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Bakbone Software Inc – ‘20-F’ for 5/31/01

On:  Friday, 7/13/01, at 5:19pm ET   ·   For:  5/31/01   ·   Accession #:  912057-1-523812   ·   File #:  0-12230

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 7/13/01  Bakbone Software Inc              20-F        5/31/01    9:1.2M                                   Merrill Corp/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report of a Foreign Private Issuer           HTML   1.02M 
 2: EX-1.1      Underwriting Agreement                              HTML      9K 
 3: EX-1.2      Underwriting Agreement                              HTML     96K 
 4: EX-4.1      Instrument Defining the Rights of Security Holders  HTML     66K 
 5: EX-8.1      Opinion re: Tax Matters                             HTML     10K 
 6: EX-10.1     Material Contract                                   HTML      9K 
 7: EX-10.2     Material Contract                                   HTML      8K 
 8: EX-10.3     Material Contract                                   HTML      9K 
 9: EX-10.4     Material Contract                                   HTML      8K 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

(Mark One)

Commission file number:                             

BAKBONE SOFTWARE INCORPORATED
(Exact name of Registrant as specified in its charter)

PROVINCE OF ALBERTA, CANADA
(Jurisdiction of incorporation or organization)

10145 Pacific Heights Boulevard, Suite 900
San Diego, CA 92121
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(g) of the Act.

    Securities registered or to be registered pursuant to Section 12(b) of the Act. None

    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 issuer's classes of capital or common stock as of the close of the period covered by the annual report: 41,760,922 as at May 31, 2001

    Indicate by 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 requirements for the past 90 days. Yes / /  No /x/

    Indicate by check mark which financial statement item the registrant has elected to follow.
/x/ Item 17  / / Item 18

GLOSSARY OF TERMS

    The following are definitions of certain terms used throughout this Form 20-F.

APM: Application Plug in Modules, a component of software targeted towards a certain type of application, which enhances the performance of the core software when used with that application.

BakBone or the Company: BakBone Software Incorporated, a corporation incorporated under the laws of Alberta, Canada, and its subsidiaries.

BakBone Acquisition Corp.: A corporation incorporated under the laws of the State of Maryland, United States, merged with Tracer Technologies, Inc. in June 2000.

BakBone KK: BakBone Software KK, formerly NetVault Corporation KK, located in Tokyo, Japan.

BakBone Ltd.: BakBone Software Limited, formerly NetVault Limited, located in Poole, United Kingdom.

BakBone Inc.: BakBone Software Inc., a corporation incorporated under the laws of the State of California, United States, located in San Diego, California.

Common Shares: The common shares of BakBone.

CD/CD-R: Compact Disc / Compact Disc—Recordable, a type of storage media.

DVD: Digital Video Disc, a type of storage media.

DAS: Direct Attached Storage, a method for connecting storage devices to servers.

Device drivers: Software embedded within an operating system, which manages communication with external devices.

File systems: A method and protocol for organizing and managing data.

IP: Internet Protocol, a Layer 3 (network layer) protocol containing addressing information that allows packets of information to be routed over the Internet.

IPS: IP Storage, a protocol for communicating and transferring data over IP networks.

LAN: Local Area Network, a short distance data communications network used to link together computers and peripheral devices (such as printers) under some form of standard control.

MagnaVault or MagnaVault Software: BakBone's comprehensive secondary storage management software for UNIX and Linux host operating environments.

MO: Magneto-Optical, a storage format using optical technologies on rotating media.

NAS: Network Attached Storage, a type of data storage that delivers high performance by connecting directly to the Ethernet network rather than to the server. Network attached storage devices contain their own microprocessors and operating systems eliminating the need to go through the server.

Net Resources: Net Resources Incorporated, prior to changing its name to BakBone Software Incorporated, a company engaged in mineral exploration activities until 1999.

NetVault or NetVault Software: BakBone's storage management application software used for the backup and restoration of data on various storage topologies.

NetVault Acquisition: The acquisition by BakBone in March 2000 of all of the issued and outstanding capital of each of NVS, NetVault Holdings, NetVault Limited and 47% of the issued and outstanding capital of NetVault Corporation KK.

NetVault Holdings: NetVault Holdings Limited, a wholly-owned subsidiary of BakBone, incorporated under the laws of the United Kingdom.

NetVault Holdings Agreement: The acquisition agreement dated December 1999 among BakBone, NVS, and the principal shareholders of NetVault Holdings.

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NetVault KK or NetVault Corporation KK: A 47% owned subsidiary of BakBone, incorporated under the laws of Japan, now known as BakBone KK.

NetVault KK Agreement: The acquisition agreement dated December 1999 between BakBone and the principal shareholders of NetVault Corporation (now known as BakBone KK).

NetVault KK Distribution Agreement: The software license distribution agreement dated October 1997 between NetVault Limited and NetVault KK pursuant to which NetVault Limited licensed the NetVault software to NetVault KK for distribution in Japan, South Korea, Taiwan, Singapore, Malaysia, Hong Kong, the People's Republic of China, Australia, New Zealand, Indonesia, the Philippines, Thailand, India, Laos, Cambodia and Vietnam.

NetVault Ltd: NetVault Limited, a wholly-owned subsidiary of BakBone, incorporated under the laws of the United Kingdom, now known as BakBone Ltd.

NVS: NVS Holdings Inc., a wholly-owned subsidiary of BakBone, incorporated under the laws of the Province of Alberta, Canada.

NVS Agreement: The acquisition agreement dated December 1999 among BakBone, NVS and the shareholders of NVS.

OEM: Original Equipment Manufacturers.

SAN: Storage Area Network, a short distance data communications network used to link elements within a storage environment.

SP: A solution provider, including resellers, VARs, system integrators or others.

Tracer: Tracer Technologies Inc., a corporation incorporated in the State of Maryland, United States, merged with BakBone Acquisition Corp. in June 2000.

Tracer Acquisition: The acquisition by BakBone of Tracer, a private corporation based in Gaithersburg, Maryland and its 50% interest in Tracer Technologies Japan KK.

Tracer KK: Tracer Technologies Japan KK, located in Tokyo, Japan.

TSE: Toronto Stock Exchange, the stock exchange on which BakBone Common Shares are traded under the symbol "BKB".

VAD: Value added distributor, a type of channel partner.

VAR: Value added reseller, a type of channel partner.

WAN: Wide Area Network, a network that encompasses interconnectivity between devices over a wide geographic area.

    In this registration statement, all dollar amounts are expressed in Canadian dollars except where otherwise indicated.

Forward-Looking Statements. Certain statements in this registration statement constitute forward-looking statements. The actual results, performance, or achievements of the Company may be materially different from those expressed or implied by such forward-looking statements. The forward-looking statements include projections relating to trends in markets, revenues, and future expenditures on research and development, marketing, general and administrative expenses, and capital resource sufficiency, dependence on new product development, dependence on a limited product portfolio and customer base, rapid technological and market change, competition and future growth. Each of these areas is subject to risks, which we discuss more fully in Item 3.D, "Risk Factors." We discuss trends in these areas, as reflected in our recent financial statements, in Item 5, "Operating and Financial Review and Prospects." In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this registration statement might not occur.

iii

GENERAL INFORMATION

TABLE OF CONTENTS

iv

v

PART I

Item 1. Identity of Directors, Senior Management and Advisers

A. Directors and senior management.

    Our senior managers and directors as of the filing date of this registration statement are listed below. Each of them may be reached by contacting our corporate headquarters at 10145 Pacific Heights Blvd., Suite 900, San Diego, California 92121.

B. Advisers.

    Our legal counsel in the United States is Preston Gates & Ellis LLP, 701 Fifth Avenue, Suite 5000, Seattle, Washington, 98104.

C. Auditors.

    The Company's auditors for the past three years are as follows:

•

From January 15, 2001 to present, KPMG LLP, 750 B Street, Suite 1500, San Diego, CA 92101. KPMG LLP has re-audited certain financial statements previously audited by our predecessor auditor, Deloitte & Touche LLP.

•

From 1986 (incorporation of our predecessor, Ican Resources, Ltd.) to January 15, 2001, Deloitte & Touche LLP, 701 B Street, Suite 1900, San Diego, CA 92101.

Item 2. Offer Statistics and Expected Timetable

    Not Applicable.

Item 3. Key Information

Exchange Rate Information

    The following table sets forth, for each of the periods indicated, the high and low rates of exchange of Canadian dollars into United States dollars, the average of the month-end exchange rates during each such period and the end of period rate. Such rates are shown as, or are derived from, the reciprocals of the noon buying rates in New York City for cable transfers payable in Canadian dollars,

6

as certified for customs purposes by the Federal Reserve Bank of New York. The foreign exchange spot rate as at July 6, 2001 was $.6579.

A. Selected financial data.

    Our fiscal year end is March 31. In August 2000, our Board of Directors approved a change in our fiscal year end for financial reporting purposes from April 30 to March 31, effective beginning May 1, 2000. Accordingly, the following tables set forth selected financial data of BakBone for the eleven months ended March 31, 2001 and the year ended April 30, 2000. The Company was formed effectively in March 2000 through the Company's acquisition of NVS. The acquisition was accounted for as a reverse takeover between a shell company, BakBone, and an operating company, NVS. This resulted in the continuation of the financial statements of NVS with the continuation of BakBone's legal name and share capital. Although the financial statements are presented as the year ended April 30, 2000, they reflect only two months of operations (March and April) as NVS had no operations prior to March 2000. Concurrently with BakBone's acquisition of NVS, NVS acquired NetVault Holdings, a non-operating shell company, NetVault Ltd., and NetVault Ltd.'s 25% interest in NetVault KK. Refer to Item 4A for more information about this transaction.

