20-F 1 peaksoft200320f.txt ANNUAL REPORT ON FORM 20-F US SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F (Mark One) [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2003 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 PeakSoft Multinet Corp. Richmond, BRITISH COLUMBIA, CANADA CALGARY, ALBERTA, CANADA 3930 Meridian Street, Suite C117, Bellingham, Washington 98226 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: Toronto Venture 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: 3,830,974 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 Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. [X] Yes [ ] No Indicate by check mark which financial statement item the Registrant has elected to follow. [X] Item 17 [ ] Item 18 (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [X] N/A [ ] Yes [ ] No TABLE OF CONTENTS PART I ITEM 1 - THE CORPORATION AND DESCRIPTION OF BUSINESS 1 ITEM 2 - DESCRIPTION OF PROPERTY 24 ITEM 3 - LEGAL PROCEEDINGS 24 ITEM 4 - CONTROL OF REGISTRANT 24 ITEM 5 - NATURE OF TRADING MARKET 25 ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS 26 ITEM 7 - TAXATION 28 ITEM 8 - SELECTED FINANCIAL DATA 29 ITEM 9 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 31 ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT 36 ITEM 11 - COMPENSATION OF OFFICERS AND DIRECTORS 38 ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES DIRECTORS, OFFICERS AND EMPLOYEES 39 ITEM 13 - INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS 40 PART II ITEM 14 - DESCRIPTION OF SECURITIES TO BE REGISTERED - NOT APPLICABLE 41 PART III ITEM 15 - DEFAULTS UPON SENIOR SECURITIES - NOT APPLICABLE 41 ITEM 16 - CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES AND USE OF PROCEEDS. - NOT APPLICABLE 41 PART IV ITEM 17 - FINANCIAL STATEMENTS (Annual Report) 41 ITEM 18 - FINANCIAL STATEMENTS NOT APPLICABLE 57 ITEM 19 - FINANCIAL STATEMENTS - SEE ITEM 17 57 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 head office of the Corporation is located at 3930 Meridian Street, Suite C117, Bellingham, WA 98226. The registered office of the Corporation is located at Suite 215 - 8171 Cook Road, Richmond, BC, Canada V6Y 3T8. 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. On February 22, 1999 pursuant to the requirements of the Alberta Stock Exchange and with shareholder approval the Corporations name was changed from PeakSoft Corporation to PeakSoft Multinet Corp. At this point in time the Corporation has but one active wholly owned subsidiary -- PeakSoft Multinet Corp USA (PeakSoft USA), formally PeakSoft Corporation 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 resides in Bellingham, WA. The Corporations head office is in Bellingham, Washington where Mr. Timothy Metz, PeakSofts Chief Executive Officer resides. Background of the Corporation The Corporation was founded by Mr. Douglas Foster in the summer of 1994 to combine the operations of Peak Media, Inc. and BREEZ. For ease of exposition, when used herein to describe the Corporations business, the terms PeakSoft or the Corporation shall, unless otherwise indicated, include the activities of its subsidiaries. In mid-1995, Peak launched its first CD-ROM product entitled Mt. Everest Quest for The Summit of Dreams, Volume 1; The North Side. This multimedia title tells the tale of eight international teams attempting to reach the summit of Mt. Everest. 1 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(TM). PeakJet(TM) 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(TM), modem speeds of 50 percent to 90 percent of capacity are possible, resulting in reduced waiting times and faster web browsing. PeakJet(TM) runs on any IBM-compatible computer system running Windows 95 or Windows NT. PeakJet(TM) 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 per common share for an aggregate purchase price of US$130,000. 102,991 Common Shares were issued in fiscal 1996. Two additional allotments of 15,449 shares each were to be issued upon achievement of certain performance milestones. These performance milestones were met in fiscal 1997 and these two allotments, totaling 30,898, were issued in fiscal 1997. Pursuant to a Software License and Joint Marketing Agreement dated June 5, 1996 and an Addendum dated June 24, 1996 between Peak and Infinop, Inc. (the Infinop Agreement), the Corporation obtained an exclusive worldwide license with an 2 initial term of three years, subject to automatic one year renewals thereafter (unless terminated earlier in accordance with the provisions of the Infinop agreement), for the utilization, marketing and distribution of the Lightning Strike program written in Java, which is a wavelet compression technology which provides up to 200 to 1 compression for image transmission and increases the speed of picture and graphics transmission over the Internet. Peak issued 35,700 Common Shares to Infinop for the license at a price of CDN$0.94 per common share for an aggregate acquisition fee of CDN$33,558. Pursuant to the Infinop agreement, Peak was required to make an advance royalty payment of CDN$68,095 and monthly payments of CDN$13,619 for ten months in the initial year. The parties have subsequently reached an agreement to cancel this license, and Peak has ceased making any payments thereunder, as the Lightning Strike program has not ultimately been incorporated into any of PeakSofts products. On June 11, 1997 the Company issued and had accepted a prospectus in British Columbia, Alberta, and Ontario and cleared the First, Second, and Third Special Warrants. The prospectus was the means whereby shares were registered in order to issue and deliver free trading shares to the holders of the First, Second, and Third Special Warrants pursuant to the respective agreements. As a result on June 11, 1997 the Company issued 2,775,667 Common Shares (1,466,667 to the First Special Warrant Holders, 550,000 to the Second Special Warrant Holders, and 759,000 to the Third Special Warrant Holders) of these shares 63,942 were issued for services provided to the Company, and the balance of 2,711,725 shares were issued for cash. The Company became a reporting issuer in British Columbia, Alberta, and Ontario at that time. On August 11, 1997 PeakSoft announced the signing of a letter of intent for a US$2 million financing commitment with Elliott Associates LP, (Elliott), the manager of a New York Investment group, in consideration of promissory notes bearing interest at 12 percent per annum and warrants to purchase Common Shares. The first stage of the financing agreement of US$1,125,000 closed on September 9, 1997. The notes payable were issued in September, 1997 and represent 12 percent senior promissory notes held by Liverpool Limited Partnership and Westgate International L.P. Attached to the issued notes are warrants to purchase 3,120,075 common shares at a price of CDN$.50 per share expiring in September 1999 and a right of first refusal on future capital raising transactions. The notes reflect an effective interest rate of 18% per annum and a value of CDN$173,759 has been attributed to the warrants issued and recorded as other paid-in capital. 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. On August 29, 2001 the Company announced that entered into agreements, subject to regulatory and shareholder "minority approval" under OSC Rule 61-501, with its creditors to settle debts to them which aggregate to CDN $6,498,382 by the issuance of 21,154,374 common shares priced at CDN $0.26 apiece. These agreements where entered into with the understanding between the Company and the creditors, that the Company would only act upon the agreements in consort with a merger/acquisition/financing which required the Company to be "debt free". The 3 Board of Directors also authorized management to enter into any additional debt conversion agreements in the future that where required in order for the Company to be debt free as a requirement of any merger/acquisition/financing. This authorization was also conditioned upon any subsequent debt conversion agreements utilizing the same Canadian to US dollar exchange rate and the same price per share as those that where announced on 29 August 2001. The settlement of these debts would leave PeakSoft essentially debt free. Of the CDN$6,498,382 of debt settled, CDN$5,121,429 is owed to The Liverpool Limited Partnership ("Liverpool") and Elliott International, L.P. ("Elliott"). Liverpool and Elliott are institutional investment firms under common management that together hold approximately 1.8 million (48%) of the issued and outstanding shares of PeakSoft prior to the debt settlement. The remaining $1,376,953 of debt is owed to 8 creditors. As a result of the debt settlement, Liverpool and Elliott will receive an additional 15,858,395 PeakSoft Common Shares. In addition, PeakSoft will transfer 431,989 common shares of Inculab.com Inc. to Liverpool and Elliott, together with PeakSoft's interest in the agreement by which the Inculab.com Inc. shares were acquired and a related registration rights agreement. The Company also enter into debt conversion agreements on August 1, 2001 with its 3 directors to convert CDN$227,066 of debt by the issuance of 873,332 common shares priced at CDN$0.26 under the same terms and conditions as stated in the 29 August 2001 announcement. On 8 August 2002 the Company entered into a debt conversion agreement with Timothy W. Metz, its CEO/President to convert CDN$385,958 of debt by the issuance of 1,484,455 PeakSoft common shares priced at CDN$0.26 under the same terms and conditions as stated in the 29 August 2001 announcement. On 3 October 2002 the Company entered into a debt conversion agreement with Jesyka Anne Clarkson, a director, to convert CDN$3,649 of debt by the issuance of 14,035 PeakSoft common shares priced at CDN$0.26 under the same terms and conditions as stated in the 29 August 2001 announcement. On January 22, 2003 the Company entered into a debt conversion agreement with Timothy W. Metz, its CEO/President to convert CDN$461,874 of debt by the issuance of 1,776,437 PeakSoft common shares priced at CDN$0.26 under the same terms and conditions as stated in the 29 August 2001 announcement. During the 2nd. Quarter, Mr. Metz cancelled the January 22, 2003 debt conversion agreement. The directors forgave the CDN$ 230,715, in aggregate, in May 2003, which was reflected in the conditional debt conversion agreements entered into with them in August 2001 and October 2002. Upon approval and issuance of the foregoing shares pursuant to the shares for debt agreements, the total outstanding common shares of the Company will be 26,973,525. PeakSoft and Voyager Entertainment Inc. ("Voyager") jointly announced August 29, 2001 that they have signed a binding Memorandum of Understanding dated July 24, 2001 for a transaction ("RTO") by which the shareholders of Voyager would exchange their Voyager shares for shares in the capital stock of PeakSoft. It was proposed that at completion of the RTO, the current shareholders of Voyager would own 80 percent of the shares of the combined company, while the current shareholders of PeakSoft would own the remaining 20 percent. This will result in PeakSoft issuing 101,942,930 Common Shares at a deemed value of CDN$0.10 per share. The RTO would constitute a "Reverse take-over" under the policies of CDNX and was subject to the approval of PeakSoft shareholders and CDNX. On December 11, 2001 PeakSoft and Voyager jointly announced that they had decided not to proceed with the RTO that was announced on August 29, 2001. The decision was due in part to Voyager's inability to raise the necessary operating capital in the post Sept 11, 2001 financial markets. On December 12, 2001 PeakSoft announced that it had entered into an agreement with Bartercard International Limited (BCI) EC 27608 of Hamilton, Bermuda to 4 purchase the exclusive Bartercard licence to operate a B-2-B Trade Exchange in Canada utilizing Bartercard's Trademarks, proprietary IT, software and business development systems. Under the terms of the agreement Bartercard International Limited would have become a 20% shareholder in PeakSoft and will hold some 6,590,677 shares. Of the new stock issued to Bartercard, half is for payment of the US$2,000,000 (CDN$3,027,551) licence fee. This amount represents 3,295,338 shares valued at US$0.61 (CDN$0.92) per share. The balance of Bartercard's holding, represents its contractual commitment to maintain a permanent 10% shareholding in the new Bartercard Canadian operation. This new deal is subject to the approval and issuance of the shares for debt settlement announced by PeakSoft on August 29, 2001, which has not yet occurred. After the transaction, PeakSoft Multinet Corp's total issued shares will be 32,953,383. There will be no change of control or management of PeakSoft under the agreement. Bartercard will provide continuing support and training under the agreement. The Canadian barter operation will function under the name Bartercard Exchange Canada (BCEC). In March 2002 the Canadian securities commissions issued a cease trade order against PeakSoft for failure to file the required financial statements. PeakSoft also stopped trading on the OTC:BB during the year for failing to file the required financial information with the SEC. On October 11, 2002, PeakSoft Multinet Corp. (TSX: PKS; OTC-BB PEAMF) announced that Mr. Colin Morse had resigned from the Board due to the demands of his other business interest and that Ms. Jesyka Anne Clarkson would file the casual vacancy created by Mr. Morses resignation until the next shareholders meeting. On October 11, 2002, PeakSoft announced that the purchase agreement announced on December 12, 2001 would not be finalized and that it would continue to seek viable alternatives for the company such as acquisitions. Mr. Metz cited the post September 11, 2001 conditions in the capital markets as a contributing factor to the cancellation. The Company was unable to raise the necessary operating capital. On December 27, 2002 PeakSoft brought all of its required financial filings current in Canada. On January 6, 2003, PeakSoft brought all of its required financial filings current in the United States. In February 2003 PeakSoft prepared applications to the Canadian securities commissions seeking revocation of the cease trade orders that resulted from the Company's delinquent filings. On May 28, 2003 PeakSoft filed an application to the Ontario Securities Commission seeking partial revocation of the cease trade orders that resulted from the Company's delinquent filings. On June 6, 2003 PeakSoft filed applications to the Alberta Securities Commission and the British Columbia Securities Commission seeking partial revocation of the cease trade orders that resulted from the Company's delinquent filings. On June 10, 2003 PeakSoft filed a Material Change Report and Press Release announcing conditional debt conversion agreements. On July 24, 2003 the Alberta Securities Commission issued an Order granting the action sought in PeakSoft's application. 5 Subsequent Events On January 26, 2004 the Ontario Securities Commission issued an Order granting the action sought in PeakSoft's application. On February 3, 2004 the British Columbia Securities Commission issued an Order granting the action sought in PeakSoft's application. BUSINESS OF THE CORPORATION Overview 2002 was a year of change for PeakSoft. With the close of the sale of Peak.com previously announced, the Company directed its focus upon merger/acquisition/financing activities. PeakSoft entered into a Memorandum of Understanding with Voyager Entertainment for a business combination in the form of a RTO. Both Voyager and PeakSoft elected not to complete the RTO due to the lack of funding in the Post 911 capital markets. PeakSoft subsequently entered into a Contract of Service with Bartercard International to purchase the exclusive Canadian Bartercard License to operate a B-2-B trade exchange in Canada. The parties elected not to finalize the purchase of license, when adequate operating capital could not be obtained from the capital markets in the Post 911 environment. PeakSoft 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 that address browsing speed and performance issues. The acquisition of CBT brought new engineering staff and unfinished technology to Peak. The technology known as Javalin had no guarantee of being merchantable or completed, but in the opinion of management offered promise for the company to establish itself in the Internet market. Approximately six months after the acquisition Peak did, in fact, successfully commercialize the product and continue to expand the core technology. As an example the company released Web Animator in 1996 which was re-named Jet Effects in 1997 and continues to be sold by the company today. In addition the technology was applied to the creation of NetJet in November 1996, now known as PeakJet(TM) and to the creation of NetMagnet(TM) released in January 1998. While there is no guarantee that the technology will continue to be marketable, the Company released PeakJet(TM) 2000 in July 1998 and had five other products based upon this technology underdevelopment. 6 The Company currently has no products under active development or any ongoing sales/marketing activities. PeakSoft Products The following is an overview of PeakSofts initial products. PeakJet(TM) 1.5 PeakJet(TM)(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(TM)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. PeakJet(TM)s 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(TM) reduces waiting time regardless of the content type being loaded whether text, sound or images. PeakJet(TM) reduces access time to all sites, Java or otherwise. Additional speed gains are realized when accessing sites utilizing Peaks ExpressO Java server. PeakJet(TM) boosts Web surfing performance on both 14.4 and 28.8 modems, as well as on ISDN, T3 and TI connections. PeakJet(TM) works with PC (Windows 95 and Windows NT) compatible systems and runs with any Java-enabled browser, including Netscape 2.0 or later, Microsoft Internet Explorer 3.0 or later, JavaSofts HotJava, and Oracles Power Browser. PeakJet(TM) was released on November 18, 1996 at a suggested retail price of US $29.95. JetEffects A Java-based tool for World Wide Web authors, JetEffects allows animations, special effects and sounds to be added to text and graphics. JetEffects provides a graphic user interface, allowing non-programmers to bring static Web sites to life. JetEffects began selling separately over the Internet for US $49.95 beginning in November 1996 and was released into the retail channel on March 10, 1997. This product also offers potential bundling and original equipment manufacturer opportunities. ExpressO from PeakSoft ExpressO is a full-featured easily customized Java Web server that enables peer to peer communication between users. Its small size and cross-platform compatibility allows it to reside on a broad range of computer platforms supporting a Java interpreter. Ideal for both Internet and intranet users, ExpressO products include Commercial Web Server, a Lite Personal Web Server, the ExpressO Programmer Kit and the Server Construction Kit. ExpressO products will be sold to corporations, through original equipment manufacturer agreements and to World Wide Web developers. PeakJet(TM) 2000. 