SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
NOTICE OF ANNUAL MEETING AND REPORT
PeakSoft Multinet Corp.
-----------------------
(Translation of registrant's name into English)
1801 Roeder Avenue; Suite 144, Bellingham, WA 98225
---------------------------------------------------
(Address of principal executive offices)
[Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.]
Form 20-F ..X.. Form 40-F ____
[Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes ..X.. No ____
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-0-24069
----------
Signatures: T. W. Metz
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PeakSoft Multinet Corp.
(Registrant)
By: /s/ T.W. Metz
- -------------------------
T.W. Metz
Chief Operating Officer
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PEAKSOFT MULTINET CORP.
INFORMATION CIRCULAR
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 5, 1999
SOLICITATION OF PROXIES
This information circular is furnished in connection with the solicitation of
proxies by the management of PeakSoft Multinet Corp. (the "Corporation") for use
at the annual general meeting (the "Meeting") of the shareholders of the
Corporation to be held at the time and place and for the purposes set forth in
the accompanying notice of Meeting and at any adjournment thereof. The
solicitation will be by mail and possibly supplemented by telephone or other
personal contact to be made without special compensation by regular officers and
employees of the Corporation. No solicitation will be made by specifically
engaged employees or soliciting agents. The cost of solicitation will be borne
by the Corporation. The Corporation does not reimburse shareholders, nominees or
agents for the costs incurred in obtaining from their principals authorization
to execute forms of proxy.
APPOINTMENT AND REVOCATION OF PROXIES
The persons named in the accompanying Instrument of Proxy are directors and/or
officers of the Corporation. A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON
OTHER THAN THE PERSONS NAMED IN THE ENCLOSED INSTRUMENT OF PROXY TO ATTEND AND
TO ACT FOR HIM ON HIS BEHALF AT THE MEETING. TO EXERCISE THIS RIGHT A
SHAREHOLDER MUST STRIKE OUT THE NAMES OF THE PERSONS NAMED IN THE INSTRUMENT OF
PROXY AND INSERT THE NAME OF ITS NOMINEE IN THE BLANK SPACE PROVIDED, OR
COMPLETE ANOTHER INSTRUMENT OF PROXY. THE COMPLETED PROXY SHOULD BE DEPOSITED
WITH THE CORPORATION NOT LESS THAN 48 HOURS (EXCLUDING SATURDAYS, SUNDAYS AND
HOLIDAYS) PRIOR TO THE COMMENCEMENT OF THE MEETING OR ADJOURNMENT THEREOF.
The instrument of proxy must be signed by the shareholder or by his attorney in
writing, or, if the shareholder is a corporation, its instrument of proxy must
either be under its common seal or signed by a duly authorized officer of it.
A proxy may be revoked by:
(a) signing a proxy bearing a later date and depositing it at the place
and within the time aforesaid;
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(b) signing and dating a written notice of revocation (in the same manner as
the proxy is required to be executed, as set out in the notes of the proxy)
and either delivering the same to the registered office of the Corporation
at any time up to and including the last business day preceding the day of
the Meeting, or any adjournment of it at which the proxy is to be used, or
to the chairman of the Meeting on the day of the Meeting or any adjournment
thereof; or
(c) attending the Meeting or any adjournment thereof and registering with the
scrutineer thereat as a shareholder present in person, whereupon such proxy
shall be deemed to have been revoked.
VOTING OF SHARES AND EXERCISE OF DISCRETION OF PROXIES
THE SHARES REPRESENTED BY PROXY WILL BE VOTED OR WITHHELD FROM VOTING BY THE
PROXY HOLDER IN ACCORDANCE WITH THE INSTRUCTIONS OF THE SHAREHOLDER ON ANY
BALLOT THAT MAY BE CALLED FOR AND, IF THE SHAREHOLDER SPECIFIES A CHOICE WITH
RESPECT TO ANY MATTER TO BE ACTED UPON, THE SHARES WILL BE VOTED ACCORDINGLY.
IN THE ABSENCE OF ANY INSTRUCTION IN THE PROXY, IT IS INTENDED THAT SUCH SHARES
WILL BE VOTED IN FAVOUR OF THE MOTIONS PROPOSED TO BE MADE AT THE MEETING AS
STATED UNDER THE HEADINGS IN THIS INFORMATION CIRCULAR. The instrument of proxy
enclosed, when properly signed, confers discretionary authority with respect to
amendments or variations to the matters identified herein and with respect to
any other matters which may properly be brought before the Meeting. At the time
of printing this information circular, management of the Corporation is not
aware that any such amendments, variations or other matters are to be presented
for action at the Meeting.
VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
On March 15, 1999, 3,680,305 common shares of the Corporation were issued and
outstanding, each common share carrying the right to one vote. Only those common
shareholders of record on March 31, 1999 will be entitled to vote at the Meeting
or at any adjournment thereof, in person or by proxy, unless after that date a
shareholder of record transfers its shares and the transferee, upon producing
properly endorsed certificates evidencing such shares or otherwise establishing
that it owns such shares, requests not later than 10 days prior to the Meeting
that the transferee's name be included in the list of shareholders entitled to
vote, in which case such transferee will be entitled to vote such shares at the
Meeting.
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<PAGE>
To the knowledge of the directors and senior officers of the Corporation, only
the following shareholder owns, directly or indirectly, or exercises control or
discretion over, common shares carrying more than 10% of the voting rights
attached to all outstanding common shares of the Corporation:
Name of Shareholder No. of Shares % of Issued and
Outstanding
Westgate International, L.P. 905,636 shares 24.6%
The Liverpool Limited Partnership 905,636 shares 24.6%
The above information was supplied by the management of the Corporation.
EXECUTIVE COMPENSATION
During the fiscal year ended September 30, 1998, the Corporation employed 2
executive officers (one of whom is also a director) who were paid an aggregate
of $96,288.48 in cash compensation. Other than:
(a) the issuance of options pursuant to the Stock Option Plan of the
Corporation described below; and
(b) 8,679 common shares issued in exchange for a remuneration debt;
the executive officers of the Corporation received no other compensation from
the Corporation in its most recently completed fiscal year. These persons have
agreed to defer the payment by the Corporation of a portion of the salaries
earned by them during the Corporation's fiscal year 1998.