    Selected financial data are presented for our predecessor entities, NetVault Ltd. and NetVault KK, from 1998 through our acquisition of these entities in March 2000. Selected financial data are not presented for 1997 for NetVault Ltd. as prior to April 1998, NetVault Ltd. held only partial ownership of the intellectual property rights of the NetVault Software and another entity was engaged in the development and sales functions of the NetVault Software. In April 1998, NetVault Ltd. acquired full ownership of the NetVault Software and engaged in the development and sales activities that we acquired in March 2000. Therefore, there are no stand-alone operating results or financial statements prior to April 1998 for NetVault Ltd. Selected financial data are not presented for 1997 for NetVault KK because it was not incorporated until February 1998. Both predecessor companies' fiscal year ends were December 31, and as such, a stub period is presented in the table below for the period between December 31, 1999 and the acquisition date of March 1, 2000 which reflects the combined financial statements of NetVault Ltd. and NetVault KK. In addition, net income or net loss per share for the predecessor entities has been omitted as these entities were private companies and management believes that information is not meaningful.

    Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted (GAAP) in Canada, which differs in certain significant respects from U.S. GAAP. A detailed description of the principal differences between Canadian GAAP and U.S. GAAP as they relate to us and a reconciliation to U.S. GAAP of net loss for the year ended April 30, 2000 and the

7

eleven months ended March 31, 2001 is included in Note 15 to our consolidated financial statements included in this registration statement.

    The selected consolidated financial information should be read in conjunction with "Operating and Financial Review and Prospects" in Item 5 and our audited consolidated financial statements and related notes, included in this registration statement.

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B. Capitalization and indebtedness.

    The table below sets forth our total indebtedness and capitalization as of May 31, 2001 (in thousands). You should read this table in conjunction with the consolidated financial statements and accompanying notes.

(1)

Shareholders' equity is presented in accordance with Canadian GAAP and would be different if presented in accordance with U.S. GAAP.

(2)

Special warrants are the equity instruments sold in Canada prior to receipt of approval of the related prospectus from the applicable provinces in Canada. When the prospectus is approved, each special warrant is automatically converted to a common share and a portion of a share purchase warrant.

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C. Reasons for the offer and use of proceeds.

    Not Applicable.

D. Risk factors.

    An investment in our Common Shares should be considered highly speculative. In addition to other information in this Form 20-F, you should carefully consider the following factors when evaluating us and our business.

We Depend on Large Orders from End-User Customers for a Significant Portion of Our Revenue.

    We depend on large orders for a significant portion of our revenue. Our revenue in one quarter may fluctuate significantly based on whether a large sale near the end of a quarter is closed or delayed. Our sales generally range in value from a few thousand dollars to tens of thousands of dollars. The process of closing these large sales is sometimes lengthy, therefore, our revenue for a given period is likely to be affected by the timing of these large orders, which makes it difficult for us to predict the amount of quarterly revenue. The factors that may delay these large orders include:

•

time needed for end-user customers to evaluate our software;



•

customer budget restrictions, particularly in weak or uncertain general economic and industry conditions; and



•

customers internal engineering work needed to integrate our software with their systems.

We Derive a Significant Amount of Revenue From Only a Few Customers.

    If any of our largest customers were to reduce purchases from us, our business would be adversely affected, unless we were able to increase sales to other customers substantially. Many of these customers have recently announced that their own businesses are slowing, which could adversely affect their demand for our products. We do not have a contract with any of these customers that requires the customer to purchase a specified number of software licenses from us. Therefore, we cannot be sure that these customers will continue to purchase our products at current levels.

We Face Intense Competition on Several Fronts.

    We have a number of competitors in our product market. If existing or new competitors gain market share, our business and operating results could be adversely affected. Many of our competitors have greater financial resources than we do in the areas of sales, marketing and product development. Our future and existing competitors could introduce products with superior features, scalability and functionality at lower prices than our products, and could also bundle existing or new products with other more established products in order to compete with us. Our competitors could also gain market share by acquiring or forming strategic alliances with our other competitors. Finally, because new distribution methods offered by the Internet and electronic commerce have removed many of the barriers to entry historically faced by start-up companies in the software industry, we expect to face additional competition from these companies in the future.

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    Our primary competitors and their products are:

We May Require Additional Capital.

    We anticipate that our current financial resources will be sufficient to finance our budgeted operating costs until we achieve positive cash flow. However, our actual expenses may exceed our projected amounts and/or actual revenues may be less than we currently project, in which case we may need to raise additional funds from lenders and equity markets in the future. In addition, we may choose to raise additional financing in order to capitalize on perceived opportunities in the marketplace that may accelerate our growth objectives. Our ability to arrange such financing in the future will depend in part on the prevailing capital market conditions as well as our business performance. There can be no assurance that we will be successful in our efforts to arrange additional financing, if needed, on terms satisfactory to us. If additional equity or debt financing is raised by the issuance of shares, control of the Company may change and shareholders may experience dilution to their equity interest in the Company.

Our Quarterly Revenue May Fluctuate Significantly, Which Could Cause the Market Price of Our Stock to be Extremely Volatile.

    We may experience a shortfall in revenue in any given quarter. Any such shortfall in revenue could cause the market price of our stock to fall substantially. Our revenue in general, and our license revenue in particular, are difficult to forecast and are likely to fluctuate significantly from quarter to quarter due to a number of factors, many of which are outside of our control. These factors include:

•

the timing and magnitude of sales through our OEM customers, including Seagate and NCR;



•

the possibility that a slowdown in sales by our OEM customers could result in reduced demand for our products;



•

the introduction, timing and market acceptance of new products;



•

changes in data storage and networking technology or introduction of new operating system upgrades by our OEM customers, which could require us to modify our products or to develop new products;



•

the relative growth rates of the Windows NT, UNIX and Linux markets;



•

the rate of adoption of storage area networks and the timing and magnitude of sales of our storage area networking products and services;



•

the rate of adoption of network attached storage appliance technology and the timing and magnitude of sales of our network attached storage appliance products and services;



•

the extent to which our customers renew their maintenance contracts with us;



•

changes in our pricing policies and distribution terms;



•

the ability of our end-user customers to purchase our products may be adversely affected by their inability to raise additional capital or to meet their business objectives;

11

•

the possibility that our customers may defer purchases or choose to not purchase at all as a result of reduced information technology budgets;



•

the possibility that our customers may defer purchases in anticipation of new products or product updates by us or by our competitors;



•

the overall demand for data availability products and services, which is likely to be lower in weak or uncertain general economic and industry conditions; and



•

the possibility of an overall economic slowdown.

    You should not rely on the results of any prior periods as an indication of our future performance. If we have a shortfall in revenue in any given quarter, our efforts to reduce our operating expenses in response will likely lag behind the revenue shortfall. Therefore, any significant shortfall in revenue will likely have an immediate adverse effect on our operating results for that quarter.

Our Business Could Be Adversely Affected If We Fail to Manage Our Growth Effectively.

    If we fail to manage our growth effectively, our business and operating results could be adversely affected, which could cause the market price of our stock to fall. We expect to continue to grow our operations domestically and internationally, and to hire additional employees. The growth in our operations and staff has placed, and will continue to place, a significant strain on our management systems and resources. If we fail to manage our future anticipated growth, we may experience higher operating expenses, and we may be unable to meet the expectations of securities analysts or investors with respect to future operating results. To manage this growth we must continue to:

•

improve our financial and management controls, reporting systems and procedures;



•

add and integrate new senior management personnel;



•

improve our licensing models and procedures;



•

hire, train and retain qualified employees;



•

control expenses;



•

diversify channel sales strategies;



•

integrate geographically dispersed operations; and



•

invest in our internal networking infrastructure and facilities.

    We have committed a significant amount of funds to obtaining additional systems and facilities to accommodate our current and future anticipated growth. To the extent that this anticipated growth does not occur or occurs more slowly than we anticipate, we may not be able to reduce expenses to the same degree. If we incur operating expenses out of proportion to revenue in any given quarter, our operating results may be adversely impacted.

Third Parties May Claim That We Infringe Their Proprietary Rights.

    We may potentially receive claims that we have infringed the intellectual property rights of others. As the number of products in the software industry increases and the functionality of these products further overlap, we may become increasingly subject to infringement claims, including patent, trademark and copyright infringement claims. In addition, former employers of our former, current or future employees may assert claims that such employees have improperly disclosed to us the confidential or proprietary information of these former employers. Any such claim, with or without merit, could be time-consuming to defend, result in costly litigation, divert management's attention from our core business, require us to stop selling or delay shipping, or cause the redesign of our

12

product. In addition, we may be required to pay monetary amounts as damages, for royalty or licensing arrangements, or to satisfy indemnification obligations that we have with some of our customers.

    We license and use software from third parties in our business. These third party software licenses may not continue to be available to us on acceptable terms. Also, these third parties may from time to time receive claims that they have infringed the intellectual property rights of others, including patent and copyright infringement claims, which may affect our ability to continue licensing this software. Our inability to use any of this third party software could result in shipment delays or other disruptions in our business, which could materially and adversely affect our operating results.

We May Not be Able to Protect Our Proprietary Information.

    We rely on a combination of copyright, trademark and trade secret laws, confidentiality procedures, contractual provisions and other measures to protect our proprietary information. All of these measures afford only limited protection. These measures may be invalidated, circumvented or challenged, and others may develop technologies or processes that are similar or superior to our technology. We license some of our products under "shrink wrap" license agreements that do not require a physical signature by the end user licensee and therefore may be unenforceable under the laws of some jurisdictions. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy our products or to obtain or use information that we regard as proprietary.

Existing Strategic Alliances May be Terminated and We May be Unable to Develop New Relationships.

    Our growth and marketing strategies are based, in part, on seeking out and forming strategic alliances with third party suppliers, VARs, VADs, OEMs and other businesses integral to our future success. There can be no assurance that existing strategic alliances will not be terminated or modified in the future nor can there be any assurance that new relationships will be developed.

    None of our channel partners and OEMs worldwide have any obligation to continue selling our products and any of them may terminate their relationship with us at any time.

    A portion of our future revenue is expected to come from OEM sales that incorporate our storage management software into the OEM hardware solution. We will have no control over the shipping dates or volumes of systems the OEMs ship and they have no obligation to ship systems incorporating our software. They also have no obligation to recommend or offer our software products exclusively or at all. These OEMs also could choose to bundle a competitor's product in lieu of our product.

