1996, and December 31, 1995
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized February 9, 1994, under the laws of the State
of Delaware, as KMP Capital Inc. The Company has no operations and in accordance
with SFAS #7, is considered a development stage company.
On February 9, 1994, the Company issued 100 shares of its no par value
common stock for $1,000.
On June 1, 1997, the Company changed its name from KMP Capital Inc., to
Card-Smart Corp.
On June 30, 1997, the State of Delaware approved the Company's restated
Articles of Incorporation, which increased its capitalization from 100 common
shares of no par value to 5,000,000 common shares with a par value
of $0.001.
Effective June 30, 1997, the Company had a forward stock split of
50,000 to 1 thus increasing the number of common shares outstanding from 100
shares to 5,000,000 shares.
On September 15, 1997, the State of Delaware approved the Company's
restated Articles of Incorporation, which increased its capitalization from
5,000,000 common shares with a par value of $.001 to 25,000,000 common shares
with a par value of $.001.
On October 1, 1997, management completed a securities offering to
obtain additional funding in the amount of $25,000. The securities offering was
at a $.025 per share and the company sold 1,000,000 shares of common stock. The
proceeds of the offering will be used for general corporate purposes.
NOTE 2 - ACCOUNTING POLICIES AND PROCEDURE
Accounting policies and procedures have not been determined except as
follows:
1. The Company uses the accrual method of accounting.
2. The cost of organization, $1,000.00 is being amortized over a
period of 60 months (February 4, 1994, through February 3, 1999).
3. Earnings per share is computed using the weighted average
number of shares of common stock outstanding.
4. The company has not yet adopted any policy regarding payment of
dividends. No dividends have been paid since inception.
-7-
Page 85 of 99
<PAGE>
CARD-SMART CORP.
(Formerly KMP Capital Inc.)
(A Development Stage Company
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, December 31, 1996, and December 31, 1995
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. However, the Company has no current source of revenue. Without
realization of additional capital, it would be unlikely for the Company to
continue as a going concern. It is management's plan to seek additional capital
through a merger with an existing operating company.
NOTE 4 - RELATED PARTY TRANSACTION
The Company neither owns or leases any real property. Office services
are provided without charge by a director. Such costs are immaterial to the
financial statements and, accordingly, have not been reflected therein. The
officers and directors of the Company are involved in other business activities
and may, in the future, become involved in other business opportunities. If a
specific business opportunity becomes available, such persons may face a
conflict in selection between the company and their other business interests.
The Company has not formulated a policy for the resolution of such conflicts.
NOTE 5 - WARRANTS AND OPTIONS
There are no warrants or options outstanding to acquire any
additional shares of common stock.
NOTE 6 - ADDITIONAL CAPITAL CONTRIBUTIONS
Since inception, the Company has had operating expenses and no cash.
One of the original shareholders has advanced all funds necessary for the
operation of the company. These funds were credited to the Stockholder's Equity
of the Company as of October 10, 1997.
ITEM 18 - Financial Statements See Item 17.
ITEM 19 - Financial Statements and Exhibits
(A) Financial Statements
Peaksoft Multinet Corp.
Supplementary Data: Quarterly Financial Data (unaudited)
Report of Independent Auditors
Comments by Auditor for US readers on Canadian - US
reporting difference
-8-
Page 86 of 99
<PAGE>
Consolidated Balance Sheets as of September 30, 1998 and 1997
Consolidated Statements of Operations and Deficit for the Years
Ended September 30, 1998, 1997 and 1996
Consolidated Statement of Changes in Financial Position for the
Years Ended September 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(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
* AS PREVIOUSLY FILED IN OUR FORM 20-F/A FILED ON 090498.
