---

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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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AMENDMENT NO. 2 TOFORM 20-F

(Mark One)

|/x/ | REGISTRATION STATEMENT PURSUANT TO SECTION 12() OR () OF THE SECURITIES EXCHANGE ACT OF 1934                          
|--- | ----------------------------------------------------------------------------------------------------------------------
|OR  |                                                                                                                       
|/ / | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15() OF THE SECURITIES EXCHANGE ACT OF 1934                                   
|    | For the fiscal year ended                                                                                             
|OR  |                                                                                                                       
|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period  to

Commission file number: 000-12230

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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.

|Title of each class:            |  | Name of each exchange on which registered:
|------------------------------- |  | ------------------------------------------
|Common Shares Without Par Value |  | Toronto Stock Exchange                    

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

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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: 51,931,322 as at
December 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

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---

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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.

BakBoneor theCompany: 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.

MagnaVaultorMagnaVault 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.

NetVaultorNetVault 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.

ii

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NetVault KKorNetVault 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 Ltd. 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

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GENERAL INFORMATION        TABLE OF CONTENTS

|PART I |                                                               |                                              
|------ | ------------------------------------------------------------- | ---------------------------------------------
|       | Item 1. Identity of Directors, Senior Management and Advisers |                                              
|       |                                                               | A. Directors and senior management.          
|       |                                                               | B. Advisers.                                 
|       |                                                               | C. Auditors.                                 
|       | Item 2. Offer Statistics and Expected Timetable               |                                              
|       | Item 3. Key Information                                       |                                              
|       |                                                               | A. Selected financial data.                  
|       |                                                               | B. Capitalization and indebtedness.          
|       |                                                               | C. Reasons for the offer and use of proceeds.
|       |                                                               | D. Risk factors.                             
|       | Item 4. Information on the Company                            |                                              
|       |                                                               | A. History and development of the company.   
|       |                                                               | B. Business overview.                        
|       |                                                               | C. Organizational structure.                 
|       |                                                               | D. Property, plants and equipment.           
|       | Item 5. Operating and Financial Review and Prospects          |                                              
|       |                                                               | A. Operating Results                         
|       |                                                               | B. Liquidity and Capital Resources           
|       |                                                               | C. Research and Development (R&D)            
|       |                                                               | D. Trend information.                        
|       | Item 6. Directors, Senior Management and Employees            |                                              
|       |                                                               | A. Directors and senior management.          
|       |                                                               | B. Compensation.                             
|       |                                                               | C. Board practices.                          
|       |                                                               | D. Employees.                                
|       |                                                               | E. Share ownership.                          
|       | Item 7. Major Shareholders and Related Party Transactions     |                                              
|       |                                                               | A. Major shareholders.                       
|       |                                                               | B. Related party transactions.               
|       |                                                               | C. Interests of experts and counsel.         

iv

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|         | Item 8. Financial Information                                                          |                                                                        | 47 
|-------- | -------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ---
|         |                                                                                        | A. Consolidated Statements and Other Financial Information.            |    
|         |                                                                                        | B. Significant Changes.                                                |    
|         | Item 9. The Offer and Listing.                                                         |                                                                        | 48 
|         |                                                                                        | A. Offer and listing details.                                          |    
|         |                                                                                        | B. Plan of distribution.                                               |    
|         |                                                                                        | C. Markets.                                                            |    
|         |                                                                                        | D. Selling shareholders.                                               |    
|         |                                                                                        | E. Dilution.                                                           |    
|         |                                                                                        | F. Expenses of the issue.                                              |    
|         | Item 10. Additional Information.                                                       |                                                                        | 50 
|         |                                                                                        | A. Share capital.                                                      |    
|         |                                                                                        | B. Memorandum and articles of association.                             |    
|         |                                                                                        | C. Material Contracts.                                                 |    
|         |                                                                                        | D. Exchange Controls and Other Limitations Affecting Security Holders. |    
|         |                                                                                        | E. Taxation.                                                           |    
|         |                                                                                        | F. Dividends and paying agents.                                        |    
|         |                                                                                        | G. Statement by experts.                                               |    
|         |                                                                                        | H. Documents on display.                                               |    
|         |                                                                                        | I. Subsidiary Information.                                             |    
|         | Item 11. Quantitative and Qualitative Disclosures About Market Risk.                   |                                                                        | 59 
|         | Item 12. Description of Securities Other than Equity Securities.                       |                                                                        | 59 
|PART II  |                                                                                        |                                                                       
|         | Item 13. Defaults, Dividend Arrearages and Delinquencies.                              |                                                                        | 59 
|         | Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds. |                                                                        | 59 
|         | Item 15. [Reserved]                                                                    |                                                                        | 59 
|         | Item 16. [Reserved]                                                                    |                                                                        | 59 
|PART III |                                                                                        |                                                                       
|         | Item 17. Financial Statements.                                                         |                                                                        | 60 
|         | Item 18. Financial Statements.                                                         |                                                                        | 133
|         | Item 19. Exhibits.                                                                     |                                                                        | 134

v

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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.

|Name               |  | Position                               
|------------------ |  | ---------------------------------------
|SENIOR MANAGEMENT  |  |                                        
|Keith Rickard      |  | President and Chief Executive Officer  
|John Fitzgerald    |  | Chief Financial Officer                
|Harry Brayne       |  | Managing Director                      
|Fabrice Helliker   |  | Executive Vice President of Engineering
|Andrew Unsworth    |  | Managing Director, European Operations 
|DIRECTORS          |  |                                        
|Archie Nesbitt     |  | Director                               
|Harry Brayne       |  | Director                               
|J.G. (Jeff) Lawson |  | Director                               
|Neil MacKenzie     |  | Director                               
|Keith Rickard      |  | Director                               

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:



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

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as certified for customs purposes by the Federal Reserve Bank of New York. The foreign exchange spot rate as at January 25, 2002 was $.6217.

|           |  | Year ended
March 31, 2001 |       | Year ended
April 30, 2000 |   | Year ended
April 30, 1999 |  | Year ended
April 30, 1998 |       | Year ended
April 30, 1997
|---------- |  | ------------------------- | ----- | ------------------------- | - | ------------------------- |  | ------------------------- | ----- | -------------------------
|High       |  | $                         | .6889 |                           | $ | .6969                     |  | $                         | .7055 |                          
|Low        |  | $                         | .6336 |                           | $ | .6607                     |  | $                         | .6341 |                          
|Average    |  | $                         | .6648 |                           | $ | .6795                     |  | $                         | .6651 |                          
|Period End |  | $                         | .6336 |                           | $ | .6879                     |  | $                         | .6626 |                          



|           |  | December
2001 |       | November
2001 |   | October
2001 |  | September
2001 |       | August
2001 |   | July
2001
|---------- |  | ------------- | ----- | ------------- | - | ------------ |  | -------------- | ----- | ----------- | - | ---------
|High       |  | $             | .6396 |               | $ | .6363        |  | $              | .6428 |             | $ | .6437    
|Low        |  | $             | .6254 |               | $ | .6241        |  | $              | .6325 |             | $ | .6330    
|Average    |  | $             | .6334 |               | $ | .6276        |  | $              | .6378 |             | $ | .6494    
|Period End |  | $             | .6279 |               | $ | .6363        |  | $              | .6340 |             | $ | .6330    

A. Selected financial data.

The following tables present selected financial data for the Company and its predecessor entities. The Company was effectively formed in March 2000 through
the Company's acquisition of NVS. At the time of the acquisition, BakBone was a public shell and NVS was privately owned. Since the shareholders of NVS received the greater proportion of the voting
shares of BakBone, the acquisition was accounted for as a reverse takeover whereby NVS was treated as the acquirer of BakBone for accounting purposes. This resulted in the continuation of the
financial statements of NVS with the continuation of BakBone's legal name and share capital.

Concurrent
with its acquisition of NVS, the Company acquired 100% of NetVault Holdings, a non-operating holding company, and its wholly owned subsidiary, NetVault Ltd.
and NetVault Ltd.'s 25% interest in NetVault KK. At the time of this acquisition, NetVault Holdings was a non-operating private holding company while NetVault Ltd. and
NetVault KK had substantive operations. The Company acquired an additional 22% of NetVault KK in a separate transaction, bringing the total ownership in NetVault KK to 47%. Accordingly, the operating
entities acquired, NetVault Ltd. and NetVault KK, are considered predecessor entities for financial reporting purposes. For further information about these transactions, see Item 4.A,
"History and Development of the Company."

Although
the consolidated financial statements are presented as of the year ended April 30, 2000, they reflect only two months of operations (March and April) because NVS had no
operations prior to March 2000.

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. because NetVault Ltd. had no operations prior to April 30, 1998. NetVault Ltd. commenced operations on
April 30, 1998, the date that it acquired the NetVault Software. Therefore, there are no stand-alone operating results or financial statements prior to April 30, 1998 for
NetVault Ltd. Selected financial data are not presented for 1997 for NetVault KK because the company was not incorporated until February 1998.

The
predecessor data presented below were translated from the local currency for both entities, Great British Pounds and Japanese Yen for NetVault Ltd. and NetVault KK,
respectively, to Canadian dollars and the resulting financial statements were combined for the periods presented in the following tables. In preparing the combined information, revenues recorded by
NetVault Ltd. for sales of software to NetVault KK as well as the related cost of revenues recorded by NetVault KK for the software purchased from NetVault Ltd. were eliminated to
provide comparisons to the Company's post

7

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acquisition revenues and cost of revenues as these intercompany transactions are eliminated upon consolidation.

Both
predecessor entities' 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. 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 the Company and a reconciliation to U.S. GAAP of net loss for the year ended
April 30, 2000 and the eleven months ended March 31, 2001, is included in Note 15 to our consolidated financial statements included in this registration statement.

The
following selected financial data 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.

|                                      |  | The Company
Eleven Months
Ended
March 31,
2001 |         | The Company
Year Ended
April 30,
2000 |   | Combined
Predecessors
Two Months
Ended
February 29,
2000 |   | Combined
Predecessors
Year Ended
December 31,
1999 |     | Combined
Predecessors
Period Ended
December 31,
1998 |  
|------------------------------------- |  | ---------------------------------------------- | ------- | ------------------------------------- | - | -------------------------------------------------------- | - | -------------------------------------------------- | --- | ---------------------------------------------------- | -
|
|Selected Statement of Operations Data | 
|Canadian GAAP:                        |  |                                                |         |                                       |   |                                                          |   |                                                    |     |                                                      |  
|Revenues                              |  | $                                              | 7,529   |                                       | $ | 483                                                      |   | $                                                  | 560 |                                                      | $
|Cost of revenues                      |  |                                                | 1,187   |                                       |   | 51                                                       |   |                                                    | 94  |                                                      |  
|                                      |  |                                                |         |                                       |   |                                                          |   |                                                    |     |                                                      |  
|Gross profit                          |  |                                                | 6,342   |                                       |   | 432                                                      |   |                                                    | 466 |                                                      |  
|Operating expenses                    |  |                                                | 35,170  |                                       |   | 1,823                                                    |   |                                                    | 359 |                                                      |  
|                                      |  |                                                |         |                                       |   |                                                          |   |                                                    |     |                                                      |  
|Income (loss) from operations         |  |                                                | (28,828 | )                                     |   | (1,391                                                   | ) |                                                    | 107 |                                                      |  
|Other (income) expense                |  |                                                | 3,889   |                                       |   | (77                                                      | ) |                                                    | 14  |                                                      |  
|                                      |  |                                                |         |                                       |   |                                                          |   |                                                    |     |                                                      |  
|Net income (loss)                     |  | $                                              | (32,717 | )                                     | $ | (1,314                                                   | ) | $                                                  | 93  |                                                      | $
|                                      |  |                                                |         |                                       |   |                                                          |   |                                                    |     |                                                      |  
|Net loss per sharebasic and diluted  |  | $                                              | (0.92   | )                                     | $ | (0.14                                                    | ) |                                                    | N/A |                                                      |  
|                                      |  |                                                |         |                                       |   |                                                          |   |                                                    |     |                                                      |  

8

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|                                     |  | The Company
Eleven Months
Ended
March 31,
2001 |         | The Company
Year Ended
April 30,
2000 |  
|------------------------------------ |  | ---------------------------------------------- | ------- | ------------------------------------- | -
|
|U.S. GAAP:                           |  |                                                |         |                                       |  
|Revenues                             |  | $                                              | 4,907   |                                       | $
|Cost of revenues                     |  |                                                | 977     |                                       |  
|                                     |  |                                                |         |                                       |  
|Gross profit                         |  |                                                | 3,930   |                                       |  
|Operating expenses                   |  |                                                | 65,440  |                                       |  
|                                     |  |                                                |         |                                       |  
|Income (loss) from operations        |  |                                                | (61,510 | )                                     |  
|Other (income) expense               |  |                                                | (445    | )                                     |  
|                                     |  |                                                |         |                                       |  
|Net income (loss)                    |  | $                                              | (61,065 | )                                     | $
|                                     |  |                                                |         |                                       |  
|Net loss per sharebasic and diluted |  | $                                              | (2.45   | )                                     | $
|                                     |  |                                                |         |                                       |  

|                               |  | The Company
March 31,
2001 |        | The Company
April 30,
2000 |   | Combined
Predecessors
February 29,
2000 |  | Combined
Predecessors
December 31,
1999 |       | Combined
Predecessors
December 31,
1998 |  
|------------------------------ |  | -------------------------- | ------ | -------------------------- | - | --------------------------------------- |  | --------------------------------------- | ----- | --------------------------------------- | -
|
|Selected Balance Sheet Data:   | 
|Canadian GAAP:                 |  |                            |        |                            |   |                                         |  |                                         |       |                                         |  
|Working capital (deficit)      |  | $                          | (304   | )                          | $ | 29,357                                  |  | $                                       | (766  | )                                       | $
|Long-term assets               |  |                            | 20,417 |                            |   | 5,072                                   |  |                                         | 449   |                                         |  
|Total assets                   |  |                            | 29,573 |                            |   | 37,316                                  |  |                                         | 2,084 |                                         |  
|Long-term liabilities          |  |                            | 675    |                            |   |                                        |  |                                         |      |                                         |  
|Shareholders' equity (deficit) |  |                            | 19,280 |                            |   | 34,429                                  |  |                                         | (316  | )                                       |  



|                          |  | The Company
March 31,
2001 |        | The Company
April 30,
2000
|------------------------- |  | -------------------------- | ------ | --------------------------
|
|U.S. GAAP:                |  |                            |        |                           
|Working capital (deficit) |  | $                          | (1,774 | )                         
|Long-term assets          |  |                            | 24,519 |                           
|Total assets              |  |                            | 31,179 |                           
|Long-term liabilities     |  |                            | 379    |                           
|Shareholders' equity      |  |                            | 22,366 |                           

9

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B. Capitalization and indebtedness.

