US SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F/A (amendment #4)
(Mark One)
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended January 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
PEAKSOFT CORPORATION
AJAX, ONTARIO, CANADA
VANCOUVER, BRITISH COLUMBIA, CANADA
CALGARY, ALBERTA, CANADA
1801 Roeder Avenue, #144, Bellingham, Washington 98227 USA
Securities registered or to be registered pursuant to Section 12 (b) of the Act.
Title of each class: Common Shares
Name of each exchange on which registered: Alberta Stock Exchange
Securities registered or to be registered pursuant to Section 12 (g) of the
Act: Common Shares
Securities for which there is a reporting obligation pursuant to Section 15 (d)
of the Act: None
Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by the annual
report: 13,515,464 Common Shares
Indicate the check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Page 0 of 34file such
reports) and (2) has been subject to such filing requirement for the past 90
days. [ ] Yes [X] No
Indicate by check mark which financial statement item the Registrant has elected
to follow.
[X] Item 17 [ ] Item 18
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PAST FIVE YEARS)
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
[X] N/A [ ] Yes [ ] No
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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
PART III
ITEM 15 - DEFAULTS UPON SENIOR SECURITIES - NOT APPLICABLE
ITEM 16 - CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES
AND USE OF PROCEEDS. - NOT APPLICABLE.
PART IV
ITEM 17 - FINANCIAL STATEMENTS
ITEM 18 - FINANCIAL STATEMENTS NOT APPLICABLE
ITEM 19 - FINANCIAL STATEMENTS - SEE ITEM 17
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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.
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
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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.
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
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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 15,449shares
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 October 7, 1996, Peak completed a private placement of 1,333,333 units at a
price of CDN$0.60 per unit for gross proceeds of approximately CDN 800,000. Each
of these units, which were referred to as "First Special Warrants", consisted of
one common share of Peak coupled with one warrant which entitled the holder
thereof to acquire an additional share at a price of CDN$.70 - unless a
prospectus was not filed by Peak in provinces of Alberta, British Columbia, and
Ontario on or before December 23, 1996, in which event the holder of a First
Special Warrant became entitled to 1.1 common shares and 1.1 warrants. As this
prospectus filing date was not met, the First Special Warrants entitle the
holders thereof to acquire in the aggregate 1,466,667 common shares and
1,466,667 share purchase warrants. Finders fees (inclusive of expenses) were
n with certain subscriptions were paid by the Corporation of CDN$4,282.10 to
GTL Securities (U.S.A.) Inc., of CDN$12,284.46 to Chalfont Holdings and of
CDN$4,850 to Brent Harbar, each of whom is at arms length to the Corporation, in
connection with certain subscriptions for First Special Warrants. The First
Special Warrants expired on December 31, 1996.
On November 18, 1996, Peak completed a private placement of 500,000 Second
Special Warrants at a price of CDN$0.75 per Second Special Warrant for gross
proceeds of CDN$375,000. Each of these units, which were referred to as "Second
Special Warrants", consisted of one common share coupled with one-half common
share purchase warrant which entitled the holder thereof to acquire an
additional share at a price of CDN$1.00 - unless a prospectus was not filed by
Peak in each provinces of Alberta, British Columbia, and Ontario on or before
December 23, 1996, in which event the holder of a Second Special Warrant became
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entitled to 1.1 common shares and 1.1 warrants. As this prospectus filing date
was not met, the First Special Warrants entitled the holders thereof to acquire
in the aggregate 550,000 common shares and 275,000 share purchase warrants.
Finders fees (inclusive of expenses) of CDN$18,953 were paid by the Corporation
to GTL Securities (U.S.A.) Inc., a party at arms length to the Corporation, in
connection with certain subscriptions for Second Special Warrants. In the year
1996 65,519 shares were issued for services.
On January 17, 1997 Peak completed a private placement of 690,000 units at a
price of CDN$1.11 per unit for gross proceeds of CD$765,900. Each of these
units, which were referred to as "Third Special Warrants", consist of one common
share of Peak coupled with 1/3 of a warrant. A full warrant entitled the holder
thereof to acquire an additional at a price of CDN$1.35 - unless a prospectus
was not filed by Peak in each of the provinces of Alberta, British Columbia and
Ontario on or before April 21, 1997, in which event the holder of a Third
Special Warrant became entitled to 1.1 common shares and 0.367 warrants. As this
prospectus filing date was not met, the Third SPecial Warrants entitled the
holders thereof to acquire in the aggregate 759,000 common shares and 253,230
share purchase warrants. The Agents and Research Capital Corporation (Research
Capital) of Toronto, Ontario (as an additional sub-agent of GTL) received as
compensation, in part, in connection with the distribution of the Third Special
Warrants, non-assignable Brokers Warrants entitling them to acquire an aggregate
of CDN$69,000 non-assignable Agents Purchase Warrants. Each Agents Purchase
Warrant entitled the holder to acquire one common share at the exercise price of
CDN$1.35 per share at any time on or before January 16, 1998. The Common Shares
and the Fourth Warrants issuable on exercise of the Third Special Warrants and
34,500 of the Agents Purchase Warrants issuable on exercise of the Brokers
Warrants (on a pro rata basis among the holders thereof) are qualified for
distribution. The Third Special Warrants expire on July 17, 1998.
On June 11, 1997 the Company issued and had accepted a prospectus in British
Columbia, Alberta, and Ontario and cleared the First, Second, and Third Special
Warrants. 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
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and a value of CDN$173,759 has been attributed to the warrants issued and
recorded as other paid-in capital.
A second issuance of 12 percent senior promissory notes of CDN $1,207,500 (USD
$875,000) were to have been issued subject to certain terms and conditions, with
warrants attached to purchase 1,879,925 common shares of the Company at a price
of $0.64 per share expiring in February, 2000. The terms and conditions of this
second purchase of notes required the Company to attain certain targets which
were not achieved, in the result of which the amount of the second advance was
renegotiated downward to USD $140,000, this advance being made on March 19, 1998
against the issuance of a second set of promissory notes and of 500,000 Share
Purchase Warrants which are convertible into Common Shares at a price of
CDN$0.40.
PeakSoft began shipping its most recent product, NetMagnet, on January 21, 1998.
NetMagnet, which has been well received by evaluators of and commentators upon
computer software, is a web accelerator / caching / presentation utility which
substantially enhances the speed with which information can be gathered from the
World Wide Web and presented to others.
BUSINESS OF THE CORPORATION
Overview
PeakSoft is primarily a software and Internet technology company that is
developing and marketing products to enhance the browsing ability of Internet
users. Using proprietary Java-based technology, PeakSoft is developing products
that address the Internet performance concerns of consumers and businesses.
The Technology
In early 1995, the Corporation made a research and development commitment to
develop products for the Internet. The result was the development of the
Corporations Java-based technology.
As a result of its acquisition of CBT developers who were employed by that
company, the Corporation secured the ability to develop applications utilizing
the Java programming language.
PeakSofts primary proprietary technology is based on the Java server ExpressO
and is complemented by other technologies, including Javalin, a Java based
development environment. ExpressO provides the Corporation with the benefits of
a complete Java server in developing Internet applications and, in particular,
those applications which address browsing speed and performance issues.
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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.
Products
PeakSofts core technology has been translated into a comprehensive product
strategy.
The company announced PeakJet 2000 and commenced sales of this product on July
2, 1998. PeakJet 2000 is a next generation of the company's original browser
accelerator offering new features and specific features for the International
marketplace.
The company licensed its technology to InfoBuild Networks Inc. InfoBuild has
released its first application targeted at the financial industry, BSmarter and
is in the process of launching its next product BFaster.
The company is preparing to release its first value added solution, LawTrack
with a price point of $395 targeted at providing Internet Research to the legal
community. The company also is developing other value added solution products
based upon its core technology.
Marketing Strategy
To capitalize on its technology, PeakSoft is addressing the needs of the rapidly
growing market of Internet users. The Corporation plans to apply its technology
to performance solutions for business in the emerging intranet marketplace, and
will shortly be releasing a product to assist members of the legal profession to
access and to organize the resources available to them on the Internet. In
addition, PeakSoft is proposing to license other companies to develop its
software for corporate and 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.
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These strategies include: 1) Sales through traditional distributors into major
retail locations across North America, 2) Bundling of the products with other
complimentary applications, 3) Offering trials of the products through
compatible distribution partnerships such as modems and other computer devices,
4) Creating a presence on the WWW for the offer to try or to purchase the
products, 5) Establishing International sales relationships.
The number of users of the Internet is projected to continue to grow through the
next 5 years. In 1998 the emergence of E-Commerce and Electronic Software
Distribution has created opportunities for the company to expand its product
offering and establish new channels of distribution. In addition to our previous
strategies, which continue to be refined, PeakSoft is establishing Internet
retail partnerships and co-marketing alliances based upon a profit sharing
model.
Marketing activities and Public relations focus on the Internet as the primary
vehicle for creating interest in the companys products followed by traditional
press and print focus.
The company plans to release new applications focused on solving specific
industry problems and allowing them to gain maximum value from the Internet.
While there is no guarantee that these applications will be accepted, the
company sees an opportunity to increase its product pricing and specialize its
products for specific industries and tasks.
Management, Staff and Facilities
PeakSoft has 19 employees who work primarily from its leased office space in
Bellingham, Washington. Certain members of management also work from home
offices in the Vancouver area of British Columbia (see The Corporation). The
Corporations Bellingham facilities are used for its inventory storage, customer
service, accounting, legal, marketing and product quality assurance functions.
PeakSofts programmers work both from the Bellingham office and from home
offices. The Corporation had at one time a British Columbia office, but this was
closed in March 1997.
Senior management of Peak possesses a strong industry background in business
management, finance, technology, sales and marketing. Peaks Board of Directors
provides a breadth of public company, software industry and corporate finance
experience. The organization and duties of the Corporations management are as
follows:
President & C.E.O. - Douglas Foster
Overall responsibility for the planning and execution of the Corporations
business with marketing being his primary focus. Mr. Foster reports to the
Board of Directors.
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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
President.
Chief Operations Officer - Timothy Metz
Mr. Metz is responsible for the financial operations and day-to-day management
of the Corporation.
Core Technology
Javalin Technology
PeakSofts initial investment in Java following its acquisition of CBT resulted
in the development of Javalin. Javalin is proprietary technology that allows
PeakSoft to quickly develop high performance Java applications. It incorporates
a real time multimedia enhancement for the Internet that is designed to animate
and increase the impact of content on the World Wide Web. Javalins Java-based
software framework will run in conjunction with all major browsers and Windows
95 and Windows NT computer platforms. Its modular structure requires no special
plug-ins or readers. Its layered architecture creates a steady multimedia
presentation flow. Even with todays Internet bandwidth limitations, the problems
of lengthy downloading delays are reduced.
Javalin has a graphic user interface for intuitive drag and drop authoring, and
a scripting language for simple but detailed control of the structure and
behavior of objects. Its layered architecture introduces presentation structures
in hypertext, vector metagraphics, scalable bitmaps and animation. Sequenced
effects such as movements, color and texture changes, zooms, rotations, fades,
and wipes can be applied to objects in each level. Conditional events such as
collision detection between objects and user interaction can create independent
chains of sequences. Javalins modular construction can be layered to create
multi-stated, multifaceted graphics and environments. It can also be directed to
low level programming functions.
Javalin was developed specifically for web authors, a market the Corporation has
subsequently determined to be less attractive than Internet users who want
enhanced performance. For this reason, the Corporations Javalin technology has
not been developed into a completed consumer product, but rather is used
internally by the Corporation as a tool to develop its other products.
PeakSoft ExpressO
In May 1996, PeakSoft acquired ExpressO server technology from Innovative
Desktop Inc. ExpressO is a multi threaded server written entirely in Java and is
currently perceived as an architecture that may form the basis of many
applications to come. ExpressO has a well-defined architecture and has
programming interfaces, which make it a flexible software building block.
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Since 1996, PeakSoft has developed additional technology in Java which includes
agents and caching capabilities complementary to ExpressO and Javalin. The
Corporation owns all technology outright.
MARKETPLACE
Overview
According to a June, 1996 study by the Georgia Institute of Technology (reported
on the website of Forrester Research), in the first three months of 1996, nearly
35 million persons in the United States over the age of 16 used the Internet or
accessed on-line services. This represents a growth rate of 52 percent over
1995. According to Dataquest, the Internet is one of the fastest growing markets
in the world with 1997 growth of 71 percent to 82 million computers worldwide
online. Driven by increased business and international expansion the year 2001
is projected to exceed 268 million computers online.
Users expect the Internet to be fast and easy to use. While the Internet is the
fastest growing communications, entertainment and marketing medium in the world,
most people find it frustrating to use. Access is slow, content is static, and
information is often difficult to find and access.
According to Forrester Research, Internet software revenue will increase from an
estimated US$1.4 billion in 1997 to US$8.5 billion by 1999. These revenues will
be generated in the following market categories (according to a 1996 industry
study by I/PRO reported on the Forrester Research website):
Fast growth and transition to non-technical use has created technical
(bandwidth) problems for the Internet. As reported by most industry
publications, and confirmed by PeakSofts focus groups, the primary frustration
with the Internet is the slow speed of navigation followed by ease of access,
ease of searching for information and underwhelming content.
Users do not want to wait long minutes to view pages and graphics, and they are
not willing and often not capable of going through the tedious and confusing
process of down-loading and setting up plug-ins and players in order to view
interesting content. What they really want is the experience to be as easy as
dealing with other household appliances, with instantaneous results.
PeakSoft has recognized these problems, and has released Peak Net.Jet (now known
as PeakJet) and NetMagnet, and is developing other products to address aspects
of the Internet opportunity.
Target Markets
Primary - Consumers and Small Business, Internet Research
The largest potential market for PeakSoft products is the large and growing
group of individuals who, and businesses and households which, want access to
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the Internet. PeakSoft intends to address this market through traditional
consumer-based distribution channels, World Wide Web based distribution
programs, and direct to business marketing.
PeakSoft is launching a series of products targeted at solving key problems
which users are experiencing on the Web - those relating to speed of access,
ease of use and productivity. PeakJet addresses the biggest problem by
increasing the speed of information delivery to users. The Peak Jet Effects is
targeted to web-site authors and graphic artists. With the introduction of
NetMagnet users now have a sophisticated caching and presentation tool as well
as a web browser accelerator.