Exhibit 21 - Demand Promissory Note - October 13, 1998
Page 87 of 99
<PAGE>
DEMAND PROMISSORY NOTE
U.S. $45,000 October 13th 1998
----
FOR VALUE RECEIVED, the undersigned, PEAKSOFT CORPORATION, an Alberta
Corporation with offices at 3614 Meridian, Suite 100, Bellingham, Washington
98225 ("Maker") promises to pay to the order of Westgate International, L.P. c/o
Midland Bank Trust Corporation (Cayman) Limited, P.O. Box 1109, Mary Street,
Grand Cayman, Cayman Islands ("Holder"), on demand, the principal sum of Forty
Five Thousand United States Dollars (U.S. $45,000), with interest accrued
thereon at the rate of 12% per annum.
In the event of any failure to make timely payment hereunder this Note
shall thereafter bear interest at the rate equal to the lower of 18% per annum
or the highest rate permitted by law until paid.
This Note shall be secured by the assets of the Maker, pursuant to the
Third Amendment to Security Agreement, dated as of the date hereof, by and
between Holder, Maker and Westgate International, L.P. This note is entitled to
the benefits of the Guaranties dated the date hereof, of Maker's subsidiary,
PeakSoft Corporation (USA), Inc.
Maker agrees to pay all expenses of Holder in collecting this Note,
including without limitation attorneys' fees and expenses. The interpretation of
this instrument and the rights and remedies of the parties hereto shall be
governed by the internal laws of the State of New York.
Maker hereby agrees and consents to the jurisdiction of the State and
Federal courts sitting in the State of New York in any action or proceeding
arising out of or connected in any way with this Note and consents and agrees
that service of process in any such action or proceeding will be sufficient if
mailed to the address provided above ( or to such other address as Maker may
hereafter designate to Holder by a writing delivered to Holder) by certified
mail, return receipt requested, and further agrees to the invocation of said
jurisdiction by service of process in any other manner authorized by law.
All payments under this Note will be made without any deduction or
withholding on account of any withholding tax unless deduction or withholding is
required by applicable law, in which case Maker shall pay Holder such additional
amount as is necessary to ensure that the net amount received by Holder on this
Note shall equal the full amount it would have received had no such deduction or
withholding been required.
Holder may without notice transfer or assign this Note or any interest
herein and may mortgage, encumber or transfer any of its rights or interest in
and to this Note or any part hereof and, without limitation, each assignee,
transferee and mortgagee (which may include any affiliate of Holder) shall have
the right to transfer or assign its interest. Each such assignee, transferee and
mortgages shall have all the rights of Holder under this Note, the Second
Amendment to Security Agreement and the Guaranties by Maker's subsidiary, and
shall be subject to the terms thereof. This Note shall be binding upon Maker and
its successors and shall inure to the benefit of the Holder and its successors
and assigns.
Page 88 of 99
<PAGE>
Maker hereby waives presentment, trial by jury, notice of non-payment,
protest, notice of protest and notice of dishonor. Holder shall have the right
to set off any amounts due hereunder against any amounts due from Holder to
Maker.
PEAKSOFT CORPORATION
By /s/ Douglas Foster
-------------------------
Douglas Foster, President
Page 89 of 99
<PAGE>
Exhibit 22 - Demand Promissory Note - October 13, 1998
DEMAND PROMISSORY NOTE
U.S. $45,000 October 13th 1998
----
FOR VALUE RECEIVED, the undersigned, PEAKSOFT CORPORATION, an Alberta
Corporation with offices at 3614 Meridian, Suite 100, Bellingham, Washington
98225 ("Maker") promises to pay to the order of The Liverpool Limited
Partnership, P.O. Box HM 1179, Hamilton, HM EX, Bermuda ("Holder"), on demand,
the principal sum of Forty Five Thousand United States Dollars (U.S. $45,000),
with interest accrued thereon at the rate of 12% per annum.
In the event of any failure to make timely payment hereunder this Note
shall thereafter bear interest at the rate equal to the lower of 18% per annum
or the highest rate permitted by law until paid.