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

Current portion of long-term debt

$
4,472Long-term debt


410Total debt

$
4,882Shareholders' equity(1)Common shares, 51,931,322 issued and outstanding

$
75,989Accumulated deficit


(53,216
)Cumulative exchange adjustment


690Total shareholders' equity

$
23,463Total capitalization

$
28,345


---

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:



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.

10

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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.

Our
primary competitors and their products are:

Veritas Software

NetBackup, BackupExecLegato Systems

NetWorker, SmartMedia, CelestraHewlett Packard

OmnibackIBM

Tivoli Storage Manager, ADSMComputer Associates

ARCServe, AlexandriaEMC

EDM (software only)


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:



11

---



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:



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.

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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 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.

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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:



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

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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 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

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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 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:



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.

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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."

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
the Fall of 1999, Patrick Barcus and Anthony Cerqueira, the principals of NVS and NetVault KK, negotiated a transaction in which NVS received the right to acquire NetVault Holdings.
NetVault Holdings was a non-operating shell company that owned the NetVault Software through its wholly owned subsidiary, NetVault Ltd. At the time of the NVS transaction, NetVault
Holdings was privately owned by a group of citizens of the United Kingdom, all of whom agreed that, upon completion of the acquisition, they would surrender their ownership interests in NetVault
Holdings in exchange for $4.5 million in cash. Prior to the acquisition, NetVault Ltd. was engaged in the development and sale of the NetVault Software in Europe. In addition,
NetVault Ltd. had a distribution agreement with NetVault KK allowing NetVault KK to sell and distribute the NetVault Software throughout Asia in exchange for a per unit royalty payment.

17

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In
the Spring of 2000, Barcus and Cerqueira approached BakBone to provide a public vehicle to finance the proposed acquisition of NetVault Holdings. In the transaction, BakBone agreed to
issue its Common Shares in order to acquire (i) NetVault Holdings, (ii) NetVault Holdings' wholly owned subsidiary NetVault Ltd., and (iii) NetVault Ltd.'s 25%
ownership interest in NetVault KK.

In
March 2000, BakBone completed the acquisition of NVS and issued 13,525,000 Common Shares in exchange for all of the common shares of NVS. At the time of the acquisition,
BakBone was a "shell" companya public company without material operations whose stock was traded publicly in Canadaand NVS was a privately owned holding company that held the
contractual right to acquire NetVault Holdings. Since the shareholders of NVS received the greater proportion of the voting shares of BakBone, the transaction was accounted for as a reverse
acquisition whereby NVS was treated as the acquirer of BakBone for accounting purposes.

Concurrent
with the BakBone-NVS transaction, NVS acquired NetVault Holdings, NetVault Holdings' wholly owned subsidiary NetVault Ltd., and NetVault Ltd.'s 25%
interest in NetVault KK in exchange for $4.5 million in cash. At the time of this acquisition, NetVault Holdings was a non-operating private shell while NetVault Ltd. and
NetVault KK had substantive operations.

In
conjunction with the acquisition of NetVault Holdings, we issued an additional 2,100,000 Common Shares to an employee benefit trust set up to retain certain key NetVault Ltd.
personnel.

In
a separate transaction, concurrent with the acquisition discussed above, 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%. Of the 53% interest in NetVault KK that we did not acquire, 46% is owned by Barcus and the remaining 7% is owned by a Japanese citizen who was a
principal of NetVault KK prior to the March 2000 acquisitions.

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. Prior to the acquisition, Tracer was engaged in the development and sale of the MagnaVault Software in the United States and throughout Asia, through a distribution agreement
with Tracer KK. The acquisition of Tracer provided an accelerated research and development capability 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.

We
acquired 100% of Tracer and its 50% ownership interest in Tracer KK in exchange for cash and acquisition costs totaling $3.5 million, 600,000 Common Shares and an additional
250,000 options to acquire Common Shares in order to retain four principals of Tracer. Prior to the acquisition, Tracer was a privately held company of which Barcus and certain of his family members
held partial ownership. The remaining 50% of Tracer KK is owned one-half by Barcus and one-half by a Japanese citizen who was a principal of Tracer KK prior to the acquisition
and who remains an employee of Tracer KK.

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 during the last and current financial year.

B. Business overview.

BakBone develops and markets high-performance storage management software designed for the network storage and open systems markets. Our goal is to
become the leader in the field of storage

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management software through our two primary products: NetVault and MagnaVault, which are described in detail below. Our solutions are intended to deliver greater productivity and benefits to our
customers, while embracing leading edge storage technologies. We strive to provide network
administrators with products that contain a broader array of features, and that are easier to use, than the software packages that typically come bundled with network storage hardware. Corporations
will purchase our products if they accept the proposition that our software packages provide a better combination of performance and value than the other alternatives in the marketplace.

NetVault

NetVault is a backup and recovery software that permits computer network administrators to maintain "backup" copies of documents, data, images and records so that
they may be restored for access if files are lost or corrupted or in the event of a future catastrophic local server or network failure. NetVault addresses the growing data storage needs of systems
administrators across a wide range of storage topologies, including: DAS, SAN, NAS, LAN and WAN. NetVault's scalable, modular architecture meets the challenges of storage management for a wide variety
of applications, including the most popular databases used by firms worldwide including, but not limited to: Oracle, SQL, Sybase and Microsoft Exchange.

NetVault
is a fully functional software suite that offers several advantages over competitive products (such as Veritas' NetBackup and Legato's Networker). Over the last two years,
NetVault has been completely re-architected to allow for the rapid, seamless integration of new features. From a business standpoint, this gives BakBone a faster time to market in our
dynamically changing industry. From a user's standpoint, it allows for the addition of new features and enhancements without adding significant administrative burden.

Another
key advantage of NetVault is its industry recognized speed of installation and ease of use. NetVault can be installed in a complex SAN environment in as little as six minutes
while many of our competitors' products can take several days to a week or more for a complete installation. Once installed, NetVault is operated from a single central graphic user interface (GUI)
console. The GUI provides for point and click operation of NetVault whereas some competitive products require the user to key in specific commands, a skill that may require extensive training and
additional costs to the operation of the software once installed.

Also
central to the success of NetVault are its APMs. The primary benefit of these modules is that they allow "hot backup" of applications, meaning that user databases remain
online during backup operations, assuring zero downtime of the users systems. BakBone leads the industry in application interoperability with over 270 APMs, each providing for unique configurations.
Bringing the product offering into the broader storage software market definition are also APMs that address disaster recovery and open file management.

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

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MagnaVault

MagnaVault is our comprehensive secondary storage (or "near-line") archival storage management software for UNIX and Linux host operating
environments. MagnaVault is a suite of device driver, robottic management, file systems, migration and web-based management software designed for seamless integration of CD, DVD and MO
optical drive and library technologies. MagnaVault allows an optical library to appear as a standard file system, offering transparent user access to archived data for any existing application or
database. Users can browse the contents of an optical library as if the files were on a hard drive, transparently scheduling access to media within the optical library file system environment.

MagnaVault
includes a browser-based Web interface for easy administration from any internet connection, along with a command line and application programmers interface (API) toolkit.
MagnaVault includes powerful virtual file system capabilities that enable spanning of data across media surfaces, libraries and storage servers, while providing data and media interchange between
unlike host environments. MagnaVault is designed to maximize the performance and utility of all types of secondary optical storage media, and provides transparent file system access to both NFS (Unix)
and CIFS (Windows) clients.

MagnaVault
offers a wide range of media and device support for most of today's major manufacturers, including Asaca, DISC, HP, Hitachi, JVC, Kubota, Panasonic, Pioneer, Plasmon, Sony and
Toshiba. Ongoing relationships and procedures are in place that are designed to provide a continuous stream of technology upgrades for future MagnaVault product features. BakBone participates in
numerous industry forums and interest groups with the intention of ensuring that MagnaVault will continue to maintain relevance and utility into the future archival storage market niche.

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

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 Latin America.

Target Markets

BakBone's products can be used in virtually any industry where there is a need for electronic data or images to be backed up, archived or prepared for disaster
recovery. The environments covered within those industries range from workgroup, to departmental, to enterprise wide. More specifically within those environments, BakBone products are targeted to
network storage, a market projected to constitute 71% of all storage by the year 2005, according to an IDC December 2000 report. The growth of network storage is in part due to the emergence of
NAS and SAN solutions, for which BakBone products are ideally suited.

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Technology Alliances

One of BakBone's key areas of focus is working with complementary storage software and hardware vendors to assure smooth operation of our software with other
solution devices. BakBone maintains an interoperability laboratory that is populated with an extensive array of hardware and software from all the leading storage vendors. To date, over 500
configurations have been tested and certified with BakBone software. Certified hardware includes drives and libraries including, but not limited to: Hewlet Packard, Hitachi, IBM, Panasonic,
Quantum/ATL, Seagate, Sony, and StorageTek as well as the full range of smaller storage manufacturers.

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):

|               |            | Eleven months
ended March 31,
2001 |       | Year ended
April 30,
2000
|-------------- | ---------- | ---------------------------------- | ----- | -------------------------
|Revenues       |            |                                    |       |                          
|               | Licensing: |                                    |       |                          
|               |            | NetVault                           |       | $                        
|               |            | MagnaVault                         |       |                          
|               |            |                                    |       |                          
|               |            |                                    | Total |                          
|               |            |                                    |       |                          
|               | Services:  |                                    |       |                          
|               |            | NetVault                           |       |                          
|               |            | MagnaVault                         |       |                          
|               |            |                                    |       |                          
|               |            |                                    | Total |                          
|               |            |                                    |       |                          
|               | Other      |                                    |       | 10                       
|               |            |                                    |       |                          
|Total revenues |            | $                                  | 7,529 |                          
|               |            |                                    |       |                          

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

|               |            | Eleven months
ended March 31,
2001 |       | Year ended
April 30,
2000
|-------------- | ---------- | ---------------------------------- | ----- | -------------------------
|Revenues       |            |                                    |       |                          
|               | Licensing: |                                    |       |                          
|               |            | Europe                             |       | $                        
|               |            | Asia                               |       |                          
|               |            | North America                      |       |                          
|               |            |                                    |       |                          
|               |            |                                    | Total |                          
|               |            |                                    |       |                          
|               | Services:  |                                    |       |                          
|               |            | Europe                             |       |                          
|               |            | Asia                               |       |                          
|               |            | North America                      |       |                          
|               |            |                                    |       |                          
|               |            |                                    | Total |                          
|               |            |                                    |       |                          
|               | OtherAsia |                                    |       | 10                       
|               |            |                                    |       |                          
|Total revenues |            | $                                  | 7,529 |                          
|               |            |                                    |       |                          

Seasonality; Dependence on Raw Materials

Our software business is not seasonal. 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.

OEM and bundling agreements

To date, our main form of product distribution has been through our VAR and VAD partners. In recent months, however, we have signed agreements with OEM and
bundling partners creating an additional form of product distribution. OEM and bundling allow us to distribute a limited version of our storage management software with complementary software and
hardware solutions offered by other vendors. In addition to providing an additional source of distribution for our products, these agreements show third party support and validation of our product in
the competitive storage management markets as these agreements are exclusive to our software as the backup solution offered by the OEM and bundle partners.

In
OEM and bundling relationships, we generally receive a nominal per unit fee for each unit of our product that is shipped with the OEM or bundling partners' products. These fees are
established predominantly to recoup the costs of running the related program. The material revenue impact for the Company comes in the form of upgrade opportunities where an end user that receives our
OEM or bundled product makes a purchase decision to upgrade to a fully functional version of our product. Upgrade sales are passed through our VAR and VAD partners, as with all other of our licensing
sales, and the customer is charged by the reseller based on our master price list.

OEM and bundling revenues from the related agreements have not been a material source of revenues to date. Management believes that the existing unit sales data relating to OEM and
bundling agreements are not adequate to provide a basis for projecting revenue from upgrades. In addition, the related upgrade rate for products already shipped can not yet be relied upon as a basis
of projecting upgrade revenue. To date, the Company has not realized material revenues and does not expect these agreement directly to generate material revenues. Revenues may result in the future
because this agreement facilitates the distribution of our product to end users who may (or may not) make a

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purchase decision to upgrade to a more fully functional version of the NetVault Software. The point of achieving material revenues cannot be predicted at this time as these relationships are in their
initial stages and reliable sales information for these relationships does not exist. Because these relationships do not yield material revenue, we believe that these are not material agreements and
therefore we have not filed the agreements with this Form 20-F.