High quality, Java-based products combined with impulse level pricing have
helped to reduce PeakSofts barriers to entry in the distribution channel. High
impact packaging, promotion and advertising programs lead retailers to place
PeakSofts products in high profile areas. Additionally, World Wide Web marketing
programs help develop the market and provide initial feedback as well as permit
the offering of limited use versions at little or no cost.
Corporate Intranet and Research
PeakSofts technology is being targeted to the growing intranet market as well.
PeakSofts server technology is being bundled into a product strategy, with the
planned launch into the intranet market of work group and information management
products later in 1998. These products and tools will be targeted at
corporations as well as Web service and site providers.
PRODUCTS
The following is an overview of PeakSofts initial products.
PeakJet 1.5
PeakJet (formerly called Peak Net.Jet) is an accelerator for the Internet. It
directly addresses the primary problem with the Internet: lack of speed while
viewing the World Wide Web. PeakJet can significantly reduce the waiting time
and increase the speed with which a user can view pages and links within a site
and when traveling from site to site.
PeakJets performance enhancement varies, depending upon the users activity.
Users will notice speed increases beyond their normal browser capacity, both for
sites browsed for the first time and for those previously visited and cached.
PeakJet reduces waiting time regardless of the content type being loaded whether
text, sound or images. PeakJet reduces access time to all sites, Java or
otherwise. Additional speed gains are realized when accessing sites utilizing
Peaks ExpressO Java server. PeakJet boosts Web surfing performance on both 14.4
and 28.8 modems, as well as on ISDN, T3 and TI connections.
PeakJet works with PC (Windows 95 and Windows NT) compatible systems and runs
with any Java-enabled browser, including Netscape 2.0 or later, Microsoft
Internet Explorer 3.0 or later, JavaSofts HotJava, and Oracles Power Browser.
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PeakJet was released on November 18, 1996 at a suggested retail price of US
$29.95. PeakSoft has plans to release PeakJet 2.0 during the latter part of
1998.
JetEffects
A Java-based tool for World Wide Web authors, JetEffects allows animations,
special effects and sounds to be added to text and graphics. JetEffects provides
a graphic user interface, allowing non-programmers to bring static Web sites to
life.
JetEffects began selling separately over the Internet for US $49.95 beginning in
November 1996 and was released into the retail channel on March 10, 1997. This
product also offers potential bundling and original equipment manufacturer
opportunities.
NetMagnet (consumer) from PeakSoft
NetMagnet is a new software suite of products that improves the efficiency of
the Internet and WWW as an information tool. NetMagnet is a research tool that
enables the user to obtain information that is located on the Internet and
offers options to annotate, edit, organize and save Web searches, and has
functionality to publish or send those searches to other Web users. PeakJet 1.5
users can be upgraded to combine with NetMagnet to enable the user to
significantly accelerate the searches and retrieval of Internet information.
This technology is currently being enhanced for distribution in the professional
and financial markets.
ExpressO from PeakSoft
ExpressO is a full-featured easily customized Java Web server that enables peer
to peer communication between users. Its small size and cross-platform
compatibility allows it to reside on a broad range of computer platforms
supporting a Java interpreter. Ideal for both Internet and intranet users,
ExpressO products include Commercial Web Server, a Lite Personal Web Server, the
ExpressO Programmer Kit and the Server Construction Kit.
ExpressO products will be sold to corporations, through original equipment
manufacturer agreements and to World Wide Web developers. These products are
expected to be released in 1998.
MARKETING AND DISTRIBUTION
Main Channels
A number of trends are changing the face of distribution for software companies.
Since PeakSoft sells Internet solutions it is important to understand the trends
in this category as well. Below we will briefly introduce the trends and how
they effect PeakSoft strategies.
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1. Growth of Internet Commerce in all markets. E-Commerce is experiencing
substantial growth as consumers become more confident about conducting
financial transactions over the Web. PeakSofts strategy is to develop
Internet retail locations where its product may be purchased using secure
commerce technology and delivered electronically or in disk form.
2. Internet software sales are increasing on the Web. It follows that Internet
users are tending to purchase software on the Web. The result has been lower
than expected performance of Internet software and utilities in the
traditional retail channel, and a corresponding increase in sales on-line.
PeakSoft has upgraded its e-commerce capability and opened the PeakStore at
www.peak.com to take advantage of this trend.
3. Increase in e-commerce has led to increase in Web based retail
opportunities. Non-traditional companies are entering the e-commerce market
as a way to increase profits. Firms that are not thought of as traditional
retailers are creating partnerships and profit sharing arrangements. As an
example, software and other products can be purchased at Web boutiques on
sites such as The Wall Street Journal, Ziff Davis, CBS and others. PeakSoft
has established an Alliance Program to increase its participation in these
forms of retail opportunities.
4. Retailers have moved to the Web, Egghead, Comp USA and others. Peak has
established over 20 retail locations so far and is seeking to improve its
terms of payment in these new markets.
5. Direct to Customer strategies are producing promising results, firms like
Dell, Gateway, RealNetworks and others have established substantial
improvement in margins and sales through these programs. PeakSoft alliance
programs are based upon a profit sharing strategy through partnerships that
can reach directly to potential customers.
PeakSoft Web Site
The Corporation has developed and maintains high profile website: www.peak.com.
This site, complete with product and corporate information, is where visitors
can see samples of PeakSofts products, read press releases and critical reviews.
PeakSoft offers customer support, forums for feedback and links to other topical
sites. Guests can even get a current stock quote, view the Corporations chart or
calculate the value of their PeakSoft holdings. Since April 1996, the
Corporation has positioned teaser samples of Javalin animations on the site,
which have been very active and growing in popularity.
PeakSoft has developed well its presence into a showcase for its products and
technology and a gathering place for consumers. PeakSoft regards the Internet
and its websites as low cost marketing tools and has developed a focused plan to
take advantage of this opportunity. In 1996 and 1997 the Corporation has
uploaded to consumers over 100,000 units of its products.
All of PeakSofts current and planned products are World Wide Web-enabled. This
means that every PeakSoft software program has an automatic launch capability to
www.peak.com where it could be automatically updated with minor releases of the
software. Currently, upgrades have been unspecified and are expected to be
minimal and infrequent. This automatic update function provides PeakSoft with a
continuing access to its customer base.
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Direct distribution software is one of the few products that can take advantage
of the low cost distribution channel of the Internet. Most PeakSoft products and
services can be sold and distributed via the Internet, (although PeakSofts more
advanced products will be sold by licensees dedicated to their professional and
institutional markets). PeakSoft provides direct consumer delivery for all of
its consumer products by the simple expedient of their being downloaded from one
of PeakSofts websites. ExpressO, the Corporations Java server, is also
deliverable via the Internet. Product upgrade programs requiring small program
extensions are promoted and delivered directly over the Internet as well, a
practice which will be extended to PeakSofts more sophisticated products.
Currently, upgrades have been unspecified and are expected to be minimal and
infrequent. While PeakSoft expects modest results in the short term, the
Corporation expects this area to grow into a significant revenue center in 1998
and 1999.
Support
PeakSofts support programs are geared toward developing brand awareness in
addition to providing a high level of support. The first level and highest
priority for support calls will be through the World Wide Web sites. Users can
enter their support issues directly in the support area of the site.
Additionally, they can view the frequently asked questions area where most of
the common support issues will be answered. Responses to the customers support
issues are most commonly made via e-mail.
Phone calls for support, unless critical, receive a secondary priority behind
World Wide Web support calls. Whenever possible PeakSoft emails the response or
calls back if required. If the solution were available in the frequently asked
questions area or more easily attainable through the World Wide Web, PeakSoft
mentions that fact to urge the customer to use electronic support in the future.
Implementation of this plan addresses a number of issues. It provides an
efficient low cost support structure. Directing a response back to the customer
will be easier and faster as it will not be dependent on the customers
availability and doesnt require a long distance phone call. Additionally, it
brings people to the site where the Corporation can utilize each connection as
an opportunity to market additional products and services.
MANUFACTURING
PeakSoft Corporation has contracted with Saturn Solutions of Toronto, Ontario
and Essex, Vermont, to manufacture and assemble the software products for
distribution in the retail channel. Saturn Solutions replicates CD-ROMs and
produces packaging for all Peak software products, which are shipped out of the
Essex, Vermont, fulfillment facility. PeakSoft Corporation has also entered into
a similar agreement with Hart Graphics of Austin, Texas.
COMPETITION
Browser Accelerators
Currently there are a small number of competitors that have entered the market
with software products that include some features similar to PeakJet. Speed
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Surfer from ViaSoft, based in Australia, markets a shareware program that claims
to speed browser performance on the Web. Because Speed Surfer is designed to run
totally in the background and has no user interface, evaluating user benefit is
difficult. Speed Surfer is priced at about US$30. GoAhead from GotIt has similar
features to PeakJet, including look-ahead agents, cache fresheners and automatic
software updates. GotIt users can browse offline and the software will initiate
an Internet connection if a page is requested that is not in the cache. The user
interface resembles a TV remote control that enables the user to determine the
benefit of the product. GotIt is available on-line only with no retail
distribution. Net Accelerator from IMSI was shipping in July to most retailers.
Priced at US $29.95 this product makes many claims similar to PeakJet. PeakSofts
testing indicates that this product does not contain caching technology.
PeakSofts tests show PeakJet is 5-15 times faster. A recent evaluation of
browser accelerator software by CNET, a major evaluator and purveyor of software
on the Internet, concluded unequivocally that PeakJet was the fastest product of
its type.
While there is currently no direct competitive product to NetMagnet in the
market, the Company believes that as more favorable reviews are published and
sales increase; competitive products will arrive in the market. The Company
plans to maintain its lead in the market through new technology.
Animation Tools
JetEffects, retailing at US $49.95, entered a highly competitive market with
similar animation tools such as Jamba from Aimtech, Liquid Motion Pro and Liquid
Reality from DimensionX. Jamba allows creation of applets similar to any other
applet author. It has been awarded best of the test in a comparison of seven
animation software products in Internet World (Feb/97) and is priced at US
$299.00. Liquid Motion Pro is an applet authoring tool which allows the creation
of interactive 2D animations. This product has been well received by the press
and is priced at US $725.00 with a free trial available. Liquid Reality enables
users to create interactive 3D VRML Java environments. A free beta version is
available, but no retail price has been announced.
RESEARCH AND DEVELOPMENT
As of September 30, 1997 the Company had 8 hardware and software engineers
employed full time in research and development.
Research, development and associated expenses were CDN$180,413 for 1st. Qtr.
Fiscal 98, CDN$641,426 for fiscal 97, CDN$321,740 for fiscal 96, and CDN$31,871
for fiscal 1995.
RISK FACTORS
The purchase of Common Shares of the Corporation must be considered highly
speculative due to the nature of the Corporations business, its relatively early
stage of development and the intensely competitive, rapidly changing nature of
the Internet industry which has a number of participants which possess greater
resources than the Corporation.
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The Corporation is a development stage company, which has not yet achieved
profitability. Its accumulated deficit, in accordance with generally accepted
accounting principles in Canada, as of September 30, 1997 was CDN$6,415,400.
There can be no assurance that the Corporation will be able to achieve or
sustain profitable operations. The Corporation expects to continue to incur
significant operating losses as it continues to devote significant financial
resources to the commercialization of its products, the expansion of the
Corporations operations and product development activities. There can be no
assurance that the Corporation will successfully commercialize such products and
reach break-even or profitability in the near future, or ever. Due to extensive
development costs and marketing expenses for its proprietary products, there was
a loss incurred for the fiscal year ended September 30, 1997 of CDN$4,091,490.
As a result of the foregoing, investors could lose their entire investment in
the Corporation.
While the Corporation has established sales revenues they should be considered
early stage. In September of 1997, the Corporation concluded a US$1.125 million
financing, a financing which was augmented by a second advance of US$140,000,
during the third week of March 1998. The Corporations future capital
requirements will depend on many factors, including the amount and the timing of
future revenues and continued progress in its research and development. There
can be no assurance that any necessary additional financing will be available
when required by the Corporation for product commercialization on acceptable
terms or at all. If adequate funds are not available, the Corporation may be
required to change, delay, reduce or eliminate its planned product
commercialization strategy or take other actions to raise funds, which could
have a materially adverse effect on the Corporations business, the results of
its operations, and hence its financial condition. To date, the Corporation has
relied on sales of its equity capital for the largest measure of its financing,
and is likely to remain reliant thereon in the near term. To the extent further
equity financings are available, they may result in substantial dilution to
existing shareholders.
The production of technology-based products such as computer software carries
with it a high risk of the emergence of new competitive products in the same
market niches as those being targeted by the Corporation. There is in this
industry a substantial risk of unforeseen change in the underlying technologies
during the development of technology-based products, which may have negative
effects on the marketability of such products. The Corporation has no
technological advantage over any other competitor. There can be no assurance of
market acceptance of the Corporations products, or if there is acceptance, that
such acceptance will be sustained. Internet markets are new and relatively
unproven, and thus carry higher risk than more established markets.
The technology involved in the development of software for Internet users is
subject to constant, often rapid, development. This technology and the products
developed therefrom may, even within a short time, become obsolete or superseded
by technology with a greater market acceptance. As a result, the Corporation
could be required to expend significant amounts for research and development in
order to maintain its competitive edge. There can be no assurance that the
Corporation will be able to develop or improve its existing technology or to
develop new technology. Hence there can be no assurance that it will continue to
have access to adequate financial resources to fund necessary research and
development.
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The market for the Corporations products is relatively new, and its potential
has not yet been determined. The Corporation believes that the market for its
products has significant growth potential, but whether that potential will be
realized depends upon numerous factors outside the Corporations control. Even if
the market for Internet products were to develop as anticipated, the success of
the Corporations products will depend upon the Corporations ability to
anticipate and to respond to trends in the demands of the marketplace for such
products.
The Internet products industry is ferociously competitive. The Corporation
competes against a large number of companies of varying size and resources,
including large companies with substantially greater financial, technical and
marketing resources than PeakSoft. The Corporation believes that competition in
its business depends largely upon sustained technological advancement and the
development of appropriate channels for the marketing of its products. The
Corporation is attempting to meet these needs through the expansion of its
technical expertise and by developing multiple sales channels for its products.
There can be no assurance, however, that the Corporation will be successful in
these efforts.
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when financial
statements are affected by conditions and events that cast substantial doubt on
the Companys ability to continue as a going concern, such as those described in
note 1 to the financial statements. The auditors report to the directors dated
December 12, 1997 is expressed in accordance with Canadian reporting standards
which do not permit a reference to such events and conditions in the auditors
report when these are adequately disclosed in the financial statements.