    We expect a large portion of our revenues will come from our channel partners across the world. These partners have no obligation to establish a sales relationship, or to continue selling any of our products and may terminate the relationship with us at any time upon written notice as described in the related channel partner agreements.

Our Various Distribution Channels Require Constant Management.

    If we fail to manage our various distribution channels successfully, they may conflict with one another or otherwise not function as we anticipate, and our business and operating results could be adversely affected. The BakBone brand does not currently have high recognition in our various distribution channels which could impact sales.

We Rely on Competing Equipment Manufacturers as a Material Source of Revenue.

    A portion of our revenue is expected to come from our OEMs that incorporate our storage management software into their hardware solution. Risks associated with our OEM customers include:

•

we have no control over the shipping dates or volumes of systems they ship;

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•

they have no obligation to recommend or offer our software products;



•

they may generally have no minimum sales requirements and can terminate our relationship at any time or upon short notice;



•

they could choose to develop their own data availability products and incorporate those products into their systems instead of our products;



•

they could develop enhancements to and derivative products from our products; and



•

they could change their own base products, which could make it difficult for us to adapt our products to theirs.

    Finally, our OEM customers compete with one another. If one of our OEM customers views the products we have developed for another OEM as competing with its products, it might decide to stop doing business with us, which could adversely affect our business and our operating results.

Some Of Our OEM Agreements May Not Result in Increased Product Sales.

    We have OEM agreements with Seagate and NCR. If we are unable to leverage these relationships to increase product sales, we will have expended significant resources without generating corresponding revenue, which could adversely affect our business and our operating results. We expect to leverage the inclusion of our products in the OEMs' products to generate sales of additional products to the OEMs' customers. These relationships require our personnel to develop expertise with respect to the OEMs' products and markets and to cooperate closely with their personnel. We cannot assure you that we will be able to attract and retain qualified employees to work with our OEM customers or to develop and improve the products designed for these customers.

Our Product Lines are Not Broadly Diversified.

    We derive and expect to derive a substantial majority of our revenue from a limited number of software products. If customers do not purchase our products as a result of competition, technological change, budget constraints or other factors, we do not have other product categories that would could rely on to make up any shortfall in sales. As a result, our revenue could decrease and our business and operating results would be adversely affected.

Our Software May Have a Short Life Cycle.

    Software products typically have a limited life cycle and it is difficult to estimate when they will become obsolete. We must therefore continually develop and introduce innovative new products and/or upgraded versions of our existing products before the current software has completed its life cycle. If we are unable to keep pace with the need to supply new products, we may not be able to grow and sustain the level of sales required for success.

Our Success Depends On Our Ability to Develop New and Enhanced Products That Achieve Widespread Market Acceptance.

    Our future success depends on our ability to address the rapidly changing needs of our customers by developing and introducing new products, product updates and services on a timely basis, by extending the operation of our products on new platforms, and by keeping pace with technological developments and emerging industry standards. In order to grow our business, we are committing substantial resources to developing software products and services for the SAN market and the NAS market. Each of these markets is new and unproven, and industry standards for these markets are evolving and changing. If these markets do not develop as anticipated, or demand for our products in these markets does not materialize or occurs more slowly that we expect, we will have expended

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substantial resources and capital without realizing sufficient revenue, and our business and operating results could be adversely affected.

Our Products May Contain Significant Defects Which May Result in Liability and/or Decreased Sales.

    Software products frequently contain errors or failures, especially when first introduced or when new versions are released. Despite our efforts to test our products, we might experience significant errors or failures in our products, or they might not work with other hardware or software as expected, which could delay the development or release of new products or new versions of products, or which could adversely affect market acceptance of our products. End-user customers use our products for applications that are critical to their businesses, and they have a greater sensitivity to product defects than the market for other software products generally. Our customers may claim that we are responsible for damages to the extent they are harmed by the failure of any of our products. If we were to experience significant delays in the release of new products or new versions of products, or if customers were dissatisfied with product functionality or performance, we could lose revenue or be subject to liability for service or warranty costs, and our business and operating results could be adversely affected.

We May Be Unable to Hire and Retain Qualified Employees.

    Our future growth and success depends on our ability to hire and retain qualified employees as needed, and to manage our employee base effectively. If we are unable to hire and retain qualified employees, our business and operating results may be adversely affected. Conversely, if we fail to reduce staffing levels when necessary, our costs would be excessive and our business and operating results would be adversely affected. We need to hire and retain sales, technical, and senior management personnel to support the planned expansion of our business and to meet the anticipated increased customer demand for our products and services. Competition for people with the skills we require is intense, particularly in the San Diego area where our headquarters are located, and the high costs of living in this area make our recruiting and compensation costs higher. As a result, we expect to continue to experience increases in compensation costs. We cannot assure that we will be successful in hiring or retaining new personnel.

The Loss of Key Personnel Could Adversely Affect Our Business.

    Our future anticipated growth and success depends on the continued service of our key sales, technical, and senior management personnel. Many of our senior personnel have been with the Company or its predecessors for a number of years, and we cannot assure that we will be able to retain them. The loss of senior personnel can result in significant disruption to our ongoing operations, and new senior personnel must spend a significant amount of time learning our business and our systems in addition to performing their regular duties. Even though we have entered into employment agreements with some key management personnel, these agreements cannot prevent their departure. We do not have key person life insurance covering any of our personnel, nor do we currently intend to obtain this insurance.

Our Foreign Operations and Sales Create Special Problems That Could Adversely Affect Our Operating Results.

    An investment in our securities involves greater risk than an investment in many businesses because we have significant operations outside of the United States, including engineering, sales, and

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client services, and we plan to expand these international operations. As of March 31, 2001, we had 32 employees in Europe and 14 employees in Japan. Our foreign operations are subject to risks, including:

•

potential loss of proprietary information due to piracy, misappropriation or weaker laws regarding intellectual property protection;



•

imposition of foreign laws and other governmental controls, including trade restrictions;



•

fluctuations in currency exchange rates and economic instability such as higher interest rates and inflation, which could reduce our customers' ability to obtain financing for software products or which could make our products more expensive in those countries;



•

longer payment cycles for sales in foreign countries and difficulties in collecting accounts receivable;



•

difficulties in staffing and managing our foreign operations;



•

difficulties in coordinating the activities of our geographically dispersed and culturally diverse operations;



•

seasonal reductions in business activity in the summer months in Europe and other countries; and



•

costs and delays associated with developing software in multiple languages.

    In addition, our foreign sales are substantially denominated in their respective local currency, creating risk of foreign currency translation gains and losses that could adversely affect our business and operating results.

Our Past Results are Not Indicative of Our Future Prospects.

    Operating results of Net Resources, our corporate predecessor, prior to the NetVault Acquisition are not representative of our current business of selling data storage management software. We therefore should be analyzed as a new business with a limited operating history in the software industry.

The Costs of Integrating Recently Acquired Companies May Continue.

    There have been significant costs of integration associated with our acquisitions of NVS, NetVault Holdings, NetVault Limited, NetVault KK, and Tracer. As each of these corporations carry on operations in different jurisdictions, we have had to update their accounting systems to accommodate them. We believe that the majority of integration costs for these entities have been incurred.

Power Outages or Natural Disasters Could Disrupt Our Business.

    We must protect our business and our network infrastructure against damage from earthquake, flood, hurricane and similar events, as well as from power outages. A substantial portion of our operations are subject to these risks, particularly our operations located in California. While the impact to our business and operating results has not yet been material, we cannot assure that power losses will not adversely affect our business in the future, or that the cost of acquiring sufficient power to run our business will not increase significantly.

Item 4. Information on the Company

A. History and development of the company.

    The name of the Company is BakBone Software Incorporated. Our Common Shares trade on the Toronto Stock Exchange under the symbol, "BKB."

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    BakBone was incorporated in British Columbia, Canada in December 1986 as CANU Resources Limited under The Company Act through the amalgamation of Canu Resources Limited and Ican Resources Ltd., carrying on business under the name Ican Minerals Ltd. In November 1992, Ican Minerals Ltd. continued from the Province of British Columbia to the Province of Alberta. Effective December 1998, Ican Minerals Ltd. changed its name to Net Resources Inc. and consolidated its issued and outstanding common stock on the basis of one new Common Share for each six Common Shares formerly issued and outstanding. All references in this document to our Common Shares refer to such shares after giving effect to the consolidation, unless specifically noted otherwise. By Articles of Amendment filed in March 2000, Net Resources Inc. changed its name to BakBone Software Incorporated.

    Our corporate headquarters are located at 10145 Pacific Heights Boulevard, Suite 900, San Diego, CA, 92121. Our registered office is located at Suite 1400, 350 - 7th Avenue S.W., Calgary, Alberta, T2P 3N9.

    Prior to the NetVault Acquisition (discussed in detail below), Net Resources Inc.'s business focus had been to pursue mineral exploration and development on property located in Washington County, Idaho. This gold exploration project had been developed and a feasibility study had been completed, but due to poor gold prices and limited access to capital, Net Resources Inc. discontinued further development and wrote off this investment during the year ended April 30, 2000.

    In 1999, Patrick Barcus (Barcus) and Anthony Cerqueira (Cerqueira), the principals of NVS and NetVault KK, agreed to acquire NetVault Holdings (formerly named Willow), which owned the NetVault software. Barcus and Cerqueira then approached BakBone to provide a public vehicle both to finance the proposed acquisition and to acquire all the issued and outstanding shares of NVS. In the transaction, BakBone agreed to issue up to 16,000,000 Common Shares in exchange for NVS's rights to proceed with the acquisition of NetVault Holdings, NetVault Ltd., and NetVault Ltd.'s 25% interest in NetVault KK.

    In March 2000, we completed the acquisition of NVS and issued 13,525,000 Common Shares which in turn provided the right to acquire NetVault Holdings, NetVault Ltd., and NetVault Ltd.'s 25% interest in NetVault KK. In addition, BakBone, through NVS, purchased NetVault Holdings, NetVault Ltd., and NetVault Ltd.'s 25% interest in NetVault KK for $4.5 million in cash. In conjunction with the acquisition of NetVault Ltd., we issued an additional 2,100,000 Common Shares to an employee benefit trust set up to retain certain key NetVault Ltd. personnel. In addition, we issued 375,000 Common Shares to Barcus and Cerqueira to acquire an additional 22% interest in NetVault KK, bringing our combined ownership in NetVault KK to 47%.