The
following is a discussion of the OEM and bundling agreements currently in place.



In April 2001, we signed a bundling agreement with Turbolinux Japan under which the version 6.5 of Turbolinux is bundled with a customized copy of
NetVault. In Japan, Turbolinux is a version of the Linux operating system generally preferred by small and mid-sized companies. Distribution of the product is handled either through
Turbolinux's distributors or on a retail level through computer shops. For each of the bundled Turbolinux/NetVault units shipped, BakBone receives a nominal fee set forth in the agreement. Upgrade
opportunities for this product are somewhat less than for our other OEM and bundled products as users of Turbolinux typically do not have large systems that would require additional functionality for
the bundled NetVault software.



In May 2001, we entered into an OEM agreement with Seagate RSS that allows Seagate to include 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. This is an exclusive agreement between Seagate and BakBone
and allows for only BakBone software to be shipped with all Seagate Viper 200 and Viper 2000 hardware units. Shipments of Seagate units containing our product started in June 2001.

Seagate
sells their equipment through distributors and resellers. The Seagate bundling programs create significant opportunities for sales upgrades 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.



In September 2001, we entered into an agreement with Disc which allows Disc to distribute a private-labeled version of our MagnaVault software for
UNIX-based optical storage management. We created the private-labeled software to Disc's specifications and end users receiving the software with Disc's hardware are unaware that the
underlying software code is MagnaVault. We receive a nominal per unit fee for each unit shipped by Disc and, like Seagate, upgrade sales as well as sales leads are expected to result from this
agreement. Upgrade sales will be made directly through Disc and Disc will provide all first-line support for end users.

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.

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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.

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.

24

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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.

LOGO

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):

Cost

Accumulated
depreciation

Net book
valueComputer equipment and software

$
4,929

$
712

$
4,217Furniture and fixtures


738


73


665Leasehold improvements


1,078


69


1,009$
6,745

$
854

$
5,891


25

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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:

|LOCATION                                                                                                 |  | SQ. FT. |  | LEASE
COMMENCEMENT
DATE |  | LEASE
EXPIRATION
DATE            |  | USE OF
PROPERTY                           
|-------------------------------------------------------------------------------------------------------- |  | ------- |  | ----------------------- |  | -------------------------------- |  | ------------------------------------------
|Corporate Office
10145 Pacific Heights Blvd.
Suite 900
San Diego, CA 92121                               |  | 12,500  |  | August 14, 2000         |  | June 30, 2006                    |  | Administration
Development
Sales
Marketing
|Corporate Office
10147 Pacific Heights Blvd.
Suite 300
San Diego, CA 92121                               |  | 12,500  |  | October 1, 2001         |  | October 1, 2006                  |  | Administration                            
|Corporate Apartment
10986 W Ocean Air Drive
Apt. 377
San Diego, CA 92130                                 |  | 1,250   |  | May 3, 2000             |  | May 31, 2001
Month to Month      |  | Out of town
Employee Visits to Corp.      
|Beltsville, MD Office
11785 Beltsville Drive
Beltsville, MD 20705                                        |  | 7,727   |  | December 1, 2001        |  | May 1, 2004                      |  | Development
Sales                         
|Temecula, CA Sales Office
41690 Enterprise Circle North
Suite 200N
Temecula, CA                          |  | 184     |  | May 1, 2001             |  | October 31, 2001
Month to Month  |  | Sales                                     
|Munich Germany Sales Office
Regus Centre Arnulfstrasse 27
Munich, Germany 80335                          |  | 300     |  | September 1, 2000       |  | December 31, 2000
Month to Month |  | Sales                                     
|United Kingdom Office
Merck House
2nd Floor
Seldown Road
Poole, Dorset                                   |  | 7,853   |  | July 1, 2000            |  | June 30, 2005                    |  | Development
Administration
Sales
Marketing
|Japan Office
Shinjuku Daiichi-seimei bldg. 11F
No.7-1,
Nishi-Shinjuku, Shinjuku-ku
Tokyo, Japan 163-0071 |  | 5,988   |  | September 1, 2000       |  | August 31, 2002                  |  | Administration
Development
Sales
Marketing

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

26

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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. 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.

A. Operating Results

In March 2000, we completed the acquisition of NVS and issued 13,525,000 Common Shares in exchange for the common shares of NVS. At the time of the
acquisition, BakBone was a public shell and NVS was a privately owned holding company. Since the shareholders of NVS received the greater proportion of the voting shares of BakBone, the acquisition
was accounted for as a reverse acquisition whereby NVS was treated as the acquirer of BakBone for accounting purposes.

Concurrent
with the reverse acquisition, the merged entity, BakBone, acquired NetVault Holdings, NetVault Holdings' wholly owned subsidiary NetVault Ltd., and
NetVault Ltd.'s 25% interest in NetVault KK for $4.5 million in cash. At the time of this acquisition, NetVault Holdings was a non-operating private holding company while
NetVault Ltd. and NetVault KK had substantive operations.

The
following discussions include the operations of the Company since the acquisitions, specifically the year ended April 30, 2000 and the eleven months ended March 31,
2001. For purpose of this discussion, the year ended April 30, 2000 will be referred to as the two months ended April 30, 2000 as the year contributed only two months of operations due
to the nature of the acquisition.

27

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The
following discussions also focus on our predecessor entities NetVault Ltd. and NetVault KK as these acquired entities had operations prior to the acquisitions. On
April 30, 1998, NetVault Ltd. commenced operations upon acquiring the NetVault Software. NetVault KK was incorporated and commenced operations in February 1998.

The
operating results for NetVault Ltd. and NetVault KK have been converted from their local currencies to Canadian dollars and combined for comparison reasons for the years ended
December 31, 1998 and 1999 as well as for the two months ended February 29, 2000. In preparing the combined information, revenues recorded by NetVault Ltd. for sales of software
to NetVault KK as well as the related cost of revenues recorded by NetVault KK for the purchased software were eliminated. These eliminations were made for each of the predecessor periods presented
below to provide a basis of
comparison to the Company's post acquisition revenues and cost of revenues as these intercompany transactions are eliminated by the Company upon consolidation.

The
following discussions exclude NVS and NetVault Holdings as neither of these companies had operations prior to the March 2000 acquisitions.

Our operating results for the eleven months ended March 31, 2001 compared to the two months ended April 30, 2000.

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. Comparatively, revenues for the two months ended April 30, 2000 were $483,000, consisting of $350,000 in licensing revenue,
$122,000 in services revenue and $11,000 in other revenues. As the results for the two months ended April 30, 2000 period consists of only two months of operations, total revenues do not
provide a comparable basis of analysis. To provide a basis of comparison, the following analysis of licensing and services revenues focuses on individual revenues as a percent of total revenues for
each of the applicable periods as well as an analysis of average monthly revenues.

Licensing Revenues

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. Geographic segments during the two months
ended April 30, 2000 consisted of Asia and Europe which provided $304,000 and $46,000 of licensing revenues, respectively.

During
the eleven months ended March 31, 2001 and the two months ended April 30, 2000, our Asian operations provided 60% and 87% of total licensing revenues, respectively.
The decrease in the revenue mix for the Asian operations is due to strong growth in our European sales of NetVault as well as the addition of the North American segment during the eleven months ended
March 31, 2001. Average monthly licensing revenues for the Asian region for the eleven months ended March 31, 2001 were $346,000 compared to $152,000 for the two months ended
April 30, 2000. This increase in average monthly licensing revenues during the eleven months ended March 31, 2001 is due to increased acceptance of the NetVault Software in Japan as well
as expansion into new markets. As of March 31, 2001, Asian sales efforts were directed from one office in Tokyo, Japan, and covered all of Asia, Australia and New Zealand as opposed to a focus
on Japan only during the two months ended April 30, 2000.

During
the eleven months ended March 31, 2001 and the two months ended April 30, 2000, our North American operations provided 30% and 0% of total licensing revenues,
respectively. The increase consisted of the Company's first year of sales of both NetVault and MagnaVault in North

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America. 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 also focused on the existing MagnaVault customer base as a source of NetVault sales leads.

During
the eleven months ended March 31, 2001 and the two months ended April 30, 2000, our European operations provided 10% and 13% of total licensing revenues,
respectively. These revenues resulted almost entirely from sales of NetVault and were generated from our sales office in Poole, Dorset, United Kingdom. Average monthly licensing revenues for the
European operations for the eleven months ended March 31, 2001 were $55,000 compared to $23,000 for the two months ended April 30, 2000. The increase in average monthly licensing
revenues is attributable to expansion into new areas of Europe, the Middle East and Africa during the eleven months ended March 31, 2001.

In
addition, sales related to our NCR Teradata agreement, dated May 1999, commenced for our European operations in March 2000 after development of the NetVault
plug-in application was completed. NCR sales through March 31, 2001 were predominantly in the European market but management expects significant expansion into the Asian and North
American markets during our fiscal year ending March 31, 2002.

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 the demand in these regions is strong and
that we offer a competitive product to those already in the market.

Services Revenues

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.

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. During the two months ended April 30, 2000, service revenues generated in the European and Asian regions were 74% and 26%, respectively.

The
decline in the percentage of service revenues for the European region during the eleven months ended March 31, 2001 is partially a result of the June 2000 Tracer
acquisition which provided a substantial support base in North America. Average monthly service revenues for the European region for the eleven months ended March 31, 2001 were $38,000 compared
to $45,000 for the two months ended April 30, 2000. The decrease in average monthly services revenues is due to the transfer of support customers located in North America from the European
region to the new North America support operations established during the eleven months ended March 31, 2001

Asian
service revenues have remained constant as a percent of total service revenues, but have grown in terms of total dollars. Average monthly service revenues during the eleven months
ended March 31, 2001 were $27,000 compared to $16,000 for the two months ended April 30, 2000. The increase in average monthly service revenues is due to the addition of Tracer KK in
June 2000 and

29

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growing first time sales of support services in the region during the eleven months ended March 31, 2001.

As
of March 31, 2001, 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 and $51,000 or 16% and 11% of total revenues during the eleven months ended March 31, 2001 and the two months
ended April 30, 2000, respectively. These costs consisted primarily of the direct cost of providing customer support including salary and benefits of 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. The increase in
cost of revenues as a percentage of total revenues during the eleven months ended March 31, 2001 is due to the Company's efforts to improve customer support worldwide by hiring additional
support personnel to meet the support demands of growing sales worldwide.

Also
included in cost of revenues are the direct costs of raw materials and packaging for the products shipped to customers. 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 totaled $17.3 million and $438,000 or 230% and 91% of total revenues during the eleven months ended March 31, 2001 and
the two months ended April 30, 2000, respectively. The increase in sales and marketing expenses as a percentage of total revenues was primarily due to costs incurred during the eleven months
ended March 31, 2001 necessary to expand our worldwide sales force by 34 personnel to 51 at March 31, 2001 from 17 at April 30, 2000. The additional costs incurred in the
expansion of our sales force during the eleven months ended March 31, 2001 included: salary and benefits, commissions, travel and equipment charges.

The
increase in headcount was due to the hiring of a substantial number of new sales professionals in North America 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 than in North America, 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 storage management software.

Our
efforts to introduce NetVault and promote MagnaVault in North American during the eleven months ended March 31, 2001 led to substantial spending in advertising and public
relations. In addition, we attended an increased number of 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 configurations our products support.

30

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Research and Development Expenses

Research and development expenses totaled $4.4 million and $276,000 or 59% and 57% of total revenues during the eleven months ended March 31, 2001
and the two months ended April 30, 2000, respectively. While the percent of revenues devoted to research and development efforts has remained
constant, absolute dollars spent have increased between the periods due to the addition of engineers in the North American region during the eleven months ended March 31, 2001.

Our
research and development expenses consist primarily of salary and related costs for our worldwide engineering staff which grew to 70 personnel as of March 31, 2001 from 24 as
of April 30, 2000. 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.

Research
and development expenses also increased during the eleven months ended March 31, 2001 due to 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, we are focusing our development expenditures on upgrading MagnaVault as well
as creating a single software platform that will integrate NetVault and MagnaVault into one solution.

General and Administrative Expenses

General and administrative expenses totaled $13.4 million and $1.1 million or 178% and 230% of total revenues during the eleven months ended
March 31, 2001 and for the two months ended April 30, 2000, respectively. The decrease in general and administrative expenses as a percentage of total revenues was a function of revenue
growth during the eleven months ended March 31, 2001 as many of the general and administrative costs are fixed costs. Thus as revenues increase, general and administrative expenses as a
percentage of total revenues decrease.

General
and administrative costs increased in total dollars during the eleven months ended March 31, 2001 due to the addition of executive management and administrative personnel
and the related costs of running a worldwide public company.

General
and administrative expenses consist primarily of salary and related costs for our 41 executive and administrative employees throughout our worldwide offices as of
March 31, 2001, which grew from 12 employees as of April 30, 2000. In addition, our offices also incurred additional expenses during the eleven months ended March 31, 2001 for:
facility rents, build-out and depreciation, maintenance and other related costs. As of March 31, 2001 our facilities consisted of 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 increased legal fees over the two months ended April 30, 2000 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. During this period, 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 totaled $4.8 million and $241,000 or 64% and 50% of total revenues for the eleven months ended March 31, 2001 and the
two months ended April 30, 2000, respectively. 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 estimated

31

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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.