Accordingly, the auditors included a notice to US readers to this effect.
Existing external financing remains in place and has been increased. Management
is also seeking some additional external financing. The Company has obtained
financing aggregating to US$545,206 since September 30, 1997, and is attempting
to raise further financing at this time. Accordingly, the Company has concluded
that the going-concern assumption is appropriate.
Management is aggressively taking steps to remedy its current financial
situation. Implemented cost reduction programs have reduced operating cost by
44% and fulfillment cost by 31% since December 31, 1997. Terms and conditions of
sales have been modified in order to enhance cash flow. Management is
implementing a new strategic marketing and sales program, both domestically and
internationally, to increase sales while reducing costs. The Company plans to
maximize the potential of its technology by simultaneously addressing both
vertical and horizontal markets with existing and new scheduled products.
The Corporation has not registered trademarks and service marks with respect to
all of its products. In June 1997, the Corporation settled a lawsuit alleging
infringement upon a trademark in connection with the use of the name Net.Jet.
See Legal Proceedings. There can be no assurance that others will not assert
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infringement claims against the Corporation in the future. Such claims, even if
unfounded, can be costly to defend, and could have a materially adverse effect
upon the Corporations operations.
The Corporation is dependent upon the management and leadership skills of Mr.
Douglas Foster and its existing management. The Corporation is not party to
material contracts of employment with Mr. Foster or key members of current
management. There is intense competition for qualified personnel in the software
industry, and the loss of key personnel or an inability to attract, retain and
motivate key personnel could adversely affect the Corporations business. The
Corporation does maintain policy of key man insurance on the life of Mr. Foster
having a value of US$500,000. There is no assurance that the Corporation will be
able to retain its existing senior management personnel or to attract additional
qualified personnel.
Following exercise of the First Special Warrants, Second Special Warrants and
Third Special Warrants, the Corporations principal shareholder will, in the
aggregate, beneficially own approximately 6.86 percent of the Corporations
outstanding Common Shares (excluding Common Shares issuable upon exercise of
stock options, Agents Purchase Warrants, First Warrants, Second Warrants, Third
Warrants and Fourth Warrants). As a result, such shareholder may be able to
influence materially most matters requiring approval by the shareholders of the
Corporation, including the election of a majority of the directors. The voting
power of the principal shareholder under certain circumstances could have the
effect of delaying or preventing a change in control of the Corporation, which
in turn could affect the market price of the Common Shares.
There has been significant volatility in the market price of securities of
technology companies. Factors such as technology and product announcements by
the Corporation or its competitors, disputes relating to proprietary rights and
variations in quarterly operating results have had, in the past, and may
continue to have in the future, a significant impact on the market price of the
Common Shares. In addition, the securities markets have experienced volatility,
which is often unrelated to the operating performance of particular companies.
To the extent that external sources of capital, including the issuance of
additional Common Shares, might be limited or become unavailable, PeakSofts
ability to make the necessary capital, development and marketing expenditures to
create and distribute new products will be impaired.
The Corporation has not paid any dividends since its inception and does not
contemplate that any dividends will be paid in the foreseeable future.
The Corporation sells a substantial part of its products and services outside of
the United States and Canada. Its profitability may therefore be subject to
fluctuations in exchange rates. The Company does not manage the risks related to
foreign currency, interest rates or inflation by using hedging arrangements.
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There are potential conflicts of interest to which the directors of the
Corporation may be subject to, from time to time, in connection with the
operations of PeakSoft. Conflicts, if any, will be subject to the procedures and
remedies mandated by the Business Corporations Act (Alberta) and the common law
of Alberta.
ITEM 2 - DESCRIPTION OF PROPERTY
The executive offices and support facilities of PeakSoft USA, which are located
at 3614 Meridian Street, Suite 100, Bellingham, Washington, USA, occupy
approximately 5,392 square feet. These offices were leased, effective September
15, 1997, for a term of 54 months at an annual lease rate of US$67,100. The
Company at one time leased commercial space located at 100 Park Royal, West
Vancouver, British Columbia, Canada for research and development and business
development offices. These offices have been sublet, but a shortfall between the
rent received from the subtenant and that due to the landlord of CDN$1,518.46
per month must be made up.
ITEM 3 - LEGAL PROCEEDINGS
On December 4, 1996, the Corporation was served with a formal complaint from
Netjet Communications, Inc., a California corporation, alleging trademark
infringement with respect to the Corporations Internet software product, Peak
Net.Jet, and commencing legal proceedings with respect thereto in the U.S.
District Court, Northern District of California. The complaint sought
unspecified damages, profits, injunctive and other equitable relief. A
settlement of the complaint, the terms of which are confidential, was reached by
the parties on June 10, 1997. Payment was made in full on September 13, 1997.
In the spring of 1997, the Corporation received a series of bills totaling
CDN$71,884.60 from its then general and securities counsel, the law firm of
Bennett Jones Verchere in Calgary, Alberta, for legal services allegedly
performed during the years 1995 and 1996. PeakSoft believes that these invoices
have been remitted improperly, and is contesting them in a taxation proceeding
which is ongoing before an officer of the Court of Queens Bench of Alberta.
ITEM 4 - CONTROL OF REGISTRANT
PRINCIPAL SHAREHOLDERS
The only persons who own of record, or who are known to the directors of the
Corporation to own beneficially, directly or indirectly, more than 10 percent of
the issued and outstanding Common Shares, as at March 23, 1998, are:
Name and Municipality of Residence: Douglas H. Foster, Bellingham, Washington
(1)
Type of Ownership: Legal and beneficial, indirect
Number of Shares: 1,470,050
Percent of Common Shares: 10.88
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Percent of Common Shares after giving effect to the exercise of the First
Warrants, the First Special Warrants, the Second Special Warrants, the Third
Special Warrants (2) and the Fourth Special Warrants: 6.86
Notes:
(1) Mr. Foster holds 115,000 shares personally and is the sole shareholder,
director and manager of Foster Murphy & Sons Holding Co. Ltd., a British
Columbia company which is the registered holder of 1,355,050 Common Shares.
(2) This does not include Common Shares issuable upon exercise of stock options,
Agents Purchase Warrants, Second Warrants, Third Warrants or Fourth
Warrants.
The directors and officers of the Corporation beneficially own directly and
indirectly 13.0 percent of the issued and outstanding Common Shares of the
Corporation.
Title of Class Identity of Person or Group Amount Owned Percent of Class
- --------------- --------------------------- ------------ ----------------
Common Stock D. Foster (Individual) 115,000 .9
Common Stock Foster Murphy & Sons- 1,355,050 10.0
Doug Foster (Individual)
Common Stock Carl Conti (Individual) 112,000 .8
Common Stock Donald McInnes (Individual) 85,000 .6
Common Stock Peter Janssen (Individual) 51,750 .4
Common Stock Nick Vermeulen 33,000 .2
Common Stock Thomas Taylor 1 .0
Common Shares All Directors/Officers 1,751,801 13.0
as a Group
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:
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
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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
The closing price of the Common Shares of PeakSoft on the Alberta Stock Exchange
on March 25, 1998 was $0.43.
As of March 27, 1998, 39.2 percent of the registered shares were held in the
U.S.
ESCROW
Pursuant to an agreement dated July 12, 1995 among the Corporation, Montreal
Trust Company of Canada, Foster Murphy & Sons Holding Co. Ltd., McGillicutty
Management Corp. - and - Eric Simonson and Kathy Simonson, (the Original Escrow
Agreement), an aggregate of 2,461,523 Common Shares owned by these shareholders
were placed in escrow with Montreal Trust Company of Canada. The Original Escrow
Agreement provides that the shares held in escrow are released as to 10 percent
immediately after the expiry of nine months from the date of the final receipt
of the initial exchange offering prospectus of the Corporation (July 12, 1995),
as to 20 percent at the end of each of the first, second and third anniversaries
from the date of the initial release of escrowed Common Shares and 30 percent at
the end of the fourth anniversary from the date of the initial release of
escrowed Common Shares. 1,723,066 Common Shares remain in escrow under the
Original Escrow Agreement.
Pursuant to an agreement dated May 31, 1996 among the Corporation, Montreal
Trust Company of Canada and James Bickel, Gwen Cameron, Robert Casilio, Glenn
Guthrie, Elliot Holden, Ashley Holden, Cuthbert Huckvale, Edna Anne Judge, Cliff
Kondratiuk, Frank Lang, Stefan Liere, Carolyn May MacDonald, Dick McKenzie,
Allison McKenzie, Shonna McKenzie, Hashim Mitha, Sadru Mitha, Gulshan Mitha,
Joseph Gerard Monaghan, Alice Monaghan, Thomas Jacob Monaghan, Matthew John
Monaghan, Julie Marie Monaghan, Warwick Parker, John Taylor, Liam Taylor, Harry
Weatherill, Thomas Taylor, RBP Business Systems Inc., G.S.K. Investments Ltd.,
Hasker Management Ltd., Headline Technologies Ltd. and Wunderware Software Corp.
(the New Escrow Agreement), an aggregate of 897,568 Common Shares owned by these
shareholders were placed in escrow with Montreal Trust Company of Canada in
connection with the acquisition of CBT by the Corporation. The shares held in
escrow are to be released on the following basis:
(a) one-third of the Common Shares held by each shareholder shall be releasable
upon the confirmation by the Corporation to The Alberta Stock Exchange of
completion of a beta release of a product by the Corporation employing the
Javalin-based technology previously belonging to CBT;
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(b) one-third of the escrowed Common Shares held by each shareholder shall be
releasable upon the confirmation by the Corporation to the ASE of commercial
release of a product by the Corporation employing the Javalin-based
technology previously belonging to CBT; and
(c) one-third of the escrowed Common Shares held by each shareholder shall be
releasable upon the Corporation achieving total revenues of CDN$1 million or
greater in any six-month period. Notwithstanding the terms of paragraphs (a)
and (b) above, the maximum number of Common Shares to be released from
escrow to a shareholder from the original number of Common Shares held in
escrow on behalf of such shareholder shall be one-third within the first six
months from the date of the agreement, two-thirds during the first twelve
months from the date of the agreement and the total original number within
the first eighteen months from the date of the agreement. The first
two-thirds of the Common Shares escrowed under the New Escrow Agreement have
now been released.
ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no governmental laws, decrees or regulations in Canada relating to
restrictions on the export or import of capital into Canada which affect the
remittances of interest, dividends or other payments to non-resident holders of
shares of the Companys stock. Any such remittances to US residents, however, are
subject to withholding tax under the Income Tax Act (Canada) (the Tax Act),
which is generally reduced to a rate of 15 percent pursuant to Articles X and XI
of the Canada-US Income Tax convention.
Except as provided in the Investment Canada Act (the Investment Act), as amended
by the Canada-United States Free Trade Agreement Implementation Act (Canada)
(the FTA Implementation Act), there are no limitations under the laws of Canada,
the Province of Alberta or in the charter of any other constituent documents of
the Company with respect to the right of foreigners to hold and/or vote the
shares of the Companys stock.
The Investment Act requires a non-Canadian making an investment to acquire
control of a Canadian business, the gross assets of which exceed certain defined
threshold levels, to file an application for review with Investment Canada, the
federal agency created by the Investment Act. Under the provisions of the
Investment Act, an investment by a non-Canadian (other than an American, as
defined in the Investment Act) in a Canadian business is reviewable if it is (i)
a direct acquisition, which is defined as the acquisition of the assets or
voting shares of a Canadian business or control of its Canadian parent in Canada
or a Canadian business with assets of CDN$5,000,000 or more, or (ii) an indirect
acquisition, which is defined as the acquisition of control of a Canadian
business with assets of CDN$50,000,000 or more, where the assets of the Canadian
business represent 50 percent or less of the value of the total assets acquired,
through control of its Canadian parent entity outside Canada. Where the value of
the assets of the Canadian business represents 50 percent or more of the value
of the total assets acquired, the direct acquisition threshold applies. As a
result of the FTA Implementation Act, the threshold for review of acquisition by
Americans has been increased. The threshold is presently CDN$25,000,000 for
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direct acquisitions and CDN$100,000,000 for indirect acquisitions. Acquisitions
of control of certain types of Canadian businesses are excluded from these
higher thresholds. An acquisition of a Canadian business, the gross assets of
which do not exceed the above-threshold amounts, will not be subject to review
and the non-Canadian will simply be required to notify Investment Canada within
certain prescribed time limits.
The Investment Act also requires the filing of a notice with Investment Canada
by a non-Canadian making an investment to establish a Canadian business. Where
the business activity is, in Investment Canadas opinion, related to Canadas
cultural heritage or national identity, an order can be issued making the
investment renewable.
If Investment Canada is satisfied that the investment is likely to be of net
benefit to Canada (as compared with the test under the prior investment act that
the investment is of significant benefit to Canada), then the non-Canadian may
proceed to complete the investment. If Investment Canada is not satisfied that
the investment is likely to be of net benefit to Canada, then the non-Canadian
may not make the proposed investment or, if the investment has been implemented,
shall divest itself of control of the Canadian business that is the subject of
the investment.
ITEM 7 - TAXATION
The following discussion summarizes some of the primary Canadian income tax
considerations to non-residents of Canada owning Common Shares of a corporation
resident in Canada. The comments are confined to consideration of the Tax Act,
the regulations thereunder and PeakSofts counsels understanding of the current
administrative practices of Revenue Canada Taxation.
Cash dividends paid by a corporation resident in Canada on Common Shares held by
non-residents of Canada will generally be subject to Canadian withholding tax
under the Tax Act. This withholding tax is levied at the basic rate of 25
percent, but may be reduced by the terms of any applicable tax treaty. For
residents of the United States not having a permanent establishment in Canada,
the Canada-US Income Tax Convention reduces the rate of withholding tax to 15
percent generally and to 6 percent for corporations owning at least 25 percent
of the voting stock of the payer corporation.
Stock dividends paid by Canadian public companies are treated as taxable
dividends and are subject to withholding tax as discussed above. The amount of a
stock dividend paid by a corporation is deemed to be equal to the amount of the
increase in the paid-up capital of the corporation arising by virtue of the
payment of the stock dividend. A shareholder receiving a stock dividend is
deemed to acquire the shares that are the subject of the dividend at a cost
equal to the amount of the dividend.