    In June 2000, we acquired all of the issued and outstanding capital stock of Tracer, a privately held corporation based in Gaithersburg, Maryland, which owned 50% of the capital stock of Tracer KK. The acquisition of Tracer provided development and sales capabilities in markets focusing on device drivers, file systems and jukebox management software for optical and tape libraries and drives. The acquisition of Tracer provided an accelerated research and development synergy to the Company and has assisted in leveraging certain file system technologies with the NetVault storage management products. In addition, Tracer provided distribution channel partners and over 6,000 end user customers, a large number of which may provide an opportunity to include NetVault in their storage management solution set.

    To the knowledge of management, there has been no indication of any significant formal public takeover offers by third parties in respect of our shares or by us in respect of other companies' shares which have occurred during the last and current financial year.

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B. Business overview.

    BakBone is an emerging producer of data storage management software that is striving to become the leader in the field. We have two primary products: NetVault and MagnaVault, which are described in detail below. Our strategy is to become a leading provider of storage management software by leveraging our adaptive software architecture to deliver to the marketplace multiple point products and solutions. Our solutions are intended to deliver greater productivity and benefits to our customers, while embracing leading edge protocols, interfaces and network storage technologies.

NetVault

    NetVault is a storage management application software package for the backup and restoration of data on networked computer systems, ranging from workgroup to enterprise systems. NetVault addresses the growing data storage needs of systems administrators across a wide range of storage topologies, including DAS, SAN, NAS and IPS. NetVault's architecture meets the challenges of storage management for a wide variety of applications, including the most popular databases used by firms worldwide.

    Our NetVault software product, including its wide range of APMs, helps organizations rapidly and reliably access, manage, store and restore important information found on their networked computer systems. These products enable protection against data loss and file corruption, rapid recovery after disk or system failure, the ability to process large files efficiently and the ability to manage and back up data distributed on large networks of systems without interrupting users. Our highly scalable products can be used independently, and certain products can be combined to provide interoperable client/server storage management solutions. All of our products offer centralized administration with a high degree of automation, enabling customers to manage complex, distributed environments cost-effectively by increasing system administrator productivity and system availability.

    We acquired NetVault as a part of the NetVault Acquisition and we are the sole owner of the related intellectual property rights for NetVault.

MagnaVault

    MagnaVault is our comprehensive secondary storage (or "near-line") management software for UNIX and Linux host operating environments. The MagnaVault family of system software products provides virtual file system support for a wide variety of CD/CD-R, DVD, Magneto-Optical (MO) and tape storage technologies. MagnaVault is designed to maximize the performance and utility of all types of secondary storage media, and provides transparent file system access to both NFS (Unix) and CIFS (Windows) clients. MagnaVault includes web-based administration along with a complete set of powerful command line interface tools to simplify custom integration into a wide variety of applications. MagnaVault also includes an Application Programmers Interface that includes SCSI device drivers, robotic management and file systems. These file systems can be created in a variety of formats, such as ISO9660, UDF, UFS and BakBone's proprietary XFS, designed to maximize performance, provide media spanning and media and data interchange to any supported host operating system.

    MagnaVault file systems, device drivers and optical jukebox management software modules offer a wide range of media and device support for most of today's major manufacturers. Ongoing relationships and procedures are in place, designed to provide a continuous stream of technology upgrades for future MagnaVault product features. We participate in numerous industry forums and interest groups with the intention of ensuring that MagnaVault will continue to maintain relevance and utility into the future.

    We acquired MagnaVault as a part of the Tracer Acquisition and we are the sole owner of the related intellectual property rights for MagnaVault.

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Product distribution

    We presently market our products and associated services to OEMs and to end-user customers through indirect sales channels such as resellers, solution providers, hardware distributors, application software vendors and systems integrators.

    BakBone KK and Tracer KK, both located in Tokyo, Japan, distribute the NetVault and MagnaVault software in the Pacific Rim via distribution channels in Japan and other countries throughout Asia.

    BakBone Ltd., located in the United Kingdom, distributes the NetVault and MagnaVault software in Europe, Africa and the Middle East.

    BakBone Inc., located in the United States, distributes the NetVault and MagnaVault software throughout the United States, Canada and South America.

Financial Information By Segment

    Management has determined that the Company operates in two segments, which are the NetVault product line and the MagnaVault product line. Operating revenues are generated from the licensing of software and sales of support services. The following table represents a summary of revenues by product line for the periods presented (in thousands):

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    The following table represents a summary of revenues by major geographic region (in thousands):

Seasonality; Dependence on Raw Materials

    Our software business is not seasonal in any material sense. Our products consist primarily of intellectual property and do not depend in the traditional sense on raw materials. Fluctuation of price and supply of materials does not have a material effect on our business performance.

Marketing Channels

    We use a combination of indirect one-tier channel partners and OEMs in our channel sales strategy. We recruit VADs, VARs and Solution Providers (SPs) by leveraging strategic alliances and OEM partners' established channels in the storage management industry. These recruitment efforts accelerate our channel strategy.

    VARs and SPs are provided varying levels of benefits in our loyalty program where, based on their contribution to our revenue, they can earn a predetermined percentage of revenue as cooperative marketing funds.

    Our channel marketing programs provide sales support, training, lead distribution and incentives for our partners' sales efforts, including co-operative marketing funds and market development funds (MDF). Installed base marketing is utilized for up-sell and cross-sell opportunities.

    The NetVault software products are sold through IT and data storage sales channels in Japan, Korea and Australia pursuant to distribution and licensing agreements. The most important of these agreements are described below.

NCR Teradata Warehouse Development License and Software Dealer Agreement

    In May 1999, NetVault Limited entered into a development license agreement with NCR's Teradata Division, to develop a software application that would allow NetVault software to provide backup and restore functionality for NCR's Teradata Warehouse products. In connection with the NCR Development License Agreement, NCR and NetVault Limited also entered into an accompanying software reseller agreement in May 1999, to which NetVault Limited supplies the NetVault software to NCR to enable NCR to market and distribute the software to end users, as well as to enable NCR to

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provide certain software support to such end users. The term of the agreement is three years, with automatic renewal for additional one year periods. As a result, NetVault is available on a world-wide NCR price list for the Teradata Warehouse offering for NCR's UNIX (MP-RAS) and Windows NT/2000 platforms.

OEM Agreement with Seagate Removable Storage Solutions (Seagate RSS)

    In May 2001, we entered into an OEM agreement with Seagate RSS that allows Seagate to bundle a basic version of our NetVault product with their TapeStor branded LTO single drive (Viper 200) and 11-slot autoloader (Viper 2000) products sold through commercial distribution channels. Seagate sells their equipment through distributors and resellers. The Seagate bundling programs create significant opportunities for sales upgrades and as well as sales leads for our channel sales organization and our reseller partners, as the OEM agreement requires that all NetVault upgrades (including service contracts, specific database/application support, and expansion backup server and client licenses) be purchased through our normal sales channels.

Bundled SAN Backup Solution with Qualstar, Vixel and Emulex

    To help manage the continually expanding requirement for fast and reliable access to exponentially growing amounts of data, the IT industry has embraced the concept of Storage Area Networks (SANs) as the preferred method for connecting large pools of data storage, and for providing a high-speed means of managing the data backup process. However, the costs and complexity of designing and implementing a SAN has typically limited its use to large enterprises.

    Taking advantage of NetVault's simplicity of use and installation, high performance, and an architecture optimized for use in the SAN environment, we have partnered with three storage industry leaders to provide a pre-configured, turnkey SAN solution that is targeted at the departmental and workgroup class IT environment. Our three partners—Emulex (NASDAQ: EMLX), Vixel (NASDAQ: VIXL), and Qualstar (NASDAQ: QBAK)—are all recognized technology and market leaders in their respective product categories. Our objective for this program is to deliver a multivendor-certified storage area network (SAN) hardware/software solution bundle that allows companies to quickly implement and benefit from the mission-critical reliability of networked storage.

    The turnkey, Solaris-based system sold through Qualstar's worldwide network of resellers provides mid-sized customers with proven ease of integration and optimum performance, and offers users a solution that can grow as their data storage needs increase. The agreement with Qualstar was signed in May 2001, with shipments scheduled to begin in June 2001. All upgrades and sales leads generated by these agreements will be sold through our VAR channel.

NEC Soft, Ltd. Distribution Agreement

    In March 2000, NetVault KK entered into a software license distribution agreement with NEC Soft Ltd. of Japan, a subsidiary of NEC Corporation of Japan. The NEC Distribution Agreement provides for NEC Soft to distribute NetVault 6.03 with NEC Intel Server systems, shipping with Red Hat Linux 6.2. NetVault is to provide support for the product to NEC Soft engineers through NEC Soft channels of distribution.

License Agreements with Related Entities

    We have entered into licensing agreements with our related entities which enable these related entities to sell and distribute our software to customers and end users worldwide. Specifically, Tracer has entered into license agreements with BakBone KK wherein it licenses the MagnaVault, HyperROM and Magna products in exchange for a royalty fee payable to Tracer as set forth in the agreement. Under these agreements, BakBone KK as licensee is given broad license rights including, but not

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limited to, marketing, distribution, resale, and modification of the product as necessary for sale in the Asian regions. Similarly, BakBone Ltd. has entered into licensing agreements with BakBone Inc. and BakBone KK wherein BakBone Inc. and BakBone KK license the NetVault product in exchange for a royalty fee payable to BakBone Ltd. as set forth in each respective agreement. Both licensees are given broad license rights including, but not limited to, marketing, distribution, resale, and modification of the product as necessary for sale in the respective regions.