Our operating results for the two months ended April 30, 2000 compared to combined predecessor company operating results for the two months ended
February 29, 2000.

Revenues

Revenues decreased $77,000 or 14% to $483,000 for the two months ended April 30, 2000 from $560,000 for the two months ended February 29, 2000. The
decrease in revenues is primarily due to NetVault Ltd. experiencing a lower sales volume post acquisition while the entity underwent personnel changes and assimilation into the new consolidated
entity, BakBone. Revenues during the two months ended February 29, 2000 and the two months ended April 30, 2000 for NetVault KK were consistent. There were no revenues from our North
American region in either of these periods as our sales efforts for North America were not established until July 2000.

Cost of revenues

Cost of revenues totaled $51,000 and $94,000, or 11% and 17% of total revenues, for the two months ended April 30, 2000 and the two months ended
February 29, 2000, respectively. The decrease in cost of revenues as a percentage of total revenues in the two months ended April 30, 2000 is primarily due to decreased customer service
costs post acquisition for NetVault Ltd. and NetVault KK due to personnel movement within the companies after the March 2000 acquisition.

Operating expenses

Operating expenses increased $1.4 million or 408% to $1.8 million during the two months ended April 30, 2000 from $359,000 during the two
months ended February 29, 2000. The operating expenses for NetVault Ltd. and NetVault KK increased 32% and 59%, respectively, or a combined $144,000 between the periods due to the hiring
of additional employees post acquisition. The remainder of the increase in operating expenses came from the establishment of our North American operations. These costs included the hiring of an
executive team as well as engineers and administrative personnel, the costs of opening a new office in San Diego, California, and other corporate level costs associated with a public entity that were
not experienced during the two months ended February 29, 2000.

Combined predecessor company operating results for the two months ended February 29, 2000 compared to the year ended December 31,
1999.

Revenues

Revenues for the two months ended February 29, 2000 were $560,000 compared to $3.8 million for the year ended December 31, 1999. In order to
compare these two periods, revenues for the two months ended February 29, 2000 annualized approximates annual revenues of $3.4 million. This comparison results in an 11% decrease from
the revenues during the year ended December 31, 1999. This decrease is mostly attributable to a general slow down in business for NetVault Ltd. during the first two months of 2000 that
did not continue into future months.

32

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Cost of revenues

Cost of revenues totaled $94,000 and $1.1 million, or 17% and 29% of total revenues, for the two months ended February 29, 2000 and the year ended
December 31, 1999, respectively. The decrease in cost of revenues as a percentage of total revenue is entirely attributable to NetVault Ltd., as NetVault KK had a consistent level of
costs of revenues as a percentage of total revenues during both periods. NetVault Ltd. implemented cost reduction measures in client support services during the two months ended
February 29, 2000 after it incurred increased costs in client support during fiscal 1999.

Operating expenses

Operating expenses totaled $359,000 and $2.3 million, or 64% and 61% of total revenues, for the two months ended February 29, 2000 and the year
ended December 31, 1999, respectively. Although operating expenses as a percentage of total revenues was consistent between periods, NetVault KK experienced a decrease and NetVault Ltd.
experienced an increase in these expenses as a percent of revenues, respectively. NetVault KK decreased operating expenses through savings in the area of marketing and administrative expenses in an
attempt to improve profitability. NetVault Ltd. had a comparable level of spending between the periods in terms of dollars spent; however, their percentage of total revenues increased due to
declining revenues in the two months ended February 29, 2000 as discussed above.

Combined predecessor company operating results for the year ended December 31, 1999 compared to the period ended December 31,
1998.

Revenues

Revenues increased $1.8 million, or 95%, from $2.0 million for the period ended December 31, 1998 to $3.8 million for the year ended
December 31, 1999. The increase in revenues consisted of a 195% increase for NetVault KK and a 76% increase for NetVault Ltd. between the periods. NetVault KK experienced growth
throughout the Pacific Rim with the most dramatic growth in sales in Japan. NetVault KK's increased sales were attributable to greater acceptance of the NetVault product and the growth in the number
of channel partners during 1999. In addition, NetVault KK commenced operations in February 1998; thus 1998 represents only ten sales months of operations, compared to a full year in 1999.

NetVault Ltd.
experienced significant growth throughout the United Kingdom and Europe as a result of increased acceptance of the NetVault Software in the market.
NetVault Ltd. also experienced a full year of sales in 1999 as compared to only eight months of operations in 1998 as NetVault Ltd. commenced operations in May 1998.

Cost of revenues

Cost of revenues totaled $454,000 and $1.1 million, or 23% and 29% of total revenues, for the period ended December 31, 1998 and the year ended
December 31, 1999, respectively. The increase in cost of revenues as a percentage of total revenues between the two periods is primarily attributable to NetVault Ltd. as NetVault KK
experienced a decrease in cost of revenues as a percent of total revenues due to rapid sales growth during 1999.

During
the year ended December 31, 1999, NetVault Ltd. increased staffing and other expenditures in the area of client services in advance of perceived sales growth. The
fixed costs of client service salaries and benefits was not recovered by revenue growth as anticipated as revenue growth did not meet the company's expectations for the period. As discussed above,
NetVault Ltd. took corrective action to control and reduce cost of revenues beginning in the two months ended February 29, 2000.

33

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Operating expenses

Operating expenses totaled $2.7 million and $2.3 million, or 137% and 61% of total revenues, for the period ended December 31, 1998 and the
year ended December 31, 1999, respectively. Approximately one third of the $400,000 decrease in expenses between the periods is attributable to NetVault KK with the remaining two thirds coming
from NetVault Ltd. The cost savings noted for both companies resulted from reduced operating costs in many areas as both companies focused on cost containment measures.

34

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B. Liquidity and Capital Resources

Company results during the eleven months ended March 31, 2001 and for the year ended April 30, 2000.

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
Series A Special Warrant was converted to one common share and one-half Series A share purchase warrant and each Series B Special Warrant was
converted to 1.1 common share and 0.55 Series B 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 was $26.9 million and $811,000 during the eleven months ended March 31, 2001 and the year ended April 30, 2000, respectively.
Cash used in operating activities during the year ended April 30, 2000 resulted from a net loss of $1.3 million partially offset by non-cash depreciation and amortization of
$271,000. Other operating activities providing a significant source of cash during the year ended April 30, 2000 were the increase in accrued liabilities of $666,000 and the decrease in
accounts receivable of $67,000. Uses of cash during the year ended April 30, 2000 included an increase in other assets of $228,000 and a decrease in accounts payable of $287,000.

Cash
used in operating activities during the eleven months ended March 31, 2001 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 during the eleven months ended March 31, 2001 included increases in accounts
receivable of $663,000 and other assets of $943,000 and those 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.

The
increase in cash used in operating activities of $26.0 million from the year ended April 30, 2000 to the eleven months ended March 31, 2001 is partially due to a
two-month operating year versus an eleven month operating year. Most notable, however, is the significant increase in overall operating expenses associated with further formation of the
North American operations including a significant investment in sales and marketing and the hiring of a complete executive team and other support personnel. The increase is also driven, to a lesser
extent, by the expansion of the businesses in the Asian and European regions.

Net
cash used in investing activities was $7.1 million and $4.0 million during the eleven months ended March 31, 2001 and the year ended April 30, 2000,
respectively. Cash used in investing activities during the year ended April 30, 2000 included $3.7 million for the acquisition of NetVault Holdings in March 2000 (net of cash
acquired from NetVault Holdings and BakBone of $800,000). Capital expenditures during the year ended April 30, 2000 of $305,000 were mostly attributable to the initial build-out of
the San Diego corporate headquarters and purchase of computer equipment for new employees.

35

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Cash
used in investing activities during the eleven months ended March 31, 2001 consisted partially of $2.4 million for the acquisition of Tracer in June 2000 (net
of cash acquired of $1.1 million). Capital expenditures during the eleven months ended March 31, 2001 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 our new offices in Tokyo, Japan.

Net
cash provided by financing activities was $9.5 million and $35.5 million during the eleven months ended March 31, 2001 and the year ended April 30, 2000,
respectively. Cash provided by financing activities during the year ended April 30, 2000 consisted primarily of $35.1 million from the issuance of special warrants (net of offering costs
of $2.7 million) as discussed above. The sale of stock options and share purchase warrants provided an additional $187,000 and $235,000, respectively, which was offset slightly by a $67,000
repayment of related party loans.

Cash
provided by financing activities during the eleven months ended March 31, 2001 consisted primarily of proceeds of $6.9 million from the exercise of share purchase
warrants. In addition, we
entered into a line of credit with a bank that provided $3.9 million of net borrowings and received $864,000 from the exercise of stock options during the eleven months ended March 31,
2001. Cash used in financing activities during the eleven months ended March 31, 2001 consisted mainly of $1.4 million of restricted cash for a lease facility, $234,000 of capital lease
payments, $153,000 of bank note payments, $248,000 of related party note payments and an additional $217,000 in offering costs associated with the Special Warrant offering.

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 3,000,000 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 interest 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.

Predecessor company results for the two months ended February 29, 2000 and for the years ended December 31, 1998 and
1999.

Our
predecessor entities consist of two privately held entities, NetVault Ltd. and NetVault KK (the "predecessors").

NetVault KK

The operations of NetVault KK were established in February 1998. In its first year, NetVault KK received funding from co-founders and related
parties in the form of short-term non-interest bearing loans as well as through the initial sale of shares. During the year ended December 31, 1998, NetVault KK used
cash in operating activities, driven mostly by the loss in its first year, but was able to purchase necessary equipment and enter into a facility lease while ending the year with cash on hand.

During
the year ended December 31, 1999 and the two months ended February 29, 2000, NetVault KK had net cash provided by operations at levels that allowed for partial
repayment of the related party loans and additional purchase of necessary equipment. In addition, after the initial draw down of the short term loans and sale of shares during the year ended
December 31, 1998, NetVault KK was

36

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able to generate adequate cash flow to operate its business without the need to seek any additional financing.

NetVault Ltd.

The operations of NetVault Ltd. commenced in April 1998. During the year ended December 31, 1998, NetVault issued share capital to its owners
for cash and had borrowings from other related entities in order to fund the operations.

During
the year ended December 31, 1999 and the two months ended February 29, 2000, NetVault Ltd. sold no additional share capital. NetVault Ltd. had net cash
used in operations and was able to partially repay some of its related party amounts, in part due to receiving a substantial product development fees during 1999. During the two months ended
February 29, 2000, NetVault Ltd. increased its cash on hand through cash provided from operations, no capital expenditures and minimal cash outflows for financing activities.

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, 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

37

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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:



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 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

38

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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 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 an important potential market for our revenue growth. 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. Our product that is

39

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shipped with the OEM's software or hardware is a 45 day trial version. This trial version gives potential end users exposure to a full version our products, for a limited time.

OEM
sales also provide an opportunity to up-sell an end user a fully functional version of our products that generates a full license fee and generally includes maintenance
revenues associated with a one year service contract. 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 as the OEM program becomes better established.

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.)

Item 6. Directors, Senior Management and Employees

A. Directors and senior management.

|Name               |  | Position                               
|------------------ |  | ---------------------------------------
|SENIOR MANAGEMENT  |  |                                        
|Keith Rickard      |  | President and Chief Executive Officer  
|John Fitzgerald    |  | Chief Financial Officer                
|Harry Brayne       |  | Managing Director                      
|Fabrice Helliker   |  | Executive Vice President of Engineering
|Andrew Unsworth    |  | Managing Director, European operations 
|DIRECTORS          |  |                                        
|Archie Nesbitt     |  | Director                               
|Harry Brayne       |  | Director                               
|J.G. (Jeff) Lawson |  | Director                               
|Neil MacKenzie     |  | Director                               
|Keith Rickard      |  | Director                               

40

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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.

John Fitzgerald, Chief Financial Officer

John Fitzgerald was appointed to the position of Chief Financial Officer in January 2002 and is responsible for executing BakBone's financial and operational
strategies. Mr. Fitzgerald started with BakBone in early 2001 and held the position of Corporate Controller where he was responsible for all aspects of financial control and reporting for the
Company, including treasury management, tax planning, public reporting, and budget planning. Prior to joining BakBone, Mr. Fitzgerald consulted for several high tech and start-up companies in
the areas of SEC reporting, initial public offerings, and strategic planning. He began his career with Arthur Andersen and holds a Bachelor's of Science degree from San Diego State University.

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.

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.

41

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DIRECTORS

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

Archie Nesbitt, Director

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 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.

42

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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:

|                                                        |  |           |     |    |                 |  |   |          |  | Long-Term Compensation Awards |         | 
|------------------------------------------------------- |  | --------- | --- | -- | --------------- |  | - | -------- |  | ----------------------------- | ------- | 
|
|
|
|Keith Rickard(1),
President and Chief Executive Officer |  | 2001
2000 |     |    | 
             |  |   | 
      |  |                               | 
     | 
|John Fitzgerald(4)
Chief Financial Officer              |  | 2001
2000 |     |    | 17,000
        |  |   | 
      |  |                               | 
     | 
|Harry Brayne,
Managing Director                         |  | 2001
2000 |     | $$ | 105,000
105,000 |  |   | 
      |  |                               | 
     | 
|Fabrice Helliker,
Vice President of Engineering         |  | 2001
2000 |     | $$ | 102,500
69,375  |  | $ | 10,070
 |  | $                             | 9,288
 | 
|Andrew Unsworth,
Managing Director, European Operations |  | 2001
2000 | (2) | $  | 53,942
        |  |   | 
      |  |                               | 
     | 

---

C. Board practices.

The Board of Directors was elected at the annual meeting of shareholders on September 24, 2001 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 except for reimbursement of direct expenses related to travel to
Board of Directors and other Company meetings requiring their presence.