A non-resident of Canada who holds Common Shares as capital property will not be
subject to tax in Canada under the Tax Act on capital gains realized on the
disposition of the shares, unless the shares are taxable Canadian property
within the meaning of the Tax Act. Generally, the Common Shares of a public
company would not be taxable Canadian property unless the non-resident used the
shares in carrying on a business in Canada, the non-resident was previously a
resident of Canada and elected to deem the Common Shares to be taxable Canadian
property on ceasing to be a Canadian resident or, at any time during the five
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years before the disposition of the shares, the non-resident owned, together
with other persons with whom he did not deal at arms length, greater than 25
percent of the issued shares of any class of the capital stock of the public
company. The Canada-US Income Tax Convention provides that US residents will be
subject to tax in Canada under the Tax Act on capital gains realized on the
disposition of shares in a Canadian resident public company where such shares
comprise taxable Canadian property as discussed above and where more than 50
percent of the share value is derived from real property situated in Canada.
ITEM 8 - SELECTED FINANCIAL DATA
Set forth below is certain selected consolidated financial data of the Company
for the six months ended of March 31, 1998, and the comparable period in 1997.
The selected consolidated financial information is derived from the Companys
unaudited consolidated financial statements for such periods. The Companys
consolidated financial statements are prepared in accordance with Canadian GAAP.
The information set forth below should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations.
SUMMARY OF OPERATIONS (unaudited)
Stated in Canadian Dollars
SIX MONTHS ENDED MARCH 31
1998 1997
---- ----
Sales 899,582 709,384
Net Earnings (Loss) from
Continuing Operations (1,262,607) (1,782,304)
Earnings (Loss per Share)
from Continuing Operations (.09) (.20)
SUMMARY OF BALANCE SHEET (unaudited)
Stated in Canadian Dollars
SIX MONTHS ENDED MARCH 31
1998 1997
---- ----
Working Capital* (396,348) (465,789)
Total Assets 1,355,088 2,505,249
Total Current Liabilities 879,791 1,162,050
Long Term Debt and
Obligation Under Capital Leases 1,667,210 49,571
Shareholders Equity (Deficit) (1,191,913) 1,293,628
Set forth below is certain selected consolidated financial data of the Company
for each year in its existence ended September 30, 1997. The selected
consolidated financial information is derived from the Companys audited
consolidated financial statements for such periods. The Companys consolidated
financial statements are prepared in accordance with Canadian GAAP. The
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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
1997 1996 1995
---- ---- ----
Sales 1,340,200 784,900 556,096
Net Earnings (Loss) from
Continuing Operations (4,091,490) (927,480) 55,794
Earnings (Loss Per Share)
from Continuing Operations (.33) (.11) .02
SUMMARY OF BALANCE SHEET
Stated in Canadian Dollars
FISCAL YEAR ENDED SEPTEMBER 30
1997 1996 1995
---- ---- ----
Working Capital* 341,546 (445,693) 88,060
Total Assets 2,402,271 2,118,027 570,303
Total Current Liabilities 1,042,639 523,681 288,858
Long Term Debt and
Obligation Under Capital Leases 1,421,918 64,044 36,164
Shareholders Equity (Deficit) (62,286) 1,530,302 245,281
Had the Companys consolidated financial statements been prepared in accordance
with generally accepted accounting principles in the United States (see Note 14
to the audited financial statements), selected consolidated financial
information would have been as follows:
SUMMARY OF OPERATIONS
Stated in Canadian Dollars
FISCAL YEAR ENDED SEPTEMBER 30
1997 1996 1995
---- ---- ----
Sales 1,340,200 784,900 556,096
Net Earnings (Loss) from
Continuing Operations (3,354,661) 2,577,078) 55,794
Earnings (Loss Per Share)
from Continuing Operations (.35) (.31) .02
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SUMMARY OF BALANCE SHEET
Stated in Canadian Dollars
FISCAL YEAR ENDED SEPTEMBER 30
1997 1996 1995
---- ---- ----
Working Capital* 341,546 (445,693) 88,060
Total Assets 1,579,972 473,429 570,303
Total Current Liabilities 1,042,639 523,681 288,858
Long Term Debt and Obligation
Under Capital Leases 1,369,576 12,702 36,164
Shareholders Equity (Deficit) (975,055) (118,688) 245,281
(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* 1.4395 .6947 1.4314 .6986
*The exchange rate stated for the year 1998 was as of April 15th.
(b) DIVIDENDS
The Company has not paid any cash dividends since its inception. The Company
does not intend to pay any cash dividends in the foreseeable future, but intends
to retain all earnings, if any, for use in its business operations.
ITEM 9 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto.
The Companys financial statements are prepared in accordance with generally
accepted accounting principles in Canada and are presented in Canadian dollars.
Significant differences between generally accepted accounting principles in
Canada and the United States are disclosed in note 14 to the financial
statements.
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The Company chose to launch a new application NetMagnet ahead of its planned
next generation PeakJet. The delay in releasing PeakJet 2000, let that demand
for that product slip. The resulting decrease in sales reflects the impact of
a) not shipping NetMagnet on time and b) declining sales of PeakJet 1.55 due
to the anticipation that a new version would be coming. Subsequent to the
quarter end PeakSoft released NetMagnet (Jan 98) and released its next
generation PeakJet 2000 (Jul 98).
Six Months Ended March 31, 1998 Compared to Six Months Ended March 31, 1997.
The acquisition of CBT brought new engineering staff and unfinished technology
to Peak. The technology known as Javalin had no guarantee of being merchantable
or completed, but in the opinion of management offered promise for the company
to establish itself in the Internet market. Subsequent to the acquisition Peak
did, in fact, successfully commercialize the product and continue to expand the
core technology. As an example the company released Web Animator in 1996 which
was re-named JetEffects in 1997 and continues to be sold by the company today.
In addition the technology was applied to the creation of NetJet in November
1996, now known as PeakJet and to the creation of NetMagnet released in January
1998. While there is no guarantee that the technology will continue to be
marketable, the company released PeakJet 2000 in July 1998 and has five other
products based upon this technology under development.
Revenue for the six months ended March 31, 1998 increased from $709,384 in the
comparable period in 1997, to $899,582, an increase of $190,198 or 26.8%, and
was due primarily to the growing sales volume of Peaks Internet software
products. The operating loss decreased from $1,782,304 to $1,262,607, reflecting
higher sales volume and a significant reduction in operating expenses.
Management has drastically reduced expenditures in all areas, especially in cost
of goods sold, research and development, and selling and marketing. General and
administrative expenses for the six months ending March 31, 1998 were
CDN$870,107 and CDN$472,734 in the comparable period in 1997, an increase of
CDN$397,373. This was due primarily to the increase in administration salaries
of about CDN$213,000, for additional staff, an increase in interest on long-term
debt and bank charges and interest of about CDN$130,000 and net increase of
other expenses of about CDN$34,000. Marketing and sales expenses decreased to
CDN$695,999 for the six months ending March 31, 1998 from CDN$1,148,054 in the
comparable period in 1997 a decrease of CDN$452,055 or 39.4%. This was due
primarily to the decrease in product advertising of about CDN$380,000 and a
decrease in independant commision contract sellors of about CDN$80,000 Research
and development expenses decreased to CDN$324,010 for the six months ending
March 31, 1998 from CDN$374,690 in the comparable period in 1997 a decrease of
CDN$50,680. The decrease was primarily due to reduction in non-essential staff.
Amortization increased to CDN$500,693 for the six months ending March 31, 1998
from CDN$264,978 in the comparable period in 1997 an increase of CDN$235,715.
The amortization expense includes the amortization on the research and
development that was acquired in 1996 from Chameleon Bridge Technologies Corp,
which is capitalized according to Canadian GAAP and amortized at a rate of
$205,574 per quarter.
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The Companys cash position was decreased from $110,784 in 1997, to $61,084 in
1998 and remains an area of critical importance and is being actively addressed
by management. The Company does not have access to any unused lines of credit at
this time. Due to managements increased control over cash flow, there are no
expected non-operation expenditures. In general, the results for the six months
reflect the Companys continuing growth in this fast-paced, rapidly expanding
Internet market.
Management expects that the activity level for the Company will continue to
increase, with operating expenses in excess of income, for at least the next
quarter. In order to reduce the overall costs of maintaining its presence in the
retail sales channel, the Company has entered into a contract with a third
party, Re:Launch, based in Berkeley, California, to manage this activity. The
Company plans to direct the major portion of its marketing resources in 1998 to
corporate, international, educational, and other institutional sales
opportunities for its products, Net Magnet, PeakJet, and JetEffects.
March of 1998 witnessed a further infusion of investment capital in the amount
of US$140,000.
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. The Year 2000 problem is
the result of computer programs being written using two digits rather than four
to define the applicable year. Time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
major system failure or miscalculations. The Company presently believes that,
with modifications to existing software and converting to new software, the Year
2000 problem will not pose significant operational problems for the Companys
computer systems as so modified and converted. The Company has completed the
required modifications and conversions. The Company is in the process of
obtaining Year 2000 compliance statements from vendors, suppliers, and all other
third parties that do business with the Company. Quarter Ended March 31,
1998 Compared to Quarter Ended March 31, 1997.
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Net loss for the quarter ended March 31, 1998 decreased from $1,098,334 in the
comparable period in 1997, to $335,228 a decrease of $763,106, or 69.9%.
Management has drastically reduced expenditures this past quarter in all areas,
especially in cost of goods sold, research and development, and selling and
marketing. General and administrative expenses increased from CDN$312,131 for
the quarter ending March 31, 1997 to CDN$421,008 for the comparable period in
1998. This was due primarily to an increase in salaries of about CDN$70,000, for
additional staff, and interest expense of about CDN$40,000. Marketing and sales
expenses decreased to CDN$261,625 for the quarter ending March 31, 1998 from
CDN$719,660 in the comparable period in 1997. This was due primarily to a
decrease in product advertising of about CDN$380,000 and a decrease in
indepedendant contractors of about CDN$80,000. Research and development expenses
decreased to CDN$143,597 for the quarter ending March 31, 1998 from CDN$155,406
in the comparable period in 1997. The decrease was primarily due to reduction in
non-essential staff. Amortization increased to CDN$246,959 for the quarter
ending March 31, 1998 from CDN$167,147 in the comparable period in 1997. The
amortization expense includes the amortization on the research and development
that was acquired in 1996 from Chameleon Bridge Technologies Corp, which is
capitalized according to Canadian GAAP and amortized at a rate of $205,574 per
quarter.
The Company is actively creating budgets to place emphasis on marketing in the
next quarters to capture a higher sales volume. Revenue reflects an increase of
74.2% over second quarter 1997 reported revenue. The increase is primarily due
to the recent launch of Peak's third Internet product, NetMagnet, various
licensing agreements, and the growing sales volume of PeakJet. The Company has
received 800,000 shares of InfoBuild as a partial consideration for a $300,000
license agreement, which is valued at its most recent funding share value.
PeakSoft recognizes that there is no guarantee that this value can be realized
in the short-term. In general, this quarters results reflect the Companys
continuing growth in the expanding Internet market. The Company also renewed its
bundling agreement with MacMillan Digital Publishing USA.
Year Ended September 30, 1997 Compared to Year Ended September 30, 1996
The acquisition of CBT brought new engineering staff and unfinished technology
to Peak. The technology known as Javalin had no guarantee of being merchantable
or completed, but in the opinion of management offered promise for the company
to establish itself in the Internet market. Subsequent to the acquisition Peak
did, in fact, successfully commercialize the product and continue to expand the
core technology. As an example the company released Web Animator in 1996 which
was re-named JetEffects in 1997 and continues to be sold by the company today.
In addition the technology was applied to the creation of NetJet (now known as
PeakJet) in November 1996, and to the creation of NetMagnet released in January
1998. While there is no guarantee that the technology will continue to be
marketable, the Company released PeakJet 2000 in July 1998 and has five other
products based upon this technology under development.
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In 1997, PeakSoft Corporation completed its first full year totally focused on
its goal of becoming a leading Internet/intranet software company. During this
year, PeakSoft Corporation (formerly Peak Technologies Inc.) introduced two new
Internet software products, PeakJet and JetEffects, and started developing a
third major productivity suite, NetMagnet, for release in early 1998. As of
September 30, 1997, PeakJet and JetEffects have sold over 40,000 units through
top software retailers in the USA as well as into international markets in Japan
and the United Kingdom.
The costs associated with building a management and technical team, launching
PeakJet and JetEffects into retail and Internet sales channels, developing new
products and establishing the foundation for growth are reflected in this years
financial statements. These costs represent the Companys investment in building
the future success of PeakSoft in the fast growing and challenging
Internet/intranet software industry.
Operations
Sales for 1997 were CDN$1,340,200 versus CDN$784,900 in 1996, an increase of
CDN$555,300 or 71%. The increase was due primarily to increased retail
sales/volume of the companys Internet software products, PeakJet and JetEffects,
which were launched in the first and second quarters of fiscal 1997. The gross
profit margin increased from 45.5% in 1996 to 66.5% in 1997, reflecting the
higher margins available in the software industry.
General and administrative expenses were CDN$1,245,114 in 1997 and CDN$312,361
in 1996, an increase of CDN$932,753. This was due primarily to significantly
higher costs for professional fees, communications costs, additional staff
salaries and the general expenses associated with building an infrastructure to
support the Company.
Marketing and sales expenses increased from CDN$531,170 in 1996 to CDN$1,682,437
in 1997, an increase of CDN$1,151,267 or 217% due mainly to the higher
advertising and promotion expenses associated with introducing two new products
into the consumer retail channel. In addition, the Company incurred increased
salary expenses resulting from hiring new senior staff members to carry out the
sales and marketing program. Costs associated with pursuing bundling
opportunities with channel partners and supporting international distribution
were also factors in the increase.
Research and development expenses increased from CDN$321,740 in 1996 to
CDN$641,426 in 1997, an increase of CDN$319,686 or 99%. This increase resulted
from hiring additional technical staff and allocating more resources to this
area in order to develop and bring new products to market.
Amortization increased significantly from CDN$118,968 in 1996 to CDN$1,050,965
in 1997, an increase of CDN$931,997. The increase occurred as a result of the
amortization of the acquisition of Chameleon Bridge Technologies Corp. in 1996.
Research (valued at CDN$1,644,598) acquired in the transaction, is being
amortized over its estimated useful life of two years.
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In 1997 the Company wrote off CDN$53,169 of assets that were obsolete or no
longer functional.
The Company incurred an expense of CDN$310,042 for the settlement of a name
infringement lawsuit in 1997. This amount includes legal, settlement and product
recall costs associated with this matter.