7 A sophisticated Java-based utility that provides browser acceleration as well as intelligent caching. PeakJet(TM) 2000 is compatible with Windows 95, 98 and NT 4.0 operating systems. It is also compatible with all current versions of both Netscape Navigator and Microsoft Internet Explorer. LawTrack PeakSoft announced LawTrack on October 22, 1998. LawTrack is a breakthrough solution for anyone doing research in the legal arena because it's a knowledge management tool designed to marry publicly available law content from federal, state and local governments with proprietary subscription-based Web content and even a company's internal intranet knowledge base, into a new breed of research brief. LawTrack enables legal researchers, administrators, librarians and paralegals to save valuable research time and effort by efficiently organizing, adding value to and sharing Web research results with colleagues. LawTrack works with either the Netscape Navigator or Microsoft Internet Explorer Web browser to provide nearly all Internet users in the legal profession the capability to gather, annotate, present, view and publish hard copies of Web-based research data electronically. LawTrack's self-contained research presentations can be provided to end users of the information via e-mail or by diskette for viewing using a browser, even without the LawTrack application installed. LawTrack includes PeakSoft's award-winning Java-based Web acceleration capabilities, which can significantly improve browsing speeds. LawTrack uses acceleration agents to "look-ahead" and pre-load links, and creates its own intelligent cache so users can access them quickly. Users can more thoroughly review the gathered information offline, which saves online access and expensive proprietary research fees. LawTrack's PageTracer provides a complete history of each browsing session, which allows legal professionals to maintain accurate records of time spent on Internet research on behalf of a particular client. Users can also quickly retrieve a list of important Web page address listings from past searches for faster access to a particular site. These lists can be edited by deleting, reordering and annotating every citation in each browsing session's history. Realty Tracer (CODE NAME) RealtyTracer is the next installment in the PeakTrack series of vertical market Internet information management applications for small- to medium-sized businesses. The PeakTrack series is based on the NetMagnet(TM) core technology. Current PeakTrack applications include Small Business, Law and Realty. Using RealtyTracer, real-estate professionals can quickly and easily find, intelligently organize and clearly present information extracted from all Web-accessible sources to provide the level of value-added service today's increasingly sophisticated home buyers and sellers demand. Standard Internet browsing tools lack powerful organization and presentation features that are essential for today's realtors that strive to be competitive in an increasingly `wired' market RealtyTracer enables real-estate professionals to quickly and efficiently utilize Web-based resources, including multiple-listing data, internal agency information and specially, pre-loaded real estate-specific Web sites. RealtyTracer enables realtors to save valuable research, preparation and presentation time and effort by efficiently organizing, adding value to and sharing Web-based listing information with clients. RealtyTracer works with either the Netscape Navigator or Microsoft Internet Explorer Web browsers to 8 provide real-estate professionals the capability to electronically gather, view, annotate, present and publish hard copies of Web-based real-estate information. RealtyTracer's self-contained research presentations can be provided to clients via e-mail or on diskette for viewing on a PC using a Web browser, even without the RealtyTracer application installed. RealtyTracer includes PeakSoft's award-winning Java-based Web acceleration capabilities, which can significantly improve browsing speeds. RealtyTracer uses acceleration agents to "look-ahead" and pre-load links, and creates its own intelligent cache so users can quickly and more intuitively access "saved" Web pages. This enables realtors to more conveniently and thoroughly review the gathered information off their hard drives rather than while connected to the Internet. This feature keeps phone lines freed up, saves online access charges and reduces expensive proprietary research fees. RealtyTracer's PageTracer provides a complete history of each browsing session. Realtors can also quickly retrieve a list of important Web page address listings from past searches for faster access to a particular site. These lists can be edited by deleting, reordering and annotating every citation in each browsing session's history. RealtyTracer users can share their Web research data with others using the product's PagePresenter technology. It enables users to create slide shows of pages they have gathered, add comments, and share with others. While viewing the pre-selected Web pages, clients can choose to visit a particular Web site by simply clicking a button to activate an online browsing session. PeakSofts core technology has been translated into a comprehensive product strategy. The company announced PeakJet(TM) 2000 and commenced sales of this product on July 2, 1998. PeakJet(TM) 2000 is a next generation of the company's original browser accelerator offering new features and specific features for the International marketplace. The company licensed its technology to InfoBuild Networks Inc. InfoBuild has released its first application targeted at the financial industry, BSmarter and is in the process of launching its next product BFaster. The company announced its first value added solution, LawTrack targeted at providing Internet Research to the legal community on October 22, 1998. The company announced Realty Tracer on January 13, 1999, its second value added solution product targeted at the Real Estate market, based upon its core technology. The Company currently has no products under active development or any ongoing sales/marketing activities. Marketing Strategy 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(TM) 1.55 released in March 1997 and Jet Effects released in March 1997 were marketed using traditional software sales strategies. 9 In the past these strategies included: 1) Sales through traditional distributors into major retail locations across North America, 2) Bundling of the products with other complimentary applications, 3) Offering trials of the products through compatible distribution partnerships such as modems and other computer devices, 4) Creating a presence on the WWW for the offer to try or to purchase the products, 5) Establishing International sales relationships. PeakSofts approach to its marketing strategy is directed toward the globalization of the Company's core technology, once sufficient operating capital is obtained. Significant long run growth is expected in B2B electronic commerce (B2BEC). It is forecast that the volume of goods and services sold through B2BEC will reach $7.29 trillion worldwide in 2004.[1] This is forecast to consist of up to 13.3% services and 86.7% goods.[2] Approximately one in every one hundred B2B transactions in the US was conducted online in 2000. This is expected to increase to one in ten by 2004.[3] Transaction volumes in 2000 were forecast to reach US$ 250 billion, representing a 1.3% penetration of all on and off line B2B transactions.[4] PeakSoft believes that its underlying core technology can greatly enhance the B2BEC experience. The following B2B E-commerce (B2B EC) market trends are expected:[5] VIRGIN MARKETS WILL DISAPPEAR - Electronic markets in which little or no competition exists are not sustainable. Relatively low barriers to entry will ensure competition in all market segments. INCREASED SERVICE DIFFERENTIATION - In order to survive in an increasingly competitive market segment, B2B facilitators have to differentiate services and maintain ever increasing levels of service. Significant investment in IT infrastructure is required to maintain market share. OFF LINE BUSINESSES WILL MOVE ONLINE - Some large corporations presently dominating real world trade will migrate online. This will, in some instances, create overnight market leaders in the electronic market place. Immediate B2B EC opportunities are for sales in industries characterized by capacity management concerns and those trading in near commodity products, which can easily be traded online.[6] Long run growth in B2B EC is expected to be driven by:[7] o Growth in Internet connections, high bandwidth access and computing power; o The ability to act within discrete vertical or horizontal markets with limited complexity; and o The ability to supply optimized buying conditions, reducing transactional costs and information asymmetry. ___________________ 1 Source: "Forecast Analysis: Triggering the B2B Electronic Commerce Explosion" Gartner Group Inc, January 31, 2000. 2 Source: "The B2B Market Maker Book: They're All Business", Merrill Lynch & Co., Global Securities Research & Economics Group, 3 February 2000 3 Source: "The B2B Analyst" Volume 1, Number 1, Piper Jaffray, January 28, 2000 4 Source: "The B2B Analyst" Volume 1, Number 1, Piper Jaffray, January 28, 2000 5 Source: 2000 Forrester Research "Net Marketplaces Grow Up" http://www.forrester.com 6 Source: "Forecast Analysis: Triggering the B2B Electronic Commerce Explosion" Gartner Group Inc, January 31, 2000. 7 Source: "The E-Market Maker Revolution" Dataquest Inc., September 27, 1999. 10 Marketing activities and Public relations focus on the Internet as the primary vehicle for creating interest in the company's products followed by traditional press and print focus. Internet Usage According to the latest statistics complied by NUA Internet Services current Global Internet usage is as follows: World Total 544.2 million Africa 4.15 million Asia/Pacific 157.49 million Europe 171.35 million Middle East 4.65 million Canada & USA 181.23 million Latin America 25.33 million "The art of estimating how many are online throughout the world is an inexact one at best. Surveys abound, using all sorts of measurement parameters. However, from observing many of the published surveys over the last two years, here is an "educated guess" as to how many are online worldwide as of February 2002. And the number is 544.2 million." The company plans to licence its PeakJet(TM) technology to Internet Service Providers (ISPs) in global regions that still utilize a dial-up connection. At the same time, the company plans use its NetMagnet(TM) core technology for specific solutions that enhance functionality for those that connect to the Internet via broadband and those companies that utilize e-commerce. The Company currently has no products under active development or any ongoing sales/marketing activities. The Marketing Strategy is based upon the Company obtaining sufficient operating capital to execute its plans. Management, Staff and Facilities PeakSoft currently has 1 employee who works in Bellingham, Washington. The Corporations Bellingham facilities are used for its customer service, accounting, legal, marketing and product quality assurance functions. Mr. Timothy W. Metz replaced Doug Foster as President/CEO after Mr. Foster resigned in April 2000. Seven of the employs were transferred to Peak.com Inc. in July 2000 leaving 2 senior staff at the Company. Mr. Calvin Patterson, the companys chief in house counsel returned to private practice in February 2001. He continues to represent PeakSoft and is its registered agent and counsel. The company plans to utilize contract developers and programmers for specialized solutions and applications that are based upon the PeakJet(TM)(TM) and NetMagnet(TM)(TM) core technologies. Senior management of Peak possesses a strong industry background in business management, finance, technology, sales and marketing. Peaks Board of Directors 11 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. - Timothy W. Metz Additional management and staff will be added as required. Core Technology Javalin Technology PeakSofts initial investment in Java following its acquisition of CBT resulted in the development of Javalin. Javalin is proprietary technology that allows PeakSoft to quickly develop high performance Java applications. It incorporates a real time multimedia enhancement for the Internet that is designed to animate and increase the impact of content on the World Wide Web. Javalins Java-based software framework will run in conjunction with all major browsers and Windows 95 and Windows NT computer platforms. Its modular structure requires no special plug-ins or readers. Its layered architecture creates a steady multimedia presentation flow. Even with todays Internet bandwidth limitations, the problems of lengthy downloading delays are reduced. Javalin has a graphic user interface for intuitive drag and drop authoring, and a scripting language for simple but detailed control of the structure and behavior of objects. Its layered architecture introduces presentation structures in hypertext, vector metagraphics, scalable bitmaps and animation. Sequenced effects such as movements, color and texture changes, zooms, rotations, fades, and wipes can be applied to objects in each level. Conditional events such as collision detection between objects and user interaction can create independent chains of sequences. Javalins modular construction can be layered to create multi-stated, multifaceted graphics and environments. It can also be directed to low level programming functions. Javalin was developed specifically for web authors, a market the Corporation has subsequently determined to be less attractive than Internet users who want enhanced performance. For this reason, the Corporations Javalin technology has not been developed into a completed consumer product, but rather is used internally by the Corporation as a tool to develop its other products. PeakSoft ExpressO In May 1996, PeakSoft acquired ExpressO server technology from Innovative Desktop Inc. ExpressO is a multi threaded server written entirely in Java and is currently perceived as an architecture that may form the basis of many applications to come. ExpressO has a well-defined architecture and has programming interfaces, which make it a flexible software building block. Since 1996, PeakSoft has developed additional technology in Java which includes agents and caching capabilities complementary to ExpressO and Javalin. The Corporation owns all technology outright. 12 NetMagnet(TM) Technology The following is an overview of the Company's core technology (NetMagnet(TM)): The Internet's raw potential tantalizes us with the promise of information retrieval at a keystroke. Memories of hours and days poring over spreadsheets, photocopying reference books or tediously searching technical journals fade in the rapidly evolving technical wonderland of the Internet. The Internet has yet to deliver on the promise that has captivated the computer world. Using the Internet is often inefficient, time-consuming and frequently frustrating. Exponential growth of both users and Web sites compound the organization and retrieval issues. Business users spend more time looking for information than analyzing it. A phenomenon recognized by developers of a new category of information technology called knowledge management. More than a list of facts or numbers, knowledge can be defined as the connections between disparate information. Knowledge workers, a growing professional description, gather information, manage or organize it, and are able to transmit and share it. The cumulative knowledge base built within an organization becomes one of its most valuable assets. NetMagnet(TM) technology drives straight to the core of the knowledge management challenge. Once content or information is retrieved from the Web or from a database, a knowledge worker can begin the management and transmission process, essentially completing the cycle that accounts for the accumulation of a significant knowledge base. Research and retrieval: Information retrieval often begins with a keyword search. Keyword refinements can reduce overwhelming hit lists, but typically, a research path through the undifferentiated hypertext of the Web requires frequent backtracking. The random paths created by following links can result in locating useful information or lead the user completely off track. Assigning relative significance to data as it is encountered on a Web search is nearly impossible prior to a completed search, but browsers offer only rudimentary tools to cache content during the collection process. The retrieval process is further complicated when only selected elements on any Web page are relevant, but there is no tool to capture and save only these elements. Collection of useful information from the Web is handy, but what happens when the information you need is maintained on a proprietary database? And how do you ever keep track of data that changes frequently? Managing information: Lists become meaningful when built in priority order; a report is meaningful if extraneous data has been deleted. Managing information blends the facts and figures with human experience. The need to edit, revise, prioritize, and explain is what turns information into knowledge. Sharing knowledge: After searching, retrieving, and managing all the information, conclusions are shared with other users as part of the normal collaborative process. The relevant knowledge includes the facts and figures and reflects the thought processes, methods and conclusions developed during the management and analysis process. The need to efficiently package, summarize, and deliver knowledge to others, and, in turn, to receive feedback from the recipient, completes the knowledge communication cycle. 