The Corporation has established a Stock Option Plan (the "Plan") under which the
Board of Directors or a committee appointed by the Board of Directors (the
"Committee") may, from time to time, grant options to purchase common shares to
directors, officers or key employees of the Corporation and to consultants
retained by the Corporation. Subject to regulatory approval, the options will
provide for the acquisition of common shares of the Corporation from the
treasury of the Corporation at a price to be determined by the Board of
Directors or the Committee at the time of granting the options, provided that
the exercise price of such options shall not be less than that permitted by any
stock exchange on which the Corporation's shares are listed for trading. The
Board of Directors or the Committee will determine the exercise period for the
options and the vesting provisions with respect to the options. A number of
common shares not exceeding in the aggregate 10 percent of the common shares
outstanding from time to time will be reserved under the Plan for issuance upon
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the exercise of any options granted. The purpose of the Plan is to develop the
interest of the directors, officers, key employees and consultants of the
Corporation in the Corporation's growth and development by providing them with
the opportunity through options to purchase common shares to acquire an
increased financial interest in the Corporation.
There are no share purchase options granted by the Corporation during the
financial year ended September 30, 1998 which are still in existence.
The following options held by executive officers were exercised during the
financial year ended September 30, 1998:
Douglas Huestis Foster 08-24-98 320,000
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS
Shares for debt agreements were entered into between the Corporation and the
following parties on September 22, 1998: Timothy W. Metz, Westgate
International, L.P. and The Liverpool Limited Partnership. These agreements were
approved by the shareholders of the Corporation at a special (extraordinary)
general meeting held on December 15, 1998.
Timothy W. Metz received 8,679 (post consolidation) common shares in the capital
stock of the Corporation in consideration of a remuneration debt of $12,496.86.
Calvin Patterson received 8,679 (post consolidation) common shares in the
capital stock of the Corporation in consideration of a remuneration debt of
$12,496.86.
Westgate International, L.P. received 905,636 (post consolidation) common shares
in the capital stock of the Corporation in consideration of a debt in the amount
of $1,304,115.50.
The Liverpool Limited Partnership received 905,636 (post consolidation) common
shares in the capital stock of the Corporation in consideration of a debt in the
amount of $1,304,115.50.
ELECTION OF DIRECTORS
The current directors of the Corporation are Douglas Huestis Foster, Donald
McInnes, Peter Allen Janssen, Simon Geoffrey Arnison and Colin Robert Morse.
Their term of office will expire at the close of the Meeting. Douglas Huestis
Foster, Donald McInnes and Peter Allen Janssen are members of the audit
committee. Their term of office as members of the audit committee expires at the
close of the Meeting.
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Management of the Corporation proposes to nominate, and the persons named in the
accompanying form of proxy intend to vote (if no choice is given), in favour of
the election as directors of the persons named below. Management of the
Corporation does not contemplate that any of the nominees will be unable to
serve as a director, but if this should occur for any reason prior to the
Meeting the persons named in the accompanying proxy reserve the right to vote
for another nominee at their discretion in the absence of a direction to the
contrary. Each director elected will hold office until the close of the next
annual general meeting or until his successor is duly elected, unless his office
is sooner vacated.
The following table and the notes thereto state the names of the persons
proposed to be nominated for election as directors, all other positions and
offices with the Corporation now held by them, their principal occupations or
employments, the periods during which they have served as directors of the
Corporation, and the approximate numbers of shares of the Corporation
beneficially owned, directly or indirectly, by each of them as at the date
hereof. The information contained in the following table is provided by the
nominees:
- --------------------------------------------------------------------------------
Name, Municipality Year First Principal Occupation and Number of Common
of Became Positions During the Shares of the
Residence and Director Last Five Years Corporation
Position Beneficially Owned,
Directly or
Indirectly
- --------------------------------------------------------------------------------
Douglas H. Foster 1994 President and Chief 190,743
Bellingham, Executive Officer of the
Washington Corporation since its
President, Chief incorporation. From
Executive Officer 1991 to 1994, President
and Director of BREEZ Business
Management Systems. Form
1989 to 1991, President
of Lynxx Microsystems
Inc.
- --------------------------------------------------------------------------------
Donald McInnes 1995 President of Western 17,172
Vancouver, British Keltic Mines Inc.,
Columbia Blackstone Resources
Secretary and Inc. and Glenhaven
Director Resources Inc. Prior to
1993, Project Manager
for Equity Engineering
Ltd.
- --------------------------------------------------------------------------------
Simon Arnison 1999 President of 0
Ontario, Canada Classwave.com. Prior to
1998, Chief Technology
Officer, founder, and
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board member for
Innotech Mulitmedia
Corporations.
- --------------------------------------------------------------------------------
Peter Janssen 1997 Principal Consultant 6,469
Bellevue, with Peter Janssen &
Washington Associations. VP of
Director Merchandising &
Advertising for Egghead
Software. VP Sales &
Marketing for Acer
America.
- --------------------------------------------------------------------------------
Colin Robert 1999 President of Feel Free 0
Morse Charters Ltd. (formerly
Vancouver, British Combat Sound Ltd.), Alma
Columbia, Land Development
Canada Corporation, Trubuilt
Director Homes Ltd. and Semper
Construction, Ltd.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
The audited financial statements of the Corporation for the period ending
September 30, 1998 together with the auditor's report thereon (the "Financial
Statements"), will be presented to shareholders at the Meeting. The Corporation
anticipates mailing the Annual Report containing the Financial Statements,
notice of meeting, information circular and proxy to shareholders of record
prior to the Meeting. Copies of the Annual Report, notice of meeting,
information circular and proxy will also be available from the Corporation's
registrar and transfer agent, Montreal Trust Company of Canada.
APPOINTMENT OF AUDITOR
On January 15, 1999 the Corporation received a letter from its auditor, KPMG
LLP, Chartered Accountants, confirming its and the Corporations mutual agreement
that it would cease to act as the Corporation's auditor. The Corporation
subsequently appointed Gordon K.W. Gee, Chartered Accountant, as its successor
auditor, and the management of the Corporation has nominated Mr Gee for
re-appointment to this position. Accordingly, at the Meeting the persons named
in the enclosed instrument of proxy will vote for the re-appointment of Gordon
K.W. Gee as auditor of the Corporation to hold office until the next annual
general meeting of shareholders of the Corporation, at a remuneration to be
fixed by the Board of Directors. The resignation of KPMG LLP and resulting
appointment of Gordon K.W. Gee was approved by resolution of the directors of
the Corporation passed January 27, 1999.