During 1996, the Company discontinued its Multi-Media Division and has charged
the net loss from this activity to the Statement of Operations. This resulted in
a deficit of CDN$745,844 for 1996.
The loss for 1997 was CDN$4,091,490 ($.42 per share) versus CDN$1,673,324 ($.20
per share) in 1996, a difference of CDN$2,418,166. The increased loss resulted
primarily from the significant costs associated with building a larger
organization including additional management and technical staff and launching
software products into the retail channel.
Liquidity and Capital Resources
As of September 30, 1997, the Company had a cash balance of CDN$1,071,366. The
Company issued 3,640,106 Common Shares during 1997, raising CDN$2,380,551. The
Company also issued promissory notes for cash proceeds of CDN$1,554,760 (see
note 6). An additional 1,250,000 shares were issued after year end for proceeds
of CDN$500,000($399,900 of which had been received prior to September 30, 1997.)
The company has no available lines of credit.
Accounts receivable decreased by CDN$45,917 during the year ended September 30,
1996. This was mainly due to the effect of discontinuing the Multi-Media
Division, which had generated accounts receivable at September 30, 1995. It is
anticipated that accounts receivable will grow significantly next year as the
Internet Software Division begins selling its products through retail channels.
Accounts receivable increased by CDN$70,918 from CDN$26,727 in 1996 to
CDN$97,645 due primarily to the increased sales to wholesalers of the Companys
software.
Inventory increased from CDN$13,362 in 1996 to CDN$59,128 in 1997, a difference
of CDN$45,766 due to the buildup of retail packages of software in anticipation
of increasing sales.
The increase in prepaid expenses and deposits from CDN$7,936 in 1996 to
CDN$156,046 in 1997 was primarily due to the deposits required for trade shows
in the next fiscal year and prepaid product marketing costs.
Net fixed assets were reduced by CDN$174,485 from CDN$370,272 in 1996 to
CDN$195,787 in 1997 due to the write-off of obsolete equipment and normal
amortization. The Company made only minor purchases of computer equipment and
furniture during the year but invested CDN$41,094 in software. The major portion
of the software purchased was attributable to the Companys acquisition of
ExpressO; a Java based server software, which is utilized in the Companys own
software products.
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Accounts payable and accrued expenses increased from CDN$380,119 in 1996 to
CDN$893,398 in 1997, an increase of CDN$513,279. The increase resulted from the
additional overall size of the Companys operation and a buildup at year-end just
prior to completing the issuance of promissory notes. Subsequent to year-end,
the amount was reduced by CDN$210,000 as a result of negotiated settlements of
trade accounts with 12 different suppliers to one of the Companys subsidiaries
and resumption of normal payments under trade credit terms. One of these
settlements was reached on September 30, 1997, 10 were effected on October 20,
1997, and the last was concluded on November 6, 1997. Each of the creditors with
whom a settlement was effected accepted an immediate lump sum payment in
satisfaction of its account in preference to having a balance paid out over
time.
The increase in long term debt from CDN$12,702 in 1996 to CDN$1,380,991 in 1997
is attributable to the issuance of promissory notes during the year. The current
portion of long-term debt also decreased from CDN$23,507 in 1996 to CDN$14,936
in 1997 as a result of the issuance of notes.
Year Ended September 30, 1996 Compared to Year Ended September 30, 1995
The Companys primary business in the year ending September 30, 1995 was in the
fields of computer services and multi-media products. The Company provided
on-line diagnostics and on-site repair of a network of computer equipment for
retail chains. It also developed multi-media CD-ROM products.
In June 1996, the Company added to its technology base by acquiring the Java
server software owned by Innovative Desktop, a Pennsylvania based software
business. It also exclusively licensed the Java version of Lightning Strike, a
proprietary compression technology from Infinop, Inc. With all these technology
tools available, the Company set out aggressive development targets to
capitalize on the fast growing Internet marketplace. In particular, the Companys
first consumer product, Peak Net.Jet, was designed for Internet users who wanted
to increase the speed at which they surfed the Net. Significant progress was
made in bringing this product to the release stage, which occurred subsequent to
year-end (late November 1996). An additional consumer product, JetEffects
(previously named Peak Web Animator) was also developed and will be introduced
in the first calendar quarter of 1997.
In order to fund the development of applications from the base technology, the
Company sold additional shares in a private placement, which closed in April
1996. While revenue from the service business was solidly maintained, the
additional expenses incurred in engineering, marketing development and the
necessary additions to infrastructure to support a significant product launch
made additional infusions of capital necessary and thus, subsequent to year-end
the Company completed three more private placements.
In May 1996, the Company acquired Chameleon Bridge Technologies Corporation; a
company with an advanced Java-based software development environment, Javalin,
which facilitated the rapid development of Java-based Internet software. This
provided the Company with a solid entry into the Internet software business with
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a technological lead in a fast growing marketplace. It was determined by the
Companys directors and management that the highest growth potential for the
Company would come from marketing Internet software using the Javalin
technology. As a result, a decision was made to discontinue the adventure travel
CD-ROM division of the Company and to dedicate all available resources to the
Internet Software Division.
In August of 1995, the Company completed an initial public offering, raising
CDN$700,000 on the Alberta Stock Exchange in order to finance the growth of its
multi-media CD-ROM division, which specialized in adventure travel titles.
During 1996, the Company completed and published three CD-ROM titles.
The following discussion should be read in conjunction with the financial
statements and notes thereto:
Operations
Sales for 1996 were $781,345, an increase of $225,249 or 41% over the $556,096
reported in 1995. This resulted from a large upgrade program, resulting in
increased volumes, conducted by one of the Companys major customers as well as
the introduction of a preventative maintenance program for all of this clients
retail locations. Gross profit in 1996 was $353,204, which represents 45.2%
gross profit margin compared to 35.6% gross profit margin of $198,157 in 1995.
Gross profit margins increased by 9.6% due mainly to a change in the mix.
Amortization -
Amortization increased from $45,635 in 1995 to $118,968 in 1996. This
increase is largely due to the large additions to property, plant and
equipment, and assets under capital leases, of $77,109 and $73,377
respectively. In addition amortization increased due to the
consolidation of property, plant and equipment from the newly acquired
subsidiary, Chameleon Bridge Technologies Inc.
Marketing -
Marketing costs of $531,170 was incurred by the subsidiary Chameleon
Bridge Technologies Inc. on introducing it's Internet performance
enhancement products, using the Java-based development environment. The
products introduced during 1996 were "PeakJet" and "Peak Web Animator."
Research and development -
Research and development increased by about $290,000 in 1996 due to the
acquisition of the subsidiary Chameleon Bridge Technologies Inc. The
subsidiary expended $321,740 in the research and development of
Internet enhancement software, using the Java-based development
environment. Much of the costs in this year was related to "PeakJet,"
"Peak Web Animator" and an array of other Internet products aimed at
both consumers and businesses.
General and Administration -
General and administration increased by about $248,000 over 1995. This
increase is a result of PeakSoft emerging out of its development phase
in 1995. Accordingly all aspects of General and Administration expenses
increased. However, the major increases were for labour, consulting,
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investor relations, bank charges, telephone and utilities. Facilities
costs also increased with the acquisition of Chameleon Bridge
Technologies Inc. As well, PeakSoft increased its premises to
accommodate additional personnel.
Start-up of Software Division
There were a number of items which significantly impacted the statement of
operations in 1996. Startup costs associated with the new Internet Software
Division of the Company resulted in a total charge of $1,079,384 in the current
year and $31,872 in 1995. The Company earned $18,305 from a third party for
software customization as part of its development in 1996 and spent $531,170 for
the startup cost on marketing development, $321,740 on additional research and
development and $244,779 on general and administrative costs. These costs have
been charged to the income statement in the year incurred and represent the
initial costs of preparing a new division of the Company to become fully
operational in the next fiscal year.
During 1996, the Company discontinued its Multi-Media Division and has charged
the net loss from this activity to the statement of operations. This resulted in
a charge to the statement of operations and deficit of CDN$745,844 in 1996 and
CDN$598,448 in 1995.
Liquidity and Capital Resources
At September 30, 1996, the Company had CDN$29,963 of cash in the bank. The
Company issued 1,151,147 shares during 1996, raising CDN$628,189 of cash to
finance the startup of its Internet Software Division. An additional 1,704,210
shares were issued, valued at CDN$1,874,848 in order to purchase CBT, ExpressO
and an exclusive Java version software license to Lightning Strike compression
software. These formed the major assets of the Companys Internet Software
Division.
Subsequent to year-end, three additional rounds of financing were completed for
total gross proceeds of CDN$1,940,900. The Company anticipates that additional
financing over the course of the next year will be required in order to fund the
anticipated growth of the Internet Software Division.
Accounts receivable decreased by CDN$45,917 during the year ended September 30,
1996. This was mainly due to the effect of discontinuing the Multi-Media
Division, which had generated accounts receivable at September 30, 1995. It is
anticipated that accounts receivable will grow significantly next year as the
Internet Software Division begins selling its products through retail channels.
Inventory was reduced by CDN$129,926 from CDN$143,288 in 1995 to CDN$13,362 in
1996 due primarily to the one time buildup of inventory at September 30, 1995 to
support a major installation program for a client. In addition, the write down
of the inventory associated with the Multi-Media Division served to reduce the
net realizable value of the inventory on hand at September 30, 1996.
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The Company purchased CDN$150,486 of fixed assets in the year ended September 30
1996, both as direct purchases and as capital leases. These purchases of
furniture, computer equipment and software were primarily to support the
increased staff and activity of the Internet Software Division.
While cash resources at year end were low, management believes that it will
continue to be successful in attracting the cash resources necessary to fund the
anticipated growth of the Company over the next fiscal year through additional
private placements of Common Stock, the exercise of warrants and options, and
expect to receive cash generated from operations.
Subsequent Events after March 31, 1998:
Finances:
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.
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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 are subject to, and the Company is seeking, shareholder and
regulatory approval as required.
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.
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 February 11, 1999 the Company cancelled all outstanding (active) stock
options.
Expenses:
In January 1998, the Management of the Company agreed with the Directors to
reduce operating costs, from December 31, 1997, by 44% and fulfillment costs by
31% before the end of the fiscal year (September 30, 1998). As of the end of the
third quarter, June 30, 1998, operating costs have already been reduced by 43%
through the implementation of cost control/reduction, reorganization, and
restructuring. Fulfillment cost has been reduced by 31% through negotiations and
competitive bidding from fulfillment subcontractors.
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.
Page 37 of 80
<PAGE>
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.
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.
On October 22, 1998, the Company announced the released the Beta version of
LawTrack, a vertical market 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.
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.
Page 38 of 80
<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.
William Baker Director
North Vancouver, British Columbia
Principal Occupation: President of Willabeth Capital Corporation, a private
financial consulting firm.
Peter Janssen Director
Seattle, WA
Principal Occupation: President of Peter Janssen & Associates, a private
consulting firm (newly appointed in September of 1997)
Carl Conti Director
South Salem, New York
Principal Occupation: Independent Management Consultant
A detailed summary of the background of each director and officer of the
Corporation setting forth their principal occupation within the five preceding
years is set forth below.
Doug Foster, President and Chief Executive Officer, since 1994
Mr. Foster is one of the founders of the Corporation and has been President,
Chief Executive Officer and a director of the Corporation since its
incorporation in August 1994. Mr. Foster has over 16 years of sales and
management experience in the computer industry. From 1991 to 1994, Mr. Foster
was President of BREEZ. From 1989 to 1991, Mr. Foster was a director and
President of Lynxx Microsystems Inc., a systems integration company, which had
operations in Vancouver, British Columbia, Seattle, Washington and San Francisco
California. Prior to 1989, Mr. Foster was Western Region Financial Branch
Manager with Unisys Corporation and a Senior Sales Representative with AES Data
Inc. and Xerox Corporation.
Donald McInnes, Secretary and Director, since 1995
Mr. McInnes has been Secretary and a director of the Corporation since February
1995. Since 1993, Mr. McInnes has been President of McGillicutty Management
Page 39 of 80
<PAGE>
Corp., a public management company that is involved in venture finance and
business consulting. He is currently President of Blackstone Resources Inc., a
public mining company, whose shares trade on The Alberta Stock Exchange. He
currently also manages and is a director of another public company, Western
Keltic Mines Inc., whose shares are listed on the Vancouver Stock Exchange.
Prior to 1993, Mr. McInnes was Project Manager for Equity Engineering Ltd., a
mineral exploration consulting firm.
William Baker, Director, since 1997
Mr. Baker is a Chartered Accountant who has provided financial consulting
services through Willabeth Capital Corporation since 1979. Mr. Baker was also
Chief Executive Officer of Pop-Media Ltd., a private electronic
point-of-purchase media company, from 1986 to 1994.
Peter Janssen, Director, since 1997
Peter Janssen has spent the last thirty years in a series of marketing,
merchandising, and sales roles for both retailers and technology manufacturers.
Mr. Janssen runs a consulting firm focused on helping high tech companies bring
their products to market. This includes providing services to Software
Publishers, PC and Peripheral manufacturers in the areas of product marketing,
marketing strategies and tactics, and sales and distribution strategies. During
the past year, Peter Janssen & Associates have completed consulting assignments
for both small companies and major corporations including: Acer, Toshiba,
Capital One Financial Corporation, Design Intelligence, Netscape, HumanCAD
Systems, Motorola, and Phillips.
Carl Conti, Director, since 1997
Mr. Conti is currently an independent management consultant. Prior thereto, Mr.
Conti, who was the originator of the concepts underlying modern cache memory,
spent 32 years at IBM in various capacities, including as Vice President of the
General Technology division, President of the Data Systems Division, group
executive for the Information and Storage Group, member of the IBM Corporate
Management Board, and finally as IBM Senior Vice President and General Manager
of IBM Enterprise Systems where Mr. Conti directed an organization of 30,000
employees with annual revenues in excess of $20 billion. Mr. Conti is also a
director of Adaptec Corporation, a NASDAQ traded company.
ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS
Executive Compensation
PeakSoft currently has two executive officers (following the resignation of one
executive officer in April 1997), none of whom received, directly or indirectly,
compensation exceeding US$100,000. The aggregate cash compensation paid to the
two executive officers of PeakSoft, directly or indirectly, during the year
ended September 30, 1997 was CDN$212,000. There are no funds set aside or
accrued by the Company for pension, retirement, or similar benefits.