The
Company's audit committee consists of 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.

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.

43

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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

|               |  | December 1999 |  | April 2000 |   | March 2001 | 
|-------------- |  | ------------- |  | ---------- | - | ---------- | 
|
|United States  |  |              |  |           |   | 27         | 
|United Kingdom |  | 12            |  | 71         | % | 17         | 
|Japan          |  | 5             |  | 29         | % | 9          | 
|Canada         |  |              |  |           |   |           | 
|               |  |               |  |            |   |            | 
|TOTAL          |  | 17            |  | 100        | % | 53         | 
|               |  |               |  |            |   |            | 

Employees by Department

|                           |  | December 1999 |  | April 2000 |   | March 2001 | 
|-------------------------- |  | ------------- |  | ---------- | - | ---------- | 
|
|Sales and marketing        |  | 2             |  | 12         | % | 17         | 
|Research and development   |  | 11            |  | 65         | % | 24         | 
|General and administrative |  | 4             |  | 23         | % | 12         | 
|                           |  |               |  |            |   |            | 
|TOTAL                      |  | 17            |  | 100        | % | 53         | 
|                           |  |               |  |            |   |            | 

44

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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
December 31, 2001. The information set forth in the share ownership reflects all of the information available to the Company concerning beneficial ownership of the Company's equity securities
as contemplated by Rule 13d-3, including any indirect or informal arrangements meeting the definition of beneficial ownership.

|Name and principal
position                               |  | Common Shares
held directly and
beneficially |   | % of
Outstanding
Common
Shares as of
December 31, 2001 |   | Options
outstanding |  | Exercise
price |           | Expiration
date
|--------------------------------------------------------- |  | -------------------------------------------- | - | ------------------------------------------------------ | - | ------------------- |  | -------------- | --------- | ---------------
|Keith Rickard,
President and Chief Executive Officer      |  |                                             |   |                                                       |   |                    |  |                |          |                
|John Fitzgerald,
Chief Financial Officer                  |  | (1                                           | ) | (1                                                     | ) | 8,000
8,000         |  | $$             | 5.65
4.90 |                
|Harry Brayne,
Managing Director                           |  | 1,224,548                                    |   | 2.4                                                    | % |                    |  |                |          |                
|Fabrice Helliker,
Executive Vice President of Engineering |  | (1                                           | ) | (1                                                     | ) | 84,000              |  | $              | 0.95      |                
|Andrew Unsworth,
Managing Director, European Operations   |  | (1                                           | ) | (1                                                     | ) |                    |  |                |          |                
|Archie Nesbitt,
Director                                  |  | 631,900                                      |   | 1.2                                                    | % | 200,000             |  | $              | 4.40      |                
|J.G. (Jeff) Lawson,
Director                              |  | (1                                           | ) | (1                                                     | ) |                    |  |                |          |                
|Neil MacKenzie,
Director                                  |  | (1                                           | ) | (1                                                     | ) | 40,000              |  | $              | 4.40      |                

---

45

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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.

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. The value of the shares issued to the related party, as well as to all unrelated parties, in the Tracer acquisition was determined based on the closing price of
our Common Shares per the TSE on the date of the acquisition. The fair value of the underlying assets acquired was determined to approximate their book value on the date of the acquisition. In
addition to the Common Shares received, J. Michael Barcus also received stock options to acquire 62,500 Common Shares of BakBone at an exercise price of $6.00 per share, the price of which was based
on stock options already issued to existing Company management prior to the acquisition. 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% interest in NetVault KK to the Company in March 2000 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. The number of shares issued was determined in December 1999 based on the assigned value of the ownership
interest held by Barcus and Cerqueira as mutually determined by the Company and Barcus and Cerqueira based on the then current operating results and certain projections of future business potential.
The resulting value was divided by the closing price per the TSE at the time of negotiation resulting in the number of shares to be issued. At the closing of the acquisition in March 2000, the
predetermined number of shares was not adjusted based on the increase in the value of the Company's stock, per the closing price on the TSE at the time of the acquisition.

Prior
to the acquisition of NetVault KK, Barcus and Cerqueira provided loans to NetVault KK for use under normal operating activities. These loans are payable upon demand and are
interest-free. At March 31, 2001 and April 30, 2000, the balance owed these individuals totaled $118,000 and $366,000, respectively.

46

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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.

A
former director of the Company provides certain consulting and investor relations services to the Company. During the eleven months ended March 31, 2001 and the year ended
April 30, 2000, the Company paid the director $105,000 and $129,000, respectively, relating to the services rendered.

It
is management's belief that all transactions with related parties have been entered into on terms that are not more favorable than terms that would have been negotiated with unrelated
parties. Any future
acquisition dealings with a related party will be supported by additional third party valuation information.

C. Interests of experts and counsel.

Not Applicable.

Item 8. Financial Information

A. Consolidated Statements and Other Financial Information.

Refer to Item 17, which contains the following audited financial statements:

BakBone
Software Incorporated Consolidated Financial Statements, as of March 31, 2001 and April 30, 2000, and for the eleven months ended March 31, 2001 and the year
ended April 30, 2000.

BakBone
Software KK (formerly NetVault Corporation) Financial Statements as of February 29, 2000, December 31, 1999 and 1998 and for the period from January 1, 2000
through February 29, 2000, the year ended December 31, 1999 and the period from February 2, 1998 (Date of Incorporation) to December 31, 1998.

BakBone
Software Limited (formerly NetVault Limited) Financial Statements, as of February 29, 2000, December 31, 1999 and 1998 and for the two-month period
ended February 29, 2000 and the years ended December 31, 1999 and 1998.

Tracer
Technologies, Inc. and Subsidiary Financial Statements, as of March 31, 2000, 1999 and 1998 and for the three years then ended.

To
date, we have not declared dividends. It is our policy to retain all funds as working capital in order to build our business. We have no plans to pay dividends in the foreseeable
future.

B. Significant Changes.

Since the date of the audited consolidated financial statements there have been significant changes in our capitalization as detailed in Liquidity and Capital
Resources in Item 5.B and in Business Overview in Item 4.B.

47

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Item 9. The Offer and Listing.

A. Offer and listing details.

1.    Indicate
the expected price at which the securities will be offered or the method of determining the price, and the amount of any expenses specifically charged to the
subscriber or purchaser.

Not
Applicable.

2.    If
there is not an established market for the securities, the document shall contain information regarding the manner of determination of the offering price as well as of
the exercise price of warrants and the conversion price of convertible securities, including who established the price or who is formally responsible for the determination of the price, the various
factors considered in such determination and the parameters or elements used as a basis for establishing the price.

Not
Applicable.

3.    If
the company's shareholders have pre-emptive purchase rights and where the exercise of the right of pre-emption of shareholders is restricted or
withdrawn, the company shall indicate the basis for the
issue price if the issue is for cash, together with the reasons for such restriction or withdrawal and the beneficiaries of such restriction or withdrawal if intended to benefit specific persons.

Not
Applicable.

4.    The
following table sets forth information regarding the price history of the Common Shares on the Toronto Stock Exchange for the periods indicated.



Fiscal year ended:

3/31/01

4/30/00

4/30/99

4/30/98

4/30/97High

$
21.00

$
56.00

$
.90

$
2.52

$
6.12Low

$
4.50

$
.55

$
.07

$
.72

$
1.62




Quarter ended:

12/31/01

9/30/01

6/30/01

3/31/01

12/31/00

9/30/00

6/30/00

4/30/00

1/31/00

10/31/99

7/31/99High

$
1.95

$
4.60

$
6.76

$
10.50

$
12.50

$
21.00

$
30.25

$
56.50

$
19.95

$
1.19

$
1.95Low

$
1.15

$
0.86

$
3.48

$
4.70

$
4.50

$
11.40

$
10.00

$
15.15

$
0.93

$
0.65

$
0.55




Dec. 01

Nov. 01

Oct. 01

Sept. 01

August 01

July 01High

$
1.52

$
1.95

$
1.95

$
1.79

$
3.47

$
4.60Low

$
1.15

$
1.20

$
1.20

$
0.86

$
1.60

$
2.00




Not
Applicable.

48

---

5.    State
the type and class of the securities being offered or listed and furnish the following information:

Common
Shares, no par value.



The
Common Shares have been registered under the securities laws of Canada. The Common Shares have no par or other stated value.



CIBC
Mellon Trust Company, 333-7th Avenue, SW, Suite 600, Calgary, Alberta T2P 2Z1, is the transfer agent for our common shares. There are no transfer
restrictions apart from the requirement that any transfers comply with applicable securities laws and the rules of applicable securities exchanges.

6.    If
the rights evidenced by the securities being offered or listed are or may be materially limited or qualified by the rights evidenced by any other class of securities
or by the provisions of any contract or other documents, include information regarding such limitation or qualification and its effect on the rights evidenced by the securities to be listed or
offered.

Not
Applicable.

7.    With
respect to securities other than common or ordinary shares to be listed or offered, outline briefly the rights evidenced thereby.

Not
Applicable.

B. Plan of distribution.

Not Applicable.

C. Markets.

Our Common Shares are traded on the Toronto Stock Exchange under the symbol "BKB."

We
intend to apply to list our Common Shares for trading on the American Stock Exchange ("AMEX"). For companies without pre-tax income, the AMEX listing guidelines require
that the company have a public float with a market value of US$15 million, a minimum share price of $3, and $4 million in stockholders' equity. Although BakBone currently meets the
public float and stockholders' equity tests, the market price of our stock on the Toronto Stock Exchange has recently been in the range of CDN$1.50, or approximately US$.96. We will not be able to
meet the AMEX's minimum listing requirements until our stock price exceeds US$3 per share. Whether or not we are able in the near term to achieve our goal of listing our stock on the AMEX, we are
filing this form in order to be positioned to submit our listing application after we achieve the AMEX minimum listing requirements. We have also filed this form in order to satisfy the requirements
of potential investors, some of whom may have self-imposed limits on their ability to invest in companies that do not file periodic reports with the SEC.

Even
if our share price rises, there can be no guaranty that our application to list on the AMEX will be accepted. Furthermore, even if successful, we will be required to maintain the
minimum listing

49

---

requirements, including the US$3 per share stock price, and may be de-listed from the AMEX if we fail to meet those requirements.

D. Selling shareholders.

Not Applicable.

E. Dilution.

Not Applicable.

F. Expenses of the issue.

Not Applicable.

Item 10. Additional Information.

A. Share capital.

Our capital stock consists of an unlimited number of Common Shares authorized, no par value per share. As of December 31, 2001 there were 51,931,322 Common
Shares outstanding. We have reserved 3,754,439 Common Shares for issuance upon exercise of employee stock options under our stock option plan. In addition, we have 1,659,000 outstanding
Series B warrants each at a price of $15.00 and 182,995 outstanding Series B Broker Options at a price of $9.90. Both the Series B warrants and Series B Broker Options
expire no later than March 2002. In addition, the Company has 1,792,600 outstanding warrants each at a price of $1.65 entitling the holder to purchase one common share, expiring on April 2002.

B. Memorandum and articles of association.

Our memorandum and articles of association are attached hereto as noted in Item 19.

We
are continued as a company pursuant to the Alberta Business Corporations Act (the "Act") under corporate access number 20547027. Our memorandum and articles of association do not
contain any limitations on our objects or purposes.

The
following is a summary of certain provisions of our memorandum and articles of association:

Directors' Responsibilities in Matters in Which the Director is Materially Interested

Our articles of association require any of our directors who are directly or indirectly interested in a material contract or proposed material contract with us to
disclose the nature and extent of their interest. Pursuant to the Act, in the case of a proposed contract, the declaration must be made at the meeting of our Board of Directors at which the question
of entering into the contract is first taken into consideration, or if the interested directors are not present at that meeting our directors are required to declare their interest at the next
meeting. In the case where any of our directors becomes interested in a contract after it is made, the declaration must be made at the first meeting of our directors held after they have become
interested. In the case where a proposed contract is dealt with by resolution instead of at a meeting, the disclosure that would otherwise be required to be made at a meeting must
be made forthwith on receipt of the resolution, or if the director was not interested in the proposed contract at the time of receipt of the resolution, at the first meeting after he becomes so
interested.

Directors' Power to Vote on Compensation to Themselves

Subject to the Act, our articles of association provide that the directors may determine to be paid out of our funds or capital as remuneration for their service.

50

---

Directors' Borrowing Powers

Under our Articles and the Act, our directors may, without authorization of the shareholders,



Retirement of Directors Under an Age Limit Requirement

Our articles of association do not require directors to retire pursuant to an age limit.

Number of Shares Required for a Director's Qualification

Our articles of association do not provide for a requirement of shares for a director's qualification.