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Gordon K.W. Gee served as the Corporation's auditor for its fiscal years 1995
and 1996.
The Corporation confirms that there were no reservations in the audit reports
included in any of the financial statements of the Corporation for the 2 most
recently completed fiscal years. The Corporation further confirms that there
have been no reportable events during the 2 most recently completed fiscal
years, and, in its opinion, there are no reportable events pending.
A notice confirming the foregoing has been filed with the Alberta, British
Columbia and Ontario Securities Commissions.
OTHER MATTERS
Management of the Corporation knows of no amendments, variations or other
matters to come before the Meeting other than the matters referred to in the
notice of annual general meeting and this information circular. However, if any
other matter properly comes before the Meeting, the accompanying proxy will be
voted on such matter in accordance with the best judgment of the person or
persons voting the proxy.
APPROVAL AND CERTIFICATE
DATED: March 23, 1999
The contents of this information circular have been approved by the Board of
Directors of the Corporation.
The foregoing contains no untrue statement of material fact and does not omit to
state a material fact that is required to be stated or that is necessary to make
a statement not misleading in the light of circumstances in which it was made.
/s/ Timothy W. Metz
- ------------------------------
Timothy W. Metz
Chief Operating Officer
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PEAKSOFT MULTINET CORP.
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that an annual general meeting of the shareholders of
PeakSoft Multinet Corp. ("PeakSoft") will be held at
Suite 501 - 675 West Hastings Street, Vancouver, British Columbia
on Wednesday, the 5th of May 1999, at the hour of 10:00 a.m. for the following
purposes:
(1) To receive the annual report and the audited financial statements of
PeakSoft, together with the auditor's report in respect of the same for
the fiscal year ended September 30, 1998.
(2) To appoint PeakSoft's auditor for the ensuing year.
(3) To elect the directors of PeakSoft for the ensuing year.
(4) To transact such other business as may properly be transacted at such
meeting or at any adjournment thereof.
Shareholders who are unable to attend the annual general meeting in person are
requested to date, sign and return the accompanying instrument of proxy in
accordance with the instructions contained in the accompanying information
circular to the office of IICC, 6250 Kestrel Road, Missisauga, Ontario, L5T 1Y9,
not less than 48 hours (excluding Saturdays, Sundays, and holidays) before the
time fixed for holding the meeting or any adjournment thereof, or to the
chairman of the meeting immediately prior to commencement of the meeting, or any
adjournment thereof. As set out in the accompanying information circular, the
enclosed proxy is solicited by management of PeakSoft, but you may amend it, if
you so desire, by striking out the names listed therein and inserting a space
provided the name of the person you wish to represent you at the meeting.
DATED at Bellingham, Washington, United States of America, this 23rd day of
March 1999.
BY ORDER OF THE BOARD
/s/ Timothy W. Metz
- -----------------------
Timothy W. Metz
Chief Operating Officer
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PEAKSOFT MULTINET CORP.
PROXY
-----
The undersigned shareholder of PeakSoft Multinet Corp. hereby appoints
Douglas Foster, the President and a director of PeakSoft, or failing him, Donald
McInnes, also a director of PeakSoft, or instead of either of them:
---------------------------------------------
FULL NAME OF PROXY
---------------------------------------------
Proxy's Street Address
---------------------------------------------
Municipality State/Province Zip/Postal Code
as proxy, or, as alternate proxy:
---------------------------------------------
FULL NAME OF ALTERNATE PROXY
---------------------------------------------
Alternate Proxy's Street Address
---------------------------------------------
Municipality State/Province Zip/Postal Code
with power of substitution, to attend, act and vote all shares in the capital
stock of PeakSoft registered in the name of the undersigned for and on behalf of
the undersigned at the Annual General Meeting (the "AGM") to be held on
Wednesday, May 5, 1999 at 10:00 o'clock in the morning at:
Suite 501-675 West Hastings Street, Vancouver, British Columbia
and at any adjournment or adjournments thereof.
My proxy is instructed to vote as specified below:
1. _____FOR _____AGAINST (if no alternative is specified then FOR)
the ordinary resolution fixing the number of directors of the
corporation at 5.
2. _____FOR _____TO BE WITHHELD FROM VOTING FOR (if no alternative is
specified then FOR) the election of directors for the ensuing year
of those nominees proposed by management as specified in the
Information Circular issued PeakSoft on March 23, 1999.
3. _____FOR _____TO BE WITHHELD FROM VOTING FOR (if no alternative is
specified then FOR) the appointment of Gordon K.W. Gee Chartered
Accountant to be PeakSoft's auditor for the ensuing year and for the
authorization of the directors to fix its remuneration.
4. on any other matters which may properly come before the AGM as my
proxy may see fit.
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THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AND, IN PARTICULAR,
WILL BE VOTED IN ACCORDANCE WITH ANY INSTRUCTIONS INDICATED ON ANY BALLOT THAT
MAY BE CALLED FOR. UNLESS A CONTRARY INSTRUCTION IS INDICATED, THIS PROXY WILL
BE VOTED AT THE AGM IN FAVOUR OF THE MATTERS REFERRED TO ABOVE.
If any amendment or variation to the matters identified in the notice of
meeting which accompanies this proxy is proposed at the AGM or at any
adjournment thereof, or any other matters properly come before such meeting or
any adjournment thereof, THIS PROXY CONFERS A DISCRETIONARY AUTHORITY TO VOTE on
any such amendment or variation or such other matters according to the best
judgment of the person voting this proxy.
The undersigned hereby revokes any instrument of proxy previously given to
vote at the AGM or any adjournments thereof.
DATE: ____________________
---------------------------------------------
Signature of shareholder/authorized signatory
---------------------------------------------
Full Name (please type or print)
---------------------------------------------
Street Address
---------------------------------------------
Municipality State/Province Zip/Postal Code
---------------------------------------------
Number of shares
NOTES:
1. This forms of proxy must be dated and signed by shareholder or by
his attorney in writing, or if the shareholder is a body corform of
proxy must be executed under its corporate seal or by an officer or
attorney thereof who has been duly authorized. If this is not dated it is
deemed to bear the date on which it was delivered PeakSoft.