Page 40 of 80
<PAGE>
Compensation Summary
The table below sets forth information concerning the compensation of the
Corporations Chief Executive Officer for the fiscal years ended September 30,
1997, 1996, 1995, and 1994.
Annual Compensation
Name and ------------------- All Other
Principal Position Year Salary Bonus Compensation
- ------------------- ---- ------ ----- ------------
Douglas H. Foster 1997 85,000 - -
President and 1996 82,800 - -
Chief Executive Officer 1995 82,800 - -
& Director 1994 70,400
Long-Term Compensation Awards:
Securities Under Options/SARs Granted:
1997 302,000
1996 321,250
1995 250,000
1994 -
Restricted Shares or Restricted Share Units: none
Payouts:
LTIP Payouts: none
All Other Compensation: none
The following information concerns individual grants of options to purchase or
acquire securities of the Corporation made during the year ended September 30,
1997 to the Corporations Chief Executive Officer.
Name Securities percent of Total Exercise or
Under Options Options Granted Option Price
Granted (#) to Employees in ($/Security)
Financial Year
- -------------------------------------------------------------------------------
Douglas H. Foster 130,625 16.81 percent $0.64
Common Shares per share
Market Value of Securities Underlying Options on Date of Grant ($/Security):
$0.64 per share
Expiration date: May 12, 1998
Page 41 of 80
<PAGE>
The following information concerns the cash exercise of options during the year
ended September 30, 1997 by the Corporations Chief Executive Officer and
the year-end value of unexercised options held, on an aggregate basis.
Name Securities Acquired on Aggregate Value Realized
Exercise (#)
- -------------------------------------------------------------------------------
Douglas H. Foster 321,250 240,938
Unexercised Options Value of Unexercised in
at Year End (#) the Money Options at
Year-end ($)
- -------------------------------------------------------------------------------
130,625 83,600
Payments to Directors: None.
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
Stock Option Plan
On February 7, 1996, the shareholders of the Corporation approved a stock option
plan (the Stock Option Plan), pursuant to which options to acquire an aggregate
of 86,000 Common Shares have been issued and are currently outstanding. The
Corporation has also conditionally reserved for allotment options to purchase an
additional 832,000 Common Shares, subject to receipt of regulatory approvals.
Under the terms of the Stock Option Plan, options to acquire Common Shares may
be granted by the directors of the Corporation, subject to the restriction that
the aggregate number of Common Shares issuable upon the exercise of options
granted under the Stock Option Plan shall not exceed 10 percent of the
outstanding Common Shares. The exercise price associated with any options
granted under the Stock Option Plan shall be determined by the directors in
compliance with the applicable laws, rules and regulations and shall not be less
than the market price of the Common Shares on The Alberta Stock Exchange less
the discount permitted by the rules of The Alberta Stock Exchange. The options
vest on the date of grant and expire at the time set by the directors, being not
more than 10 years from the date of grant, provided that any outstanding options
will expire on the 90th day following the date that the holder ceases to be an
officer, director, employee or consultant of the Corporation or six months
following the death of the holder. Options granted are non-assignable.
Outstanding options granted under the Stock Option Plan may be adjusted in
certain events, as to exercise price and number of Common Shares, to prevent
dilution.
Page 42 of 80
<PAGE>
At September 30, 1997, 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, 86,000 April 30, 1996 $0.60
employees, 646,375 May 1, 1997 $0.64
and directors
Expiry Date
August 30, 1998
May 1, 1998
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.
Page 43 of 80
<PAGE>
5. Foster Murphy & Sons Holding Co. Ltd. of Bellingham, Washington sold all of
its 4,900,000 shares in BREEZ to the Corporation on October 1, 1994 in
exchange for 490,000 Common Shares of the Corporation. Mr. Douglas Foster,
President of PeakSoft, was then the sole director and the manager of Foster
Murphy & Sons Holding Co. Ltd. That company then had four shareholders, two
of which were members of Mr. Fosters family. Mr. Foster, then,
substantially controlled the Corporation. The transaction had a deemed
value of CDN$98,000, or CDN$0.20 per common share of the Corporation.
Foster Murphy & Sons Holding Co. Ltd. acquired the BREEZ shares for
approximately CDN$200.
6. Pursuant to an Interactive Media Rights Agreement dated December 19, 1994,
Eric Simonson, a former director of the Corporation, and Kathryn Simonson,
his wife, both of Ashford, Washington granted the Corporation the right to
use the Summit of Dreams documentary which was a component of the
Corporations Mt. Everest CD-ROM product. PeakSoft issued 459,000 Common
Shares to Mr. Simonson and Ms. Simonson for the Summit of Dreams
documentary. This transaction had a deemed value of approximately
CDN$20,000.
Director/Officer Indebtedness: None.
PART II
ITEM 14 - Description of Securities to be Registered.
The Articles of Continuance of PeakSoft Corporation provide as follows:
The Common Shares shall have attached thereto the following rights, privileges,
restrictions and conditions:
(i) the right to one vote at all meetings of shareholders of the
Corporation, except meetings at which only holders of a specified class of
shares are entitled to vote;
(ii) subject to the prior rights and privileges attaching to any other
class of shares of the Corporation, the right to receive any dividend
declared by the Corporation; and
(iii) subject to the prior rights and privileges attaching to any
other class of shares of the Corporation, the right to receive the
remaining property and assets of the Corporation upon dissolution.
The Articles provide for the issuance of preferred shares by the directors of
the Company, but as of this writing no preferred shares have been allotted.
PART III
ITEM 15 - Defaults upon Senior Securities - Not Applicable
ITEM 16 - Changes in Securities, Changes in Security for Registered Securities
and Use of Proceeds. - Not Applicable.
Page 44 of 80
<PAGE>
PART IV
ITEM 17 - Financial Statements
PEAKSOFT CORPORATION SECOND QUARTER REPORT (unaudited) For the Six Months Ended
March 31, 1998
Letter to Shareholders
During this quarter, the Company focused on the fundamentals. Our major
objectives included the launch of NetMagnet, a reduction in non-essential
expenses, the development of strategic partnerships in key areas, and increased
revenue. The Company also conducted a thorough review of its product, marketing
and sales strategies in an effort to gain maximum value for its technology and
products.
NetMagnet was launched on January 21, 1998. The product is available through
leading retailers including CompUSA, Fry's and Best Buy. In addition, it is
being sold on the Company's Web site and through Internet retail and banner
partnerships. Initial response to NetMagnet has been favorable, with a number of
positive reviews and an "A List" placement in PC Computing. The product is very
leading edge and the target market is sophisticated early adopters and
innovators. Those who use the Internet as an essential business tool will see
great benefits from NetMagnet.
Expenses, in total, for administration, selling and marketing, and research and
development decreased from CDN$1,995,478 for the six months ended March 31, 1997
to CDN$1,890,116 for the comparable period in 1998. This decrease was primarily
due to a reduction in non-essential staff as part of the restructuring
undertaken by the company. Sales increased from CDN$709,384 for the six months
ending March 31, 1997 to CDN$899,582 for the comparable period in 1998.
The sales growth resulted largely from licensing agreements with Macmillan and
InfoBuild. The Company believes it can continue to streamline its costs in the
coming quarter through new partnerships that reduce expenses but provide
powerful marketing and sales benefits.
The Company received approval from the OTC-BB to commence trading in the U.S.
under the symbol PEAFF on March 13, 1998. The company then filed Form 20-F to
become a reporting foreign issuer with the SEC, via EDGAR, on April 10, 1998.
Once our Form 20-F achieves a "No Comment" status with the SEC we will be in a
position to trade fully on the Bulletin Board in conjunction with the Alberta
Stock Exchange, symbol PKT.
Canadian and U.S. GAAP (Generally Accepted Accounting Principles) regulations
differ regarding the acquisition of research and development from Chameleon
Bridge Technologies. This leads to a significant reduction in loss per share
when our financial statements are reconciled for U.S. GAAP. According to U.S.
GAAP, the acquisition is expensed as incurred, not amortized over a period of
time.
Page 45 of 80
<PAGE>
The Company continues to evaluate market opportunities and positioning in the
fast paced market of intranets and the Internet. We are committed to adding
value to our existing applications and to bringing new products to market. We
hope to continue the trend started in the last quarter and accomplish even
greater improvements through the remainder of the year.
Sincerely yours,
/s/ Douglas H. Foster
- ----------------------
Douglas H. Foster
President/CEO
May 4, 1998
Page 46 of 80
<PAGE>
PeakSoft Corporation
Consolidated Balance Sheet
(Prepared by Management - unaudited))
March 31, 1998 and 1997
1998 1997
---- ----
(in Canadian dollars)
Assets
Current assets:
Cash $ 61,084 $ 110,784
Accounts receivable 281,734 429,913
Inventories 98,051 39,557
Prepaids and deposits 42,574 116,007
483,443 379,465
Capital assets 176,496 350,731
Acquired research and development 411,149 1,439,023
Licenses -- 19,234
Investment in InfoBuild 284,000 --
$ 1,355,088 $ 2,505,249
Liabilities and Shareholders Equity
Current liabilities:
Demand loan $ -- $ 20,756
Accounts payable and accrued
liabilities 797,449 1,010,768
Deferred revenue -- 84,337
Reserve for returns & allowances 54,208 --
Current portion of long-term debt -- 24,573
Current portion of obligations under
capital leases 28,134 21,616
$ 879,791 $ 1,162,050
Long-term debt 1,622,951 --
Obligations under capital leases 44,259 49,571
Shareholders equity:
Share capital 6,312,335 3,458,942
Other paid-in capital 173,759 --
$ 6,486,094 $ 3,458,942
Obligation to issue share capital -- 1,940,900
Accumulated deficit 7,678,007 4,106,214
(1,191,913) 1,293,628
$ 1,355,088 $ 2,505,249
Page 47 of 80
<PAGE>
Consolidated Statement of
Operations and Deficit (unaudited)
March 31, 1998 and 1997
<TABLE>
<CAPTION>
Quarter Quarter Nine months Nine months
ended ended ended ended
March 31,1998 March 31,1997 March 31,1998 March 31,1997
------------- ------------- ------------- -------------
(in Canadian dollars)
---------------------
<S> <C> <C> <C> <C>
Sales $ 699,372 $ 401,504 $ 899,582 $ 709,384
Cost of goods sold 96,362 145,494 158,840 231,232
603,010 256,010 740,742 478,152
Operating Expenses:
General and administration 421,008 312,131 870,107 472,734
Selling and marketing 261,625 719,660 695,999 1,148,054
Research and development 143,597 155,406 324,010 374,690
826,230 1,187,197 1,890,116 1,995,478
Earnings (loss) (223,220) (931,187) (1,149,374) (1,517,326)
before the undernoted
Amortization 246,959 167,147 500,693 264,978
Extraordinary Item
Recovery of expenses -- -- 252,509 --
from settlement
of liabilities
Earnings (loss) $ (470,179) $(1,098,334) $(1,397,558) $(1,782,304)
from operations
Gain on sale of contract 134,951 -- 134,951 --
Net earnings (loss) (335,228) (1,098,334) (1,262,607) (1,782,304)
Accumulated deficit, $(7,342,779) $(3,007,880) $(6,415,400) $(2,323,910)
beginning of period
Accumulated deficit, $(7,678,007 $(4,106,214) $(7,678,007) $(4,106,214)
end of period
Loss per common share (.02) (.12) (.09) (.20)
</TABLE>
Page 48 of 80
<PAGE>
Statement of Changes in Financial
Position (unaudited) March 31,
1998 and 1997
<TABLE>
<CAPTION>
Quarter Quarter Nine months Nine months
ended ended ended ended
March 31,1998 March 31,1997 March 31,1998 March 31,1997
------------- ------------- ------------- -------------
(in Canadian dollars)
---------------------
<S> <C> <C> <C> <C>
Cash provided by (used in):
Operations:
Net earnings (loss) $ (335,228) $(1,098,334) $(1,262,607) $(1,782,304)
Items not involving cash:
Amortization 246,959 167,147 500,693 264,978
Change in non-cash (244,162) 263,163 (236,470) 98,871
operating working capital
(332,431) (668,024) (998,384) (1,418,455)
Financing:
Funds Transferred 154,350 -- -- --
from escrow
Repayment of (6,678) (6,422) (14,936) (12,702)
long-term debt
Obligation under 9,571 3,553 6,842 (1,771)
capital leases
Decrease in obligation -- -- (399,900)
to issue shares
Issuance of share capital -- 786,812 512,144 1,545,632
157,243 783,943 104,150 1,531,159
Investments:
Purchase of capital assets (11,284) (29,773) (116,048) (31,883)
(11,284) (29,773) (116,048) (31,883)
Increase (decrease) (186,472) 86,146 (1,010,282) 80,821
in cash position
Cash, beginning of period 247,556 24,638 1,071,366 29,963
Cash, end of period $ 61,084 $ 110,784 $ 61,084 $ 110,784
</TABLE>
Page 49 of 80
<PAGE>
Second Quarter Review
Net loss for the quarter ended March 31, 1998 decreased from $1,098,334 in the
comparable period in 1997, to $335,228 a decrease of $763,106, or 69.9%.
Management has drastically reduced expenditures this past quarter in all areas,
especially in cost of goods sold, research and development, and selling and
marketing. General and administrative expenses increased from CDN$312,131 for
the quarter ending March 31, 1997 to CDN$421,008 for the comparable period in
1998. This was due primarily to an increase in salaries of about CDN$70,000, for
additional staff, and interest expense of about CDN$40,000. Marketing and sales
expenses decreased to CDN$261,625 for the quarter ending March 31, 1998 from
CDN$719,660 in the comparable period in 1997. This was due primarily to a
decrease in product advertising of about CDN$380,000 and a decrease in
indepedendant contractors of about CDN$80,000. Research and development expenses
decreased to CDN$143,597 for the quarter ending March 31, 1998 from CDN$155,406
in the comparable period in 1997. The decrease was primarily due to reduction in
non-essential staff. Amortization increased to CDN$246,959 for the quarter
ending March 31, 1998 from CDN$167,147 in the comparable period in 1997. The
amortization expense includes the amortization on the research and development
that was acquired in 1996 from Chameleon Bridge Technologies Corp, which is
capitalized according to Canadian GAAP and amortized at a rate of $205,574 per
quarter.
The Company is actively creating budgets to place emphasis on marketing in the
next quarters to capture a higher sales volume. Revenue reflects an increase of
74.2% over second quarter 1997 reported revenue. The increase is primarily due
to the recent launch of Peak's third Internet product, NetMagnet, various
licensing agreements, and the growing sales volume of PeakJet. The Company has
received 800,000 shares of InfoBuild as a partial consideration for a $300,000
license agreement, which is valued at its most recent funding share value.