13 What tools are available now: Search engines. The portal sites that lead us into the maze are valuable tools, but stop short. The results they return are often too coarse; different engines offer different competencies; and few present organizational aids. Push technologies. Channels seemed to be a solid answer to delivery of relevant content, but in reality, they push undifferentiated editorial content, sometimes on target but more often not. The broadcast methodology does not fulfill the personalization potential of the Web. Bookmarks and favorites. Simple to use, bookmarks let you put a virtual paperclip on every page you think you'll want to visit again. But the overly simplistic browser filing systems quickly become overrun with too many entries often listed by obscure names. What is needed now: NetMagnet(TM), originally positioned as an Internet research assistant for the savvy Web surfer, is finding a home in work groups and enterprise dependent on critical knowledge management processes. Built to use existing technologies like the browsers, NetMagnet(TM) technology extends Web interface functionality to enable users to both create and consume knowledge. Based on access to Web and database maintained content, NetMagnet(TM) technology delivers content management options including: Chronological tracking of every visited page Managing interesting, but off-target, links for future retrieval and consideration Storage system for grouping Web pages for regular, easy access Updating cached content from data sources on the Web at the user's direction Scheduling cache updates Systems to capture and manage both Web based content and desktop files in content organizers Transporting content organizers efficiently and easily. NetMagnet(TM) technology brings content management and delivery to the vast resources of data migrating to electronic format. As content is enriched on a multimedia stage, the user can fully explore the relevance of the content, blend it with his or her own existing knowledge and share the results. 14 Real-life applications: As the borders of the Internet are constantly nudged into new territory by rapidly evolving hardware and software tools, whether the Internet is the means to an end or the end itself isn't always apparent. If you subscribe to the belief that people, with all their idiosyncrasies, preferences and individuality, are driving the entire process, you'll see that what we want is a medium that accommodates our unique needs. To that end, the trends are to customization, personalization and one-to-one commerce. The NetMagnet(TM) technology recognizes the individuality inherent on the Web and that each link in the communication cycle builds relationships between senders and recipients. Applications developed with this exciting technology can keep agents in touch with clients and collaborative workgroups in constant communication. As e-businesses recognize their abilities to efficiently design and deliver personalized messages to provide service or market new products with technologies like NetMagnet(TM), we'll see the Web evolve beyond the broadcast model to a new level of communication. Intel recognizes NetMagnet(TM): Intel, world's leading chip maker, has recognized the value in NetMagnet(TM) technology in the company's recently launched "Constant Computing" initiative. With other leading software and Web based engines, NetMagnet(TM) was selected to demonstrate the sophisticated work that could be accomplished with the latest generation of Intel-powered PC's, the Web, and leading software packages. The Company currently has no products under active development or any ongoing sales/marketing activities. MARKETPLACE Overview According to the latest report from the Gartner Group world-wide e-commerce is expected to grow to S7.29 trillion by 2004. According to a January 2002 survey compiled by NUA Internet Services, nearly 164.14 million, which is 58.5% of the population (source Nielsen Net Ratings) persons in the United States and Canada used the Internet or accessed on-line services. This represents a growth rate of 911.89 percent over 1995. The number of Internet users globally is expected to grow to 945 million by 2004 according to the Computer Industry Almanac, which represents a growth of 173% over the next 2 years. According to an article published in the "Cyber Atlas" on March 11, 2002, the Computer Industry Almanac is predicting that "---the number of PCs will grow at a compound annual growth rate of 11.4 percent over the next six years to more than 1.15 billion PCs by the end of 2007". 15 PCs in Use by Region (millions) 1995 2000 2001 2007 Worldwide 229 530 603 1,150 Share in homes 35.2% 43.5% 45.1% 52.3% United States 93.5 162 175 251 Share in homes 36.9% 49.0% 50.4% 54.6% Western Europe 62.4 139 158 285 Share in homes 39.2% 48.5% 49.9% 52.9% Asia-Pacific 43.6 139 166 367 Share in homes 29.3% 35.8% 38.3% 53.9% Source: Computer Industry Almanac 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. 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(TM))discontinued, PeakJet(TM) 2000, has announced LawTrack and Realty Tracer (Company's first 2 knowledge management solutions) and will developing other solutions to address aspects of the Internet opportunity based upon its PeakJet(TM) and NetMaget(TM) core technologies. Target Markets The largest potential market for PeakSoft technology is the large and growing group of individuals who, and businesses and households which, want access to the Internet. PeakSoft intends to address this market through the licensing of it's PeakJet(TM) technology to regional Internet Service Providers (ISPs) on a global basis and to augment the e-commerce market with its NetMagnet(TM) technology. PeakSoft has launched 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(TM) addresses the biggest problem by increasing the speed of information delivery to users. With the introduction of PeakJet(TM) 2000 users now have a sophisticated intelligent caching web browser accelerator. This enhancement benefits those who connect to the Internet via a dial-up as well as those connecting through a high-speed connection. The company plans use its NetMagnet(TM) core technology for specific solutions that enhance functionality for those that connect to the Internet via broadband and those companies that utilize e-commerce. As an affluent, high-tech industrial society, Canada today closely resembles the US in its market-oriented economic system, pattern of production, and high living standards. Since World War II, the impressive growth of the 16 manufacturing, mining, and service sectors has transformed the nation from a largely rural economy into one primarily industrial and urban. Real rates of growth have averaged nearly 3.0% since 1993. Unemployment is falling and government budget surpluses are being partially devoted to reducing the large public sector debt. The 1989 US-Canada Free Trade Agreement (FTA) and 1994 North American Free Trade Agreement (NAFTA) (which included Mexico) have touched off a dramatic increase in trade and economic integration with the US. With its great natural resources, skilled labor force, and modern capital plant Canada enjoys solid economic prospects. Canada's GDP for 2000 was $774 billion. The capacity utilization for industry in the USA was about 80%; meaning that approximately 20% of that nations industrial capacity was idle. Given the close relationship between the two countries it is reasonable to assume that similar conditions will apply to Canada. Excess capacity for small to medium sized businesses is likely to be higher than stated in official figures. If you assume that $774 billion represents the cash market in 2000, then approximately $154 billion of excess capacity existed in 2000. Management believes that there is a large un-tapped market for its technology and plans to attack it once sufficient operating capital is obtained. PRODUCTS The following is an overview of PeakSofts initial products. PeakJet(TM)1.5. Discontinued. PeakJet(TM)(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(TM)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. PeakJet(TM)s 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(TM) reduces waiting time regardless of the content type being loaded whether text, sound or images. PeakJet(TM) reduces access time to all sites, Java or otherwise. Additional speed gains are realized when accessing sites utilizing Peaks ExpressO Java server. PeakJet(TM) boosts Web surfing performance on both 14.4 and 28.8 modems, as well as on ISDN, T3 and TI connections. PeakJet(TM) works with PC (Windows 95 and Windows NT) compatible systems and runs with any Java-enabled browser, including Netscape 2.0 or later, Microsoft Internet Explorer 3.0 or later, JavaSofts HotJava, and Oracles Power Browser. PeakJet(TM) was released on November 18, 1996 at a suggested retail price of US $29.95. Discontinued. 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 17 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. Discontinued. 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. Discontinued. PeakJet(TM) 2000 A sophisticated Java-based utility that provides browser acceleration as well as intelligent caching. PeakJet(TM) 2000 is compatible with Windows 95, 98 and NT 4.0 operating systems. It is also compatible with all current versions of both Netscape Navigator and Microsoft Internet Explorer. Sales and Marketing cease in May 2001 due to lack of operating capital. LawTrack PeakSoft announced LawTrack on October 22, 1998. LawTrack is a breakthrough solution for anyone doing research in the legal arena because it's a knowledge management tool designed to marry publicly available law content from federal, state and local governments with proprietary subscription-based Web content and even a company's internal intranet knowledge base, into a new breed of research brief. LawTrack enables legal researchers, administrators, librarians and paralegals to save valuable research time and effort by efficiently organizing, adding value to and sharing Web research results with colleagues. LawTrack works with either the Netscape Navigator or Microsoft Internet Explorer Web browser to provide nearly all Internet users in the legal profession the capability to gather, annotate, present, view and publish hard copies of Web-based research data electronically. LawTrack's self-contained research presentations can be provided to end users of the information via e-mail or by diskette for viewing using a browser, even without the LawTrack application installed. LawTrack includes PeakSoft's award-winning Java-based Web acceleration capabilities, which can significantly improve browsing speeds. LawTrack uses acceleration agents to "look-ahead" and pre-load links, and creates its own intelligent cache so users can access them quickly. Users can more thoroughly review the gathered information offline, which saves online access and expensive proprietary research fees. 18 LawTrack's PageTracer provides a complete history of each browsing session, which allows legal professionals to maintain accurate records of time spent on Internet research on behalf of a particular client. Users can also quickly retrieve a list of important Web page address listings from past searches for faster access to a particular site. These lists can be edited by deleting, reordering and annotating every citation in each browsing session's history. Realty Tracer (CODE NAME) The PeakTrack series is based on the NetMagnet(TM) core technology. Current PeakTrack applications include Small Business, Law and Realty. Using RealtyTracer, real-estate professionals can quickly and easily find, intelligently organize and clearly present information extracted from all Web-accessible sources to provide the level of value-added service today's increasingly sophisticated home buyers and sellers demand. Standard Internet browsing tools lack powerful organization and presentation features that are essential for today's realtors that strive to be competitive in an increasingly `wired' market RealtyTracer enables real-estate professionals to quickly and efficiently utilize Web-based resources, including multiple-listing data, internal agency information and specially, pre-loaded real estate-specific Web sites. RealtyTracer enables realtors to save valuable research, preparation and presentation time and effort by efficiently organizing, adding value to and sharing Web-based listing information with clients. RealtyTracer works with either the Netscape Navigator or Microsoft Internet Explorer Web browsers to provide real-estate professionals the capability to electronically gather, view, annotate, present and publish hard copies of Web-based real-estate information. RealtyTracer's self-contained research presentations can be provided to clients via e-mail or on diskette for viewing on a PC using a Web browser, even without the RealtyTracer application installed. RealtyTracer includes PeakSoft's award-winning Java-based Web acceleration capabilities, which can significantly improve browsing speeds. RealtyTracer uses acceleration agents to "look-ahead" and pre-load links, and creates its own intelligent cache so users can quickly and more intuitively access "saved" Web pages. This enables realtors to more conveniently and thoroughly review the gathered information off their hard drives rather than while connected to the Internet. This feature keeps phone lines freed up, saves online access charges and reduces expensive proprietary research fees. RealtyTracer's PageTracer provides a complete history of each browsing session. Realtors can also quickly retrieve a list of important Web page address listings from past searches for faster access to a particular site. These lists can be edited by deleting, reordering and annotating every citation in each browsing session's history. RealtyTracer users can share their Web research data with others using the product's PagePresenter technology. It enables users to create slide shows of pages they have gathered, add comments, and share with others. While viewing the pre-selected Web pages, clients can choose to visit a particular Web site by simply clicking a button to activate an online browsing session. 19 Due to the volatility in the software industry the Company has stopped development on the PeakTrack and Tracer series of products. The Company believes that it is more prudent to focus the underlying NetMagnet(TM) technology to provide client specific solutions. MARKETING AND DISTRIBUTION 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. 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. The Gartner Group forecasts that global e-commerce will grow to $7.29 trillion by 2004. PeakSofts strategy is to utilize its core technology in order to provide services and products to the small business community. There are 85 million small-medium size businesses globally that produce 50% of the global e-commerce revenue. The emergence of the Internet has opened a new era of communications that is rapidly evolving into a variety of business models. The very nature of the Internet helps to overcome many of the boundaries that exist in modern "conventional" communications, such as time, location, distance, currency and language. MANUFACTURING PeakSoft Corporation delivers its solutions via downloads on the internet, thus eliminating the cost associated with delivering "hardcopies" of its software. 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(TM). Speed Surfer from ViaSoft, based in Australia, markets a shareware program that claims to speed browser performance on the Web. Because Speed Surfer is designed to run totally in the background and has no user interface, evaluating user benefit is difficult. Speed Surfer is priced at about US$30. GoAhead from GotIt has similar features to PeakJet(TM), 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(TM). PeakSofts testing indicates that this product does not contain caching technology. PeakSofts tests show PeakJet(TM) 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(TM) was the fastest product of its type. 20 Animation Tools JetEffects, the company has discontinued the sale of this product. RESEARCH AND DEVELOPMENT As of September 30, 2003 the Company had no hardware and software engineers employed full time in research and development. Research, development and associated expenses were CDN $0.0 for Fiscal 2003, CDN $0.0 Fiscal 2002, CDN$146 for fiscal 2001, CDN$105,095 for fiscal 2000, CDN$282,099 for fiscal 99, CDN$531,860 for fiscal 98, CDN$641,426 for fiscal 97, CDN$321,740 for fiscal 96 and CDN$31,871 for fiscal 1995. RISK FACTORS The purchase of Common Shares of the Corporation must be considered highly speculative due to the nature of the Corporations business, its relatively early stage of development and the intensely competitive, rapidly changing nature of the Internet industry which has a number of participants which possess greater resources than the Corporation. The Corporation is a development stage company, which has not yet achieved profitability. Its accumulated deficit, in accordance with generally accepted accounting principles in Canada, as of September 30, 2003 was CDN$17,316,721. 