2. A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON BE A SHAREHOLDER
OF PEAKSOFT) AS HIS NOMINEE TO ATTEND AND TO ACT FOR HIM AND ON HIS BEHALF
AT THE AGM. TO EXERCISE SUCH RIGHT THE SHAREHOLDER MUST INSERT THE NAME OF
HIS NOMINEE ON THE LINES PROVIDED FOR THAT PURPOSE ON THE FIRST PAGE
HEREOF OR COMPLETE ANOTHER FORM PROXY.
SHAREHOLDERS WHO ARE UNABLE TO ATTEND THE AGM ARE REQUESTED TO COMPLETE THIS
FROM OF PROXY AND TO RETURN IT TO PEAKSOFT IN THE ENVELOPE PROVIDED FOR THIS
PURPOSE.
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SUPPLEMENTAL MAIL LIST
SUPPLEMENTAL MAIL LIST RETURN CARD
NOTE: If you wish to be included in the Supplementary Mailing List of PeakSoft
Multinet Corp. in order to receive its interim financial statements,
please complete and return this card.
TO: PeakSoft Multinet Corp.
1801 Roeder Avenue, Suite 144
Bellingham, Washington 98225
The undersigned certifies that the undersigned is the owner of
securities of PeakSoft Multinet Corp. and requests that the undersigned
be placed on the Supplementary Mailing list of PeakSoft Multinet Corp.
for its interim financial statements.
DATE: ----------------------------------
------------- NAME
FAX NUMBER ADDRESS
EMAIL ADDRESS
SIGNATURE
NAME AND TITLE OF PERSON
SIGNING IF DIFFERENT FROM
NAME ABOVE
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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.
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.
-1-
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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
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.
-2-
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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.
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
-3-
Page 15 of 35
<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.
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.
-1-
Page 16 of 35
<PAGE>
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
-2-
Page 17 of 35
<PAGE>
Consolidated Financial Statements
PEAKSOFT CORPORATION
(in Canadian dollars)
Years ended September 30, 1998 and 1997
<PAGE>
PEAKSOFT CORPORATION
Consolidated Financial Statements
(in Canadian dollars)
Years ended September 30, 1998 and 1997
Auditor's Report 1
Financial Statements
Consolidated Balance Sheet 2
Consolidated Statement of Operations and Deficit 3
Consolidated Statement of Changes in Financial Position 4
Notes to the Consolidated Financial Statements 6
Page 18 of 35
<PAGE>
GORDON K.W. GEE
CHARTERED ACCOUNTANT 488 - 625 Howe Street
An incorporated professional Vancouver, BC V6C 2T6
- --------------------------------------------------------------------------------
Telephone: (604) 689-8815
Facsimile: (604) 689-8838
AUDITOR'S REPORT
To The Shareholders of PeakSoft Corporation:
I have audited the consolidated balance sheet of PeakSoft Corporation as at 30
September 1998 and the consolidated statements of operations and deficit and
changes in financial position for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these consolidated financial
statements based on my audit.
I conducted the audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In my opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at 30 September 1998
and the consolidated results of its operations and the changes in its financial
position for the year then ended in accordance with generally accepted
accounting principles.
The consolidated financial statements as at 30 September 1997 and for the year
ended 30 September 1996 were audited by other auditors who expressed an opinion
without reservation on those statements in their report dated 12 December 1997.
Accounting principles generally accepted in Canada vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations for the year ended 30 September 1998
and shareholders' equity to the extent summarized in note 15 to the financial
statements.
/s/ Gordon K.W. Gee
-------------------
Gordon K.W. Gee
Vancouver, B.C., Canada Chartered Accountant
15 February 1999
-1-
Page 19 of 35
<PAGE>
GORDON K.W. GEE
CHARTERED ACCOUNTANT 488 - 625 Howe Street
An incorporated professional Vancouver, BC V6C 2T6
- --------------------------------------------------------------------------------
Telephone: (604) 689-8815
Facsimile: (604) 689-8838
COMMENTS BY AUDITOR FOR U.S. READERS ON CANADIAN-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
note 1 to the financial statements. My report to the shareholders dated 15
February 1999 is expressed in accordance with Canadian reporting standards which
do not permit a reference to such events and conditions in the auditor's report
when these are adequately disclosed in the financial statements.
/s/ Gordon K.W. Gee
-------------------
Gordon K.W. Gee
Vancouver, B.C., Canada Chartered Accountant
15 February 1999
-2-
Page 20 of 35
<PAGE>
PEAKSOFT CORPORATION
Consolidated Balance Sheet
(in Canadian dollars)
30 September 1998 and 1997
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 22,824 $1,071,366
Accounts receivable 26,479 97,645
Inventories 43,284 59,128
Prepaids and deposits 39,999 156,046
- --------------------------------------------------------------------------------
132,586 1,384,185
Investment (note 2) 284,000 --
Capital assets (note 3) 105,947 195,787
Acquired research and development (note 4) -- 822,299
- --------------------------------------------------------------------------------
522,533 2,402,271
================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities 1,304,312 893,398
Deferred revenue (note 5) -- 109,681
Current portion of long-term debt (note 6) -- 14,936
Current portion of obligations under
capital leases (note 7) 29,665 24,624
- --------------------------------------------------------------------------------
1,063,977 1,042,639
Long-term debt (note 6) -- 1,380,991
Obligations under capital leases (note 7) 28,639 40,927
Shareholders' equity:
Share capital (note 8) 6,555,704 5,779,455
Other paid-in capital (note 6) 2,069,920 173,759
- --------------------------------------------------------------------------------
8,625,624 5,953,214
Obligation to issue share capital (note 8) -- 399,900
Accumulated deficit 9,195,707 6,415,400
- --------------------------------------------------------------------------------
(570,083) (62,286)
- --------------------------------------------------------------------------------
522,533 2,402,271
================================================================================
Contingent liability (note 10)
On behalf of the Board:
"Douglas H. Foster "Peter A. Janssen"
____________________________ Director __________________________ Director
See accompanying notes to the consolidated financial statements.