Protection of Proprietary Information

    We rely on a combination of contract, copyright, trademark and trade secret laws, confidentiality procedures and other measures to protect our proprietary information. As part of our confidentiality procedures, we generally enter into non-disclosure agreements with our employees, distributors and corporate partners. In addition, we enter into license agreements with respect to our software, documentation and other proprietary information. These licenses are nontransferable and have limited terms.

    We have several registered and/or common law trademarks in the United States and other countries, among them NetVault, BakBone, the BakBone logo, MagnaVault, CentraVault, MagnaWriter, DirectSAN, Dynamic Shared Devices/DSD, Magna, TurboVault, Power Press, Application Plug-In Module/APM and Smart Client.

Competitive Advantages

    We are an emerging participant in a market dominated by larger, better-funded, well-established companies. See "Risk Factors" in Item 3.D. However, in management's view, there are several key advantages to our products that will help us to compete with these other market participants. These advantages include:

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Native Networked Storage Capacity. NetVault is designed to work with the wide range of current and emerging forms of networked storage.



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Application Integration Capability. NetVault's modular architecture provides the capability to integrate an unlimited number of applications without affecting the NetVault core code. We currently market more than 20 APMs, covering every major enterprise database sold in the marketplace today, including Microsoft SQL Server, Oracle 8i, and SAP R/3.



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Performance Framework. NetVault maximizes use of shared memory, block size adjustment, data compression and other "speed tuning" features for maximum throughput of data on fast tape drives.



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Non-Proprietary Tape Formats. Allows for easy disaster recovery of data in the event of catastrophic failure, even in the absence of the NetVault software application and the NetVault software catalog.



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Easier to Install, Use, and Maintain. Reduces the need for professional services, a key requirement for market leading competitors who rely on large service organizations in order to deploy their products.



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Multiple Server and Client Support. Offers support for all major UNIX platforms, Linux, and Microsoft Windows NT/2000, over 32 operating systems in all.



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File System Expertise. The MagnaVault file systems offers us an additional market entry point with inherent support for nearline storage products not offered by many of our competitors. MagnaVault today provides virtual file system capabilities for CD, DVD and Magneto-Optical storage technologies for both UNIX and Windows clients, all through a simple web-based interface.

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Future File System Integration. We are re-engineering the MagnaVault file system in order to integrate it onto the NetVault core engine. This is expected to offer users the only solution that we are aware of in the marketplace that combines backup and nearline applications at a granular level.

Governmental Regulations

    We are a multi-national corporation and we ship our software products all over the world. As such we must abide by the export regulations as promulgated by the Bureau of Export Administration and U.S. Department of Commerce. In the event such regulations would restrict our ability to ship our products into countries where we have a high volume of customers, the business could be affected.

    To management's knowledge, there are no known government regulations regarding storage management that would adversely affect our business. Certain government required standards are normally a part of industry knowledge, and as such, would be understood and acted upon by us in the normal course of doing business. Certain government regulations have come up recently that have a positive impact upon us. The most significant legislation that encompasses digital storage management on a global basis is the National Archives Records Archive Initiative as outlined in the Department of Defense's 5015.2 rule. Active program participants include Hitachi, IBM, Intel and Microsoft, and encompass many US-based initiatives that include the Stanford Digital Library Technologies project, National Science Foundation (NSF) Digital Library Initiative, DARPA, National Library of Medicine, Library of Congress (LOC) Digital Library, NASA and the FBI. Other significant digital storage management legislation that has a positive impact on the Company is recent SEC mandates towards audited integrity for emails by storing them on optical (non-volatile, non-rewritable) media, covered under the US Presidential initiative (PERPOS), an additional component of the Department of Defense's 1505.2 rulemaking. All facets of international, national, state and local governments all have legislation governing digital storage management guidelines that have a significant positive impact on the overall storage management initiatives within the Company.

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C. Organizational structure.

    BakBone carries on its operations in the United Kingdom, Japan, Canada, and the United States through its subsidiaries. BakBone owns all of the capital stock of BakBone Software Inc. (U.S.), NVS Holdings Inc. (Alberta, Canada), and BakBone Acquisition Corp. (U.S.), which in turn owns 50% of the capital stock of Tracer Technologies Japan KK. NVS Holdings owns all of the capital stock of NetVault Holdings Limited (U.K.), which in turn owns all of the capital stock of BakBone Software Limited (U.K.). The capital stock of BakBone Software KK (Japan) is owned 25% by NetVault Limited and 22% by BakBone.

D. Property, plants and equipment.

    All assets are held in the name of BakBone or our affiliated subsidiaries. The following table details the Company's fixed assets as of March 31, 2001 (in thousands):

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    We will require additional computer systems for further development of ongoing products, as well as for product testing and time to market configuration testing. Management estimates that the cost of the total equipment infrastructure, including development and testing costs, will approximate $250,000 during the current fiscal year ending March 31, 2002.

    The following tables details the Company's facility leases for office locations throughout the world:

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    We are not aware of any environmental issues that will effect our utilization of assets.

    We currently have no plans to construct, expand or improve facilities in the near future as we maintain sufficient additional capacity within our existing facilities to accommodate growth in employee headcount. Our processes for production of software units shipped to customers entails the assembly of the software CD, manual and any additional collateral material in product specific packaging and, as such, occupies minimal space.

Item 5. Operating and Financial Review and Prospects

    The following section contains forward-looking statements relating to revenues, expenditures and sufficiency of capital resources. Actual results may differ from those projected in the forward-looking statements for a number of reasons, including those described in the forepart of this registration statement.

    Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada, which conform to accounting principles generally accepted in the United States, except as discussed in detail in Note 15 to the consolidated financial statements. The following discussion and analysis should be read in conjunction with our consolidated financial statements and accompanying notes.

OVERVIEW

    BakBone is an international storage management software company that develops and globally distributes storage management solutions. Our corporate headquarters are located in San Diego, California. This facility houses executive management as well as sales, marketing, engineering, customer support and administrative departments. We maintain offices in Tokyo, Japan and Poole, Dorset, United Kingdom, that concentrate on sales, marketing and administrative functions for the Asian and European regions, respectively. Our office in Calgary, Alberta, Canada, focuses on investor relations and compliance with Canadian regulatory issues. In addition, our United Kingdom and Lanham, Maryland offices include engineering personnel responsible for the core development effort of our NetVault and MagnaVault software products, respectively.

    We have incurred net operating losses since inception of our operations in March 2000. Our operating losses were $32.7 million and $1.3 million for the eleven months ended March 31, 2001 and the year ended April 30, 2000, respectively. Losses are expected to continue through the year ended March 31, 2002 as we expand our sales efforts, particularly in North America, and develop and enhance our current software product offerings. We have incurred an accumulated deficit of $34.0 million through March 31, 2001.

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    The Company develops and sells two main products, NetVault and MagnaVault. The following is a brief description of each product:

NetVault

    NetVault is storage management application software for the backup and restoration of data that addresses the growing data storage needs of systems administrators across a wide range of storage topologies, including: DAS, NAS, SAN and IP's. NetVault's architecture meets the challenges of storage management for a wide variety of applications, including all of the most popular databases used by firms worldwide. NetVault is currently sold through our offices in the United States, Japan and the United Kingdom.

    In conjunction with the March 2000 acquisition of NetVault Holdings, we acquired and are the sole owner of the intellectual property rights for the NetVault software.

MagnaVault

    MagnaVault is a comprehensive secondary storage (or near-line) management software for UNIX and Linux host operating environments. The MagnaVault family of system software products provides virtual file system support for a wide variety of CD, DVD, optical and tape storage technologies. MagnaVault is designed to maximize the performance and utility of all types of secondary storage media and provides transparent file system access to both UNIX and Windows NT/2000 clients. MagnaVault is currently sold through our offices in the United States and Japan with the United Kingdom beginning its sales of the product during fiscal year 2002.

    In conjunction with the June 2000 acquisition of Tracer, we acquired and are the sole owner of the intellectual property rights for the MagnaVault software.

A. Operating Results

    In March 2000, we acquired all of the issued and outstanding common shares of NVS. This acquisition resulted in a reverse takeover of the Company by NVS as, immediately following the acquisition, NVS shareholders held greater than 50% of the issued and outstanding common shares of the Company. In addition, at the time of the acquisition, the Company was a non-operating company that had ceased its prior business activities, principally exploration activities, in 1999 and had written off all related mining assets. The combination of the majority ownership of the Company by NVS and the non-operating status of the Company on the acquisition date met the criteria for the application of takeover accounting between a shell company and an operating company.

    Application of reverse takeover accounting resulted in the elimination of the accumulated deficit and share capital of the Company as of the acquisition date, the continuation of the financial statements of the accounting acquirer, NVS, and the continuation of the legal name of the legal acquirer, BakBone. Consequently, although the consolidated statement of operations and accumulated deficit are presented as the year ended April 30, 2000, they include only the two months ended April 30, 2000, as NVS had no operations prior to the NetVault acquisition in March 2000 and BakBone's operations are included only from the date of acquisition through April 30, 2000. Concurrently with BakBone's acquisition of NVS, NVS acquired NetVault Holdings, a non-operating shell company, NetVault Ltd., and NetVault Ltd.'s 25% interest in NetVault KK. Refer to Note 1 to the consolidated financial statements in Item 17 for more information.

    In August 2000, our Board of Directors approved a change in our fiscal year end from April 30 to March 31, effective for the fiscal year beginning May 1, 2000. This resulted in the inclusion of eleven months of operating results in fiscal 2001 compared to a standard twelve month period.

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    As the application of reverse takeover accounting resulted in reporting two months of operations for the year ended April 30, 2000, and the change in our fiscal year end resulted in reporting eleven months of operations for the year ended March 31, 2001, we believe the two periods are not comparable. As such, the following management discussion and related analysis focuses on the year ended March 31, 2001 results, as we consider this information the most relevant to summarize our operations to date.

Revenues

    Revenues for the eleven months ended March 31, 2001 were $7.5 million, consisting of $6.3 million in licensing revenue and $1.2 million in services revenue and nominal other revenues. During this period, NetVault and MagnaVault sales provided 59% and 41% of total revenues, respectively.