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, marketing expenses and lack of sales for its proprietary products, there was a loss incurred for the fiscal year ended September 30, 2003 of CDN$568,522. As a result of the foregoing, investors could lose their entire investment in the Corporation. While the Corporation has no current sales revenues but has had established sales revenues in the past, 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. In February 1999, a debt conversion occurred which eliminated approximately 93% of the Company's long term debt. In August 2001 the Company entered into debt conversion agreements with most of its creditors to accept Company shares at CDN$0.26/share in payment of CDN$6,725,448 debt. In August 2002 the Company entered into a debt conversion agreement with another creditor to accept Company shares at CDN$0.26/share in payment of CDN$386,826 debt. In October 2002 the Company entered into a debt conversion agreement with a creditor to accept Company shares at CDN$0.26/share in payment of CDN$3,649 debt. In January 2003 the Company entered into a debt conversion agreement with its remaining creditor to accept Company shares at CDN$0.26/share in payment of CDN$461,874 debt. The Corporations future capital requirements will depend on 21 many factors, including the amount and the timing of future revenues. There can be no assurance that any necessary additional financing will be available when required by the Corporation for product commercialization on acceptable terms or at all. If adequate funds are not available, the Corporation may be required to change, delay, reduce or eliminate its planned product commercialization strategy or take other actions to raise funds, which could have a materially adverse effect on the Corporations business, the results of its operations, and hence its financial condition. To date, the Corporation has relied on sales of its equity capital for the largest measure of its financing, and is likely to remain reliant thereon in the near term. To the extent further equity financings are available, they may result in substantial dilution to existing shareholders. The production of technology-based products such as computer software carries with it a high risk of the emergence of new competitive products in the same market niches as those being targeted by the Corporation. There is in this industry a substantial risk of unforeseen change in the underlying technologies during the development of technology-based products, which may have negative effects on the marketability of such products. The Corporation has no technological advantage over any other competitor. There can be no assurance of market acceptance of the Corporations products, or if there is acceptance, that such acceptance will be sustained. Internet markets are new and relatively unproven, and thus carry higher risk than more established markets. The technology involved in the development of software for Internet users is subject to constant, often rapid, development. This technology and the products developed therefrom may, even within a short time, become obsolete or superseded by technology with a greater market acceptance. As a result, the Corporation could be required to expend significant amounts for research and development in order to maintain its competitive edge. There can be no assurance that the Corporation will be able to develop or improve its existing technology or to develop new technology. Hence there can be no assurance that it will continue to have access to adequate financial resources to fund necessary research and development. The market for the Corporations products is relatively new, and its potential has not yet been determined. The Corporation believes that the market for its products has significant growth potential, but whether that potential will be realized depends upon numerous factors outside the Corporations control. Even if the market for Internet products were to develop as anticipated, the success of the Corporations products will depend upon the Corporations ability to anticipate and to respond to trends in the demands of the marketplace for such products. The Internet products industry is ferociously competitive. The Corporation competes against a large number of companies of varying size and resources, including large companies with substantially greater financial, technical and marketing resources than PeakSoft. The Corporation believes that competition in its business depends largely upon sustained technological advancement and the development of appropriate channels for the marketing of its products. The Corporation is attempting to meet these needs through the expansion of its technical expertise and by developing multiple sales channels for its products. There can be no assurance, however, that the Corporation will be successful in these efforts. In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when financial 22 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 January 21, 2004 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. Accordingly, the Company has concluded that the going-concern assumption is appropriate. Management is aggressively taking steps to remedy its current financial situation. 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. Management is also aggressively seeking a strategic partner/merger candidate in order to help provide the necessary capital to implement the Companys marketing/sales initiative. The Corporation has not registered trademarks and service marks with respect to all of its products. In June 1997, the Corporation settled a lawsuit alleging infringement upon a trademark in connection with the use of the name Net.Jet. See Legal Proceedings. There can be no assurance that others will not assert infringement claims against the Corporation in the future. Such claims, even if unfounded, can be costly to defend, and could have a materially adverse effect upon the Corporations operations. The Corporation is dependent upon the management and leadership skills of Mr. Timothy W. Metz. The Corporation is party to a material contract of employment with Mr. Metz. 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. There is no assurance that the Corporation will be able to retain its existing senior management personnel or to attract additional qualified personnel. Following the debt conversion in February 1999, there are two principal shareholders, each of which hold 922,785 post consolidated shares in the capital stock of the Corporation, representing approximately 48% of the total outstanding shares. As a result, these shareholders may be able to influence materially most matters requiring approval by the shareholders of the Corporation, including the election of a majority of the directors. The voting power of the principal shareholder under certain circumstances could have the effect of delaying or preventing a change in control of the Corporation, which in turn could affect the market price of the Common Shares. 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. 23 To the extent that external sources of capital, including the issuance of additional Common Shares, might be limited or become unavailable, PeakSofts ability to make the necessary capital, development and marketing expenditures to create and distribute new products will be impaired. The Corporation has not paid any dividends since its inception and does not contemplate that any dividends will be paid in the foreseeable future. The Corporation sells a substantial part of its products and services outside of the United States and Canada. Its profitability may therefore be subject to fluctuations in exchange rates. The Company does not manage the risks related to foreign currency, interest rates or inflation by using hedging arrangements. There are potential conflicts of interest to which the directors of the Corporation may be subject to, from time to time, in connection with the operations of PeakSoft. Conflicts, if any, will be subject to the procedures and remedies mandated by the Business Corporations Act (Alberta) and the common law of Alberta. ITEM 2 - DESCRIPTION OF PROPERTY The executive offices are located at 215 - 8171 Cook Road, Richmond, BC V6Y 3T8 Canada. ITEM 3 - LEGAL PROCEEDINGS On December 4, 1996, the Corporation was served with a formal complaint from Netjet Communications, Inc., a California corporation, alleging trademark infringement with respect to the Corporations Internet software product, Peak Net.Jet, and commencing legal proceedings with respect thereto in the U.S. District Court, Northern District of California. The complaint sought unspecified damages, profits, injunctive and other equitable relief. A settlement of the complaint, the terms of which are confidential, was reached by the parties on June 10, 1997. Payment was made in full on September 13, 1997. In the spring of 1997, the Corporation received a series of bills totaling CDN$71,884.60 from its then general and securities counsel, the law firm of Bennett Jones Verchere, now known simply as Bennett Jones in Calgary, Alberta, for legal services allegedly performed during the years 1995 and 1996. Following a proceeding before a taxation officer of the court of Queen's Bench in Calgary, the Corporation entered into an agreement to pay to Bennett Jones the sum of CDN $105,588.65 at the rate of CDN $5,000 per month with the balance then outstanding to be paid on June 20, 1999. This was paid in full. 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 February 10, 2004 are: Name and Municipality of Residence: Elliott International LP (Formerly Westgate International, L.P.), 24 Grand Cayman, Cayman Islands Type of Ownership: Legal Number of Shares: 922,785 Percent of Common Shares: 24.09 Name and Municipality of Residence: The Liverpool Limited Partnership, Hamilton, Bermuda Type of Ownership: Legal Number of Shares: 922,785 Percent of Common Shares: 24.09 The directors and officers of the Corporation beneficially own directly and indirectly 1.84 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 Colin Morse (Former Director) 32,093 .84 Common Stock T.W. Metz (Officer/Director) 38,233 1.00 Common Shares All Directors/Officers 70,326 1.84 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 Toronto Venture Exchange under the trading symbol PKS. The following table sets forth the reported high and low sale prices and volume of trading of the Common Shares as reported by The Toronto Venture 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 25 1997 ---- First Quarter 1.30 0.80 2,598,231 Second Quarter 1.18 0.57 1,714,955 Third Quarter 0.93 0.40 2,048,481 Fourth Quarter 0.90 0.40 1,160,214 1998 ---- First Quarter 0.61 0.50 1,676,102 Second Quarter 0.60 0.20 1,842,227 Third Quarter 0.42 0.27 1,482,296 Fourth Quarter 0.30 0.11 1,133,505 1999 ---- First Quarter 0.50 0.05 3,627,596 Second Quarter 3.85 0.90 914,746 Third Quarter 3.25 1.40 173,833 Fourth Quarter 1.65 0.66 381,111 2000 ---- First Quarter 0.91 0.35 306,019 Second Quarter 2.49 0.38 190,936 Third Quarter 1.42 0.57 35,906 Fourth Quarter 0.56 0.35 35,167 2001 ---- First Quarter 0.49 0.30 137,935 Second Quarter 0.25 0.12 49,561 Third Quarter 0.15 0.11 69,212 Fourth Quarter 0.11 0.10 13,237 2002 ---- First Quarter 0.10 0.10 0 Second Quarter 0.10 0.10 0 Third Quarter 0.10 0.10 0 Fourth Quarter 0.10 0.10 0 2003 ---- First Quarter 0.10 0.10 0 Second Quarter 0.10 0.10 0 Third Quarter 0.10 0.10 0 Fourth Quarter 0.10 0.10 0 The closing price of the Common Shares of PeakSoft on the Toronto Venture Exchange on February 10, 2004 was CDN$0.10. As of February 10, 2004 29.2 percent of the registered shares were held in the U.S. 26 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. All Common Shares has been released from escrow under the Original Escrow Agreement. Pursuant to an agreement dated May 31, 1996 among the Corporation, Montreal Trust Company of Canada and James Bickel, Gwen Cameron, Robert Casilio, Glenn Guthrie, Elliot Holden, Ashley Holden, Cuthbert Huckvale, Edna Anne Judge, Cliff Kondratiuk, Frank Lang, Stefan Liere, Carolyn May MacDonald, Dick McKenzie, Allison McKenzie, Shonna McKenzie, Hashim Mitha, Sadru Mitha, Gulshan Mitha, Joseph Gerard Monaghan, Alice Monaghan, Thomas Jacob Monaghan, Matthew John Monaghan, Julie Marie Monaghan, Warwick Parker, John Taylor, Liam Taylor, Harry Weatherill, Thomas Taylor, RBP Business Systems Inc., G.S.K. Investments Ltd., Hasker Management Ltd., Headline Technologies Ltd. and Wunderware Software Corp. (the New Escrow Agreement), an aggregate of 897,568 Common Shares owned by these shareholders were placed in escrow with Montreal Trust Company of Canada in connection with the acquisition of CBT by the Corporation. The shares held in escrow are to be released on the following basis: (a) one-third of the Common Shares held by each shareholder shall be releasable upon the confirmation by the Corporation to The Alberta Stock Exchange of completion of a beta release of a product by the Corporation employing the Javalin-based technology previously belonging to CBT; (b) one-third of the escrowed Common Shares held by each shareholder shall be releasable upon the confirmation by the Corporation to the ASE of commercial release of a product by the Corporation employing the Javalin-based technology previously belonging to CBT; and (c) one-third of the escrowed Common Shares held by each shareholder shall be releasable upon the Corporation achieving total revenues of CDN$1 million or greater in any six-month period. Notwithstanding the terms of paragraphs (a) and (b) above, the maximum number of Common Shares to be released from escrow to a shareholder from the original number of Common Shares held in escrow on behalf of such shareholder shall be one-third within the first six months from the date of the agreement, two-thirds during the first twelve months from the date of the agreement and the total original number within the first eighteen months from the date of the agreement. All 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 27 remittances of interest, dividends or other payments to non-resident holders of shares of the Companys stock. Any such remittances to US residents, however, are subject to withholding tax under the Income Tax Act (Canada) (the Tax Act), which is generally reduced to a rate of 15 percent pursuant to Articles X and XI of the Canada-US Income Tax convention. Except as provided in the Investment Canada Act (the Investment Act), as amended by the Canada-United States Free Trade Agreement Implementation Act (Canada) (the FTA Implementation Act), there are no limitations under the laws of Canada, the Province of Alberta or in the charter of any other constituent documents of the Company with respect to the right of foreigners to hold and/or vote the shares of the Companys stock. The Investment Act requires a non-Canadian making an investment to acquire control of a Canadian business, the gross assets of which exceed certain defined threshold levels, to file an application for review with Investment Canada, the federal agency created by the Investment Act. Under the provisions of the Investment Act, an investment by a non-Canadian (other than an American, as defined in the Investment Act) in a Canadian business is reviewable if it is (i) a direct acquisition, which is defined as the acquisition of the assets or voting shares of a Canadian business or control of its Canadian parent in Canada or a Canadian business with assets of CDN$5,000,000 or more, or (ii) an indirect acquisition, which is defined as the acquisition of control of a Canadian business with assets of CDN$50,000,000 or more, where the assets of the Canadian business represent 50 percent or less of the value of the total assets acquired, through control of its Canadian parent entity outside Canada. Where the value of the assets of the Canadian business represents 50 percent or more of the value of the total assets acquired, the direct acquisition threshold applies. As a result of the FTA Implementation Act, the threshold for review of acquisition by Americans has been increased. The threshold is presently CDN$25,000,000 for direct acquisitions and CDN$100,000,000 for indirect acquisitions. Acquisitions of control of certain types of Canadian businesses are excluded from these higher thresholds. An acquisition of a Canadian business, the gross assets of which do not exceed the above-threshold amounts, will not be subject to review and the non-Canadian will simply be required to notify Investment Canada within certain prescribed time limits. The Investment Act also requires the filing of a notice with Investment Canada by a non-Canadian making an investment to establish a Canadian business. Where the business activity is, in Investment Canadas opinion, related to Canadas cultural heritage or national identity, an order can be issued making the investment renewable. If Investment Canada is satisfied that the investment is likely to be of net benefit to Canada (as compared with the test under the prior investment act that the investment is of significant benefit to Canada), then the non-Canadian may proceed to complete the investment. If Investment Canada is not satisfied that the investment is likely to be of net benefit to Canada, then the non-Canadian may not make the proposed investment or, if the investment has been implemented, shall divest itself of control of the Canadian business that is the subject of the investment. ITEM 7 - TAXATION The following discussion summarizes some of the primary Canadian income tax considerations to non-residents of Canada owning Common Shares of a corporation 28 resident in Canada. The comments are confined to consideration of the Tax Act, the regulations thereunder and PeakSofts counsels understanding of the current administrative practices of Revenue Canada Taxation. Cash dividends paid by a corporation resident in Canada on Common Shares held by non-residents of Canada will generally be subject to Canadian withholding tax under the Tax Act. This withholding tax is levied at the basic rate of 25 percent, but may be reduced by the terms of any applicable tax treaty. For residents of the United States not having a permanent establishment in Canada, the Canada-US Income Tax Convention reduces the rate of withholding tax to 15 percent generally and to 6 percent for corporations owning at least 25 percent of the voting stock of the payer corporation. Stock dividends paid by Canadian public companies are treated as taxable dividends and are subject to withholding tax as discussed above. The amount of a stock dividend paid by a corporation is deemed to be equal to the amount of the increase in the paid-up capital of the corporation arising by virtue of the payment of the stock dividend. A shareholder receiving a stock dividend is deemed to acquire the shares that are the subject of the dividend at a cost equal to the amount of the dividend. A non-resident of Canada who holds Common Shares as capital property will not be subject to tax in Canada under the Tax Act on capital gains realized on the disposition of the shares, unless the shares are taxable Canadian property within the meaning of the Tax Act. Generally, the Common Shares of a public company would not be taxable Canadian property unless the non-resident used the shares in carrying on a business in Canada, the non-resident was previously a resident of Canada and elected to deem the Common Shares to be taxable Canadian property on ceasing to be a Canadian resident or, at any time during the five years before the disposition of the shares, the non-resident owned, together with other persons with whom he did not deal at arms length, greater than 25 percent of the issued shares of any class of the capital stock of the public company. The Canada-US Income Tax Convention provides that US residents will be subject to tax in Canada under the Tax Act on capital gains realized on the disposition of shares in a Canadian resident public company where such shares comprise taxable Canadian property as discussed above and where more than 50 percent of the share value is derived from real property situated in Canada. ITEM 8 - SELECTED FINANCIAL DATA Set forth below is certain selected consolidated financial data of the Company for each of the past 5 years ended September 30, 2003. 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 with United States GAAP reconciliation in note 10 to the audited financial statements. The information set forth below should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and the Companys audited financial statements. 29 SUMMARY OF OPERATIONS Stated in Canadian Dollars FISCAL YEAR ENDED SEPTEMBER 30