-3-
Page 21 of 35
<PAGE>
PEAKSOFT CORPORATION
Consolidated Statement of Operations and Deficit
Years ended 30 September 1998, 1997 and 1996
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Sales $1,246,381 $1,340,200 $ 784,900
Cost of goods sold 233,763 448,537 428,141
- --------------------------------------------------------------------------------
1,012,618 891,663 356,759
Expenses:
Amortization 991,017 1,050,965 118,968
General and administrative 1,392,633 1,245,114 312,361
Marketing 951,724 1,682,437 531,170
Research and development 531,860 641,426 321,740
- --------------------------------------------------------------------------------
3,867,234 4,619,942 1,284,239
- --------------------------------------------------------------------------------
Earnings (loss) before the undernoted (2,854,616) (3,728,279) (927,480)
Other earnings (expenses):
Debt settlement with creditors (Note 16) 259,618 -- --
Gain on sale of Subsidiary (Note 17) 51,879 -- --
Interest on longterm debt (237,188) -- --
Loss on settlement of lawsuit (note 10) -- (310,042) --
Write-off of assets -- (53,169) --
- --------------------------------------------------------------------------------
74,309 (363,211) --
- --------------------------------------------------------------------------------
Earnings (loss) from continuing operations (2,780,307) (4,091,490) (927,480)
Loss from discontinued operations (note 18) -- -- (745,844)
- --------------------------------------------------------------------------------
Loss (2,780,307) 4,091,490 1,673,324
Accumulated deficit, beginning of year 6,415,400 2,323,910 650,586
- --------------------------------------------------------------------------------
Accumulated deficit, end of year 9,195,707 6,415,400 2,323,910
================================================================================
Loss per common share (0.20) (0.42) (0.20)
================================================================================
See accompanying notes to the consolidated financial statements.
-4-
Page 22 of 35
<PAGE>
PEAKSOFT CORPORATION
Consolidated Statement of Operations and Deficit
Years ended 30 September 1998, 1997 and 1996
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net earnings (loss) $(2,780,307) $(4,091,490) $ (927,480)
Items not involving cash:
Loss from discontinued operations -- -- (745,844)
Amortization 991,017 1,050,965 118,968
Write-off of assets -- 53,169 --
Change in non-cash operating
working capital 181,719 253,980 404,452
- --------------------------------------------------------------------------------
(1,607,571) (2,733,376) (1,149,904)
Financing:
Repayments of long-term debt (1,380,991) (21,273) (23,462)
Increase (decrease) in obligations
under capital leases (12,288) (1,661) 51,342
Issuance of long-term debt 1,896,161 1,554,750 --
Increase (decrease) in obligation to
issue shares (399,900) (55,408) 455,308
Issuance of share capital 776,249 2,380,551 2,503,037
- --------------------------------------------------------------------------------
879,231 3,856,959 2,986,225
Investments:
Acquisition of investment (284,000) -- --
Purchase of capital assets (36,202) (82,180) (150,486)
Acquisition of licences -- -- (33,559)
Business combination (note 4) -- -- (1,644,598)
Acquisition of software technology -- -- (136,979)
- --------------------------------------------------------------------------------
(320,202) (82,180) (1,965,622)
- --------------------------------------------------------------------------------
Increase (decrease) in cash position (1,048,542) 1,041,403 (129,301)
Cash, beginning of year 1,071,366 29,963 159,264
- --------------------------------------------------------------------------------
Cash, end of year 22,824 1,071,366 29,963
================================================================================
See accompanying notes to the consolidated financial statements.
-5-
Page 23 of 35
<PAGE>
PEAKSOFT CORPORATION
Notes to the Consolidated Financial Statements
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
The Company is incorporated under the laws of Alberta and its principal
business activities are providing Internet software to corporate and
individual users
1. Continuing operations:
These consolidated financial statements have been prepared using generally
accepted accounting principles that are applicable to a going concern, not
withstanding that the Company incurred significant operating losses in the
current and prior years. This basis of preparation may be inappropriate
because significant doubt exists about the appropriateness of the going
concern assumption. The Company's ability to continue as a going concern is
dependent upon obtaining additional external financing and on the attainment
of profitable operations. Management is of the opinion that external
financing will remain in place and that as a result of their current product
launches and concentration on providing software for vertical markets,
sufficient profits will be obtained to meet the Company's obligations and
commitments as they become due. For this reason, the financial statements do
not reflect adjustments in the carrying values of the assets and liabilities,
the reported revenues and expenses and the balance sheet classifications used
that would be necessary if the going concern assumption were not appropriate.
2. Significant accounting policies:
(a) Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its wholly-owned American subsidiaries, PeakSoft Corporation
(U.S.A.), Peak Media, Inc. and its wholly-owned Canadian subsidiary
Chameleon Bridge Technologies Corporation. All significant inter-company
transactions and balances have been eliminated on consolidation.
The Company recorded an approximate 10% interest in Infobuild Networks,
Inc. (hereinafter referred to as "InfoBuild") at cost of $284,000. As
the Company has no significant influence upon the management of
InfoBuild, InfoBuild's Financial Statements have not been included
herein or consolidated herewith.
(b) Revenue recognition:
Revenue from product sales is recognized as the products are sold and
title to the product is transferred. Revenue from service contracts is
recognized when the work is completed.
(c) Foreign currency translation:
Foreign currency transactions entered into directly by the Company as
well as the financial statements of the integrated foreign operations
are translated using the temporal method. Under this method, monetary
assets and liabilities are translated at year end exchange rates. Other
balance sheet items are translated at historical exchange rates. Income
statement items are translated at average rates of exchange prevailing
during the year except for depreciation expense which is translated at
historical rates. Translation gains and losses are included in income
except for unrealized gains and losses arising from the translation of
long-term monetary assets and liabilities which are deferred and
amortized over the remaining lives of related items.
-6-
Page 24 of 35
<PAGE>
PEAKSOFT CORPORATION
Notes to the Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(d) Capital assets:
Capital assets are stated at cost. Amortization is provided on the
declining balance basis using the following annual rates:
------------------------------------------------------------------------
Asset Rate
------------------------------------------------------------------------
Furniture and equipment 4 years
Computer equipment 4 years
Computer software 3 years
Leasehold improvements 4 years
(e) Inventories
Inventories are valued at the lower of cost and net realizable value.
Cost is determined on a first-in, first-out basis.