Rights and Preferences of Common Shares

Our articles of association permit but do not require the Board of Directors to declare and pay dividends with respect to the Common Shares. Each holder of Common
Shares is entitled to one vote per share on all matters coming for a vote before the shareholders. There is no cumulative voting. Directors stand for one-year terms and are elected at each
annual meeting of shareholders. All holders of Common Shares are entitled to share equally in any surplus in the event of a liquidation of the Company after the Company's obligations are repaid. There
are no provisions calling for redemption of securities, establishing any sinking fund, or establishing any obligation to participate in further capital calls by the Company. There is no provision
discriminating against existing or prospective holders of Common Shares as a result of such shareholder owning a substantial number of shares.

Creation of New Securities.

The Act provides a holder of shares of any class or series of shares the right to vote on any proposal to create a new class or series upon amendments to our
memorandum or articles of association.

General Meeting

We must hold an ordinary general meeting of our shareholders at least once every calendar year at a time and place determined by our directors, but not later than
15 months after the most recent annual meeting.

Our
directors or shareholders representing 5% of the total issued and outstanding Common Shares may at any time convene a special meeting of the shareholders, and our directors, upon the
requisition of shareholders in accordance with the Act, shall proceed to convene the meeting or meetings to be held at such time and place as the directors determine. The requisition must state the
objects of the meeting requested, be signed by the requisitionists and deposited at our registered office.

At
least 21 days' notice and not more than 50 days' notice of every general meeting, specifying the place, day and hour of the meeting and, when special business is to be
considered, the general nature of such
business, must be given to our shareholders entitled to be present at our meeting by notice given as permitted by our articles of association.

51

---

No
business will be transacted at any general meeting unless the requisite quorum is present at the commencement of the business. Subject to the Act, if we have two or more shareholders,
a quorum for the transaction of business at a general meeting shall be two persons present in person or by proxy and holding or representing by proxy, not less than five percent (5%) of the shares
entitled to vote at the general meeting.



Changes in Our Capital.

Subject to the Act, we may, by resolution of our shareholders, increase our share capital by the creation of new shares. Subject to the Act, the new shares may be
issued upon such terms and conditions and with such rights, privileges, limitations, restrictions and conditions attached to them as the resolution of our shareholders determines.

Except
as otherwise provided by the conditions of issue or by our articles of association, any capital raised by the creation of new shares will be considered part of the original
capital and will be subject to the provisions contained in our articles of association with reference to transfer and transmission. We may, by special resolution of the shareholders where required,
reduce our share capital in any way subject to any incident authorized and consent required by law.

C. Material Contracts.

We are not party to any material contracts outside of the ordinary course of our business. However, refer to the discussion at Item 4.B, "Business
Overview," for a description of the material distribution and OEM agreements entered into by the Company.

D. Exchange Controls and Other Limitations Affecting Security Holders.

There are currently no limitations imposed by Canadian federal or provincial laws on the rights of non-resident or foreign owners of Canadian
securities to hold or vote the securities held. There are also no such limitations imposed by our memorandum and articles of association with respect to our Common Shares.

Investment Canada Act

Under the Investment Canada Act, the acquisition of control of a Canadian business by a "non-Canadian" is subject to review by the Investment Review
Division of Industry Canada ("Investment Canada"), a government agency, and will not be allowed unless the investment is found likely to be of "net benefit" to Canada. An acquisition of control will
be reviewable by Investment Canada if the value of the assets of the Canadian business for which control is being acquired is (1) $5 million or more in the case of a "direct"
acquisition; (2) $50 million or more in the case of an "indirect" acquisition, which is a transaction involving the acquisition of the shares of a company incorporated outside of Canada
which owns subsidiaries in Canada; or (3) between $5 million or more but less than $50 million where the Canadian assets acquired constitute more than 50% of the value of all
entities acquired, or if the acquisition is not effected through the acquisition of control of a foreign corporation.

52

---

These
thresholds have been increased for the purposes of acquisition of control of a Canadian business by investors from members of the World Trade Organization ("WTO"), including
Americans, or WTO member-controlled companies. A direct acquisition by a WTO investor is reviewable only if it involves the direct acquisition of a Canadian business with assets of $209 million
or more for the year 2001 (this figure is adjusted annually to reflect inflation). Indirect acquisitions by WTO investors are not reviewable unless the Canadian assets acquired constitute more than
50% of the asset value of all entities acquired, in which case the $209 million threshold applies.

These
increased thresholds applicable to WTO investors do not apply to the acquisition of control of a Canadian business that is engaged in certain sensitive areas such as uranium
production, financial services, transportation or culture. In the case of the acquisition of control of a cultural business, the Minister can elect to review the transaction even where it does not
exceed the lower asset threshold test above. Even if the transaction is not reviewable, a non-Canadian must still give notice to Investment Canada of the acquisition of control of a
Canadian business within 30 days after its completion.

Competition Act

Under the Competition Act (Canada), certain transactions are subject to the pre-notification requirements of the Competition Act whereby notification
of the transaction and specific information in connection therewith must be provided to the Commissioner of Competition. A transaction may not be completed until the applicable statutory waiting
periods have expired, namely 14 days for a short-form filing or 42 days for a long-form filing. Where the parties elect to file a short-form
notification, the Commissioner may convert the filing to a long-form, thereby restarting the clock once the parties submit their filing.

A
proposed transaction is subject to pre-notification if the parties to the transaction together with their affiliates exceed two thresholds. First, the parties and their
affiliates must have total assets or total revenues from sales in, from or into Canada that exceed $400 million in aggregate value. Having met this first threshold, the parties must then
provide pre-notification if any one of the following additional thresholds is met: (1) for an acquisition of assets in Canada where the aggregate value of the assets or the gross revenues
from sales in or from Canada that are being acquired exceeds $35 million (the "$35 million threshold"); (2) in the case of an acquisition of shares of a company in Canada, where
as a result of the proposed acquisition, the person acquiring the shares, together with its affiliates, would own more than 20% (or, if the person making the acquisition already owns 20% or more of
the voting shares of the target, then 50%) of the voting shares of a corporation that are publicly traded or, in the case of a company of which the shares are not publicly traded, the threshold is 35%
of the voting shares (and 50% if the acquirer owns 35% or more of the voting shares of the subject company prior to making the acquisition) and the $35 million threshold is exceeded; or
(3) in the case of a proposed amalgamation of two or more corporations where one or more of the amalgamating corporations carries on an operating business (either directly or indirectly) where
the aggregate value of the assets in Canada that would be owned by the continuing corporation resulting from the amalgamation would exceed $70 million or the gross revenues from sales in or
from Canada generated from the assets of the amalgamated entity would exceed $70 million.

Finally,
all merger transactions, regardless of whether they are subject to pre-merger notification, are subject to the substantive provisions of the Competition Act, namely,
whether the proposed merger prevents or lessens, or is likely to prevent or lessen, competition substantially in a relevant market.

E. Taxation.

In this section we summarize the material U.S. federal and Canadian federal income tax consequences of the ownership and disposition of our Common Shares. Nothing
contained herein shall

53

---

be construed as tax advise, you must rely only on the advise of your own tax advisor. We make no assurances as to the applicability of any tax laws with respect to any individual investment. This
summary relating to our Common Shares applies to beneficial owners who are individuals, corporations, trusts and estates which:



We
refer to persons who satisfy the above conditions as "Unconnected U.S. Shareholders."

The
tax consequences of an investment in Common Shares by persons who are not Unconnected U.S. Shareholders may differ materially from the tax consequences discussed in this section. The
Income Tax Act contains rules relating to securities held by some financial institutions. We do not discuss these rules, and holders that are financial institutions should consult their own tax
advisors.

This
discussion is based upon the following, all as currently in effect:



54

---





All of the foregoing are subject to change either prospectively or retroactively. We do not take into account the tax laws of the various provinces or territories of Canada or the tax
laws of the various state and local jurisdictions of the United States or foreign jurisdictions.

This
discussion summarizes the material U.S. federal and Canadian federal income tax considerations of the ownership and disposition of Common Shares. This discussion does not address
all possible tax consequences relating to an investment in Common Shares. We have not taken into account your particular circumstances and do not address consequences peculiar to you if you are
subject to special provisions of U.S. or Canadian income tax law (including, without limitation, dealers in securities or foreign currency, tax-exempt entities, banks, insurance companies
or other financial institutions, persons that hold Common Shares as part of a "straddle," "hedge" or "conversion transaction," and Unconnected U.S. Shareholders that have a "functional currency" other
than the U.S. dollar or that own Common Shares through a partnership or other pass-through entity). Therefore, you should consult your own tax advisor regarding the tax consequences of
purchasing Common Shares.

Material U.S. Federal Income Tax Considerations

Subject to the discussion below regarding Foreign Personal Holding Company Rules, Passive Foreign Investment Company Rules and Controlled Foreign Corporation
Rules, this section summarizes U.S. federal income tax consequences of the ownership and disposition of the Common Shares.

As
an Unconnected U.S. Shareholder, you generally will be required to include in income dividend distributions, if any, paid by us to the extent of our current or accumulated earnings
and profits attributable to the distribution as computed based on U.S. income tax principles. The amount of any cash distribution paid in Canadian dollars will be equal to the U.S. dollar value of the
Canadian dollars on the date of distribution based on the exchange rate on such date, regardless of whether the payment is in fact converted to U.S. dollars and without reduction for Canadian
withholding tax. (For a discussion of Canadian withholding taxes applicable to dividends paid by us, see "Material Canadian Federal Income Tax Considerations.") You will generally be entitled to a
foreign tax credit or deduction in an amount equal to the Canadian tax withheld. To the extent distributions paid by us on the Common Shares exceed our current or accumulated earnings and profits,
they will be treated first as a return of capital up to your adjusted tax basis in the shares and then as capital gain from the sale or exchange of the shares.

Dividends
paid by us generally will constitute foreign source dividend income and "passive income" for purposes of the foreign tax credit, which could reduce the amount of foreign tax
credits available to you. The Code applies various limitations on the amount of foreign tax credits that may be available to a U.S. taxpayer.

Because
of the complexity of those limitations, you should consult your own tax advisor with respect to the availability of foreign tax credits.

Dividends
paid by us on the Common Shares generally will not be eligible for the "dividends received" deduction.

If
you sell the Common Shares, you generally will recognize gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in the
shares. Any such gain or loss will be long-term or short-term capital gain or loss, depending on whether the shares have been held by you for more than one year, and will
generally be U.S. source gain or loss.

Dividends
paid by us on the Common Shares generally will be subject to U.S. information reporting or the 31% backup withholding tax, unless you furnish the paying agent or middleman with
a duly completed and signed Form W-9. You will be allowed a refund or a credit equal to any amount withheld under the U.S. backup withholding tax rules against your U.S. federal
income tax liability, provided you furnish the required information to the Internal Revenue Service.

55

---

Foreign Personal Holding Company Rules

Special U.S. tax rules apply to a shareholder of a foreign personal holding company ("FPHC"). We would be classified as a FPHC in any taxable year if both of the
following tests are satisfied:



We
believe that we are not a FPHC. However, we can not assure you that we will not be classified as a FPHC in the future.

Personal Holding Company Rules

We will not be classified as a personal holding company a ("PHC") for U.S. federal income tax purposes unless at any time during the last half of our taxable
year, five or fewer individuals (without regard to their citizenship or residency) own or are deemed to own (pursuant to certain attribution rules) more than 50% of our stock by value, and at least
60% of our ordinary gross income for the taxable year is "personal holding company" (generally passive income such as dividends and interest). We should not meet the PHC tests, and even if we were to
become a PHC, we do not expect to have material undistributed PHC income. However, we cannot assure you that we will not become a PHC because of uncertainties regarding the application of the
constructive ownership rules and the possibility of changes in our shareholder base and income or other circumstances that could change the application of the PHC rules to us. In addition, if we
become a PHC we cannot assure that the amount of our PHC income will be immaterial.

Passive Foreign Investment Company Rules

The passive foreign investment company ("PFIC") provisions of the Code can have significant tax effects on Unconnected U.S. Shareholders. We could be classified
as a PFIC if, after the application of certain "look through" rules, for any taxable year, either:



To
the extent we own at least 25% by value of the stock of another corporation, we are treated for purposes of the PFIC tests as owning our proportionate share of the assets of such
corporation, and as receiving directly our proportionate share of the income of such corporation.

Distributions
which constitute "excess distributions" from a PFIC and dispositions of Common Shares of a PFIC are subject to the following special rules:(1) the excess
distributions (generally any distributions received by an Unconnected U.S. Shareholder on the shares in any taxable year that are
greater than 125% of the average annual distributions received by such Unconnected U.S. Shareholder in the three preceding taxable years, or the Unconnected U.S. Shareholder's holding period for the
shares, if shorter) or gain would be allocated ratably over an Unconnected U.S. Shareholder's holding period for the shares, (2) the amount allocated to the current taxable year and any taxable
year prior to the first taxable year in which we are a PFIC would be treated as ordinary income in the current taxable year and (3) the amount allocated to each of the other taxable years would
be subject to the

56

---

highest rate of tax on ordinary income in effect for that year and to an interest charge based on the value of the tax deferred during the period during which the shares are owned.

Subject
to specific limitations, Unconnected U.S. Shareholders who actually or constructively own marketable shares in a PFIC may make an election under section 1296 of the Code
to mark those shares to market annually, rather than being subject to the above-described rules. Amounts included in or deducted from income under this mark-to-market election
and actual gains and losses realized upon disposition, subject to specific limitations, will be treated as ordinary gains or losses. For this purpose, we believe that our shares will be treated as
"marketable securities" within the meaning of Section 1296(e)(1) of the Code.