2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- Sales 0 0 32,233 80,715 536,339 Net Earnings (Loss) from Continuing Operations (568,522) (866,259) (2,947,014) (1,844,206) (1,895,013) Earnings (Loss Per Share) from Continuing Operations (0.15) (0.29) (0.78) (0.48) *(.50) *Post Consolidation SUMMARY OF BALANCE SHEET Stated in Canadian Dollars FISCAL YEAR ENDED SEPTEMBER 30 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- Working Capital (8,297,450) (7,653,928) (5,296,079) (3,967,006) *(2,204,478) Total Assets 5,474 65,431 120,233 203,393 196,283 Total Current Liabilities 8,302,924 7,794,359 5,398,412 4,119,048 2,329,661 Long Term Debt and Obligation Under Capital Leases 0 0 0 0 1,897 Shareholders Equity (Deficit) (8,297,450) (7,728,928) (5,278,107) (3,915,655) (2,135,275)
(a) CANADIAN AND US DOLLAR EXCHANGE RATES A history of US-Canadian dollar exchange rates, as of September 30, for the indicated years is set forth below. All amounts shown represent noon buying rates for cable transfers in New York City certified funds for customs purposes by the Federal Reserve Bank of New York. The source for this data is the Federal Reserve Bulletin and Digest. HIGH SCAN LOW SCAN AVERAGE CAN/US US/CAN CAN/US US/CAN CAN/US US/CAN ------ ------ ------ ------ ------ ------ 1991 1.1229 .8906 1.1589 .8628 1.1457 .87283 1992 1.1748 .8512 1.2858 .7777 1.214 .8237 1993 1.2497 .8002 1.3367 .7481 1.2901 .7751 1994 1.3408 .7458 1.4086 .7099 1.3736 .7280 1995 1.3507 .7404 1.4074 .7105 1.3686 .7307 1996 1.3852 .7219 1.3290 .7525 1.3630 .7337 1997 1.4395 .6947 1.3364 .7483 1.3850 .7220 1998 1.5845 .7304 1.3686 .6307 1.4598 .6857 1999 1.5465 .6917 1.4447 .6463 1.4849 .6731 2000 1.5625 .6983 1.4310 .6397 1.4853 .6740 2001 1.6058 .6714 1.4895 .6227 1.5489 .6462 2002 1.6195 .6656 1.5024 .6175 1.5702 .6373 2003 1.5991 .7512 1.3305 .6252 1.4684 .6853 (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. 30 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 10 to the financial statements. Year Ended September 30, 2003 Compared to Year Ended September 30, 2002 The following discussion should be read in conjunction with the financial statements and the notes thereto: Revenue remained at CDN $0.0 for the year ended September 30, 2003 as it was in the comparable period in 2002. This is primarily due to the lack of operating capital to provide for sales and marketing. Cost of goods sold also remained at CDN $0.0 for the year ended September 30, 2003 as it was in the comparable period in 2002, again due to the lack of operating capital to provide for sales and marketing. Amortization remained at CDN $ 0.0 for the year ended September 30, 2003 as it was during the comparable period in 2002. This was due to the disposition of fixed assets in 2001 and 2002. General and administration expenses increased from CDN $461,758 for the year ended September 30, 2002 in the comparable period in 2003 to CDN $569,511. This 23.3% increase was primarily due to increased legal and accounting expenses associated with the Company's applications for partial revocation of the cease trade orders that had been issued by the Alberta Securities Commission, the Ontario Securities Commission and the British Columbia Securities Commission as a consequence of the Company not filing its financial reports in a timely fashion. During the year, the Company renewed its employment contract with key management personnel with the approval of the directors. Selling and marketing expenses remained at CDN $0.0. This was primarily due to the lack of operating capital to provide for sales and marketing. Research and development expenses remained at CDN $0.0 for the year ended September 30, 2003 in the comparable period in 2002. This was primarily due to management's continued focus on seeking a new business opportunity for the Company as well as the lack of operating capital. The loss for 2003 was CDN $568,522 ($0.15 per share post-consolidation) down from, CDN $866,259 ($0.29 per share post-consolidation) in the comparable period in 2002 This decrease in the loss resulted primarily from reduced expenses associated with the Company's focus on obtaining a new business opportunity for the Company, as well as reductions in overall expenses. Liquidity and Capital Resources As of September 30, 2003, the Company had a cash balance of CDN $474. Subsequent to the end of the year the Company received a CDN $5,000 G.S.T. security deposite refund from Revenue Canada. Capital assets remained at CDN $0.0 for the year ended September 30, 2003 as it was in the comparable period in 2002 due to all Capital assets being transferred to Peak.com, Inc., which was sold to IncuLab in November 2000. Net assets were decreased from CDN $65,431 for the year ended September 30, 2002 in the comparable period in 2003 to CDN $5,474. Accounts payable and accrued liabilities increased from CDN $7,719,359 for the year ended September 30, 2002 to CDN $8,302,924 in the comparable period of 2003. This increase was primarily due to interest, unpaid remuneration as well as professional fess. /s/ Timothy W. Metz ------------------- Timothy W. Metz President 31 Business Address: The Companys business address is 215 - 8171 Cook Road; Richmond, BC V6Y 3T8 Canada and its mailing address to 3930 Meridian Street; Suite C117; Bellingham, WA 98226. Business: On October 22, 1998, the Company announced the released the Beta version of LawTrack, a knowledge management solution for the legal profession. On October 26, 1998, the Company announced the signing of an e commerce agreement with Xoom.com to market and sell the Companys products over the Internet. On January 13, 1999, the Company announced Realty Tracer (CODE NAME), a knowledge management solution for the realty profession. On March 11, 1999, the Company resumed trading on the OTC-BB as PeakSoft Multinet Corp. under the symbol "PEAMF". On March 29, 1999, PeakSoft Multinet Corp. (ASE:PKS; OTC-BB:PEAMF) and Novell, Inc. (Nasdaq: NOVL) jointly announced the formation of a co-marketing alliance to provide superior software and Internet solutions to the small business market. On April 5, 1999, PeakSoft Multinet Corp. (ASE: PKS; OTC-BB: PEAMF) reports that Mssrs. Carl Conti and William Baker have retired from the Company's board of directors and have been replaced by Mr. Simon and Mr. Colin Morse. On April 19, 1999, PeakSoft Multinet Corp. (ASE: PKS; OTC-BB PEAMF) reported today that Herzog Heine Guduld, Hill Thompson Magid and Sharpe Capital have become market makers for the Company's stock trades under the symbol PEAMF. On May 11, 1999, PeakSoft Multinet Corp. (ASE: PKS; OTC-BB PEAMF)announced today the development of Peak.Com, a new content rich online business community. On May 12, 1999, PeakSoft Multinet Corp. (ASE: PKS; OTC-BB PEAMF)launches internet solution enhancing productivity for professionals in law, real estate, travel and small businesses. On June 15, 1999, PeakSoft Multinet Corp. (ASE: PKS; OTC-BB PEAMF)appoints Terry Haas as Vice President of Business Development. On July 6, 1999, PeakSoft Multinet Corp. (ASE: PKS; OTC-BB PEAMF) appoints Rocky Botts as Creative Director of Peak.com and Steve Minor as Project Director of Peak.com. On September 2, 1999, PeakSoft Multinet Corp. (ASE: PKS; OTC-BB PEAMF)and the National Computer Association jointly announced today the signing of a co-marketing agreement. On September 23, 1999, PeakSoft Multinet Corp. (ASE: PKS; OTC-BB PEAMF) announces the resignation of Donald McInnes from the Board of Directors. On October 26, 1999, PeakSoft Multinet Corp. (ASE: PKS; OTC-BB PEAMF) announced the next generation online small business community is live at http://www.peak.com. 32 On October 29, 1999, PeakSoft Multinet Corp. (ASE: PKS; OTC-BB PEAMF) announced an exclusive agreement with the Kodiak Chamber of Commerce to jointly develop a broad commercial fisheries business community with the Peak.com small business site. On November 9, 1999, PeakSoft Multinet Corp. (ASE: PKS; OTC-BB PEAMF) announced its intention to seek shareholder approval to change the name of the company to Peak.com Inc. at its next Annual General Meeting. On November 16, 1999, PeakSoft Multinet Corp. (ASE: PKS; OTC-BB PEAMF) announces that the company has launched the Peak.com news division and that the first issue of its online small business news magazine has now been published at peak.com On February 9, 2000, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) enters into agreement in principle to spin off its Peak.com business unit and to purchase shares of Inculab.com Inc. in a USD $4.5 million (CDN $6.51M) deal. On March 16, 2000, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF)and Hot Office sign Co-marketing service integration and revenue sharing agreement. Peak.com small business portal to offer top-ranked HotOffice virtual office services, while HotOffice will add Peak.com to its business center. On March 24, 2000, PeakSoft Multinet Corp. (CDNX: PKS. V; OTC-BB PEAMF)and Kodiak Chamber of Commerce announce the development of the new commercial fisheries site on Peak.com. On March 27, 2000, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) selects Google and Searchbutton.com to provide powerful business focused search capability at Peak.com small business portal. On April 3, 2000, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) doubles its proposed investment in Inculab.com Inc. to USD $1,000,000. On April 5, 2000, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) announced a new distribution agreement with Softvianet Ltd. of the United Kingdom to offer local-language versions of the PeakJet(TM)2000 web-browsing accelerator in the United Kingdom, France and other countries. On April 17, 2000, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) announced it had entered into an agreement with AuctioNet.com, Inc. to provide private label business-to-consumer auctions on www.peak.com. On May 1, 2000, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) announced that Tim Metz was replacing Doug Foster as President/CEO after Mr. Fosters resignation. On May 5, 2000, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) announced the application for approval by the CDNX of a CDN $142,227 private placement. On June 14, 2000, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) announced entered into an agreement with Application Park, Inc. to provide customizable browser-based business automation tools and integrated applications on PeakSoft's small business portal site located at www.peak.com. 33 On July 7, 2000, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) announced that Russell Antonacci, Vice President of Marketing of IncuLab.com, Inc., has been appointed acting Chief Executive Officer effective immediately of Peak.com, Inc. On September 25, 2000, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) announced restructuring the amount of its proposed US$1,000,000 investment in IncuLab.com, Inc. The revised term sheet calls for PeakSoft to invest US$750,000 in IncuLab.com Inc. and also to loan Peak.com Inc. US$250,000. On October 24, 2000, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) announced a binding agreement was signed with IncuLab, Inc. to purchase Peak.com, Inc. for US$3.9 million in shares. On November 14, 2000, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) announced the closing of the IncuLab, Inc. purchase of Peak.com, Inc. for US$3.9 million in shares. On March 5, 2001, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) announced its post closing plans to seek new business opportunities, after the IncuLab, Inc. purchase of Peak.com, Inc. for US$3.9 million in shares. On June 13, 2001, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) announced the resignation of Mr. Peter Janssen from the Board of Directors. On August 29, 2001 the Company announced that entered into agreements, subject to regulatory and shareholder "minority approval" under OSC Rule 61-501, with its creditors to settle debts to them which aggregate to CDN $6,498,382 by the issuance of 21,154,374 common shares priced at CDN $0.26 apiece. These agreements where entered into with the understanding between the Company and the creditors, that the Company would only act upon the agreements in consort with a merger/acquisition/financing which required the Company to be "debt free". The Board of Directors also authorized management to enter into any additional debt conversion agreements in the future that where required in order for the Company to be debt free as a requirement of any merger/acquisition/financing. This authorization was also conditioned upon any subsequent debt conversion agreements utilizing the same Canadian to US dollar exchange rate and the same price per share as those that where announced on 29 August 2001. The settlement of these debts would leave PeakSoft essentially debt free. Of the CDN$6,498,382 of debt settled, CDN$5,121,429 is owed to The Liverpool Limited Partnership ("Liverpool") and Elliott International, L.P. ("Elliott"). Liverpool and Elliott are institutional investment firms under common management that together hold approximately 1.8 million (48%) of the issued and outstanding shares of PeakSoft prior to the debt settlement. The remaining $1,376,953 of debt is owed to 8 creditors. As a result of the debt settlement, Liverpool and Elliott will receive an additional 15,858,395 PeakSoft Common Shares. In addition, PeakSoft will transfer 431,989 common shares of Inculab.com Inc. to Liverpool and Elliott, together with PeakSoft's interest in the agreement by which the Inculab.com Inc. shares were acquired and a related registration rights agreement. The Company also enter into debt conversion agreements on August 1, 2001 with its 3 directors to convert CDN$227,066 of debt by the issuance of 873,332 common shares priced at CDN$0.26 under the same terms and conditions as stated in the 29 August 2001 announcement. On 8 August 2002 the Company entered into a debt conversion agreement with Timothy W. Metz, its CEO/President to convert CDN$385,958 of debt by the issuance of 1,484,455 PeakSoft common shares priced at CDN$0.26 under the same terms and conditions as stated in the 29 August 2001 announcement. On 3 October 2002 the Company entered into a debt 34 conversion agreement with Jesyka Anne Clarkson, a director, to convert CDN$3,649 of debt by the issuance of 14,035 PeakSoft common shares priced at CDN$0.26 under the same terms and conditions as stated in the 29 August 2001 announcement. On January 22, 2003 the Company entered into a debt conversion agreement with Timothy W. Metz, its CEO/President to convert CDN$461,874 of debt by the issuance of 1,776,437 PeakSoft common shares priced at CDN$0.26 under the same terms and conditions as stated in the 29 August 2001 announcement. During the 2nd. Quarter, Mr. Metz cancelled the January 22, 2003 debt conversion agreement. The directors forgave the CDN$ 230,715, in aggregate, in May 2003, which was reflected in the conditional debt conversion agreements entered into with them in August 2001 and October 2002. Upon approval and issuance of the foregoing shares pursuant to the shares for debt agreements, the total outstanding common shares of the Company will be 26,973,525. PeakSoft and Voyager Entertainment Inc. ("Voyager") jointly announced that they have signed a binding Memorandum of Understanding dated July 24, 2001 for a transaction ("RTO") by which the shareholders of Voyager will exchange their Voyager shares for shares in the capital stock of PeakSoft. It was proposed that at completion of the RTO, the current shareholders of Voyager would own 80 percent of the shares of the combined company, while the current shareholders of PeakSoft will own the remaining 20 percent. PeakSoft also announced that it had entered into an agreement with Canaccord Capital Corporation ("Canaccord") to sponsor its application to CDNX for approval of the RTO and for a "commercially reasonable efforts" CDN $1.8 million financing of units consisting of one share and one share purchase warrant. On December 11, 2001, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) announced that Voyager and PeakSoft had agreed not to proceed with the RTO previously announced on August 29, 2001. On December 12, 2001, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) announced that it had entered into an agreement with Bartercard International Limited EC 27608 of Hamilton, Bermuda to purchase the exclusive Bartercard license to operate a B-2-B Trade Exchange in Canada. Under the terms of the agreement Bartercard International Limited will become a 20% shareholder in PeakSoft and will hold some 6,590,677 shares. Of the new stock issued to Bartercard, half is for payment of the US$2,000,000 (CDN$3,027,551) license fee. This amount represents 3,295,338 shares valued at US$0.61 (CDN$0.92) per share. The balance of Bartercard's holding, represents its contractual commitment to maintain a permanent 10% shareholding in the new Bartercard Canadian operation. On December 14, 2001, PeakSoft Multinet Corp. (CDNX: PKS.V; OTC-BB PEAMF) announced clarification to its announcement of December 12, 2001, "All share amounts cited in paragraph 2 of the December 12, 2001 announcement are post regulatory and shareholder approval of the shares for debt settlement announced by PeakSoft on August 29, 2001, which has not yet been consummated." In March 2002 the Canadian securities commissions issued a cease trade order against PeakSoft for failure to file the required financial statements. PeakSoft also stopped trading on the OTC:BB during the year for failing to file the required financial information with the SEC. On October 11, 2002, PeakSoft Multinet Corp. (TSX: PKS; OTC-BB PEAMF) announced that Mr. Colin Morse had resigned from the Board due to the demands of his other 35 business interest and that Ms. Jesyka Anne Clarkson would file the casual vacancy created by Mr. Morses resignation until the next shareholders meeting. On October 11, 2002, PeakSoft Multinet Corp. (TSX: PKS; OTC-BB PEAMF) announced that the proposed purchase of the exclusive Canadian Barter License from Bartercard International, previously announced on 12 December 2001 and further clarified on 14 December 2001 would not be finalized. Mr. Metz cited the post September 11, 2001 conditions in the capital markets as a contributing factor to the cancellation. "We are actively pursuing viable alternatives such as acquisitions for our shareholders", said Mr. Metz. On January 6, 2003, PeakSoft brought all of its required financial filings current in the United States. In February 2003 PeakSoft prepared applications to the Canadian securities commissions seeking revocation of the cease trade orders that resulted from the Company's delinquent filings. On May 28, 2003 PeakSoft filed an application to the Ontario Securities Commission seeking partial revocation of the cease trade orders that resulted from the Company's delinquent filings. On June 6, 2003 PeakSoft filed applications to the Alberta Securities Commission and the British Columbia Securities Commission seeking partial revocation of the cease trade orders that resulted from the Company's delinquent filings. On June 10, 2003 PeakSoft filed a Material Change Report and Press Release announcing conditional debt conversion agreements. On July 24, 2003 the Alberta Securities Commission issued an Order granting the action sought in PeakSoft's application. Subsequent Events On January 26, 2004 the Ontario Securities Commission issued an Order granting the action sought in PeakSoft's application. On February 3, 2004 the British Columbia Securities Commission issued an Order granting the action sought in PeakSoft's application. 