(f) Research and development:
Research costs are expensed as incurred. Development costs are expensed
as incurred unless they meet the criteria for deferral under generally
accepted accounting principles.
The acquired research and development represents technology and advances
purchased in the acquisition of Chameleon Bridge Technologies Inc. in
1996. These assets are being amortized over their estimated useful life
of two years.
(g) Use of estimates:
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant areas requiring the use of
management estimates relate to the determination of net recoverable
value of assets, in particular as it relates to acquired research and
development, useful lives for amortization, recognition of revenue and
the determination of deferred revenue.
(h) Financial instruments:
The Company has applied retroactively the new accounting standard with
respect to the presentation of financial instruments.
-7-
Page 25 of 35
<PAGE>
PEAKSOFT CORPORATION
Notes to the Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
3. Capital assets:
-----------------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------------
Accumulated Net book Net book
Cost amortization value value
-----------------------------------------------------------------------------
Furniture and equipment $ 87,255 $ 54,657 $ 32,598 $ 33,637
Computer equipment 207,761 150,363 57,398 64,833
Computer software 178,073 178,073 -- 89,036
Leasehold improvements 152,462 136,511 15,951 8,281
-----------------------------------------------------------------------------
625,551 519,604 105,947 195,787
=============================================================================
Assets acquired under capital leases in the amount of $91,628 (1997 -
$79,148) and related accumulated amortization of $60,809 (1997 - $54,614 and
1996 - $18,474) are included in furniture and equipment as well as computer
equipment.
4. Acquired research and development:
1998 1997
- --------------------------------------------------------------------------------
Accumulated Net book Net book
Cost amortization value value
- --------------------------------------------------------------------------------
Research and development $1,644,598 $1,644,598 -- $822,299
================================================================================
-8-
Page 26 of 35
<PAGE>
PEAKSOFT CORPORATION
Notes to the Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
On May 16, 1996, the Company acquired research in the amount of $1,644,598
through the acquisition of Chameleon Bridge Technologies Corp. The Company
acquired all of the 1,950,000 issued and outstanding shares of Chameleon
Bridge Technologies Corporation in exchange for 1,500,000 shares of Peak
Technologies Inc. The fair market value of Peak Technologies Inc.'s shares
at the date of regulatory approval and exchange of shares was $1.11 per
share. Accordingly, the research and development is calculated as follows:
Purchase value based on shares issued in May, 1996 1,665,000
Other net assets acquired (20,402)
-----------------------------------------------------------------------------
Acquired research and development 1,644,598
=============================================================================
5. Deferred revenue:
Deferred revenue consists primarily of advance quarterly billings for a
computer service agreement.
6. Long-term debt:
- --------------------------------------------------------------------------------
1998 1997
$ $
-----------------------------------------------------------------------------
Renovation loan, secured by a charge on leasehold
improvements, bearing interest at 11.5% per annum,
maturing on March 15, 1998 -- 14,936
Notes payable, secured by the Company's inventory
and accounts receivable, bearing interest at 12%
per annum with interest paid quarterly, maturing
on September 9, 1999 (U.S. $1,563,000) 2,025,740 1,554,750
Less: other paid-in capital (2,025,740) (173,759)
-----------------------------------------------------------------------------
-- 1,395,927
Current portion of long-term debt -- 14,936
-----------------------------------------------------------------------------
-- 1,380,991
-----------------------------------------------------------------------------
Subsequent to the year end, the notes payable along with accrued interest
have been agreed to be converted to shares. This however is subject to
regulatory approval.
-9-
Page 27 of 35
<PAGE>
PEAKSOFT CORPORATION
Notes to the Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
6. Long-term debt (continued):
The notes payable in fiscal 1997 compromise of 12% senior promissory notes
held by Liverpool Limited Partnership and Westgate International L.P..
Attached to the issued notes are warrants to purchase 3,120,075 common shares
at a price of $0.50 per share expiring in September, 1999 and a right of
first refusal on future capital raising transactions. The notes reflect an
effective interest rate of 18% per annum and a value of $173,759 has been
attributed to the warrants issued and recorded as other pai in capital.
In the 1998 fiscal year, additional promissory notes were issued and held by
private individuals, Liverpool Limited Partnership, and Westgate
International, L.P. Some of the issued notes are attached with warrants to
purchase common shares.
USD $140,000 senior promissory notes, with interest at 12% per annum, due
09 September 1999 and attached with warrants to acquire 500,000 common
shares at CDN $0.40 per share. The warrants expire 15 March 2000.
USD $88,000 demand promissory notes with interest at 12% per annum and
attached with warrants to acquire 422,060 common shares at CDN $0.30
per share. The warrants expire 27 April 2000.
USD $150,000 senior promissory notes with interest at 12% per annum due
10 June 2000.
USD $60,000 demand promissory notes with interest at 12% per annum.
USD $30,333 demand promissory notes without interest converted from
deferred management remuneration.
Subsequent to the year end additional USD $340,000 was received and supported
by promissory notes bearing interest at 12% per annum.
Subsequent to the year end all of the above debt are waiting for regulatory
approval for conversion to shares.
7. Obligations under capital leases:
The Company has capital leases on equipment expiring at various dates through
2001 requiring the following minimum lease payments:
-----------------------------------------------------------------------------
1998 1997
$ $
-----------------------------------------------------------------------------
1998 -- 32,713
1999 39,385 24,180
2000 28,575 19,965
2001 -- 4,430
-----------------------------------------------------------------------------
Total minimum lease payments 67,960 81,288
Less imputed interest at varying rates (9,656) (15,737)
-----------------------------------------------------------------------------
Present value of net minimum capital lease payments 58,304 65,551
Current portion of obligations under capital lease 29,665 24,624
----------------------------------------------------------------------------
28,639 40,927
=============================================================================
-10-
Page 28 of 35
<PAGE>
PEAKSOFT CORPORATION
Notes to the Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
8. Share capital:
-----------------------------------------------------------------------------
Shares Amount
# $
-----------------------------------------------------------------------------
Authorized:
Unlimited voting common shares without par value
Unlimited non-voting preferred shares without par value
Issued:
Balance, 01 October 1994 656,293 94,580
Issued amount year ended 30 September 1995:
Issued to founders 2,344,148 -
Issued for cash 2,594,302 948,865
Issue for services and technology 155,257 45,700
Less share issuance costs - (193,278)
Issued amount year ended 30 September 1996:
Issued for cash 1,151,147 667,500
Issued for services and technology 1,704,210 1,835,537
Issued amount year ended 30 September 1997:
Issued for cash 3,545,266 2,496,498
Issued for services and technology 94,840 75,969
Less share issuance costs - (191,916)
Issued amount year ended 30 September 1998
Issued for cash 1,691,976 623,281
-----------------------------------------------------------------------------
13,937,439 6,402,736
-----------------------------------------------------------------------------
Included in shares issued for cash during 1998 are 390,000 (1997 - 833,541,
1996 - 750,000) shares for approximately $102,400 (1997 - $556,898, 1996 -
$317,500) issued pursuant to the exercise of management, employees and
directors' stock options. The remaining shares of 1,301,976 (1997 -2,711,725,
1996 - 401,147) for $520,881 (1997 - $1,940,000 and 1996 - $350,000) were
issued pursuant to private placements.