This Note shall be secured by the assets of the Maker, pursuant to the
Third Amendment to Security Agreement, dated as of the date hereof, by and
between Holder, Maker and Westgate International, L.P. This note is entitled to
the benefits of the Guaranties dated the date hereof, of Maker's subsidiary,
PeakSoft Corporation (USA), Inc.
Maker agrees to pay all expenses of Holder in collecting this Note,
including without limitation attorneys' fees and expenses. The interpretation of
this instrument and the rights and remedies of the parties hereto shall be
governed by the internal laws of the State of New York.
Maker hereby agrees and consents to the jurisdiction of the State and
Federal courts sitting in the State of New York in any action or proceeding
arising out of or connected in any way with this Note and consents and agrees
that service of process in any such action or proceeding will be sufficient if
mailed to the address provided above ( or to such other address as Maker may
hereafter designate to Holder by a writing delivered to Holder) by certified
mail, return receipt requested, and further agrees to the invocation of said
jurisdiction by service of process in any other manner authorized by law.
All payments under this Note will be made without any deduction or
withholding on account of any withholding tax unless deduction or withholding is
required by applicable law, in which case Maker shall pay Holder such additional
amount as is necessary to ensure that the net amount received by Holder on this
Note shall equal the full amount it would have received had no such deduction or
withholding been required.
Holder may without notice transfer or assign this Note or any interest
herein and may mortgage, encumber or transfer any of its rights or interest in
and to this Note or any part hereof and, without limitation, each assignee,
transferee and mortgagee (which may include any affiliate of Holder) shall have
the right to transfer or assign its interest. Each such assignee, transferee and
mortgages shall have all the rights of Holder under this Note, the Second
Amendment to Security Agreement and the Guaranties by Maker's subsidiary, and
shall be subject to the terms thereof. This Note shall be binding upon Maker and
its successors and shall inure to the benefit of the Holder and its successors
and assigns.
Page 90 of 99
<PAGE>
Maker hereby waives presentment, trial by jury, notice of non-payment,
protest, notice of protest and notice of dishonor. Holder shall have the right
to set off any amounts due hereunder against any amounts due from Holder to
Maker.
PEAKSOFT CORPORATION
By /s/ Douglas Foster
-------------------------
Douglas Foster, President
Page 91 of 99
<PAGE>
Exhibit 23 - Demand Promissory Note - January 14, 1999
DEMAND PROMISSORY NOTE
U.S. $125,000 January 14th 1999
----
FOR VALUE RECEIVED, the undersigned, PEAKSOFT MULTINET CORP., an Alberta
Corporation with offices at 1801 Roeder Avenue, Harbor Center Building,
Squalicum Harbor, Bellingham, Washington 98225 ("Maker") promises to pay to the
order of The Liverpool Limited Partnership, P.O. Box HM 1179, Hamilton, HM EX,
Bermuda ("Holder"), on demand, the principal sum of One Hundred and Twenty-Five
Thousand United States Dollars (U.S. $125,000), with interest accrued thereon at
the rate of 12% per annum.
In the event of any failure to make timely payment hereunder this Note
shall thereafter bear interest at the rate equal to the lower of 18% per annum
or the highest rate permitted by law until paid.
This Note shall be secured by the assets of the Maker, pursuant to the
Fifth Amendment to Security Agreement, dated as of the date hereof, by and
between Holder, Maker and Westgate International, L.P. This note is entitled to
the benefits of the Guaranties dated the date hereof, of Maker's subsidiaries,
PeakSoft Corporation (USA), Inc. and PeakSoft Multinet Corp (USA).
Maker agrees to pay all expenses of Holder in collecting this Note,
including without limitation attorneys' fees and expenses. The interpretation of
this instrument and the rights and remedies of the parties hereto shall be
governed by the internal laws of the State of New York.