Licensing

    Our products are sold exclusively through our channel partners, VARs, VADs and OEMs, in three geographic segments: Asia, North America and Europe, which contributed $3.8 million, $1.9 million, and $600,000 in licensing revenue during the eleven months ended March 31, 2001, respectively.

    During the eleven months ended March 31, 2001, our Asian operations provided 60% of total licensing revenues. These revenues are generated through sales by BakBone KK and Tracer KK, which were acquired in March 2000 and June 2000, respectively. Sales efforts are directed from one office in Tokyo, Japan, and cover all of Asia, Australia and New Zealand.

    During the eleven months ended March 31, 2001, our North American operations provided 30% of total licensing revenues, which consisted of both NetVault and MagnaVault sales. NetVault licensing revenues resulted from the introduction of the NetVault software in North America in August 2000, the growth in our sales force and the increased acceptance of NetVault within the industry. We began establishing our partner channels for NetVault in North America in July 2000 and as of March 31, 2001, we had executed partner agreements with over 50 VAR / VAD partners and one OEM partner, Seagate. Licensing revenues for MagnaVault resulted from our acquisition of Tracer in June 2000 which provided us a core set of over 15 new partners and greater than 6,000 end users. Our sales efforts have focused on the existing MagnaVault customer base as a source of NetVault sales leads.

    During the eleven months ended March 31, 2001, our European operations provided 10% of total licensing revenues. These revenues resulted almost entirely from sales of NetVault and were generated from our sales office in Poole, Dorset, United Kingdom, which we acquired as part of the March 2000 NetVault Acquisition. Licensing revenues for this office have grown mostly through expansion into new areas of Europe, the Middle East and Africa. In addition, sales related to our NCR Teradata agreement, dated May 1999, commenced in January 2000 after development of the NetVault plug-in application was completed.

    During fiscal 2002, we plan to launch a dedicated sales effort for MagnaVault in the European, Middle Eastern and African markets through our United Kingdom office. During the eleven months ended March 31, 2001, we had nominal sales of MagnaVault in these regions as we had not yet dedicated our sales efforts; however, we believe near-line demand in these regions is strong and that we offer a competitive product to those already in the market.

Services

    Services revenue is made up almost entirely of maintenance revenues resulting from the sale of customer support contracts for both NetVault and MagnaVault. These contract fees generally approximate 20% of the licensing fee. The associated revenues from customer support contracts are deferred and amortized on a straight-line basis over the life of the contract, generally one year.

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    During the eleven months ended March 31, 2001, service revenues generated in the North America, European and Asian regions were 40%, 35% and 25% of total service revenue, respectively. NetVault is supported from our offices in the North America, Europe and Asia and MagnaVault is supported from our offices in North America and Asia. As our European operation begins to sell MagnaVault, it will also commence support for existing and all new MagnaVault customers in the region.

Cost of Revenues

    Cost of revenues totaled $1.2 million for the eleven months ended March 31, 2001, and consisted primarily of the direct cost of providing customer support. Our costs to provide this support consist primarily of salary and benefits for staff working in our client service departments as well as associated costs of computer equipment, telephone and other general costs necessary to maintain an adequate level of customer support and service our end users.

    Also included in cost of revenues are the direct costs of raw materials and packaging for the products shipped to end users. These costs, however, are nominal as the products shipped to customers consist of a CD, manual, printed box and other media. Product costs for these items individually and in aggregate are minimal and we have little risk of inventory obsolescence due to the small quantities of these items needed to fill our customers orders and the short lead time to acquire additional materials. Raw material purchases are held in inventory until the sale of the related software product at which time the cost per unit sold is released to cost of revenues.

Sales and Marketing Expenses

    Sales and marketing expenses for the eleven months ended March 31, 2001 totaled $17.3 million and consisted mainly of costs necessary to support our 51 worldwide sales personnel including salary and benefits, commissions and travel. In order to build the North American sales region, we hired a substantial number of new sales professionals during the eleven months ended March 31, 2001. Headcounts for the Sales departments in the United Kingdom and Japan increased, although to a lesser extent, during the same period.

    We are currently focusing our sales and marketing efforts on what we believe is the largest potential market, North America, where NetVault is a new choice for end users. We believe there exists a greater potential market share as well as greater IT dollars budgeted for data management software.

    Our efforts to introduce NetVault and promote MagnaVault in North American led to substantial spending in advertising and public relations. In addition, we are attending tradeshows throughout North America, Asia and Europe to promote our products and demonstrate, on a face-to-face basis with potential customers, their ease of use and speed of backup/restore of data on the many network types our products support.

Research and Development Expenses

    Research and development expenses for the eleven months ended March 31, 2001 totaled $4.4 million and consisted primarily of salary and related costs for our 70 engineers worldwide. The majority of our engineering efforts are carried out in the United States and United Kingdom; these locations are responsible for the ongoing development and testing of our products. Engineering efforts in Japan are minimal and relate to creating functionality and interface capabilities for users in the Asian region.

    These costs include the set-up and operation of our Interoperability Lab in San Diego, California, developed to test and qualify our software products on various vendor hardware solutions. In addition,

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we are focusing our development expenditures on upgrading MagnaVault as well as creating a product that will integrate NetVault and MagnaVault into one solution.

General and Administrative Expenses

    General and administrative expenses for the eleven months ended March 31, 2001 totaled $13.4 million. This amount consists primarily of salary and related costs for our 41 executive and administrative employees throughout our worldwide offices. Our offices also incur facility rents, build-out and depreciation, maintenance and other related costs to support our corporate headquarters and three subsidiary offices as well as our satellite sales offices in the United States and Germany.

    During the eleven months ended March 31, 2001, we incurred substantial legal fees related to the identification and protection of our intellectual property, assimilation of acquired entities, public reporting of our financial results and operational information, and general corporate matters. Professional fees from accounting and consulting firms were incurred in the areas of annual audit, quarterly public filings, taxes, implementation of our enterprise reporting package and other general areas.

Amortization of Intangibles

    Amortization of intangibles during the eleven months ended March 31, 2001 totaled $4.8 million. The Company recorded intangibles of $4.3 million and $12.5 million relating to the acquisition of NetVault Holdings in March 2000 and Tracer in June 2000, respectively. We determined the life of intangibles from both of our acquisitions to be three years due to the fact that the excess paid for the associated entities over the fair market value of the assets acquired related entirely to the acquired software's intellectual property. Intangibles are amortized on a straight-line basis, resulting in a monthly charge to the consolidated statement of operations of $470,000 through March 2003 and $350,000 from April 2003 through June 2003, which will provide for full amortization of the intangibles resulting from the NetVault Holdings and Tracer acquisitions.

B. Liquidity and Capital Resources

    We have financed our operations primarily through private placements of special warrants in the Provinces of British Columbia, Alberta and Ontario, Canada. During the year ended April 30, 2000, the Company raised gross proceeds of $38,700,000 through the private placement of 6,000,000 Series A Special Warrants and 3,000,000 Series B Special Warrants at prices of $1.50 and $9.90, respectively. Net proceeds to the Company after financing costs were $35,413,000. Each Special Warrant was converted to one common share and 0.5 share purchase warrant, for no additional consideration, upon receipt of the approved prospectus in Canada. Each full share purchase warrant entitles the holder to purchase one common share at a specified exercise price. As of March 31, 2001, 1,841,995 share purchase warrants, having a weighted average exercise price of $14.49, related to this offering were outstanding.

    In May 2001, the Company completed a private placement of 3,000,000 special warrants at a price of $5.00 per special warrant for gross proceeds of $15 million. Each special warrant is exercisable, for no additional consideration, into one common share and one half share purchase warrant upon receipt of the final prospectus in Canada. Each full share purchase warrant will entitle the holder to purchase one common share at $7.50 and expires no later than November 2001.

    Net cash used in operating activities during the eleven months ended March 31, 2001 was $26.9 million which resulted from a net loss of $32.7 million partially offset by non-cash depreciation and amortization of $5.9 million. Other operating activities that contributed to the use of cash included increases in accounts receivable of $663,000 and other assets of $943,000. Operating activities providing a source of cash consisted of increases in accounts payable of $402,000, accrued liabilities of $723,000 and deferred revenue of $461,000.

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    Cash used in investing activities during the eleven months ended March 31, 2001 was $7.1 million which consisted primarily of $2.4 million for the acquisition of Tracer in June 2000 (net of cash acquired of $1.1 million). Capital expenditures of $4.8 million included the purchase of an enterprise resource planning system, a customer relationship management system, a global telecommunications system, equipment and devices for interoperability testing, and the build-out of our corporate headquarters in San Diego, California and Tokyo, Japan.

    Cash flows provided by financing activities during the eleven months ended March 31, 2001 were $9.5 million, which consisted primarily of proceeds from the exercise of warrants of $6.9 million. In addition, we entered into a line of credit with a bank that provided $3.9 million of net borrowings. We also received $864,000 from the exercise of stock options during the eleven months ended March 31, 2001.

    As of March 31, 2001, the Company had $6.0 million in cash and cash equivalents available for working capital. In addition, as mentioned above, we raised an additional $15 million in May 2001 through the private placement of special warrants. We believe that existing cash and cash equivalents will be sufficient to meet our anticipated cash needs through the current fiscal year. If cash generated from operations is insufficient to satisfy our liquidity requirements, we may seek to sell additional equity securities or attempt to obtain a larger credit facility.

    Additional debt would result in increased expenses and could result in covenants that would restrict our operations. The sale of additional equity securities would result in immediate and potentially significant dilution to our shareholders. We have not made arrangements to obtain additional debt or equity financing and there is no assurance that additional financing, if required, will be available in amounts or on terms acceptable to us, if available at all.

Inflation and Changing Prices

    Inflation and changing prices have not had a material impact on our operations.

Foreign Currency

    Our revenues result mainly from sales made in U.S. dollars, British Pounds and Japanese Yen. We will continue to incur operating costs mainly in U.S. dollars, British Pounds, Japanese Yen and, to a lesser extent, Canadian dollars. Thus, our operations are susceptible to fluctuations in currency exchange rates.