(a) Management, employees and directors' stock options:
At September 30, 1998, the Company had 1,121,000 management, employees
and directors' options outstanding:
776,000 options expiring 18 December 1999, exercisable to acquire
776,000 shares at $0.40 each
275,000 options expiring 26 May 2000, exercisable to acquire 275,000
shares at $0.30 each.
25,000 options expiring 27 May 2000, exercisable to acquire 25,000
shares at $0.30 each.
55,000 options expiring 10 July 2000, exercisable to acquire 55,000
shares at $0.22 each.
Subsequent to the year end, all of the above management, employees and
directors' stock options were cancelled.
-11-
Page 29 of 35
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
8. Share Capital (continued):
(b) Warrants:
At September 30, 1998, the Company had 4,042,135 warrants outstanding.
3,120,075 first warrants from a debt conversion, entitling the holder to
acquire one additional share for $0.50 each. The warrants expire in
September 1999. Subsequent to the year the company has sought regulatory
approval for repricing to acquire one additional share at $0.20 each.
500,000 warrants from a debt conversion entitling the holder to acquire
one additional share for $0.40 each. The warrants expire in March 2000.
422,060 warrants entitling the holder to acquire one additional share at
$0.30 each. The warrants expire April 2000 and are subsequent to
regulatory approval.
9. Fair value of financial instruments:
The methods and assumptions used to estimate the fair value of each class of
financial instruments for which it is practical to estimate a value are as
follows:
(a) Short-term financial assets and liabilities:
The carrying amount of these financial assets and liabilities are a
reasonable estimate of the fair values because of the short maturity of
these instruments. Short-term financial assets comprise cash and
accounts receivable. Short-term financial liabilities comprise accounts
payable and accrued liabilities.
(b) Long-term financial liabilities:
The carrying value of long-term financial assets and liabilities are a
reasonable estimate of the fair values. Long-term financial liabilities
comprise long-term debt and obligations under capital leases and other
paid-in capital (see note 6).
10. Loss on settlement of lawsuit:
This amount represents the costs of a settlement, including legal fees and
product returns, causing the Company to cease the use of a certain trade
name. The Product, in this situation, was certain CD ROM (CDR) programs that
were the subject of a trade name lawsuit. As a result of the lawsuit,
PeakSoft was forced to abandon the name used on the software and recall such
products sold to distributors as well as Company inventory held at a
fulfillment house. Since the programs were on CDRs, the name was "burned"
into the CDR. The text burned into the CDR could not be modified to change
the disputed name. This rendered all the CDRs with the disputed trade name
"obsolete" and therefore the recalled CDRs required destruction.
As a result of the lawsuit, this product was destroyed and the write off was
included in the financial statements as "loss on settlement of lawsuit".
Returned product that had been previously recognized as sales and included in
revenues was appropriately adjusted through Sales and Cost of Sales.
-12-
Page 30 of 35
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended September 30, 1998 and 1997
- --------------------------------------------------------------------------------
11. Contingent liabilities:
In November 1998, the company relocated its premises. Under the Lease
Agreement for the abandoned premises, the Company is liable for the lease
payments of the abandoned premises until the premises are released by the
landlord. Under this Agreement, the minimum lease payments are USD $83,226
per annum until 31, March 2002. The maximum exposure is $290,000.
12. Subsequent events:
In addition to the subsequent events discussed elsewhere in these notes to
the financial statements, the following subsequent events occurred:
The company has agreed with the individuals, management, Liverpool Limited
Partnership, Westgate International L.P. to convert CDN $2,800,316 (USD
$1,776,400, plus accrued interest to 15 October 1998) to 15,557,310 Shares
at CDN $0.18. the conversion is subject to regulatory approval.
On 28 October 1998, the company incorporated PeakSoft Multinet Corp. (U.S.A)
under the laws of Washington State in the United States of America. The new
corporation is a wholly owned subsidiary of PeakSoft Corporation, and has
yet to begin operations.
In the first quarter of the 1999 fiscal year, the Company issued a private
placement for 514,800 shares at CDN $0.18 each totaling CDN $92,664 (USD
$60,000).
Subsequent to the year end, regulatory authorities approved the
consolidation of shares on a 8 shares to 1 share basis. This consolidation
was approved by the shareholders on December 15, 1998 at an Extraordinary
General Shareholders Meeting.
13. Loss per common share:
Loss per common share is based on the weighted average number of common
shares outstanding during the year.
14. Related party transactions:
The following are related party transactions, not already disclosed
elsewhere in the notes to the financial statements:
----------------------------------------------------------------------------
1998 1997
$ $
----------------------------------------------------------------------------
Salaries to directors and officers 94,000 212,000
Consulting fees and expense reimbursements to directors 92,600 64,000
Salary paid to a relative of one of the directors 54,500 33,000
----------------------------------------------------------------------------
241,100 309,000
============================================================================
These transactions are in the normal course of operations and are measured
at the exchange amount which is the amount of consideration established and
agreed to by related parties.