Maker hereby agrees and consents to the jurisdiction of the State and
Federal courts sitting in the State of New York in any action or proceeding
arising out of or connected in any way with this Note and consents and agrees
that service of process in any such action or proceeding will be sufficient if
mailed to the address provided above ( or to such other address as Maker may
hereafter designate to Holder by a writing delivered to Holder) by certified
mail, return receipt requested, and further agrees to the invocation of said
jurisdiction by service of process in any other manner authorized by law.
All payments under this Note will be made without any deduction or
withholding on account of any withholding tax unless deduction or withholding is
required by applicable law, in which case Maker shall pay Holder such additional
amount as is necessary to ensure that the net amount received by Holder on this
Note shall equal the full amount it would have received had no such deduction or
withholding been required.
Holder may without notice transfer or assign this Note or any interest
herein and may mortgage, encumber or transfer any of its rights or interest in
and to this Note or any part hereof and, without limitation, each assignee,
transferee and mortgagee (which may include any affiliate of Holder) shall have
the right to transfer or assign its interest. Each such assignee, transferee and
mortgages shall have all the rights of Holder under this Note, the Fifth
Amendment to Security Agreement and the Guaranties by Maker's subsidiaries, and
shall be subject to the terms thereof. This Note shall be binding upon Maker and
its successors and shall inure to the benefit of the Holder and its successors
and assigns.
Page 92 of 99
<PAGE>
Maker hereby waives presentment, trial by jury, notice of non-payment,
protest, notice of protest and notice of dishonor. Holder shall have the right
to set off any amounts due hereunder against any amounts due from Holder to
Maker.
PEAKSOFT MULTINET CORP.
By /s/ Douglas Foster
------------------------
Name: Douglas Foster
Title: Chief Executive Officer
Page 93 of 99
<PAGE>
Exhibit 24 - Demand Promissory Note - January 14, 1999
DEMAND PROMISSORY NOTE
U.S. $125,000 January 14th 1999
-----
FOR VALUE RECEIVED, the undersigned, PEAKSOFT MULTINET CORP., an
Alberta Corporation with offices at 1801 Roeder Avenue, Harbor Center Building,
Squalicum Harbor, Bellingham, Washington 98225 ("Maker") promises to pay to the
order of Westgate International, L.P. c/o Midland Bank Trust Corporation
(Cayman) Limited, P.O. Box 1109, Mary Street, Grand Cayman, Cayman Islands
("Holder"), on demand, the principal sum of One Hundred and Twenty-Five Thousand
United States Dollars (U.S. $125,000), with interest accrued thereon at the rate
of 12% per annum.
In the event of any failure to make timely payment hereunder this Note
shall thereafter bear interest at the rate equal to the lower of 18% per annum
or the highest rate permitted by law until paid.
This Note shall be secured by the assets of the Maker, pursuant to the
Fifth Amendment to Security Agreement, dated as of the date hereof, by and
between Holder, Maker and Westgate International, L.P. This note is entitled to
the benefits of the Guaranties dated the date hereof, of Maker's subsidiaries,
PeakSoft Corporation (USA), Inc. and PeakSoft Multinet Corp (USA).
Maker agrees to pay all expenses of Holder in collecting this Note,
including without limitation attorneys' fees and expenses. The interpretation of
this instrument and the rights and remedies of the parties hereto shall be
governed by the internal laws of the State of New York.
Maker hereby agrees and consents to the jurisdiction of the State and
Federal courts sitting in the State of New York in any action or proceeding
arising out of or connected in any way with this Note and consents and agrees
that service of process in any such action or proceeding will be sufficient if
mailed to the address provided above ( or to such other address as Maker may
hereafter designate to Holder by a writing delivered to Holder) by certified
mail, return receipt requested, and further agrees to the invocation of said
jurisdiction by service of process in any other manner authorized by law.
All payments under this Note will be made without any deduction or
withholding on account of any withholding tax unless deduction or withholding is
required by applicable law, in which case Maker shall pay Holder such additional
amount as is necessary to ensure that the net amount received by Holder on this
Note shall equal the full amount it would have received had no such deduction or
withholding been required.