    While we attempt to mitigate some of the risks of exchange rate fluctuations between the U.S. dollar and the Canadian dollar by maintaining cash reserves denominated in U.S. dollars, there can be no assurance that this strategy will substantially reduce the potential adverse effect of exchange rate fluctuations on our business, financial condition or results of operations.

    We do not currently engage in hedging or other activities to reduce exchange rate risk but may do so in the future, if conditions warrant.

RECONCILIATION TO U.S. GAAP

    In connection with the preparation of this registration statement on Form 20-F, we have disclosed in the accompanying notes to the consolidated financial statements a detailed overview of the differences between accounting principles generally accepted (GAAP) in Canada and that of the United States.

    The following is a brief discussion of differences between U.S. GAAP and Canadian GAAP that are illustrated in our reconciliation to U.S. GAAP in Note 15 to the consolidated financial statements,

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included in Item 17 and should be read in conjunction with Note 15 to the consolidated financial statements.

Stock Based Compensation

    During the eleven months ended March 31, 2001 and for the year ended April 30, 2000, the Company recorded substantial non-cash charges associated with stock and stock options issued to employees and advisors. The structure of the related grants is subject to compensation charges under U.S. GAAP and we have recorded compensation charges from the following:

•

Stock options issued at less than fair market value at the date of grant resulting in intrinsic value was deferred and is being amortized to compensation expense over the vesting period of the related stock option;



•

Employee Benefit Trust (EBT) shares allocated to United Kingdom employees in connection with the NetVault Holdings acquisition in March 2000. The fair value of these shares as of the date of issuance to the EBT or the date of hire for each related employee, if later, has been deferred and is being amortized to compensation expense over the vesting period of the related stock grant;



•

Incentive shares issued to attract and retain certain North American executive and sales employees. The fair value of these shares as of each related employee's date of hire has been deferred and is being amortized to compensation expense ratably over the vesting period of the related stock;



•

Stock options granted to compensate our advisors for the related services they provide. We have recorded compensation expense as the advisors earned the related shares, generally over the vesting period of each individual stock option grant, and



•

We repriced certain stock options in October 2000 upon the approval from the TSE and our shareholders. As of March 31, 2001, we had recorded no compensation expense under U.S. GAAP as the fair value of the related stock options had not exceeded the repriced amount of $12.35 per common share. However, there is the potential that future appreciation of our common shares will result in compensation charges, the extent of which depends on market conditions and cannot be estimated.

    The Company issued stock options to the principals of Tracer in connection with the Tracer Acquisition in June 2000. The related stock options were one third vested upon grant with the remaining vesting over two years. The immediately vested stock options have been accounted for as a component of the purchase price under U.S. GAAP, resulting in additional intangibles as well as amortization expense during the eleven months ended March 31, 2001. The remaining two thirds of the stock options were issued at a price that was less than fair market value on the grant date and intrinsic value was deferred and is being amortized to compensation expense over the two year vesting period.

Consolidation of BakBone KK and Tracer KK

    Under U.S. GAAP, a company must own or demonstrate voting control of greater than 50% of an acquired entity in order to consolidate that entity. We own 47% and 50% of BakBone KK and Tracer KK, respectively; however we maintain effective control over both entities in that two of our executives combine to own and control a sufficient portion of the remaining interest in both of these entities. At present, however, there exists no voting rights assignment by these officers to the Company.

    This situation precludes consolidation under U.S. GAAP and, as such, the balance sheets, results of operations and cash flows of BakBone KK and Tracer KK have been removed from that of the Company as of and for the eleven months ended March 31, 2001 and as of and for the year ended

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April 30, 2000. Under U.S. GAAP, our investments in these subsidiaries are accounted for under the equity method of accounting.

Acquisition of 22% of BakBone KK

    We acquired 22% of our interest in BakBone KK through the issuance of 375,000 common shares to two executives in March 2000. Under U.S. GAAP, the Company's purchase of 22% of BakBone KK must be accounted for by using the purchase method of accounting based on the fair value of common shares as of the date both parties agreed to the related consideration. This value resulted in an increase in the investment in BakBone KK, which is being amortized over three years as the value of the common shares issued exceeded the value of our underlying equity in net assets of BakBone KK.

Amortization of Intangibles

    U.S. GAAP does not permit the presentation of income before amortization of intangibles whereas, under Canadian GAAP, such presentation is permitted. Under U.S. GAAP, amortization of intangibles is classified in operating expenses in the consolidated statement of operations and accumulated deficit.

C. Research and Development (R&D)

    We have established development divisions in Poole, United Kingdom, Lanham, Maryland and San Diego, California. We also maintain development in Tokyo, Japan specific to adapting our software for use in the Asia-Pacific Region.

    The next planned phases of R&D center around utilizing the core engine of NetVault as a platform for multiple storage management applications.

D. Trend information.

    Trends in our financial performance are discussed above in Section A, "Operating Results." For businesses worldwide, information on customer buying patterns, supply chains, inventory, manufacturing, and every facet of a company's activities are increasingly recorded by enterprise resource planning (ERP) software, stored in databases, and viewed as a strategic asset. Many of our customers believe that a regular backup strategy, which includes copying data and keeping it safe in a location outside the network, is an essential element to protection of key data. The increasing strategic importance of data is complemented by the increasing amount of data stored.

    This has fueled growth in the amount of storage products shipped, which is increasing at roughly a 90% compounded annual growth rate. We note that some of our customers are doubling or tripling their overall storage on an annual basis. Growth drivers within the storage management industry include the increasing need to store multimedia data such as voice and video, the continued penetration of ERP applications, the emerging on-line application processing and decision support market, and the proliferation of email systems in companies of all sizes.

    Combined with the increasing amount and importance of data is the complexity of managing data in a heterogeneous, distributed computing environment. Data is stored in different operating systems, on different forms of media, and on different hardware platforms. And yet, the mandate is for the information to be readily accessible and reliable to an increasingly mobile, geographically scattered workforce.

    The type of data being stored on client/server systems is changing. Growth in the Internet and corporate intranet sectors, as well as the rise of 32-bit/64-bit architectures, give impetus to the changes in data seen in the distributed network. First, the increase in popularity in Web-based applications has resulted in an increase of multimedia data types (including large video streams) that have significant

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storage requirements. The ease of use and low cost of ownership of Web-based applications are catalyzing a trend toward publishing data that is content-oriented, versus application-oriented.

    Management has targeted the OEM market as a critical market for our revenue growth going forward. As of March 31, 2001, we had agreements in place with NCR and Seagate and are currently working on signing additional OEMs. Sales through the OEM channel generally have a combined impact on revenues. First, the shipment of our products to the OEM for inclusion with their software or hardware solution sold to their end users generally provides nominal per unit revenue to the Company. Where we do not hard bundle our product with the OEM's software or hardware, we include a 45 day trial version of our product with our OEM's software or hardware solution. This trial version gives potential end users exposure to a full version our products, for a limited time.

    The second area of impact from OEM sales is that of the up-sell of end user to a fully functional version of our product. An up-sell provides for a full license fee and generally includes maintenance revenues associated with a one year service contract. As we are establishing our OEM channel, the number of OEM hardware units shipped and the related up-sell rate is not currently available but these will be key measures of the success of the OEM program on an ongoing basis.

Demand Outlook for 2001

    The demand for additional computer storage capacity and the accompanying requirement for software and hardware products to manage the additional capacity is expected to continue to grow at a significant rate. International Data Corporation ("IDC") expects IT spending to increase by double digits over the next five years, as global companies invest more resources into productivity-enhancing technologies.

Market Size of Storage Management Software

    The market for storage management software exceeded $5.6 billion in 2000, and is projected to surpass $14.7 billion in 2004 by Gartner Group. This market segment includes disk backup and restoration, disk optimization and compression, disaster recovery, disk utilization reporting, tape management, and storage stimulation. Archive management and storage migration, including hierarchical storage management, are also in this segment. The storage management market can be partitioned into three segments: desktop, server, and host, representing the low-end, mid-range, and high-end niches, respectively. Within the server or network operating system niche, Windows NT/2000 is the fastest-growing segment. IDC forecasts annual growth of 40%-45% through 2003. (Source: Lehman Brothers Technology Sector, Storage Infrastructure & Software, "Storage Software: Beacon Through the Network Fog," March 1, 2001.)

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Item 6. Directors, Senior Management and Employees

A. Directors and senior management.

SENIOR MANAGEMENT

Keith Rickard, President and Chief Executive Officer

    Keith Rickard is responsible for leading BakBone's overall strategy, vision and aggressive growth. Before joining BakBone as president and CEO in June 2001, he held several leadership positions at Sterling Software where he drove growth in multiple product divisions. His most recent role was as president of Sterling Software's Storage Management Division, where he was responsible for all aspects of Sterling's storage management software product suite, including worldwide sales, marketing, engineering and business development. During his tenure, Mr. Rickard grew overall revenues and profitability significantly and successfully integrated three acquisitions. He possesses a unique combination of technical expertise and business acumen with over 20 years experience in software and 10 years in computer services industries and brings a wealth of international experience to his role. Mr. Rickard holds a Bachelor of Science in Mathematics from the University of London.

Anthony Cerqueira, Director and Executive Vice President

    Anthony Cerqueira is a co-founder of BakBone and is an Executive Vice President. He led the startup of BakBone KK in Japan in 1998, and led the business and strategic development and financing efforts for our corporate launch in March 2000. Mr. Cerqueira served as the Company's Chief Executive Officer from June 2000 through June 2001. He has extensive experience as a sales and marketing executive in the open systems and SAN market place, and has been instrumental in channel sales set-up for data storage products globally with major distribution and OEM players. Mr. Cerqueira has served as an analyst for telecommunications market openings for the U.S. government, and with IBM's World Sales Division. From 1991 to 1997, he held positions as Manager of International Sales of Andataco, now nStor (AMEX: NSO), and Artecon, now DotHill Systems (NYSE: HIL). Mr. Cerqueira holds an M.A. in International Communications and Management Information Systems from the American University, Washington, D.C.