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<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended 30 September 1998, 1997 and 1996
- --------------------------------------------------------------------------------
15. United States GAAP reconciliation:
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These
principles differ in the following material respects from those in the
United States as summarized below:
(a) Loss and loss per share:
-----------------------------------------------------------------------------
1998 1997 1996
$ $ $
-----------------------------------------------------------------------------
Loss in accordance with Canadian GAAP (2,780,307) (4,091,490) (1,673,324)
Difference in accounting for acquired
research and development (note d) 822,229 822,299 (1,644,598)
Stock options (note e) -- (85,470) (5,000)
Loss in accordance with
United States GAAP (1,958,078) (3,354,661) (3,322,922)
-----------------------------------------------------------------------------
Loss per common share (0.14) (0.35) (0.40)
-----------------------------------------------------------------------------
Weighted average number of shares used
for calculation 13,612,947 9,615,270 8,294,805
-----------------------------------------------------------------------------
(b) Balance sheet:
The amounts in the consolidated balance sheet that differ from those
reported under Canadian GAAP are as follows:
September 30, 1998 September 30, 1997
Canadian United States Canadian United States
GAAP GAAP GAAP GAAP
$ $ $ $
-----------------------------------------------------------------------------
Assets:
Acquired research and
development -- -- 822,299 --
Liabilities:
Other paid-in capital 173,759 264,229 173,759 264,229
Accumulated deficit 9,195,707 8,373,478 6,415,400 7,328,169
=============================================================================
(c) Statement of cash flows:
Cash used in operations and cash provided by financing activities would
decrease by 1997 - $75,969 and 1996 - $1,874,848 because shares issued
for services and technology would be considered non-cash transactions.
-14-
Page 32 of 35
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended 30 September 1998, 1997 and 1996
- --------------------------------------------------------------------------------
15. United States GAAP reconciliation (continued):
(c) Statement of cash flows (continued):
Under United States GAAP, cash used in investments and cash provided by
financing activities in 1996 would decrease $51,342 for obligations
under capital lease and $1,665,000 for common share consideration on an
acquisition.
(d) Research and development:
In accordance with United States GAAP, research and development costs,
including the costs of research and development acquired in a business
combination is expensed as it is incurred.
(e) Stock based compensation:
The Company records compensation expense for United States GAAP purposes
following the intrinsic value principles of Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees" (APB 25) in
accounting for the options issued under the Company's stock option plan.
Under APB 25, NIL compensation expense has been recognized for its stock
based compensation plans in 1998 (1997 - $85470, 1996 - $5,000).
The Company has elected the disclosure provisions of Statement of
Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for
Stock-Based Compensation", for United States GAAP purposes. Had
compensation cost for the Company's stock option plan been determined
based on the fair value at the grant date for awards under those plans
consistent with the measurement provisions of FAS 123, the Company's
loss and loss per share under United States GAAP would have been
adjusted as follows:
------------------------------------------------------------------------
1998 1997 1996
$ $ $
------------------------------------------------------------------------
Loss - as reported 1,958,078 3,354,661 3,322,922
Loss - stock option value adjusted 2,052,578 3,475,718 3,510,536
Loss per common share - as reported 0.14 0.35 0.40
Loss per common share - adjusted 0.15 0.36 0.42
========================================================================
(e) Stock based compensation (continued):
The fair value of each option grant is estimated on the date of the
grant using the following assumptions:
------------------------------------------------------------------------
1998 1997 1996
$ $ $
------------------------------------------------------------------------
Expected dividend yield 0% 0% 0%
Expected stock price volatility 70% 70% 70%
Risk-free interest rate 5.5% 5.5% 5.5%
Expected life of options 2 yrs. 1 yr. 2 yrs.
The weighted average fair value of the options granted is 1997 - $0.26
and 1996 - $0.22 per option.
-15-
Page 33 of 35
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
(f) Taxation:
For U.S. GAAP purposes, income taxes are accounted for in accordance
with Statement of Financial Accounting Standards No. 109 ("FAS 109"),
"Accounting for Income Taxes". FAS 109 requires the asset and liability
method whereby deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing asset and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year
in which those temporary differences are expected to be recovered or
settled. A valuation allowance is provided on deferred tax assets to the
extent it is not more likely than not that such deferred tax assets will
be realized. Under FAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
The Company has deferred tax assets of approximately $3,000,000 (1997 -
$2,140,000 and 1996 - $750,000) arising from losses carried forward (see
note 17). The Company has provided a valuation allowance against the
entire deferred tax asset amount as it is more likely than not that they
will not be realized.
16. Debt Settlement with Creditors
During the year, management negotiated with trade and other creditors to
realize a reduction of liabilities.
17. Gain on sale of subsidiary
During the year, the Company incorporated a State of Washington company to
perform ongoing service work for clients. In the year, the Company sold the
company for USD $100,000.
18. Loss from discontinued operations
During 1996, the company discontinued its multi-media segment of its
business. The costs related to this are summarized as follows:
----------------------------------------------------------------------------
$
----------------------------------------------------------------------------
Revenue (43,818)
Marketing 332,835
Research and development 368,119
General and administrative 88,708
----------------------------------------------------------------------------
745,844
============================================================================
19. Commitments:
The company has entered into a one year operating lease for facilities
expiring November 1999 for which the annual lease payments is USD $28,449.
The lease is renewable on an annual basis.
-16-
Page 34 of 35
<PAGE>
PEAKSOFT CORPORATION
Notes to Consolidated Financial Statements (continued)
Years ended 30 September 1998 and 1997
- --------------------------------------------------------------------------------
20. Income taxes:
The Company has non-capital losses from foreign and canadian operation
available for offset against future taxable income totaling approximately
USD $3,900,000 in the United States and CDN $3,600,000 in Canada.
21. Comparative figures:
Certain of the comparative amounts have been reclassified to conform with
the financial presentation adopted in 1998.
22. Uncertainty due to the Year 2000 issue
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the Year 2000 as 1900 or some other date, resulting in errors when
information using Year 2000 is processed. In addition, similar problems may
arise in some systems which use certain dates in 1999 to represent something
other than a date. The effects of the Year 2000 issue may be experienced
before, on, or after 01 January 2000, and, if not addressed, the impact on
operations and financial reporting may range from minor errors to
significant systems failure which could affect the company's ability to
conduct normal business operations. However, management does not anticipate
difficulties with the company's compliance. It is not possible to be certain
that all aspects of the Year 2000 issue affecting the company, including
those related to the efforts of customers, suppliers, or other third
parties, will be fully resolved.
-17-
Page 35 of 35