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 June 28, 2000, 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. Name and Municipality Positions Held with Of Residence the Corporation Timothy W. Metz President, Chief Executive Officer Bellingham, Washington and Director 36 Principal Occupation: President and Chief Executive Officer of PeakSoft. Simon Arnison Director Ontario, Canada Principal Occupation: President and Chief Executive Officer of CablesEdge Software, Inc., a software development company. Jesyka Anne Clarkson Director Richmond, British Columbia Principle Occupation: Legal Assistant Ms. Clarkson was appointed a director in October 2002 to fill the casual vacancy created by the resignation of Mr. Morse. She will serve until the next annual shareholders meeting. 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. Simon Arnison, Director since 1999 Mr. Arnison has held positions as a computer software developer and product manager since 1982. During the past 17 years, Mr. Arnison has held positions as Product Marketing Manager, Technical Director, VP Research and Development, and more recently Chief Technology Officer for Innotech Multimedia Corporation. He was one of the founders of Innotech, which has been a leading producer of information technology software for CD-ROM and the Inernet and Java based search applications. Mr. Arnison is currently President/CEO of CablesEdge Software, Inc. Tim Metz, President/Chief Executive Officer/Chairman of the Board since 1998 Mr. Metz was appointed President and Chief Executive Officer in April 2000. He was also elected Chairman of the Board at the same time. Mr. Metz joined PeakSoft as the Chief Operations Officer in January 1998, bringing with him 30 years of experience in operations, business development and financing for manufacturing and high technology companies. Mr. Metz founded, financed and owned D&J Manufacturing (1976-1983) and ALKIRK Corporation (1990-1992). For both companies, he developed state-of-the-art high tech automated agile manufacturing and assembly plants, and managed operations, finance, business development, engineering, manufacturing, purchasing and R&D departments. Through successful contract negotiations Metz increased profits dramatically while reducing costs. In 1992, Mr. Metz joined Leading-Edge Earth Products in Seattle, Washington as President/CEO/Director. There he prepared and completed a successful registration of common stock and listed the company on the NASDAQ OTC-BB. From 1995-1997, Mr. Metz worked as a private consultant with various manufacturing companies and an international trading company. 37 Jesyka Anne Clarkson, Director, since October 2002 Ms Clarkson brings to the board a substantial measure of experience in the record keeping required of Canadian companies. Given the activities that PeakSoft is currently contemplating, Ms Clarkson is well suited to assist the company to comply with regulatory requirements and to surmount regulatory hurdles. Ms. Clarkson is a legal assistant in the firm of Forbes, Boyle & Patterson Barristers & Solicitors of Richmond BC Canada. ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS Executive Compensation PeakSoft currently has one executive officer (following the resignation of one executive officer in April 2000). No cash compensation was paid to the one executive officer of PeakSoft, directly or indirectly, during the year ended September 30, 2003. The salary was booked. There are no funds set aside or accrued by the Company for pension, retirement, or similar benefits. Compensation Summary The table below sets forth information concerning the compensation of the Corporations Chief Executive Officer for the fiscal years ended September 30, 2003, 2002, 2001, 2000, 1999, 1998, 1997, 1996, 1995 and 1994. Annual Compensation Name and ------------------- All Other Principal Position Year Salary Bonus Compensation ------------------ ---- ------ ----- ------------ Timothy W. Metz Calendar 2004 475,872 (CDN$ Accrued) Timothy W. Metz Calendar 2003 461,874 (CDN$ Accrued) Timothy W. Metz 2001- 31 December 2002 385,958 (CDN$ Accrued, included in debt conversion see Item 1 "Background of the Corporation") 2000 65,625 1999 82,200 Douglas H. Foster 1998 90,538 President and 1997 85,000 - - Chief Executive 1996 82,800 - - Officer & Director 1995 82,800 - - 1994 70,400 Long-Term Compensation Awards: Securities Under Options/SARs Granted: 2002 0 2001 0 2000 5,000 1999 308,438 1998 320,000 1997 302,000 1996 321,250 1995 250,000 1994 - 38 On February 11, 1999 the Company cancelled all outstanding (active) stock options. Re-issued 308,438 stock options, which have expired. The Company has no outstanding (active) stock options or warrants. 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, 2003 to the Corporations Chief Executive Officer. Name Securities Percent of Total Exercise or Under Options Options Granted Option Price Granted (#) to Employees in ($/Security) Financial Year -------------------------------------------------------------------------------- None None None The following information concerns the cash exercise of options during the year Unexercised Options Value of Unexercised in at Year End (#) the Money Options at Year-end ($) -------------------------------------------------------------------------------- None None Payments to Directors: The Company authorized a one-time payment of US$150,000 to its directors subject to regulatory and shareholders approval. The directors entered into debt conversion agreements which are included in the in the debt settlement discussed in Item 1 "Background of the Corporation". The directors forgave the US$ 150,000 during the 3rd. quarter. 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 318,438 Common Shares have been issued and are currently outstanding, The Company having cancelled all of the then outstanding stock options on February 11, 1999. Under the terms of the Stock Option Plan, options to acquire Common 39 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 Canadian Venture Exchange less the discount permitted by the rules of the Canadian Venture Exchange. The options vest on the date of grant and expire at the time set by the directors, being not more than 2 years from the date of grant, provided that any outstanding options will expire on the 90th day following the date that the holder ceases to be an officer, director, employee or consultant of the Corporation or six months following the death of the holder. Options granted are non-assignable. Outstanding options granted under the Stock Option Plan may be adjusted in certain events, as to exercise price and number of Common Shares, to prevent dilution. At February 10, 2004, there are no options to acquire Common Shares outstanding: GROUP NO. OF SHARES DATE OF EXPIRY EXERCISE PRICE UNDER OPTION GRANT DATE PER SHARE None None N/A N/A N/A 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. Director/Officer Indebtedness: The Company is indebted to its President in the aggregate of CDN$1,323,704, CDN$385,958 of which has been agreed to be converted to common shares of the Company as discussed in Item 1 "Background of the Corporation". 40 PART II ITEM 14 - DESCRIPTION OF SECURITIES TO BE REGISTERED - NOT APPLICABLE PART III ITEM 15 - DEFAULTS UPON SENIOR SECURITIES - NOT APPLICABLE ITEM 16 - CHANGES IN SECURITIES,CHANGES IN SECURITY FOR REGISTERED SECURITIES AND USE OF PROCEEDS- NOT APPLICABLE PART IV ITEM 17 - Financial Statements 41 PEAKSOFT MULTINET CORPORATION (In Canadian dollars) 2003 ANNUAL REPORT & Consolidated Financial Statements Years ended 30 September 2003 and 2002 PEAKSOFT MULTINET CORPORATION Letter to the Shareholders 3 President's Statement (Management Discussion & Analysis) 4 Auditor's Report 5 US GAAP Statement by Auditor 6 Financial Statements Consolidated Balance Sheet 7 Consolidated Statement of Operations and Deficit 8 Consolidated Statement of Changes in Financial Position 9 Notes to the Consolidated Financial Statements 10 Corporate Information 15 2 42 September 30, 2004 LETTER TO SHAREHOLDERS Dear Shareholders; The past year was pivotal for the Company. We completed negotiations with our creditors to eliminate virtually all of the Company's debt subject to, amongst other conditions, regulatory and shareholder approval. The Company brought its filings current with the Canadian and United States regulatory agencies. The Company prepared and filed applications for the partial revocation of the cease trade orders that were issued in Canada due to the previous delinquent filings so that the Company could enter into a business transaction. On July 24, 2003, the Alberta Securities Commission issued an Order granting the relief sought in the application. The Ontario Securities Commission issued an Order on January 26, 2004 granting the relief sought in the application to them. The British Columbia Securities Commission issued their Order granting the same relief on February 3, 2004. With these milestones accomplished, the management has focused on actively seeking new opportunities for our technology and the Company. As a debt free fully reporting company, the Company is in a favourable position to move forward. We believe that we will be able to obtain an opportunity for the Company in the near future. Sincerely yours, /s/ Timothy W. Metz ------------------- Timothy W. Metz Chairman and Chief Executive Officer 4 February 2004 3 43 MANAGEMENT'S DISCUSSION AND ANALYSIS Year Ended September 30, 2003 Compared to Year Ended September 30, 2002 The following discussion should be read in conjunction with the financial statements and the notes thereto: Revenue remained at CDN $0.0 for the year ended September 30, 2003 as it was in the comparable period in 2002. This is primarily due to the lack of operating capital to provide for sales and marketing. Cost of goods sold also remained at CDN $0.0 for the year ended September 30, 2003 as it was in the comparable period in 2002, again due to the lack of operating capital to provide for sales and marketing. Amortization remained at CDN $ 0.0 for the year ended September 30, 2003 as it was during the comparable period in 2002. This was due to the disposition of fixed assets in 2001 and 2002. General and administration expenses increased from CDN $461,758 for the year ended September 30, 2002 in the comparable period in 2003 to CDN $569,511. This 23.3% increase was primarily due to increased legal and accounting expenses associated with the Company's applications for partial revocation of the cease trade orders that had been issued by the Alberta Securities Commission, the Ontario Securities Commission and the British Columbia Securities Commission as a consequence of the Company not filing its financial reports in a timely fashion. During the year, the Company renewed its employment contract with key management personnel with the approval of the directors. Selling and marketing expenses remained at CDN $0.0. This was primarily due to the lack of operating capital to provide for sales and marketing. Research and development expenses remained at CDN $0.0 for the year ended September 30, 2003 in the comparable period in 2002. This was primarily due to management's continued focus on seeking a new business opportunity for the Company as well as the lack of operating capital. The loss for 2003 was CDN $568,522 ($0.15 per share post-consolidation) down from, CDN $866,259 ($0.29 per share post-consolidation) in the comparable period in 2002 This decrease in the loss resulted primarily from reduced expenses associated with the Company's focus on obtaining a new business opportunity for the Company, as well as reductions in overall expenses. Liquidity and Capital Resources As of September 30, 2003, the Company had a cash balance of CDN $474. Subsequent to the end of the year the Company received a CDN $5,000 G.S.T. security deposite refund from Revenue Canada. Capital assets remained at CDN $0.0 for the year ended September 30, 2003 as it was in the comparable period in 2002 due to all Capital assets being transferred to Peak.com, Inc., which was sold to IncuLab in November 2000. Net assets were decreased from CDN $65,431 for the year ended September 30, 2002 in the comparable period in 2003 to CDN $5,474. Accounts payable and accrued liabilities increased from CDN $7,719,359 for the year ended September 30, 2002 to CDN $8,302,924 in the comparable period of 2003. This increase was primarily due to interest, unpaid remuneration as well as professional fess. /s/ Timothy W. Metz ------------------- Timothy W. Metz President 4 44 GORDON K.W. GEE #101 - 325 Howe Street Chartered Accountant Vancouver, BC V6C 1Z7 An incorporated professional Telephone: (604) 689 - 8815 Facsimile: (604) 689 - 8838 -------------------------------------------------------------------------------- INDEPENDENT AUDITOR'S REPORT To the Shareholders of PeakSoft Multinet Corporation (formerly PeakSoft Corporation): I have audited the consolidated balance sheet of PeakSoft Multinet Corporation as at 30 September 2003 and 2002, the consolidated statements of operations and deficit and changes in cash for the years then ended. These consolidated financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these consolidated financial statements based on my audit. I conducted the audit in accordance with Canadian and United States of America generally accepted auditing standards. Those standards require that I plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In my opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at 30 September 2002 and 2001 and the consolidated results of its operations and the changes in its cash for the years 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 30 September 2003 and shareholders' equity to the extent summarized in note 11 to the financial statements. /s/ Gordon K.W. Gee ------------------- Vancouver, B.C., Canada Chartered Accountant 21 January 2004 5 45 GORDON K.W. GEE #101 - 325 Howe Street Chartered Accountant Vancouver, BC V6C 1Z7 An incorporated professional Telephone: (604) 689 - 8815 Facsimile: (604) 689 - 8838 -------------------------------------------------------------------------------- COMMENTS BY AUDITOR FOR U.S. READERS ON CANADIAN-U.S. REPORTING DIFFERENCE In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by conditions and events that cast substantial doubt on the Company's ability to continue as a going concern, such as those described in note 1 to the financial statements. My report to the shareholders dated 21 January 2004 is expressed in accordance with Canadian reporting standards, which do not permit a reference to such events and conditions in the auditor's report when these are adequately disclosed in the financial statements. /s/ Gordon K.W. Gee ------------------- Vancouver, B.C., Canada Chartered Accountant 21 January 2004 6 46 PEAKSOFT MULTINET CORPORATION Consolidated Balance Sheet (In Canadian dollars) As at 30 September -------------------------------------------------------------------------------- 2003 2002 $ $ -------------------------------------------------------------------------------- ASSETS Current Assets Cash 474 48,043 Accounts receivable - 578 Prepaids and deposits 5,000 16,810 ------------------------------- 5,474 65,431 -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities 3,402,180 2,818,615 Notes payable (Note-3) 4,900,744 4,900,744 ------------------------------- 8,302,924 7,719,359 Deferred funds on proposed business Transactions (Note4) - 75,000 ------------------------------- 8,302,924 7,794,359 Shareholders' Equity: Share capital (Note 5) 9,019,271 9,019,271 Accumulated deficit -17,316,721 -16,748,199 ------------------------------- -8,297,450 -7,728,928 -------------------------------------------------------------------------------- 5,474 65,431 ================================================================================ (See accompanying notes to the financial statements) ON BEHALF OF THE BOARD: /s/ Jesyka Clarkson /s/ Timothy W. Metz ------------------- ------------------- Director Director 7 47 PEAKSOFT MULTINET CORPORATION Consolidated Statement of Operations and Deficit (In Canadian dollars) For the years ending 30 September