We
believe that we will not be a PFIC for the current fiscal year and we do not expect to become a PFIC in future years. Whether we are a PFIC in any year and the tax consequences
relating to PFIC status will depend on the composition of our income and assets, including cash. You should be aware, however, that if we are or become a PFIC we may not be able or willing to satisfy
record-keeping requirements that would enable you to make a "qualified electing fund" election.

You
should consult your tax advisor with respect to how the PFIC rules affect your tax situation.

Controlled Foreign Corporation Rules

If more than 50% of the voting power or total value of all classes of our shares is owned, directly or indirectly, by U.S. shareholders, each of which owns 10% or
more of the total combined voting power of all classes of our shares, we could be treated as a controlled foreign corporation ("CFC") under Subpart F of the Code. This classification would require
such 10% or greater shareholders to include in income their pro rata shares of our "Subpart F Income," as defined in the Code. In addition, under Section 1248 of the Code, gain from the sale or
exchange of shares by an Unconnected U.S. Shareholder who is or was a 10% or greater shareholder at any time during the five year period ending with the sale or exchange will be ordinary dividend
income to the extent of our earnings and profits attributable to the shares sold or exchanged.

We
believe that we are not a CFC, however, we can not assure you that we will not become a CFC in the future.

Material Canadian Federal Income Tax Considerations

In this section, we summarize the material anticipated Canadian federal income tax considerations relevant to the ownership and disposition of the Common Shares.

Under
the Income Tax Act, assuming you are an Unconnected U.S. Shareholder, and provided the Common Shares are listed on a prescribed stock exchange, which includes The Toronto Stock
Exchange and the AMEX, you will generally not be subject to Canadian tax on a capital gain realized on an actual or deemed disposition of the Common Shares unless you alone or together with persons
with whom you did not deal at arm's length owned or had rights to acquire 25% or more of our issued shares of any class at any time during the sixty (60) month period before the actual or
deemed disposition.

Dividends
paid, credited or deemed to have been paid or credited on the Common Shares to Unconnected U.S. Shareholders will be subject to a Canadian withholding tax under the Income Tax
Act at a rate of 25% of the gross amount of the dividends. Under the CanadaUnited States Income Tax Convention (1980), the rate of withholding tax on dividends generally applicable to
Unconnected U.S. Shareholders who beneficially own the dividends is reduced to 15%. In the case of Unconnected U.S. Shareholders that are corporations that beneficially own at least 10% of our voting
shares, the rate of withholding tax on dividends generally is reduced to 5%. United States limited liability companies ("LLCs") will not be entitled to these reduced rates. Shareholders that are
partnerships will

57

---

be subject to the 25% rate unless the partnership applies for and receives written authority for us to reduce the withholding tax rate.

Canada
does not currently impose any federal estate taxes or succession duties. However, if you die, there is a deemed disposition of the Common Shares held at that time for proceeds of
disposition generally equal to the fair market value of the Common Shares immediately before the death. Capital gains realized on the deemed disposition, if any, will have the income tax consequences
described above.

F. Dividends and paying agents.

Not Applicable.

G. Statement by experts.

Not Applicable.

H. Documents on display.

Upon the effectiveness of this filing, we will be subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and we will
thereafter file reports and other information with the SEC. You may read and copy any of our reports and other information at, and obtain copies upon payment of prescribed fees from, the Public
Reference Room maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at certain of the SEC's regional offices at 7 World Trade Center, Suite 1300, New
York, NY 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661. In addition, the SEC maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. The public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.

We
are required to file reports and other information with the securities commission in all provinces of Canada. You are invited to read and copy any reports, statements or other
information, other than confidential filings, that we file with the provincial securities commissions. These filings are also electronically available from the Canadian System for Electronic Document
Analysis and Retrieval (SEDAR) (http://www.sedar.com), the Canadian equivalent of the SEC's electronic document gathering and retrieval system.

As
a foreign private issuer, we are exempt from the rules under the Securities Exchange act of 1934, as amended, prescribing the furnishing and content of proxy statements to
shareholders. We have included in this report certain information disclosed in our Proxy Statement prepared under Canadian securities rules.

We
will provide without charge to each person, including any beneficial owner, on the written or oral request of such person, a copy of any or all documents referred to above which have
been or may be incorporated by reference in this report (not including exhibits to such incorporated information that are not specifically incorporated by reference into such information). Requests
for such copies should be directed to us at the following address: BakBone Software Incorporated, 10145 Pacific Heights Blvd., Suite 900, San Diego, California 92121, Attention: Investor
Relations, telephone number: 403-232-6829.

I. Subsidiary Information.

Not Applicable.

58

---

Item 11. Quantitative and Qualitative Disclosures About Market Risk.

The Company holds no material financial instruments for trading purposes. It holds debt instruments bearing fixed interest rates. It is exposed to foreign
currency exchange rate risk by virtue of its operations in Japan, United Kingdom and Canada. Discussion of foreign currency risk is set forth in Item 5.B under the heading, "Foreign Currency."

Item 12. Description of Securities Other than Equity Securities.

Not Applicable.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies.

Not Applicable.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.

Not Applicable.

Item 15. [Reserved]

Item 16. [Reserved]

59

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PART III

Item 17. Financial Statements.

60

---

BAKBONE SOFTWARE INCORPORATED
AND SUBSIDIARIES

Consolidated Financial Statements

March 31, 2001 and April 30, 2000

(With Independent Auditors' Report Thereon)

61

---

BAKBONE SOFTWARE INCORPORATED AND SUBSIDIARIES

March 31, 2001 and April 30, 2000

Table of Contents

|                                                              |  | Page
|------------------------------------------------------------- |  | ----
|Independent Auditors' Report                                  |  | 63  
|Consolidated Balance Sheets                                   |  | 64  
|Consolidated Statements of Operations and Accumulated Deficit |  | 65  
|Consolidated Statements of Cash Flows                         |  | 66  
|Notes to Consolidated Financial Statements                    |  | 67  

62

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Independent Auditors' Report

The
Board of Directors and Shareholders
BakBone Software Incorporated:

We
have audited the consolidated balance sheets of BakBone Software Incorporated and subsidiaries (the Company) as of March 31, 2001 and April 30, 2000, and the related
consolidated statements of operations and accumulated deficit and cash flows for the eleven months ended March 31, 2001 and for the year ended April 30, 2000 (all expressed in Canadian
dollars). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on
our audits.

We
conducted our audits in accordance with auditing standards generally accepted in Canada and the United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2001 and
April 30, 2000, and the results of their operations and their cash flows for the eleven months ended March 31, 2001 and for the year ended April 30, 2000, in conformity with
accounting principles generally accepted in Canada.

Accounting
principles generally accepted in Canada vary in certain significant respects from accounting principles generally accepted in the United States of America. Application of
accounting principles generally accepted in the United States of America would have affected results of operations and cash flows for the eleven months ended March 31, 2001 and the year ended
April 30, 2000, and assets, liabilities and shareholders' equity as of March 31, 2001 and April 30, 2000, to the extent summarized in Note 15 to the consolidated financial
statements.

| | KPMG LLP
| | --------

San
Diego, California
United States of America
June 22, 2001

63

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BAKBONE SOFTWARE INCORPORATED

Consolidated Balance Sheets

March 31, 2001 and April 30, 2000

(Canadian dollars in thousands)

|                                                     |                                              | 2001                                       |        | 2000    |       
|---------------------------------------------------- | -------------------------------------------- | ------------------------------------------ | ------ | ------- | ------
|Assets                                               |                                             
|Current assets:                                      |                                              |                                            |        |         |       
|                                                     | Cash and cash equivalents                    |                                            | $      | 6,012   |       
|                                                     | Restricted cash                              |                                            |        | 142     |       
|                                                     | Accounts receivable                          |                                            |        | 2,214   |       
|                                                     | Other assets                                 |                                            |        | 788     |       
|                                                     |                                              |                                            |        |         |       
|                                                     |                                              | Total current assets                       |        |         | 9,156 
|Capital assets, net                                  |                                              |                                            | 5,891  |         | 802   
|Restricted cash                                      |                                              |                                            | 1,230  |         |      
|Intangibles, net                                     |                                              |                                            | 12,347 |         | 4,129 
|Other assets                                         |                                              |                                            | 949    |         | 141   
|                                                     |                                              |                                            |        |         |       
|                                                     |                                              | Total assets                               |        | $       | 29,573
|                                                     |                                              |                                            |        |         |       
|Liabilities and Shareholders' Equity                 |                                             
|Current liabilities:                                 |                                              |                                            |        |         |       
|                                                     | Accounts payable                             |                                            | $      | 2,157   |       
|                                                     | Accrued liabilities                          |                                            |        | 1,767   |       
|                                                     | Deferred revenue                             |                                            |        | 1,058   |       
|                                                     | Current portion of capital lease obligations |                                            |        | 302     |       
|                                                     | Current portion of notes payable             |                                            |        | 4,058   |       
|                                                     | Loans from related parties                   |                                            |        | 118     |       
|                                                     |                                              |                                            |        |         |       
|                                                     |                                              | Total current liabilities                  |        |         | 9,460 
|Capital lease obligations, excluding current portion |                                              |                                            | 379    |         |      
|Notes payable, excluding current portion             |                                              |                                            | 296    |         |      
|                                                     |                                              |                                            |        |         |       
|                                                     | Total liabilities                            |                                            |        | 10,135  |       
|                                                     |                                              |                                            |        |         |       
|Minority interest                                    |                                              |                                            | 158    |         |      
|Shareholders' equity:                                |                                              |                                            |        |         |       
|                                                     | Share capital                                |                                            |        | 52,858  |       
|                                                     | Share capital held by subsidiary             |                                            |        | (98     | )     
|                                                     | Special warrants                             |                                            |        |        |       
|                                                     | Cumulative exchange adjustment               |                                            |        | 551     |       
|                                                     | Accumulated deficit                          |                                            |        | (34,031 | )     
|                                                     |                                              |                                            |        |         |       
|                                                     |                                              | Total shareholders' equity                 |        |         | 19,280
|                                                     |                                              |                                            |        |         |       
|Commitments and contingencies                        |                                              |                                            |        |         |       
|                                                     |                                              | Total liabilities and shareholders' equity |        | $       | 29,573
|                                                     |                                              |                                            |        |         |       

See
accompanying notes to consolidated financial statements.

64

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BAKBONE SOFTWARE INCORPORATED        Consolidated Statements of Operations and Accumulated Deficit        Eleven months ended March 31, 2001 and  the year ended April 30, 2000        (Canadian dollars in thousands, except loss per share)

|                                         |                            | 2001                     |            | 2000    |          
|---------------------------------------- | -------------------------- | ------------------------ | ---------- | ------- | ---------
|Revenues                                 |                            | $                        | 7,529      |         | 483      
|Cost of revenues                         |                            |                          | 1,187      |         | 51       
|                                         |                            |                          |            |         |          
|                                         |                            | Gross margin             |            |         | 6,342    
|                                         |                            |                          |            |         |          
|Operating expenses:                      |                            |                          |            |         |          
|                                         | Sales and marketing        |                          |            | 17,295  |          
|                                         | Research and development   |                          |            | 4,439   |          
|                                         | General and administrative |                          |            | 13,436  |          
|                                         |                            |                          |            |         |          
|                                         |                            | Total operating expenses |            |         | 35,170   
|                                         |                            |                          |            |         |          
|                                         |                            | Operating loss           |            |         | (28,828  
|Interest income, net                     |                            |                          | 594        |         | 228      
|Amortization of intangibles              |                            |                          | (4,829     | )       | (241     
|Foreign exchange gains, net              |                            |                          | 30         |         | 32       
|Other income, net                        |                            |                          | 267        |         | 58       
|Minority interest                        |                            |                          | 49         |         |         
|                                         |                            |                          |            |         |          
|                                         | Net loss                   |                          |            | (32,717 | )        
|Accumulated deficit, beginning of period |                            |                          | (1,314     | )       |         
|                                         |                            |                          |            |         |          
|Accumulated deficit, end of period       |                            | $                        | (34,031    | )       | (1,314   
|                                         |                            |                          |            |         |          
|Loss per sharebasic and diluted         |                            | $                        | (0.92      | )       | (0.14    
|                                         |                            |                          |            |         |          
|Weighted-average common shares           |                            |                          | 35,571,845 |         | 9,515,933
|                                         |                            |                          |            |         |          

See
accompanying notes to consolidated financial statements.