PeakSoft recognizes that there is no guarantee that this value can be realized
in the short-term. In general, this quarters results reflect the Companys
continuing growth in the expanding Internet market. The Company also renewed its
bundling agreement with MacMillan Digital Publishing USA.
Page 50 of 80
<PAGE>
Six Month Review
Revenue for the six months ended March 31, 1998 increased from $709,384 in the
comparable period in 1997, to $899,582, an increase of $190,198 or 26.8%, and
was due primarily to the growing sales volume of Peaks Internet software
products. The operating loss decreased from $1,782,304 to $1,262,607, reflecting
higher sales volume and a significant reduction in operating expenses.
Management has drastically reduced expenditures in all areas, especially in cost
of goods sold, research and development, and selling and marketing. General and
administrative expenses for the six months ending March 31, 1998 were
CDN$870,107 and CDN$472,734 in the comparable period in 1997, an increase of
CDN$397,373. This was due primarily to the increase in administration salaries
of about CDN$213,000, for additional staff, an increase in interest on long-term
debt and bank charges and interest of about CDN$130,000 and net increase of
other expenses of about CDN$34,000. Marketing and sales expenses decreased to
CDN$695,999 for the six months ending March 31, 1998 from CDN$1,148,054 in the
comparable period in 1997 a decrease of CDN$452,055 or 39.4%. This was due
primarily to the decrease in product advertising of about CDN$380,000 and a
decrease in independant commision contract sellors of about CDN$80,000 Research
and development expenses decreased to CDN$324,010 for the six months ending
March 31, 1998 from CDN$374,690 in the comparable period in 1997 a decrease of
CDN$50,680. The decrease was primarily due to reduction in non-essential staff.
Amortization increased to CDN$500,693 for the six months ending March 31, 1998
from CDN$264,978 in the comparable period in 1997 an increase of CDN$235,715.
The amortization expense includes the amortization on the research and
development that was acquired in 1996 from Chameleon Bridge Technologies Corp,
which is capitalized according to Canadian GAAP and amortized at a rate of
$205,574 per quarter.
The Companys cash position was decreased from $110,784 in 1997, to $61,084 in
1998 and remains an area of critical importance and is being actively addressed
by management. The Company does not have access to any unused lines of credit at
this time. Due to managements increased control over cash flow, there are no
expected non-operation expenditures. In general, the results for the six months
reflect the Companys continuing growth in this fast-paced, rapidly expanding
Internet market.
Page 51 of 80
<PAGE>
Consolidated Financial Statements of
PEAK TECHNOLOGIES INC.
(in Canadian dollars)
Years ended September 30, 1997 and 1996
AUDITORS REPORT TO THE DIRECTORS
We have audited the consolidated balance sheet of Peak Technologies Inc. as at
September 30, 1997 and the consolidated statements of operations and deficit and
changes in financial position for the year then ended. These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at September 30,
1997 and the consolidated results of its operations and the changes in its
financial position for the year then ended in accordance with generally accepted
accounting principles.
Accounting principles generally accepted in Canada vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations for the year ended September 30, 1997
and shareholders equity to the extent summarized in note 14 to the financial
statements.
"KPMG"
Chartered Accountants
KPMG
New Westminster, Canada
December 12, 1997
Page 52 of 80
<PAGE>
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADIAN-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Companys ability to continue as a going concern, such as those described in
note 1 to the financial statements. Our report to the shareholders dated
December 12, 1997 is expressed in accordance with Canadian reporting standards
which do not permit a reference to such events and conditions in the auditors
report when these are adequately disclosed in the financial statements.
Chartered Accountants
"KPMG"
New Westminster, Canada
December 12, 1997
Page 53 of 80
<PAGE>
GORDON K.W. GEE
Chartered Accountant
An incorporated professional 488-625 Howe Street
Vancouver, BC V6T 2T6
Telephone: (604) 689 - 8815
Facsimile: (604) 689 - 8838
Auditors Report
To the Directors of Peak Technologies Inc.
I have audited the consolidated balance sheet of Peak Technologies Inc. as at
September 30, 1996 and the consolidated statements of operations and deficit and
changes in cash flow for the years ended September 30, 1996 and 1995. These
consolidated financial statements are the responsibility of the company's
management. my responsibility is to express an opinion on these consolidated
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require I plan and perform an audit to obtain reasonable
assurance whether the consolidated financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation.
In my opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company at September 30, 1996
and 1995 and the results of its operations and the changes in its financial
position for the years ended September 30, 1996 and 1995 in accordance with
generally accepted accounting principles.
Accounting principles generally 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 operation for the year ended September 30, 1996
and September 30, 1995 and shareholder's equity to the extent summarized in Note
14 to the financial statements.
"Gordon K.W. Gee"
CHARTERED ACCOUNTANT
Vancouver, B.C.
January 9, 1997
Page 54 of 80
<PAGE>
PEAK TECHNOLOGIES INC.
Consolidated Balance Sheet (in Canadian dollars)
September 30, 1997 and 1996
1997 1996
Assets ---- ----
Current assets:
Cash $ 1,071,366 $ 29,963
Accounts receivable 97,645 26,727
Inventories 59,128 13,362
Prepaids and deposits 156,046 7,936
----------- -----------
1,384,185 77,988
----------- -----------
Capital assets (note 3) 195,787 370,272
Acquired research and
development (note 4) 822,299 1,644,598
Licences -- 25,169
----------- -----------
$ 2,402,271 $ 2,118,027
=========== ===========
Liabilities and Shareholders Equity
Current liabilities:
Demand loan $ -- $ 23,152
Accounts payable and
accrued liabilities 893,398 380,119
Deferred revenue (note 5) 109,681 81,033
Current portion of
long-term debt (note 6) 14,936 23,507
Current portion of obligations
under capital leases (note 7) 24,624 15,870
----------- -----------
1,042,639 523,681
----------- -----------
Long-term debt (note 6) 1,380,991 12,702
Obligations under capital
leases (note 7) 40,927 51,342
Shareholders equity:
Share capital (note 8) 5,779,455 3,398,904
Other paid-in capital note 6) 173,759 --
----------- -----------
5,953,214 3,398,904
Obligation to issue share
capital (note 8) 399,900 455,308
Accumulated deficit 6,415,400 2,323,910
----------- -----------
(62,286) 1,530,302
----------- -----------
$ 2,402,271 $ 2,118,027
=========== ===========
Continuing operations (note 1)
Subsequent events (note 11)
See accompanying notes to consolidated financial statements.
Page 55 of 80
<PAGE>
PEAK TECHNOLOGIES INC.
Consolidated Statement of Operations and Deficit
Years ended September 30, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Sales $ 1,340,200 $ 784,900 $ 556,096
Cost of goods sold,
Exclusive of inventory
write-offs from loss on
settlement of lawsuit 448,537 428,141 357,939
$ 891,663 $ 356,759 $ 198,157
Expenses:
Amortization 1,050,965 118,968 45,635
General and
administrative 1,245,114 312,361 64,857
Marketing 1,682,437 531,170 --
Research and development 641,426 321,740 31,871
4,619,942 1,284,239 142,363
Earnings (loss) before
the undernoted (3,728,279) (927,480) 55,794
Other earnings (expenses):
Write-off of assets (53,169) -- --
Loss on settlement of
lawsuit (note 10) (310,042) -- --
$ (363,211) -- --
Earnings (loss) from
continuing operations (4,091,490) (927,480) 55,794
Loss from discontinued
operations (note 15) -- (745,844) (598,448)
Loss 4,091,490 1,673,324 542,654
Accumulated deficit,
beginning of year 2,323,910 650,586 107,932
Accumulated deficit,
end of year $ 6,415,400 $ 2,323,910 $ 650,586
Loss per common share $ (0.42) $ (0.20) $ (0.16)
See accompanying notes to consolidated financial statements.
Page 56 of 80
<PAGE>
PEAK TECHNOLOGIES INC.
Statement of Changes in Financial Position
Years ended September 30, 1997, 1996 and 1995
1997 1996 1995
Cash provided by (used in): ---- ---- ----
Operations:
Net earnings (loss) $(4,091,490) $ (927,480) $ 55,794
Items not involving cash:
Loss from discontinued operations -- (745,844) (598,448)
Amortization 1,050,965 118,968 45,635
Write-off of assets 53,169 -- --
Change in non-cash
operating working capital 253,980 404,452 22,283
(2,733,376) (1,149,904) (474,736)
Financing:
Repayments of long-term debt (21,273) (23,462) --
Increase (decrease) in obligations
under capital leases (1,661) 51,342 --
Issuance of long-term debt 1,554,750 -- --
Increase (decrease) in obligation
to issue shares (55,408) 455,308 36,163
Issuance of share capital 2,380,551 2,503,037 801,287
3,856,959 2,986,225 837,450
Investments:
Purchase of capital assets (82,180) (150,486) (220,296)
Acquisition of licences -- (33,559) --
Business combination (note 4) -- (1,644,598) --
Acquisition of software technology -- (136,979) --
(82,180) (1,965,622) (220,296)
Increase (decrease) in cash
position 1,041,403 (129,301) 142,418
Cash, beginning of year 29,963 159,264 16,846
Cash, end of year $ 1,071,366 $ 29,963 $ 159,264
See accompanying notes to consolidated financial statements.
Page 57 of 80
<PAGE>
PEAK TECHNOLOGIES INC.
Notes to Consolidated Financial Statements
Years ended September 30, 1997 and 1996
The Company is incorporated under the laws of Alberta and its principal business
activities are providing Internet software to corporate and individual users.
1. Continuing operations:
These consolidated financial statements have been prepared using generally
accepted accounting principles that are applicable to a going concern, not
withstanding that the Company incurred significant operating losses in the
current and prior years. This basis of preparation may be inappropriate because
significant doubt exists about the appropriateness of the going concern
assumption. The Companys ability to continue as a going concern is dependent
upon obtaining additional external financing and by reducing costs. Management
is of the opinion that additional external financing will be obtained by
achieving certain predetermined targets previously agreed upon in a loan
agreement as a result of their new product launch or by renegotiating the terms
under which such financing will be made available. Management is also in the
process of renegotiating fulfillment costs as well as significantly reducing
operating costs. For these reasons, the financial statements do not reflect
adjustments in the carrying values of the assets and liabilities, the reported
revenues and expenses and the balance sheet classifications used that would be
necessary if the going concern assumption were not appropriate.
2. Significant accounting policies:
(a) Principles of consolidation:
The consolidated financial statements include the accounts of the Company and
its wholly-owned American subsidiary Peak Media, Inc. and its wholly-owned
Canadian subsidiary Chameleon Bridge Technologies Corporation. All significant
inter-company transactions and balances have been eliminated on consolidation.
The 1996 consolidation includes the accounts of Breez Business Management
Systems Inc. which was no longer active in 1997.
(b) Revenue recognition:
Revenue from product sales is recognized as products are shipped, title to the
product is transferred, no significant obligations remain, and collectibility is
probable. An allowance for product returns is recognized at the time of the
sale. The Company provides customers with a telephone support line at no cost to
the customer, which it is not contractually obligated to provide. A provision is
made at the time of the sale for the cost of such services.
Revenue from service contracts is recognized when the work is completed.
Deferred revenue represents payments received from customers for services nod
yet performed.
Page 58 of 80
<PAGE>
The Companys revenue recognition policies are consistent with the American
Institute of Certified Public Accountants Statement of Position ("SOP"91-1),
"Software Revenue Recognition".
(c) Foreign currency translation:
Foreign currency transactions entered into directly by the Company as well as
the financial statements of the integrated foreign operations are translated
using the temporal method. Under this method, monetary assets and liabilities
are translated at year end exchange rates. Other balance sheet items are
translated at historical exchange rates. Income statement items are translated
at average rates of exchange prevailing during the year except for depreciation
expense which is translated at historical rates. Translation gains and losses
are included in income except for unrealized gains and losses arising from the
translation of long-term monetary assets and liabilities which are deferred and
amortized over the remaining lives of related items.
(d) Capital assets:
Capital assets are stated at cost. Amortization is provided on the declining
balance basis using the following annual rates:
Asset Rate
- ----- ----
Furniture and equipment 4 years
Computer equipment 4 years
Computer software 3 years
Leasehold improvements 4 years
(e) Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is
determined on a first-in, first-out basis.
(f) Research and development:
The costs of the Companys research and development activities are expensed as
incurred except for development costs which meet the criteria for deferral under
generally accepted accounting principles ("GAAP") in Canada.
Specifically, GAAP requires all of the following criteria to be satisfied:
(a) The product is clearly defined and the costs attributable are identified.
(b) The technical feasibility of the product or prices has been established.
(c) Management has the intention to produce and market the product.
(d) The future market is clearly defined.
(e) Adequate resources exist.
As at September 30, 1997 no costs have been deferred.
Page 59 of 80
<PAGE>
Acquired research and development is capitalized and amortized over its
estimated useful life beginning in the period such acquired technology is placed
in commercial production or use. The acquired research and development
represents technology and advances purchased in the acquisition of Chameleon
Bridge Technologies Inc. in 1996. These assets are being amortized over their
estimated useful life of two years.
(g) Use of estimates:
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant areas requiring the use of management estimates relate to the
determination of net recoverable value of assets, in particular as it relates to
acquired research and development, useful lives for amortization, recognition of
revenue and the determination of deferred revenue.
(h) Financial instruments:
The Company has applied retroactively the new accounting standard with respect
to the presentation of financial instruments. The retroactive adoption of the
new standard had no impact in the financial statements except the additional
disclosures in note 9.
3. Capital assets:
1997
Accumulated Net book
Cost amortization value
---- ------------ -----
Furniture and equipment $ 73,731 $ 40,094 $ 33,637
Computer equipment 155,974 91,141 64,833
Computer software 178,073 89,037 89,036
Leasehold improvements 131,057 122,776 8,281
$ 538,835 $ 343,048 $ 195,787
1996
Accumulated Net book
Cost amortization value
---- ------------ -----
Furniture and equipment $ 115,067 $ 63,233 $ 45,783
Computer equipment 192,477 74,938 122,208
Computer software 136,979 34,245 102,734
Leasehold improvements 131,057 31,510 99,547
$ 575,580 $ 203,926 $370,272
Page 60 of 80
<PAGE>
Assets acquired under capital leases in the amount of $79,148 (1996 - $73,377)
and related accumulated amortization of $54,614 (1996 - $18,474) are included in
furniture and equipment as well as computer equipment.