---------------------------------------------------------------------------------------------------------- 2003 2002 2001 $ $ $ ---------------------------------------------------------------------------------------------------------- Sales - - 32,233 Cost of goods sold - - 788 ------------------------------------------------------- - - 31,445 ---------------------------------------------------------------------------------------------------------- Operating expenses: Amortization - - 37,792 General and administration 569,511 461,758 1,016,065 Research and development - - 146 ------------------------------------------------------- Loss before the undernoted 569,511 461,758 1,054,003 Interest on short term debt 363,873 363,871 339,894 Loss on disposition of capital assets - 40,630 - Other income -364,862 - - Loss on investment (Note 7) - - 1,584,562 ------------------------------------------------------- Loss 568,522 866,259 2,947,014 ------------------------------------------------------- Accumulated deficit, beginning of year, as previously stated 16,748,199 14,297,378 12,934,926 Adjustment for prior year loss on investment - 1,584,562 - ------------------------------------------------------- Accumulated deficit, end of year, as restated 16,748,199 15,881,940 12,934,926 ------------------------------------------------------- Accumulated deficit, end of year 17,316,721 16,748,199 15,881,940 ---------------------------------------------------------------------------------------------------------- Loss per common share 0.15 0.29 0.78 =======================================================
(See accompanying notes to the financial statements) 8 48 PEAKSOFT MULTINET CORPORATION Consolidated Statement of Changes in Cash (In Canadian dollars) As at 30 September
--------------------------------------------------------------------------------------------------------- 2003 2002 2001 $ $ $ --------------------------------------------------------------------------------------------------------- CASH PROVIDED BY (USED IN ): Operations: Net earnings (loss) -568,522 -866,259 -2,947,014 Items not involving cash: Amortization - - 37,792 Capital assets disposed - 18,072 - Change in non-cash operating working capital 595,953 820,295 2,800,708 ---------------------------------------------------- 27,431 -27,892 -108,514 ---------------------------------------------------- Financing: Increase (decrease) in obligation under capital leases - - - Increase (decrease) in deferred proceeds on Proposed business transactions -75,000 75,000 - ---------------------------------------------------- - Investments: Acquisition of investment - - 1,830 Purchase of capital assets - - -4,513 ---------------------------------------------------- - - -2,683 ---------------------------------------------------- Increase (decrease) in cash position -47,569 47,108 -111,197 Cash, beginning of year 48,043 935 112,132 ---------------------------------------------------- --------------------------------------------------------------------------------------------------------- Cash, end of year 474 48,043 935 --------------------------------------------------------------------------------------------------------- (See accompanying notes to the financial statements)
9 49 PEAKSOFT MULTINET CORPORATION Notes to the Consolidated Financial Statements Years ended 30 September 2003 and 2002 The Company is incorporated under the Laws of Alberta, Canada and its principal business activities are providing Internet software to corporate and individual users, and providing Internet portal facilities. 1. Continuing operations: These consolidated financial statements have been prepared using generally accepted accounting principles that are applicable to a going concern, not withstanding that the Company incurred significant operating losses in the current and prior years. This basis of preparation may be inappropriate because significant doubt exists about the appropriateness of the going concern assumption. The Company's ability to continue as a going concern is dependent upon obtaining additional external financing and on the attainment of profitable operations. Management is of the opinion that external financing will remain in place and that additional external financing will be obtained to enable the execution of its plan to concentrate on providing software for vertical markets. For this reason, the financial statements do not reflect adjustments in the carrying values of the assets and liabilities, the reported revenues and expenses and the balance sheet classifications used that would be necessary if the going concern assumption were not appropriate. 2. Significant accounting policies: (a) Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned American subsidiary, PeakSoft Multinet Corp.-USA. All significant inter-company transactions and balances have been eliminated on consolidation. (b) Revenue recognition: Revenue from product sales is recognized as the products are sold and title to the product is transferred. Revenue from service contracts is recognized when the work is completed. (c) Foreign currency translation: Foreign currency transactions entered into directly by the Company as well as the financial statements of the integrated foreign operations are translated using the temporal method. Under this method, monetary assets and liabilities are translated at year-end exchange rates. Other balance sheet items are translated at historical exchange rates. Income statement items are translated at average rates of exchange prevailing during the year except for depreciation expense, which is translated at historical rates. Translation gains and losses are included in income except for unrealized gains and losses arising from the translation of long-term monetary assets and liabilities which are deferred and amortized over the remaining lives of related items. (d) Research and development: Research costs are charged to operations as incurred. Development costs are charged to operations as incurred unless they meet the criteria for deferral under generally accepted accounting principles. (e) 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. (f) Financial instruments: The Company has applied retroactively the new accounting standard with respect to the presentation of financial instruments. 10 50 PEAKSOFT MULTINET CORPORATION Notes to the Consolidated Financial Statements Years ended 30 September 2003 and 2002 3. Notes payable:
2003 2002 $ $ ---------------------------------- Notes payable bearing interest at 12% per annum with interest paid quarterly, and specific repayment terms. 4,900,744 4,900,744 ==================================
4. Deferred funds on proposed business transactions The company received funds from another corporation to assist in future business endeavours. 5. Share capital:
Shares Amount # $ ----------------------------------- Authorized: Unlimited voting common shares without par value Issued: Balance, 01 October 1994 82,036 94,580 Issued amount year ended 30 September 1995: Issued to founders 293,018 - Issued for cash 324,287 948,865 Issue for services and technology 19,407 45,700 Less share issuance costs - (193,278) Issued amount year ended 30 September 1996: Issued for cash 143,893 667,500 Issued for services and technology 213,026 1,835,537 Issued amount year ended 30 September 1997: Issued for cash 443,158 2,496,498 Issued for services and technology 11,855 75,969 Less share issuance costs - (191,916) Issued amount year ended 30 September 1998: Issued for cash 211,497 623,281 Issued amount year ended 30 September 1999: Issued for cash 2,052,743 2,981,847 Less share issuance costs - (429,128) Issued amount year ended 30 September 2000: Issued for services 36,054 63,816 ----------------------------------- Balance, 30 September 2003, 2002 and 2001 3,830,974 9,019,271 ===================================
6. Fair value of financial instruments: The methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practical to estimate a value are as follows: (a) Short-term financial assets and liabilities: The carrying amount of these financial assets and liabilities are a reasonable estimate of the fair values because of the short maturity of these instruments. Short-term financial assets comprise cash and accounts receivable. Short-term financial liabilities comprise accounts payable and accrued liabilities. (b) Long-term financial liabilities: The carrying value of long-term financial assets and liabilities are a reasonable estimate of the fair values. 11 51 PEAKSOFT MULTINET CORPORATION Notes to the Consolidated Financial Statements Years ended 30 September 2003 and 2002 7. Loss on investment In the fiscal year 2003, the company discovered loans advanced to a related company, were advanced by some of the shareholders, on behalf of PeakSoft Multinet Corporation and was to be repaid by PeakSoft Multinet Corporation. The amount was disputed but it was eventually verified that the related company did in fact receive the amount and that PeakSoft Multinet Corporation was responsible for the repayment of the advanced amount of USD$1,023,090 was verified. This amount was included in a debt conversion agreement. As a result, the amount has been included in the 2001 comparatives and has been adjusted in these 2002 financial statements with retroactive effect. 8. Loss per common share: Loss per common share is based on the weighted average number of common shares outstanding during the year. 9. Related party transactions: The following are related party transactions, not already disclosed elsewhere in the notes to the financial statements:
2003 2002 2001 $ $ $ ------------------------------------------------------ Salaries to directors and officers 378,977 509,288 456,621 *Interest accrued on notes due to shareholders 363,873 363,871 339,984 **Legal fees paid to a former employee 47,816 3,500 38,000 ------------------------------------------------------ 790,666 876,659 834,605 ====================================================== 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. Loss in accordance with United States GAAP 568,522 866,259 1,362,452 ====================================================== Loss per common share $ 0.15 $ 0.23 $ 0.36 ====================================================== Weighted average number of shares used for calculation 3,830,974 3,830,974 3,830,974 ======================================================
10. 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:
2003 2002 2001 $ $ $ ------------------------------------------------------ Loss in accordance with Canadian GAAP 568,522 866,259 2,947,014 ======================================================
(b) Balance sheet: The amounts in the consolidated balance sheet that differ from those reported under Canadian GAAP are as follows:
30 September 2003 30 September 2002 Canadian United States Canadian United States GAAP GAAP GAAP GAAP $ $ $ $ ---------------------------------------------------------------- Accumulated deficit 17,316,721 16,494,492 16,748,199 15,925,970 =================================================================
12 52 PEAKSOFT MULTINET CORPORATION Notes to the Consolidated Financial Statements Years ended 30 September 2003 and 2002 (c) Statement of cash flows: Cash used in operations and cash provided by financing activities would decrease by 2003 - $ nil and 2002 - $ nil. (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 charged to operations 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, no compensation expense has been recognized for its stock based compensation plans in 2003 (2002 - nil, 2001 - nil, 2000 - 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: 2003 2002 2001 $ $ $ ----------------------------- Loss - as reported 568,522 866,259 2,947,014 Loss per common share - as reported 0.15 0.23 0.78 Loss per common share - adjusted 0.15 0.23 0.78 The fair value of each option grant is estimated on the date of the grant using the following assumptions: 2003 2002 2001 ------------------------- Expected dividend yield 0% 0% 0% Expected stock price volatility n/a n/a n/a Risk-free interest rate n/a n/a n/a Expected life of options n/a n/a n/a (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. 11. Commitments: There are no other commitments outstanding not already reported elsewhere in these notes to the financial statements. 13 53 PEAKSOFT MULTINET CORPORATION Notes to the Consolidated Financial Statements Years ended 30 September 2003 and 2001 12. Income taxes: The Company has non-capital losses from foreign and Canadian operation available for offset against future taxable income totaling approximately USD $4,500,000 in the United States and CDN $8,100,000 in Canada. The following is subject to regulatory and shareholder approval: (a) Subsequent to this year-end the Company has resolved to convert certain debts for shares at CDN$0.26 per share. If the shares for debt arrangement were to be in effect at the year-end, the liabilities and shareholders' equity on the balance sheet would be as follows: 2003 2002 $ $ ---------------------------- Liabilities - - Shareholder's Equity Share Capital 18,038,542 18,038,542 Accumulated Deficiency (17,316,721) (14,297,378) ---------------------------- 721,821 3,741,164 ============================ (b) Subsequent to the approval and issuance of the shares pursuant to the shares for debt conversions, the Company will have 26,973,525 shares outstanding. 14. Comparative figures: Certain of the comparative amounts have been reclassified to conform with the financial presentation adopted in the current fiscal year. 14 54 Company Information: Corporate Headquarters PeakSoft Multinet Corp. 3930 Meridian Street, Suite C117 Bellingham, WA 98226 USA Tel: (360) 961-1419 Fax: (360) 647-5960 Investor Relations PeakSoft Multinet Corp. (360) 961-1419 Stock Listing PeakSoft Multinet Corp. common stock is traded on the TSX under symbol PKS. Auditor Gordon K. W. Gee Ltd., Chartered Accountant #101 - 325 Howe Street Vancouver, BC V6C 1Z7 Tel: (604) 689-8815 Fax: (604) 689-8838 Corporate Counsel Forbes, Boyle & Patterson Barristers & Solicitors Suite 215 -8171 Cook Road Richmond, BC V6Y 3T8 Tel: (604)-273-7575 Fax: (604)-273-8475 Transfer Agent and Registrar Computershare Trust Company of Canada, Calgary, Alberta Directors Timothy W. Metz, Chairman of the Board Simon Arnison, Director Jesyka Anne Clarkson, Director Management Timothy W. Metz, Chief Executive Officer and President 15 55 CERTIFICATION PUSUANT TO SECTION 302 ------------------------------------ I, Timothy W. Metz, certify that: 1. I have reviewed this annual report on Form 20-F of PeakSoft Multinet Corp; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 10, 2004 /s/ Timothy W. Metz ----------------------- President/Chief Executive Officer 56 ITEM 18 - Financial Statements See Item 17. ITEM 19 - Financial Statements and Exhibits (A) Financial Statements Peaksoft Multinet Corp. Report of Independent Auditors Comments by Auditor for US readers on Canadian - US reporting difference Consolidated Balance Sheets as of September 30, 2002 and 2001 Consolidated Statements of Operations and Deficit for the Years Ended September 30, 2002, 2001 and 2000 Consolidated Statement of Changes in Financial Position for the Years Ended September 30, 2002, 2001 and 2000 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 17 57 *Exhibit 15 - Guaranty of PeakSoft Corporation (USA) Inc. - March 1998 *Exhibit 16 - Note Purchase Agreement - June 10, 1998 *Exhibit 17 - Senior Promissory Note - June 10, 1998 *Exhibit 18 - Senior Promissory Note - June 10, 1998 *Exhibit 19 - Guaranty of PeakSoft Corporation (USA) Inc. - June 1998 *Exhibit 20 - Guaranty of PeakSoft Corporation (USA) Inc. and the Liverpool Limited Partnership - June 1998 * AS PREVIOUSLY FILED IN OUR FORM 20-F/A FILED ON 090498. **Exhibit 21 - Demand Promissory Note - October 13, 1998 **Exhibit 22 - Demand Promissory Note - October 13, 1998 **Exhibit 23 - Demand Promissory Note - January 14, 1999 **Exhibit 24 - Demand Promissory Note - January 14, 1999 **Exhibit 25 - Demand Promissory Note - March 8, 1999 **Exhibit 26 - Demand Promissory Note - March 8, 1999 **Exhibit 27 - Demand Promissory Note - May 28, 1999 **Exhibit 28 - Demand Promissory Note - July 27, 1999 **Exhibit 29 - Demand Promissory Note - August 6, 1999 **Exhibit 30 - Demand Promissory Note - August 19, 1999 **Exhibit 31 - Demand Promissory Note - September 29, 1999 **Exhibit 32 - Demand Promissory Note - October 14, 1999 **Exhibit 33 - Demand Promissory Note - October 29, 1999 **Exhibit 34 - Demand Promissory Note - November 30, 1999 **Exhibit 35 - Demand Promissory Note - December 16, 1999 **Exhibit 36 - Demand Promissory Note - January 13, 2000 **Exhibit 37 - Demand Promissory Note - February 9, 2000 **Exhibit 38 - Demand Promissory Note - March 30, 2000 18 58 **Exhibit 39 - Demand Promissory Note - March 31, 2000 ** AS PREVIOUSLY FILED IN OUR FORM 20-F/A FILED ON APRIL 5, 2001 ***Exhibit 40 - Debt Conversion Agreement Simon Arnison - August 1, 2001 ***Exhibit 41 - Debt Conversion Agreement Baron & Company - August 1, 2001 ***Exhibit 42 - Debt Conversion Agreement Coby Capital Corporation - December 21, 2000 ***Exhibit 43 - Debt Conversion Agreement ECO Holdings - August 1, 2001 ***Exhibit 44 - Exchange Agreement The Liverpool Partnership and Elliott International, L.P. - August 1, 2001 ***Exhibit 45 - Debt Conversion Agreement Alexander Hutton, Inc. - ` August 1, 2001 ***Exhibit 46 - Debt Conversion Agreement Timothy W. Metz - August 1, 2001 ***Exhibit 47 - Debt Conversion Agreement Magnetic Management Ltd. - August 1, 2001 ***Exhibit 48 - Debt Conversion Agreement Colin Morse - August 1, 2001 ***Exhibit 49 - Debt Conversion Agreement Patterson & Price - August 1, 2001 ***Exhibit 50 - Debt Conversion Agreement Rubenstein Investor Relations, Inc. - August 1, 2001 ***Exhibit 51 - Debt Conversion Agreement Saturn Solutions Inc. - August 1, 2001 ***Exhibit 52 - Debt Conversion Agreement Timothy W. Metz - August 8, 2002 ***Exhibit 53 - Demand Promissory Note - June 14, 2000 ***Exhibit 54 - Demand Promissory Note - June 30, 2000 ***Exhibit 55 - Demand Promissory Note - July 31, 2000 ***Exhibit 56 - Demand Promissory Note - August 15, 2000 ***Exhibit 57 - Demand Promissory Note - September 1, 2000 ***Exhibit 58 - Demand Promissory Note (In addition to Exhibit 57) - September 1, 2000 ***Exhibit 59 - Demand Promissory Note - September 28, 2000 ***Exhibit 60 - Demand Promissory Note - September 28, 2000 19 59 ***Exhibit 61 - Demand Promissory Note - October 13, 2000 ***Exhibit 62 - Demand Promissory Note - October 31, 2000 ***Exhibit 63 - Demand Promissory Note - November 10, 2000 ***Exhibit 64 - Demand Promissory Note - November 10, 2000 ***Exhibit 65 - Demand Promissory Note - June 15, 2001 ***Exhibit 66 - Demand Promissory Note - July 31, 2001 ***Exhibit 67 - Contract of Service - December 11, 2001 *** AS PREVIOUSLY FILED IN OUR FORM 20-F FILED ON January 6, 2003 ****Exhibit 68 - Debt Conversion Agreement Jesyka Anne Clarkson - October 3, 2002 ****Exhibit 69 - Debt Conversion Agreement Timothy Metz - January 22, 2003 **** AS PREVIOUSLY FILED IN OUR FORM 20-F FILED ON February 14, 2003 20 60 Exhibit 70 - Material Change Report and Press Release - June 10, 2003 Form 27 MATERIAL CHANGE REPORT UNDER SECTION 75(2) OF THE SECURITIES ACT (ONTARIO), SECTION 146(1) OF THE SECURITIES ACT (ALBERTA) AND SECTION 85 OF THE SECURITIES ACT (BRITISH COLUMBIA) ITEM 1. REPORTING ISSUER PeakSoft Multinet Corp. ("PeakSoft") 3930 Meridian Street, C117 Bellingham, WA 98226 USA ITEM 2. DATE OF MATERIAL CHANGE The material changes referred to herein are as of August 1, 2001, August 8, 2002 and January 22, 2003. ITEM 3. PRESS RELEASE The press release was issued on June 10, 2003 at Bellingham, Washington and disseminated across Canada by Canada Newswire and across the United States by 61 Canada Newswire through its parent company, PR Newswire. A copy of the press release is attached hereto and incorporated by reference. ITEM 4. SUMMARY OF MATERIAL CHANGE PeakSoft entered into debt conversion agreements with 10 of its creditors as of December 21, 2000, August 1, 2001, and August 8, 2002. In accordance with the terms thereof, the issuance of shares under the debt conversion agreements is conditional upon, among other things, shareholder and/or regulatory approval. Certain of the debt conversion agreements are "related party transactions" and therefore are subject to minority shareholder approval and the valuation requirements under Ontario Securities Commission Rule 61-501 and TSX Venture Exchange Policy 5.9. Under the debt conversion agreements, the creditors have agreed to settle CDN$6,884,521 of debt in exchange for the issuance of 22,639,526 PeakSoft common shares and for 431,989 Inculab.com Inc. shares (and the rights with respect thereto under certain agreements) held by PeakSoft. ITEM 5. FULL DESCRIPTION OF MATERIAL CHANGE As released in PeakSoft's press releases dated June 10, 2003, a copy attached hereto and other regulatory filings, PeakSoft entered into debt conversion agreements with 10 of its creditors, including those previously announced on August 29, 2001. PeakSoft had entered into debt conversion agreements as of December 21, 2000 and as of August 1, 2001 with its creditors to settle debts to them which aggregate to CDN $6,498,563 by agreeing to issue 21,155,071 common shares priced at CDN $0.26 per share. These agreements provide that the issuance of shares is subject to shareholder and/or regulatory approval. PeakSoft also entered into a debt conversion agreement dated as of 8 August 2002 with its President to settle debts of CDN$ 385,958 by agreeing to issue 1,484,455 common shares priced at CDN $0.26 per share. The agreement with Mr. Metz is subject to shareholder and CDNX (TSX Venture Exchange) approval. The settlement of these debts (in accordance with the debt conversion agreements) eliminates a significant portion of PeakSoft's indebtedness. Of the CDN$6,884,521 of debt settled pursuant to the existing debt conversion agreements, CDN$5,121,429 is owed to The Liverpool Limited Partnership ("Liverpool") and Elliott International, L.P. ("Elliott"). Liverpool and Elliott are institutional investment firms under common management that together hold approximately 1,845,570 million (48%) of the issued and outstanding shares of PeakSoft prior to the debt settlement. The remaining $1,763,092 of debt is owed to 9 creditors, including Mr. Metz. As a result of the debt settlement, Liverpool and Elliott will receive an additional 15,858,395 PeakSoft common shares. In addition, under the debt conversion agreement with Elliott and Liverpool, PeakSoft will transfer 431,989 common shares of Inculab.com Inc. to Liverpool and Elliott, together with PeakSoft's interest in the agreement by which the Inculab.com Inc. shares were acquired and a related registration rights agreement. The debt conversion agreements of Elliott and Liverpool provide that a condition precedent in favour of Liverpool and Elliott to accepting shares for debt is the requirement that all other indebtedness of PeakSoft be exchanged for shares. Another condition to this debt conversion agreement includes CDNX (TSX Venture Exchange) approval of the issuance of PeakSoft shares in exchange for the indebtedness. 62 In July 2001, the board agreed that the directors of PeakSoft (namely, Simon Arnison, Colin Morse and Timothy Metz) be paid an aggregate amount of USD $150,000 in compensation for their time and their efforts on PeakSoft's behalf, subject to shareholder and stock exchange approval. The directors have been paid nothing for their efforts on behalf of the shareholders. PeakSoft entered into debt settlement agreements with each of its three directors in May, 2002 to settle the above debts of US $50,000 each (aggregate US $150,000) by agreeing to issue 291,111 common shares priced at CDN $0.26 per share to each of the three directors. These agreements with Messrs Arnison, Morse and Metz were also subject to similar terms and conditions as the debt settlements previously announced on 29 August 2001. The debt represented by these agreements was forgiven during the 2nd. Quarter 2003 and the respective debt conversion agreements were cancelled. PeakSoft also entered into a debt settlement agreement with Mr. Metz dated as of 22 January 2003 to settle debts of CDN $461,874 by agreeing to issue 1,776,437 common shares priced at CDN $0.26 per share. This agreement with Mr. Metz was also subject to similar terms and conditions as the debt settlements previously announced on 29 August 2001. The 22 January 2003 Agreement was cancelled on 9 May 2003. The debt conversion agreements with Liverpool, Elliott and Mr. Metz are considered "related party transactions" under Ontario Securities Commission Rule 61-501 ("OSC Rule 61-501") and TSX Venture Policy 5.9 ("Policy 5.9"). As a result, these debt conversion agreements are subject to PeakSoft shareholder "minority approval" and the valuation requirements under OSC Rule 61-501 and Policy 5.9. With respect to the Liverpool and Elliott debt conversion agreements, PeakSoft is relying on the "financial hardship" exemption from the valuation requirements of OSC Rule 61-501 and the corresponding exemption in Policy 5.9. OSC Rule 61-501 states that the exemption is available if: (1) PeakSoft is insolvent or in serious financial difficulty; (2) the transactions are designed to improve the financial position of PeakSoft; (3) the "bankruptcy, insolvency or reorganization" exemption under such rule is not applicable; and (4) the board of directors of PeakSoft, acting in good faith, determines, and not less than two-thirds of the independent directors of the PeakSoft, acting in good faith, determine that paragraphs (1) and (2) are applicable and that the terms of the transactions are reasonable given PeakSoft's circumstances. PeakSoft's board of directors, two of which are currently independent (as defined under OSC Rule 61-501), have determined that PeakSoft has a working capital deficiency of approximately CDN$6.58 million as of 31 December 2002 and is therefore technically insolvent, that the debt settlement transactions are designed to improve the financial position of PeakSoft by facilitating the entering into of a merger, acquisition or financing transaction with a third party, and that the terms of the debt conversion agreements were reasonable given PeakSoft's circumstances. With respect to the 2002 debt conversion agreement of Mr. Metz, PeakSoft is relying on the "$500,000" exemption from the valuation requirements in accordance with section 5.6(13), as of the date such transaction was agreed to the fair market value of the debt owed by PeakSoft was less than CDN$500,000. It is currently anticipated that PeakSoft will have 26,470,500 shares outstanding upon the subsequent issuance of shares pursuant to the existing debt conversion agreements. Of this total, it is anticipated that Elliott will own approximately 8,851,983 shares (33.44%), Liverpool will own approximately 8,851,983 shares (33.44%) and Mr. Metz will own 1,522,688 shares (5.75%). Based on oral discussions with Liverpool and Elliott, it was the understanding that the issuance of common shares under the debt conversion agreements would be done in conjunction with PeakSoft entering into a merger, acquisition or financing transaction with a third party. 63 ITEM 6. Not applicable. ITEM 7. OMITTED INFORMATION No significant facts have been omitted from this report. ITEM 8. SENIOR OFFICER Further information regarding the matter described in this report may be obtained from Timothy Metz; Chairman/President/CEO is knowledgeable about the details of the material change and may be contacted at metz36@comcast.net or 360-961-1419. THE FOREGOING ACCURATELY DISCLOSES THE MATERIAL CHANGES REFERRED TO HEREIN. THIS REPORT IS EXECUTED AT BELLINGHAM, WASHINGTON THIS 10th DAY OF JUNE 2003. PEAKSOFT MULTINET CORP. Per: /s/ Timothy W. Metz -------------------- Name: Timothy W. Metz Title: Chairman/President/CEO 64 PRESS RELEASE For immediate release June 10, 2003 For more information, contact: Mr. Timothy Metz Telephone No. (360) 961-1419 Email address: metz36@attbi.com PEAKSOFT ANNOUNCES ENTERING INTO OF DEBT CONVERSION AGREEMENTS BELLINGHAM, WA June 10, 2003 - Tim Metz, President and CEO of PeakSoft Multinet Corp. (TSX-V: PKS) ("PeakSoft") announces PeakSoft's entering into of debt conversion agreements with 10 of its creditors, including those previously announced on August 29, 2001. PeakSoft had entered into debt conversion agreements as of December 21, 2000 and as of August 1, 2001 with its creditors to settle debts to them which aggregate to CDN $6,498,563 by agreeing to issue 21,155,071 common shares priced at CDN $0.26 per share. These agreements provide that the issuance of shares is subject to shareholder and/or regulatory approval. PeakSoft also entered into a debt conversion agreement dated as of 8 August 2002 with its President to settle debts of CDN$385,958 by agreeing to issue 1,484,455 common shares priced at CDN $0.26 per share. The agreement with Mr. Metz is subject to shareholder and CDNX (TSX Venture Exchange) approval. The settlement of these debts will eliminate a significant portion of PeakSoft's indebtedness. Of the CDN$6,884,521 of debt settled pursuant to the existing debt conversion agreements, CDN$5,121,429 is owed to The Liverpool Limited Partnership ("Liverpool") and Elliott International, L.P. ("Elliott"). Liverpool and Elliott are institutional investment firms under common management that together hold approximately 1,845,570 million (48%) of the issued and outstanding shares of PeakSoft prior to the debt settlement. The remaining $1,763,092 of debt is owed to 9 creditors, including Mr. Metz. As a result of the debt settlement, Liverpool and Elliott will receive an additional 15,858,395 PeakSoft common shares. In addition, under the debt conversion agreements with Elliott and Liverpool, PeakSoft will transfer 431,989 common shares of Inculab.com Inc. to Liverpool and Elliott, together with PeakSoft's interest in the agreement by which the Inculab.com Inc. shares were acquired and a related registration rights agreement. The debt conversion agreements of Elliott and Liverpool provide that a condition precedent in favour of Liverpool and Elliott to accepting shares for debt is the requirement that all other indebtedness of PeakSoft be exchanged for shares. Another condition to these debt conversion agreements includes CDNX (TSX Venture Exchange) approval of the issuance of PeakSoft shares in exchange for the indebtedness. In July 2001, the board agreed that the directors of PeakSoft (namely, Simon Arnison, Colin Morse and Timothy Metz) be paid an aggregate amount of USD $150,000 (the "Directors' Fees") in compensation for their time and their efforts on the Company's behalf, subject to shareholder and/or regulatory approval. The directors have been paid nothing for their efforts on behalf of the shareholders. PeakSoft entered into debt settlement agreements with each of its three directors in May, 2002 to settle the above debts of US $50,000 each (aggregate US $150,000) by agreeing to issue 291,111 common shares priced at CDN $0.26 per share to each of the three directors. These agreements with Messrs Arnison, Morse and Metz were also subject to similar terms and conditions as the debt settlements previously announced on 29 August 2001. The debt represented by these agreements was forgiven during the 2nd. Quarter 2003 and the respective debt conversion agreements were cancelled. 65 PeakSoft also entered into a debt settlement agreement with Mr. Metz dated as of 22 January 2003 to settle debts of CDN $461,874 by agreeing to issue 1,776,437 common shares priced at CDN $0.26 per share. This agreement with Mr. Metz was also subject to the similar terms and conditions as the debt settlements previously announced on 29 August 2001. The 22 January 2003 Agreement was cancelled on 9 May 2003. The debt conversion agreements with Liverpool, Elliott and Mr. Metz are considered "related party transactions" under Ontario Securities Commission Rule 61-501 ("OSC Rule 61-501") and TSX Venture Policy 5.9 ("Policy 5.9"). As a result, these debt conversion agreements are subject to PeakSoft shareholder "minority approval" and the valuation requirements under OSC Rule 61-501 and Policy 5.9. With respect to the Liverpool and Elliott debt conversion agreements, PeakSoft is relying on the "financial hardship" exemption from the valuation requirements of OSC Rule 61-501 and the corresponding exemption in Policy 5.9. OSC Rule 61-501 states that the exemption is available if: (1) PeakSoft is insolvent or in serious financial difficulty; (2) the transactions are designed to improve the financial position of PeakSoft; (3) the "bankruptcy, insolvency or reorganization" exemption under such rule is not applicable; and (4) the board of directors of PeakSoft, acting in good faith, determines, and not less than two-thirds of the independent directors of the PeakSoft, acting in good faith, determine that paragraphs (1) and (2) are applicable and that the terms of the transactions are reasonable given PeakSoft's circumstances. PeakSoft's board of directors, two of which are currently independent (as defined under OSC Rule 61-501), have determined that PeakSoft had a working capital deficiency of approximately CDN$6.58 million as of 31 December 2002 and was therefore technically insolvent, that the debt settlement transactions were designed to improve the financial position of PeakSoft by facilitating the entering into of a merger, acquisition or financing transaction with a third party, and that the terms of the debt conversion agreements were reasonable given PeakSoft's circumstances. With respect to the 2002 debt conversion agreement of Mr. Metz, PeakSoft is relying on the "$500,000" exemption from the valuation requirements in accordance with section 5.6(13), as of the date such transaction was agreed to the fair market value of the debt owed by PeakSoft was less than CDN$500,000. It is currently anticipated that PeakSoft will have 26,470,500 shares outstanding upon the subsequent issuance of shares pursuant to the existing debt conversion agreements. Of this total, it is anticipated that Elliott will own approximately 8,851,983 shares (33.44%), Liverpool will own approximately 8,851,983 shares (33.44%) and Mr. Metz will own 1,522,688 shares (5.75%). Based on oral discussions with Liverpool and Elliott, it was the understanding that the issuance of common shares under the debt conversion agreements would be done in conjunction with PeakSoft entering into a merger, acquisition or financing transaction with a third party. 66 Tim Metz, PeakSoft's Chairman, explains, "We have entered into these debt conversion agreements, which are subject to applicable shareholder and/or regulatory approval, in order to position PeakSoft in a more favorable posture. We believe that this will enhance our efforts regarding a merger/acquisition/new financing". About PeakSoft Multinet Corp. PeakSoft Multinet Corp. is an Internet/Software development company and is fully reporting in Canada and the United States. Its shares are currently subject to cease trade orders imposed by the Alberta, British Columbia and Ontario securities commissions for failing to file certain financial statements. It is listed on the Toronto Venture Exchange (PKS), however, it is currently suspended as a result of these cease trade orders; PeakSoft is headquartered in Bellingham, WA. For more information please contact Mr. Tim Metz at metz36@attbi.com. The Toronto Venture Exchange has not reviewed, and does not accept responsibility for, the adequacy or accuracy of this release. Completion of these transactions is subject to a number of conditions, including but not limited to, Exchange acceptance and applicable shareholder approval. The transactions cannot close until the required shareholder approval is obtained. There can be no assurance that the transactions will be completed as proposed or at all. Trading in the securities of PeakSoft is subject to cease trade orders imposed by the Alberta, British Columbia and Ontario Securities Commissions. The Toronto Venture Exchange has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release. This release may contain forward-looking statements as well as historical information. Forward-looking statements, which are included in accordance with the "safe harbour" provisions of the Private Securities Litigation Reform Act of 1995 (US), may involve known and unknown risks, uncertainties and other factors that may cause PeakSoft's actual results and performance to be materially different from any results or performance suggested by the statements in this release. Such statements, and other matters addressed in this press release, may involve a number of risks and uncertainties including price competition, technological advances, decreased demand or diversion to other software solutions. 67