Holder may without notice transfer or assign this Note or any interest
herein and may mortgage, encumber or transfer any of its rights or interest in
and to this Note or any part hereof and, without limitation, each assignee,
transferee and mortgagee (which may include any affiliate of Holder) shall have
the right to transfer or assign its interest. Each such assignee, transferee and
mortgages shall have all the rights of Holder under this Note, the Fifth
Amendment to Security Agreement and the Guaranties by Maker's subsidiaries, and
shall be subject to the terms thereof. This Note shall be binding upon Maker and
its successors and shall inure to the benefit of the Holder and its successors
and assigns.
Page 94 of 99
<PAGE>
Maker hereby waives presentment, trial by jury, notice of non-payment,
protest, notice of protest and notice of dishonor. Holder shall have the right
to set off any amounts due hereunder against any amounts due from Holder to
Maker.
PEAKSOFT MULTINET CORP.
By /s/ Douglas Foster
-------------------------
Name: Douglas Foster
Title: Chief Executive Officer
Page 95 of 99
<PAGE>
Exhibit 25 - Demand Promissory Note - March 8, 1999
DEMAND PROMISSORY NOTE
U.S. $125,000 March 8th 1999
---
FOR VALUE RECEIVED, the undersigned, PEAKSOFT MULTINET CORP., an
Alberta Corporation with offices at 1801 Roeder Avenue, Harbor Center Building,
Squalicum Harbor, Bellingham, Washington 98225 ("Maker") promises to pay to the
order of Westgate International, L.P. c/o Midland Bank Trust Corporation
(Cayman) Limited, P.O. Box 1109, Mary Street, Grand Cayman, Cayman Islands
("Holder"), on demand, the principal sum of One Hundred and Twenty-Five Thousand
United States Dollars (U.S. $125,000), with interest accrued thereon at the rate
of 12% per annum.
In the event of any failure to make timely payment hereunder this Note
shall thereafter bear interest at the rate equal to the lower of 18% per annum
or the highest rate permitted by law until paid.
This Note shall be secured by the assets of the Maker, pursuant to the
Fifth Amendment to Security Agreement, dated as of the date hereof, by and
between Holder, Maker and Westgate International, L.P. This note is entitled to
the benefits of the Guaranties dated the date hereof, of Maker's subsidiaries,
PeakSoft Corporation (USA), Inc. and PeakSoft Multinet Corp (USA).
Maker agrees to pay all expenses of Holder in collecting this Note,
including without limitation attorneys' fees and expenses. The interpretation of
this instrument and the rights and remedies of the parties hereto shall be
governed by the internal laws of the State of New York.
Maker hereby agrees and consents to the jurisdiction of the State and
Federal courts sitting in the State of New York in any action or proceeding
arising out of or connected in any way with this Note and consents and agrees
that service of process in any such action or proceeding will be sufficient if
mailed to the address provided above ( or to such other address as Maker may
hereafter designate to Holder by a writing delivered to Holder) by certified
mail, return receipt requested, and further agrees to the invocation of said
jurisdiction by service of process in any other manner authorized by law.
All payments under this Note will be made without any deduction or
withholding on account of any withholding tax unless deduction or withholding is
required by applicable law, in which case Maker shall pay Holder such additional
amount as is necessary to ensure that the net amount received by Holder on this
Note shall equal the full amount it would have received had no such deduction or
withholding been required.
Holder may without notice transfer or assign this Note or any interest
herein and may mortgage, encumber or transfer any of its rights or interest in
and to this Note or any part hereof and, without limitation, each assignee,
transferee and mortgagee (which may include any affiliate of Holder) shall have
the right to transfer or assign its interest. Each such assignee, transferee and
mortgages shall have all the rights of Holder under this Note, the Fifth
Amendment to Security Agreement and the Guaranties by Maker's subsidiaries, and
shall be subject to the terms thereof. This Note shall be binding upon Maker and
its successors and shall inure to the benefit of the Holder and its successors
and assigns.