4. Acquired research and development:
1997
Accumulated Net book
Cost amortization value
---- ------------ -----
Research and development $ 1,644,598 $ 822,299 $ 822,299
1996
Accumulated Net book
Cost amortization value
---- ------------ -----
Research and development $ 1,644,598 $ - $1,644,598
On May 16, 1996, the Company acquired research in the amount of $1,644,598
through the acquisition of Chameleon Bridge Technologies Corp. The Company
acquired all of the 1,950,000 issued and outstanding shares of Chameleon Bridge
Technologies Corporation in exchange for 1,500,000 shares of Peak Technologies
Inc. The fair market value of Peak Technologies Inc.s shares at the date the
transaction was announced, regulatory approval was obtained, and the shares were
exchanged was $1.11 per share. Accordingly, the allocation of the purchase price
is as follows:
Acquired research and development $ 1,644,598
Other net assets acquired 20,402
Purchase value based on shares issued in May, 1996: $ 1,665,000
5. Deferred revenue:
Deferred revenue consists primarily of advance quarterly billings for a computer
service agreement.
Page 61 of 80
<PAGE>
6. Long-term debt:
1997 1996
---- ----
Renovation loan,
secured by a charge on leasehold improvements,
bearing interest at 11.5% per annum,
maturing on March 15, 1998 $ 14,936 $ 36,209
Notes payable,
secured by the Company's inventory and
accounts receivable, bearing interest
at 12% per annum with interest paid quarterly,
maturing on September 9, 1999 (U.S. $1,125,000) 1,554,750 --
Less: other paid-in capital (173,759) --
1,395,927 36,209
Current portion of long-term debt 14,936 23,507
$ 1,380,991 $ 12,702
The notes payable were issued in September, 1997 and represent 12% senior
promissory notes held by Liverpool Limited Partnership and Westgate
International L.P.. Attached to the issued notes are warrants to purchase
3,120,075 common shares at a price of $0.50 per share expiring in September,
1999 and a right of first refusal on future capital raising transactions. The
notes reflect an effective interest rate of 18% per annum and a value of
$173,759 has been attributed to the warrants issued and recorded as other
paid-in capital.
The terms and conditions of the notes payable include an escrow agreement
whereby the Company is required to deposit funds into an escrow account in order
to satisfy the debt payment obligations as they become due. The amount of
deposits required is equal to 25% of all cash received from revenues and
25% of proceeds form the exercise of options and warrants. The maximum amount to
be contributed to the escrow account is equal to the principal and accumulated
interest outstanding on the notes. The first escrow deposit is required in
October, 1997.
A second amount of 12% senior promissory notes of $1,207,500 (US $875,000) were
to be issued subject to certain terms and conditions, with warrants attached to
purchase 1,879,925 common shares of the Company at a price of $0.64 per share
expiring in February, 2000. The terms and conditions of this second purchase of
notes required the Company to attain certain targets which have not been
achieved.
7. Obligations under capital leases:
The Company has capital leases on equipment expiring at various dates through
2001 requiring the following minimum lease payments:
Page 62 of 80
<PAGE>
1997 1996
---- ----
1997 $ -- $ 28,246
1998 32,713 25,019
1999 24,180 17,194
2000 19,965 17,194
2001 4,430 1,433
Total minimum lease payments 81,288 89,086
Less imputed interest at
varying rates (15,737) (21,874)
Present value of net
minimum capital lease
payments 65,551 67,212
Current portion of obligations
under capital lease 24,624 15,870
$ 40,927 $ 51,342
8. Share capital:
Shares Amount
------ ------
Authorized:
Unlimited voting common shares without par value Unlimited non-voting
preferred shares without par value
Common shares issued:
Balance, October 1, 1994 656,293 $ 94,580
Issued amount year ended September 30, 1995:
Issued to founders 2,344,148 --
Issued for cash 2,594,302 948,865
Issue for services 155,257 45,700
Less share issuance costs -- (193,278)
Issued amount year ended September 30, 1996:
Issued for cash 1,151,147 628,189
Issued for services 65,519 39,311
Issued for technology
CBT 1,500,000 1,665,000
Charles T. Russell (ExpressO) 102,991 136,979
Infinop 35,700 33,558
Issued amount year ended September 30, 1997:
Issued for cash 3,545,266 2,496,498
Issued for services 63,942 34,875
Issued for technology
Charles T. Russell (ExpressO) 30,898 41,094
Less share issuance costs -- (191,916)
Balance, September 30, 1997 12,245,463 $ 5,779,455
No preferred shares have been issued.
Page 63 of 80
<PAGE>
During 1995, and prior to the initial public offering, the Company's share
capital was reorganized in the nature of a stock split resulting in 2,344,148
shares being issued to its founders in proportion to their original
shareholdings.
Included in shares issued for cash during 1997 are 833,541 (1996 - 750,000, 1995
- - Nil) shares for approximately $556,498 (1996 - $317,500, 1995 - $Nil) issued
pursuant to the exercise of management, employees and directors' stock options.
The remaining shares of 2,711,725, being the private placement of 2,775,667
shares less 63,942 issued for services, (1996 - 401,147, 1995 - 2,594,302) for
$1,940,000 (1996 - $350,000, 1995 - $948,865) were issued pursuant to private
placements.
(a) Management, employees and directors' options:
During 1997, the Company issued 777,000 options expiring May 12, 1998,
exercisable to acquire 777,000 shares at $0.64 each.
During 1996, the Company issued 888,916 options expiring between December 22,
1997 and August 30, 1998, exercisable to acquire 888,916 shares ranging from
$0.40 to $1.35 each.
During 1995 the Company issued 650,000 options expiring between August 9, 1997
and May 16, 1998, exercisable to acquire 650,000 shares at $0.40 each.
At September 30, 1997, the Company had the following management, employees and
directors' options outstanding:
86,000 options expiring August 30, 1998, exercisable to acquire 86,000 shares at
$0.60 each
646,375 options expiring May 1, 1998, exercisable to acquire 646,375 shares at
$0.64 each.
(b) Warrants:
At September 30, 1997, 466,665 first warrants from a private placement are
outstanding, entitling the holder to acquire one additional share for $1.00
each. The warrants expire in May, 1998.
At September 30, 1997, 1,466,667 first special warrants from a private placement
issuance are outstanding, entitling the holder to acquire one additional share
for $0.70 each. The warrants expire in March, 1998.
At September 30, 1997, 275,000 second special warrants from a private placement
issuance are outstanding, entitling the holder to acquire one additional share
for $1.00 each. The warrants expire in November, 1997.
At September 30, 1997, 253,230 third special warrants from a private placement
issuance are outstanding, entitling the holder to acquire one additional share
for $1.35 each. The warrants expire in January, 1998.
At September 30, 1997, 3,120,075 first warrants were attached to the notes
payable (see note 6) entitling the holder to acquire one additional share for
$0.50 each. The warrants expire in September, 1999.
Page 64 of 80
<PAGE>
(c) Subsequent transaction:
Subsequent to September 30, 1997, the Company issued 1,250,000 common shares at
$0.40 per share for an aggregate amount of $500,000. At the year end, the
Company had received proceeds from the share issue in advance in the amount of
$399,900 and the balance subsequent to year end.
9. Fair value of financial instruments:
The methods and assumptions used to estimate the fair value of each class of
financial instruments for which it is practical to estimate a value are as
follows:
(a) Short-term financial assets and liabilities:
The carrying amount of these financial assets and liabilities are a reasonable
estimate of the fair values because of the short maturity of these instruments.
Short-term financial assets comprise cash and accounts receivable. Short-term
financial liabilities comprise accounts payable and accrued liabilities.
(b) Long-term financial liabilities:
The carrying value of long-term debt is a reasonable estimate of the fair value
due to the recency of the issuance of the debt.
10. Loss on settlement of lawsuit:
This amount represents the costs of a settlement, including legal fees and
inventory write-offs, 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.
11. Subsequent events:
Subsequent to September 30, 1997, the Company changed its legal name from Peak
Technologies Inc. to PeakSoft Corporation.
In addition, subsequent to September 30, 1997, the Company has negotiated a
settlement with certain creditors to repay accounts payable and accrued
liabilities at amounts of approximately $210,000 less than recorded in the
financial statements. This settlement has not been reflected in the financial
statements and will be recorded in the 1998 year end.
Page 65 of 80
<PAGE>
12. Loss per common share:
Loss per common share is based on the weighted average number of common shares
outstanding during the year.
13. Related party transactions:
The following are related party transactions, not already disclosed elsewhere in
the notes to the financial statements:
1997 1996
---- ----
Salaries to directors and officers $212,000 $104,000
Consulting fees and expense reimbursements
to directors 64,000 19,283
Salary paid to a relative of one of the directors 33,000 49,000
-------- --------
$309,000 $172,283
These transactions are in the normal course of operations and are measured at
the exchange amount which is the amount of consideration established and agreed
to by related parties.
14. United States GAAP reconciliation:
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These principles
differ in the following material respects from those in the United States as
summarized below:
(a) Loss and loss per share:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Loss in accordance with Canadian GAAP $(4,091,490) $(1,673,324) $(542,655)
Difference in accounting for acquired
research and development (note d) 822,299 (1,644,598) --
Stock options (note e) (85,470) (5,000) --
Loss in accordance with
United States GAAP $(3,354,661) $(3,322,922) $(542,655)
Loss per common share (0.35) (0.40) (0.16)
Weighted average number of shares used
for calculation 9,615,270 8,294,805 3,391,593
</TABLE>
(b) Balance sheet:
The amounts in the consolidated balance sheet that differ from those reported
under Canadian GAAP are as follows:
Page 66 of 80
<PAGE>
September 30, 1997 September 30, 1996
Canadian United States Canadian United States
GAAP GAAP GAAP GAAP
---- ---- ---- ----
Assets:
Acquired research and
development $ 822,299 $ -- $ 1,644,598 $ --
Acquired research and
development $ 822,299 $ -- $ 1,644,598 $ --
Shareholders equity:
Other paid-in capital 173,759 264,229 -- 5,000
Obligation to issue 399,900 500,000 -- --
share capital
Subscription receivable -- (100,100) -- --
Accumulated deficit 6,415,400 7,328,169 2,323,302 3,972,900
(c) Statement of cash flows:
Cash used in operations and cash provided by financing activities would decrease
by $75,969 (1996 - $1,874,848, 1995 - $45,700) because shares issued for
services and technology would be considered non-cash transactions.
Under United States GAAP, cash used in investments and cash provided by
financing activities in 1996 would decrease $51,342 for obligations under
capital lease and $1,665,000 for common share consideration on an acquisition.
(d) Research and development:
In accordance with United States GAAP, research and development costs, including
the costs of research and development acquired in a business combination is
expensed as it is incurred.
(e) Stock based compensation:
The Company records compensation expense for United States GAAP purposes
following the intrinsic value principles of Accounting Principles Board Opinion
25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for the
options issued under the Company's stock option plan. Under APB 25, $85,470
compensation expense has been recognized for its stock based compensation plans
in 1997 (1996 - $5,000, 1995 - Nil).
The Company has elected the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation", for United States GAAP purposes. Had compensation cost for the
Company's stock option plan been determined based on the fair value at the grant
date for awards under those plans consistent with the measurement provisions of
FAS 123, the Company's loss and loss per share under United States GAAP would
have been adjusted as follows:
Page 67 of 80
<PAGE>
1997 1996 1995
---- ---- ----
Loss - as reported $ 3,354,661 $ 3,322,922 $ 547,655
Loss - stock option value adjusted 3,475,718 3,510,536 672,950
Loss per common share - as reported 0.35 0.40 0.16
Loss per common share - adjusted 0.36 0.42 0.20
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following assumptions:
1997 1996 1995
---- ---- ----
Expected dividend yield 0% 0% 0%
Expected stock price volatility 70% 70% 70%
Risk-free interest rate 5.5% 5.5% 5.5%
Expected life of options 1 yr. 2 yrs. 2-3 yrs.
The weighted average fair value of the options granted is $0.26 (1996 - $0.22,
1995 - $0.20) per option.
(f) Taxation:
For U.S. GAAP purposes, income taxes are accounted for in accordance with
Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for
Income Taxes". FAS 109 requires the asset and liability method whereby deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing asset and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided on deferred tax assets
to the extent it is not more likely than not that such deferred tax assets will
be realized. Under FAS 109, the effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date.
The Company has deferred tax assets of approximately $2,140,000 (1996 -
$750,000) arising from losses carried forward (see note 17). The Company has
provided a valuation allowance against the entire deferred tax asset amount as
it is more likely than not that they will not be realized.
15. Loss from discontinued operations
During 1996, the company discontinued its multi-media segment of its business.
The costs related to this are summarized as follows, and the 1995 comparative
amounts have been reclassified to reflect this change in direction.
1996 1995
---- ----
Revenue $ (43,818) $ (4,274)
Marketing 332,835 197,724
Research and development 368,119 317,564
General and administrative 88,708 87,434
--------- ---------
$ 745,844 $ 598,448
Page 68 of 80
<PAGE>
16. Commitments:
The Company has entered into a long-term operating lease for facilities
expiring August 31, 1999 for which the annual lease payments are $64,308.
17. Income taxes:
The Company has non-capital losses from foreign and Canadian operations
available for offset against future taxable income totaling approximately
$2,900,000 in the United States and $2,500,000 in Canada.
18. Comparative figures:
Certain of the comparative figures have been reclassified to conform with the
financial presentation adopted in 1997.
Page 69 of 80
<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 70 of 80
<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 February 3, 1999
Card-Smart Corp.
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
Page 71 of 80
<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.
Page 72 of 80
<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.
Page 73 of 80
<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.
Page 74 of 80
<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
Page 75 of 80
<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.
Page 76 of 80
<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.
Page 77 of 80
<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
Peak Technologies Inc.
Supplementary Data: Quarterly Financial Data (unaudited)
Report of Independent Auditors
Comments by Auditor for US readers on Canadian - US reporting difference
Page 78 of 80
<PAGE>
Report of Independent Auditors
Consolidated Balance Sheets as of September 30, 1997 and 1996
Consolidated Statements of Operations and Deficit for the Years
Ended September 30, 1997, 1996 and 1995
Consolidated Statement of Changes in Financial Position for the
Years Ended September 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(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
Page 79 of 80
<PAGE>
*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.
Page 80 of 80