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Harry Brayne, Managing Director

    Harry Brayne was initially employed in the civil engineering industry starting as site engineer with an international civil engineering contractor, progressing within the industry to Contracts Manager overseeing civil engineering projects throughout the South of England. In 1974, he founded the Civil Engineering Company, undertaking contracts throughout Southern England and Libya. This business was sold in 1983. In 1982 he was appointed a director of Willow Ltd., a company specializing in data transfer. He has been the Chairman of NetVault Limited and Willow Starcom Ltd. since 1997. He was educated at Chivers College Portsmouth, and Peterborough and Southampton Technical Colleges.

Patrick Barcus, Vice President, Pacific Rim

    Patrick Barcus has experience in open systems storage markets in Asia and general distribution strategy, marketing and advertising for software storage management products in Japan and other Asian countries. Prior to joining BakBone, he created and implemented sales strategies for optical device manufacturers in Japan and throughout the Pacific Rim. Mr. Barcus financed and structured the operations of our two Japanese subsidiaries BakBone KK and Tracer KK. Mr. Barcus graduated from American University with a B.A. in International Studies.

Fabrice Helliker, Executive Vice President of Engineering

    Fabrice Helliker joined NetVault Limited (previously known as Willow Corporation) in 1992 to support the existing backup products and to aid in the development efforts with AT&T Bell Labs for NetVault. Mr. Helliker managed the development team through several major revisions of NetVault during the 1990s. He also led the re-architecture effort for the NetVault 6 product, designing the flexible development methods in use today for NetVault's modular structure. Mr. Helliker was appointed to the position of Vice President, Engineering of the Company effective March 30, 2000. He received a Bachelor's of Science Degree with Honors in Computer Science from Brighton University.

Andrew Unsworth, Managing Director, European Operations

    Andrew Unsworth has held the position of Managing Director of European operations of BakBone Ltd. for over twelve years. He negotiated the joint venture between AT&T and Willow (now BakBone Ltd.) which resulted in the NetVault development program. Furthermore, in 1996, he negotiated distribution rights for NetVault in the Pacific Rim and set up distribution channels in Europe. He has a Full Technology Certificate in Telecommunications from Chelmer Institute, Essex and a Diploma in Management Sciences from St. Helens College of Technology, Merseyside.

DIRECTORS

    The biographies of directors Anthony Cerqueira and Harry Brayne, who are also members of senior management, are presented above.

Archie Nesbitt, Director and Chairman of the Board

    Archie Nesbitt has more than 30 years of public company management experience and has been a senior officer and director of a number of public and private corporations. Mr. Nesbitt is a lawyer and is a member of The Law Society of Alberta. He has practiced law as President of A.J. Nesbitt Professional Corporation since 1978. Since 1981, Mr. Nesbitt has been the President, Secretary and a Director of Naneco Minerals Ltd., a mining and exploration company with an international polymetallic focus, which trades on The Canadian Venture Exchange. During the early 1980s, as Chief Operating Officer and General Counsel for Geomex Development Inc. and Geomex Minerals Inc., Mr. Nesbitt supervised and administered worldwide mineral and oil and gas exploration and development expenditures by fourteen limited partnerships investing funds raised in the Federal Republic of

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Germany. Mr. Nesbitt holds a Bachelor of Laws degree from the University of Western Ontario, and a Bachelor's of Commerce degree with Honors from Queens (Ontario) University.

J.G. (Jeff) Lawson, Director

    Jeff Lawson is a Partner at the law firm of Burnet, Duckworth & Palmer, located in Calgary, Alberta. Mr. Lawson specializes in securities law and has extensive experience in both private and public offerings and merger and acquisitions activities. He acts as counsel to a number of industrial and resource companies, is a director or officer of a number of publicly listed entities, and serves as a director of certain non-profit and charitable organizations. Mr. Lawson received an LLB from the University of Alberta in 1993.

Neil MacKenzie, Director

    Neil MacKenzie is a Director and the Vice President of Newpark Drilling Fluids Canada Inc., a subsidiary of Newpark Resources Incorporated, (NYSE: NR). Mr. MacKenzie is also a Director of Wireless Matrix Corporation (TSE: WRX). Mr. MacKenzie attended the Southern Alberta Institute of Technology.

Jeffrey Taylor, Director

    Jeff Taylor previously served as Chairman of the Board of Directors for Pennaco Energy Inc., an independent natural gas and oil company. Pennaco Energy, an American Stock Exchange-listed company, was sold to USX Marathon Group (NYSE: MRO). Mr. Taylor also served as a director of the University of California - San Diego, Cancer Center. He holds an MBA from the University of San Diego, and a Finance degree from the University of Southern California.

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B. Compensation.

    The following table details the compensation of our senior management during the two most recent years, all amounts in the table and related footnotes are expressed in United States Dollars:

1.

Mr. Rickard was hired in June 2001 and has a base annual salary of $180,000. In addition, Mr. Rickard was granted 500,000 stock options under our stock plan.

2.

Mr. Cerqueira joined Net Resources in June 1999, however, he did not begin to take a regular salary until January 2000. Mr. Cerqueira has a base annual salary of $150,000 and an automobile allowance of $6,000 per year.

3.

Mr. Barcus joined Net Resources in June 1999, however, he did not begin to take a regular salary until January 2000. Mr. Barcus has a base annual salary of $96,000 and an automobile allowance of $6,000 per year.

4.

Represents salary paid to Mr. Unsworth from November 1, 2000 through March 31, 2001. Mr. Unsworth has a base annual salary of $127,500 and an automobile allowance of $10,800 per year. Mr. Unsworth joined the Company on November 1, 2000.

5.

Restricted shares represent shares held in an employee benefit trust set up to retain certain key personnel associated with NetVault Ltd. Mr. Brayne has fully vested in his shares held in the trust and Mr. Helliker and Mr. Unsworth are one third vested in their shares with one third vesting in March 2002 and the remaining one third vesting in March 2003. These shares are currently held in the trust, employees do not have voting rights to these shares and as of May 31, 2000, no shares have been distributed to employees.

C. Board practices.

    The Board of Directors was elected at the annual meeting of shareholders on October 30, 2000 and will serve one year terms until either re-elected or replaced. Directors do not receive any fees or other compensation or benefits in respect of their service.

    The Company's audit committee consists of Mr. Cerqueira, Mr. Nesbitt, Mr. Lawson, and Mr. MacKenzie. The audit committee is responsible for oversight of management reporting and internal controls. The committee communicates directly with external auditors.

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    The Company's compensation committee consists of Mr. Nesbitt, Mr. Lawson, and Mr. MacKenzie. The compensation committee is charged with the periodic review and approval of compensation of the executive officers of the Company. The committee also provides evaluations and recommendations to the Board of Directors concerning management structure and compensation of key management personnel, based on management's recommendations.

D. Employees.

    The following table details our employees by geographic location as well as by functional department. The periods presented consist of the three most recent fiscal year end dates: December 31, 1999 for BakBone KK and BakBone Ltd., our predecessor companies, and April 30, 2000 and March 31, 2001 for BakBone and its subsidiaries:

Employees by Geographic Location

Employees by Department

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E. Share ownership.

    The following table shows the number of our Common Shares beneficially owned by each director and the named executive officer in subsection 6.B, as of May 31, 2001.

(1)

Individual beneficially owns less than 1% of our common shares as of May 31, 2001.

Item 7. Major Shareholders and Related Party Transactions

A. Major shareholders.

    We are aware of no shareholder who beneficially owns greater than 5% of our outstanding Common Shares as of May 31, 2001.

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B. Related party transactions.

    Management is not aware of any material interest, direct or indirect, of any director, officer, promoter, insider, or member of management of the Company, or of any person owning more than 10% of the Common Shares, or any associate or affiliate of any such person, in any transaction within the last five years, or any proposed transaction, which in either case has materially affected or will materially affect the Company, other than as disclosed below or elsewhere herein.

    In connection with the acquisition of Tracer in June 2000, the Barcus Family Trust (the trustees of which are J. Michael Barcus and Amelia Barcus, who are relatives of Patrick Barcus) received 122,240 Common Shares. J. Michael Barcus also received options to acquire 62,500 Common Shares at an exercise price of $6.00 per share. Patrick Barcus, who was a director of BakBone, also received (indirectly) 12,000 Common Shares through his ownership in Tracer KK, one of the former shareholders of Tracer.

    At the time of negotiating and completing the NetVault Acquisition, Barcus and Cerqueira, were also shareholders of NVS and NetVault KK. On the date of entering into the relevant acquisition agreements, Barcus held 25,000 Common Shares and options to acquire 125,000 Common Shares at an exercise price of $1.20 per share and Cerqueira held an aggregate of 37,000 Common Shares and options to acquire 125,000 Common Shares at an exercise price of $1.20 per share. Barcus held, directly and indirectly, an aggregate of 872,418 Common Shares of NVS (entitling him to receive an aggregate of 872,418 Common Shares upon completion of the acquisition of NVS) and Cerqueira held, directly and indirectly, an aggregate of 838,265 Common Shares of NVS (entitling him to receive an aggregate of 838,265 Common Shares upon the completion of the acquisition of NVS).

    In addition, Barcus and Cerqueira agreed to sell their 22% equity interest in NetVault KK to the Company in exchange for an aggregate of 375,000 Common Shares, of which Barcus received 187,500 Common Shares and Cerqueira received 187,500 Common Shares. Prior to the acquisition of NetVault KK, Barcus and Cerqueira provided loans to NetVault KK for use under normal operating activities. These loans have no maturity date and are interest-free. At March 31, 2001 and April 30, 2000, the balance owed these individuals totaled $118,000 and $366,000, respectively.

    A director of the Company is a partner of a law firm that provides legal services to the Company. During the eleven months ended March 31, 2001 and the year ended April 30, 2000, the Company paid the associated law firm $406,000 and $278,000, respectively, relating to the services rendered.

    A director of the Company provided certain consulting and legal advice in connection with the special warrant offering and other operations of the Company. During the eleven months ended March 31, 2001 and the year ended April 30, 2000, the Company paid the director $94,000 and $99,000, respectively, relating to the services rendered.