Page 96 of 99
<PAGE>
Maker hereby waives presentment, trial by jury, notice of non-payment,
protest, notice of protest and notice of dishonor. Holder shall have the right
to set off any amounts due hereunder against any amounts due from Holder to
Maker.
PEAKSOFT MULTINET CORP.
By /s/ Douglas Foster
-------------------------
Name: Douglas Foster
Title: Chief Executive Officer
Page 97 of 99
<PAGE>
Exhibit 26 - Demand Promissory Note - March 8, 1999
DEMAND PROMISSORY NOTE
U.S. $125,000 March 8th 1999
---
FOR VALUE RECEIVED, the undersigned, PEAKSOFT MULTINET CORP., an
Alberta Corporation with offices at 1801 Roeder Avenue, Harbor Center Building,
Squalicum Harbor, Bellingham, Washington 98225 ("Maker") promises to pay to the
order of The Liverpool Limited Partnership, P.O. Box HM 1179, Hamilton, HM EX,
Bermuda ("Holder"), on demand, the principal sum of One Hundred and Twenty-Five
Thousand United States Dollars (U.S. $125,000), with interest accrued thereon at
the rate of 12% per annum.
In the event of any failure to make timely payment hereunder this Note
shall thereafter bear interest at the rate equal to the lower of 18% per annum
or the highest rate permitted by law until paid.
This Note shall be secured by the assets of the Maker, pursuant to the
Fifth Amendment to Security Agreement, dated as of the date hereof, by and
between Holder, Maker and Westgate International, L.P. This note is entitled to
the benefits of the Guaranties dated the date hereof, of Maker's subsidiaries,
PeakSoft Corporation (USA), Inc. and PeakSoft Multinet Corp (USA).
Maker agrees to pay all expenses of Holder in collecting this Note,
including without limitation attorneys' fees and expenses. The interpretation of
this instrument and the rights and remedies of the parties hereto shall be
governed by the internal laws of the State of New York.
Maker hereby agrees and consents to the jurisdiction of the State and
Federal courts sitting in the State of New York in any action or proceeding
arising out of or connected in any way with this Note and consents and agrees
that service of process in any such action or proceeding will be sufficient if
mailed to the address provided above ( or to such other address as Maker may
hereafter designate to Holder by a writing delivered to Holder) by certified
mail, return receipt requested, and further agrees to the invocation of said
jurisdiction by service of process in any other manner authorized by law.
All payments under this Note will be made without any deduction or
withholding on account of any withholding tax unless deduction or withholding is
required by applicable law, in which case Maker shall pay Holder such additional
amount as is necessary to ensure that the net amount received by Holder on this
Note shall equal the full amount it would have received had no such deduction or
withholding been required.
Holder may without notice transfer or assign this Note or any interest
herein and may mortgage, encumber or transfer any of its rights or interest in
and to this Note or any part hereof and, without limitation, each assignee,
transferee and mortgagee (which may include any affiliate of Holder) shall have
the right to transfer or assign its interest. Each such assignee, transferee and
mortgages shall have all the rights of Holder under this Note, the Fifth
Amendment to Security Agreement and the Guaranties by Maker's subsidiaries, and
shall be subject to the terms thereof. This Note shall be binding upon Maker and
its successors and shall inure to the benefit of the Holder and its successors
and assigns.
Page 98 of 99
<PAGE>
Maker hereby waives presentment, trial by jury, notice of non-payment,
protest, notice of protest and notice of dishonor. Holder shall have the right
to set off any amounts due hereunder against any amounts due from Holder to
Maker.
PEAKSOFT MULTINET CORP.
By /s/ Douglas Foster
-------------------------
Name: Douglas Foster
Title: Chief Executive Officer
Page 99 of 99
<PAGE>