65

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BAKBONE SOFTWARE INCORPORATED

Consolidated Statements of Cash Flows

Eleven months ended March 31, 2001 and
the year ended April 30, 2000

(Canadian dollars in thousands)

|                                                                       |                                                                             | 2001                                                               |                     | 2000                                                 |       
|---------------------------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------------------ | ------------------- | ---------------------------------------------------- | ------
|Cash flows from operating activities:                                  |                                                                             |                                                                    |                     |                                                      |       
|                                                                       | Net loss                                                                    |                                                                    | $                   | (32,717                                              | )     
|                                                                       | Adjustments to reconcile net loss to net cash used in operating activities: |                                                                    |                     |                                                      |       
|                                                                       |                                                                             | Depreciation and amortization                                      |                     |                                                      | 5,911 
|                                                                       |                                                                             | Minority interest                                                  |                     |                                                      | (49   
|                                                                       |                                                                             | Loss on disposal of capital assets                                 |                     |                                                      | 20    
|                                                                       |                                                                             | Changes in assets and liabilities, net of effects of acquisitions: |                     |                                                      |       
|                                                                       |                                                                             |                                                                    | Accounts receivable |                                                      |       
|                                                                       |                                                                             |                                                                    | Other assets        |                                                      |       
|                                                                       |                                                                             |                                                                    | Accounts payable    |                                                      |       
|                                                                       |                                                                             |                                                                    | Accrued liabilities |                                                      |       
|                                                                       |                                                                             |                                                                    | Deferred revenue    |                                                      |       
|                                                                       |                                                                             |                                                                    |                     |                                                      |       
|                                                                       |                                                                             |                                                                    |                     | Net cash used in operating activities                |       
|                                                                       |                                                                             |                                                                    |                     |                                                      |       
|Cash flows from investing activities:                                  |                                                                             |                                                                    |                     |                                                      |       
|                                                                       | Capital expenditures                                                        |                                                                    |                     | (4,790                                               | )     
|                                                                       | Acquisitions of businesses, net of cash acquired                            |                                                                    |                     | (2,369                                               | )     
|                                                                       | Proceeds from sale of capital assets                                        |                                                                    |                     | 43                                                   |       
|                                                                       |                                                                             |                                                                    |                     |                                                      |       
|                                                                       |                                                                             |                                                                    |                     | Net cash used in investing activities                |       
|                                                                       |                                                                             |                                                                    |                     |                                                      |       
|Cash flows from financing activities:                                  |                                                                             |                                                                    |                     |                                                      |       
|                                                                       | Payments of capital lease obligations                                       |                                                                    |                     | (234                                                 | )     
|                                                                       | Proceeds from notes payable                                                 |                                                                    |                     | 3,942                                                |       
|                                                                       | Payments of notes payable                                                   |                                                                    |                     | (153                                                 | )     
|                                                                       | Proceeds from issuance of special warrants                                  |                                                                    |                     |                                                     |       
|                                                                       | Offering costs related to special warrants                                  |                                                                    |                     | (217                                                 | )     
|                                                                       | Proceeds from exercise of stock options                                     |                                                                    |                     | 864                                                  |       
|                                                                       | Proceeds from exercise of warrants                                          |                                                                    |                     | 6,894                                                |       
|                                                                       | Payments of related party loans                                             |                                                                    |                     | (248                                                 | )     
|                                                                       | Restricted cash                                                             |                                                                    |                     | (1,372                                               | )     
|                                                                       |                                                                             |                                                                    |                     |                                                      |       
|                                                                       |                                                                             |                                                                    |                     | Net cash provided by financing activities            |       
|                                                                       |                                                                             |                                                                    |                     |                                                      |       
|Effect of exchange rate changes on cash and cash equivalents           |                                                                             |                                                                    | (180                | )                                                    | 26    
|                                                                       |                                                                             |                                                                    |                     |                                                      |       
|                                                                       |                                                                             |                                                                    |                     | Net (decrease) increase in cash and cash equivalents |       
|Cash and cash equivalents, beginning of period                         |                                                                             |                                                                    | 30,687              |                                                      |      
|                                                                       |                                                                             |                                                                    |                     |                                                      |       
|Cash and cash equivalents, end of period                               |                                                                             | $                                                                  | 6,012               |                                                      | 30,687
|                                                                       |                                                                             |                                                                    |                     |                                                      |       
|Supplemental disclosures of cash flow informationbusinesses acquired: |                                                                             |                                                                    |                     |                                                      |       
|                                                                       |                                                                             | Fair value of assets acquired, net of cash acquired                |                     | $                                                    | 1,030 
|                                                                       |                                                                             |                                                                    |                     |                                                      |       
|                                                                       |                                                                             | Liabilities assumed                                                |                     | $                                                    | 1,453 
|                                                                       |                                                                             |                                                                    |                     |                                                      |       
|                                                                       | Noncash investing and financing activities:                                 |                                                                    |                     |                                                      |       
|                                                                       |                                                                             | Equipment acquired under capital leases                            |                     | $                                                    | 901   
|                                                                       |                                                                             |                                                                    |                     |                                                      |       
|                                                                       |                                                                             | Share capital issued for acquisition of business                   |                     | $                                                    | 9,600 
|                                                                       |                                                                             |                                                                    |                     |                                                      |       

See accompanying notes to consolidated financial statements.

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BAKBONE SOFTWARE INCORPORATED
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001 and April 30, 2000
(Expressed in Canadian dollars)

(1) The Company and Business Combinations

BakBone Software Incorporated (BakBone or the Company) is an international storage management software company that develops and globally distributes storage
management solutions to the open systems markets, providing data protection and management solutions scalable from workgroup to enterprise. The Company's corporate headquarters are located in San
Diego, California.

The
Company, formerly Net Resources Incorporated (Net Resources), was originally incorporated in the Canadian Province of British Columbia under the Company Act. In November 1992,
the Company continued from British Columbia to the Province of Alberta where it engaged in mineral exploration activities. These exploration activities were ceased during 1999 due to declining prices
in the mineral markets, and the mining assets were written off. On March 13, 2000, the Company changed its name to BakBone Software Incorporated.

In
August 2000, the Board of Directors approved a change in the fiscal year-end of the Company for financial reporting purposes from April 30 to
March 31, effective with the fiscal year beginning May 1, 2000.

On
March 16, 2000, the Company acquired 100% of NVS Holdings Inc. (NVS). This acquisition, as detailed below, resulted in a reverse takeover of the Company by NVS as the
greater proportion of the voting shares of the Company were held by NVS shareholders after the acquisition. Concurrent with the reverse takeover of the Company, the merged entity acquired NetVault
Holdings Limited, NetVault Limited and an aggregate 47% of NetVault Corporation (NVKK). At the time of this acquisition, NetVault Holdings Limited was a non-operating private shell while
NetVault Limited and NetVault Corporation had substantive operations.

In
regards to these acquisitions, the Company has determined that the operations of the acquired companies were not material during the period from March 1, 2000 through the
actual date of the acquisition and as such has assigned a convenience date of March 1, 2000 for accounting purposes.

Each
of these acquisitions is discussed in greater detail as follows:

Net working capital deficiency

$
(81
)Capital assets


369Excess purchase price


4,318Purchase price ($4,508 plus $98 of transaction costs)

$
4,606


67

---





68

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On
June 9, 2000, the Company acquired all of the issued and outstanding common shares of Tracer Technologies, Inc. and its 50% ownership of the common shares of Tracer
Technologies Japan Corporation (collectively Tracer), for cash and acquisition costs totaling $3.5 million and 600,000 common shares of the Company valued at $9.6 million on the date of
acquisition. Of the 600,000 shares issued, 122,340 shares were issued to a trust beneficially owned by the family of a director of the Company. The acquisition was accounted for by the purchase method
of accounting, and accordingly, the operating results of Tracer have been included in the accompanying consolidated, financial statements of the Company from the date of acquisition. The excess of
purchase price over the fair value of the net assets acquired of $600,000 was $12.5 million and is being amortized on a straight-line basis over three years, the expected useful
life.

In
order to retain certain principals of Tracer as employees, the Company issued stock options to acquire 250,000 common shares at an exercise price of $6.00 per share. One of the
principals is a relative of a director of the Company and received options to acquire 62,500 common shares. The director also indirectly received 3,060 common shares of the Company through his
ownership in Tracer Technologies Japan Corporation, one of the former shareholders of Tracer.

(2) Significant Accounting Policies

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada which conform in all
material respects with those in the United States, except as outlined in Note 15. All amounts are expressed in Canadian dollars, unless otherwise noted.

The
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, BakBone Software, Inc., NVS, BakBone Software Ltd. (formerly
NetVault Holdings Ltd.), BakBone Acquisition Corp. (formerly Tracer Technologies, Inc.), and its 47% and 50% owned subsidiaries, BakBone Software KK (formerly NetVault Corporation) and
Tracer Technologies Japan Corporation, respectively. All material intercompany transactions and accounts have been eliminated on consolidation. The consolidation of NVKK and Tracer KK was determined
to be appropriate as the Company controls a combined 93% of NVKK and 75% of Tracer KK through direct ownership and
beneficial ownership through two directors of the Company, who combined own an additional 46% of NVKK, and one director of the Company who owns an additional 25% of Tracer KK.

In
preparing the consolidated financial statements, the Company has recorded entries to account for the minority interest in the net income or loss of NVKK and Tracer KK. During the
eleven months ended March 31, 2001, the minority interest balance of NVKK was reduced to zero due to losses incurred and, as such, no minority interest is reflected in the consolidated balance
sheet for this entity. Minority interest for Tracer KK is reflected in the consolidated financial statements as of and for the ten months ended March 31, 2001.

The
accounts of the Company's foreign subsidiaries are translated into Canadian dollars using the current rate method whereby monetary items are translated at the rate of exchange in
effect at the balance sheet date. Revenue and expense items are translated at the average exchange rate during the reporting period. Foreign currency translation gains and losses are included as a
separate component of shareholders' equity.

69

---

Certain
transactions of the Company's foreign subsidiaries are carried out in currencies other than the subsidiaries' local currency. Any gains or losses resulting from these
transactions are included in results of operations as incurred.

Cash
and cash equivalents consist of money market instruments, commercial paper and other highly liquid investments with original maturities of three months or less from the date of
purchase. Cash and cash equivalents subject to restriction are classified as restricted cash (Note 8).

Capital
assets are recorded at cost and depreciated using the straight-line basis over the assets' useful lives as follows:

Computer equipment and software

3-5 yearsFurniture and fixtures

5-7 yearsLeasehold improvements

Shorter of estimated useful life or life of lease


Intangibles
are recorded at cost and amortized on a straight-line basis over three years. The Company assesses the recoverability of intangibles by determining whether the
amortization of the balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of intangibles impairment, if any, is
measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability of intangibles will be
impacted if estimated future operating cash flows are not achieved.

The
Company reviews the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. To the
extent the estimated future cash inflows from such assets less estimated future cash outflows are less than the carrying amount, an impairment loss is recognized.

The
Company derives revenue from licensing its software and from the sale of customer support services (maintenance) and professional services. Professional services include training and
consulting services. The Company sells exclusively through a network of partners and all sales are based on a published master price list with set discounts given to partners based on their specific
contract with the Company.

Vendor
specific objective evidence exists for the software element and the professional services element in that we sell each element separately, based on the established prices in the
master price list. The prices for professional services are based on set hourly rates. Vendor specific objective evidence exists for the maintenance element in that the maintenance agreements include
technical support for a one year period, with an option to renew the agreements for a period of one or more years, and the annual renewal fee ranges generally from 18% to 22% of the software license
fee. As vendor specific objective evidence exists for each element, the Company uses separate element accounting. The Company has standard payment terms, which it offers to all of its customers, and
does not offer any

70

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extended payment terms. In addition, the Company's sales agreements do not contain any right of return provisions or stock balancing rotation rights.

The
Company recognizes software license revenue upon meeting certain defined criteria including: the execution of a signed contract, delivery of the product to the customer,
determination that the software license fees are fixed and determinable, and determination that collection of the software license fees is probable. If any of the criteria are not met, the Company
defers recognition of the software license revenue until the criteria are met. The Company recognizes revenue from professional services as the services are performed. The Company recognizes revenue
from maintenance contracts ratably over the related contract period.

Product
development costs related to research, design and development of software applications are charged to expense as incurred. To date, completion of working models of the Company's
applications and the general release of the products have substantially coincided. As a result, the Company has not capitalized any application development costs as such costs have been insignificant.

Basic
earnings or loss per share is calculated using the weighted-average number of common shares outstanding. Diluted earnings or loss per share is calculated similar to basic earnings
or loss per share except that the weighted-average shares outstanding are increased to include additional shares from the assumed exercise of common stock equivalents, if dilutive. The number of
additional shares is calculated by assuming that outstanding stock options and warrants were exercised and that the proceeds from such exercises were used to acquire shares of common stock at the
average market price during the reporting period. For the eleven months ended March 31, 2001 and the year ended April 30, 2000, 5,177,033 and 12,600,399 common stock equivalents,
respectively, were excluded from the computations of diluted loss per share as their effect is anti-dilutive.

The
Company's stock-based compensation arrangements are described in Note 6. No compensation expense is recognized for these plans when stock options are issued to employees and
consultants for services rendered.

The
Company follows the asset and liability method of accounting for future income taxes, under which future income tax assets and liabilities are determined based on temporary
differences and are measured using the current, or substantially enacted, tax rates and laws expected to apply when these differences reverse. A valuation allowance is recorded against any future
income tax assets if it is more likely than not the asset will not be realized.

The
Company is exposed to the risk that arises from fluctuations in foreign exchange rates and the volatility of those rates. The Company does not use derivative instruments to reduce
its exposure to foreign currency exchange risk.

During
the year ended April 30, 2000, the Company had sales to four customers which represented 13%, 12%, 11% and 11% of total revenues, respectively. During the eleven months
ended March 31, 2001, no single customer represented more than 10% of total revenues.

71

---

Cash,
restricted cash, accounts receivable, accounts payable, accrued liabilities, notes payable and loans from related parties constitute financial instruments. The carrying value of
cash, restricted cash, accounts receivable, accounts payable and accrued liabilities approximates their fair value given the relatively short periods to maturity. The carrying value of notes payable
approximates its fair value because its interest rates and other terms are comparable to those currently available to the Company in the marketplace. The fair value of loans from related parties
cannot be ascertained due to the related party nature of the debt.

The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in Canada requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from those estimates.

(3) Capital Assets

Capital assets consist of the following at March 31, 2001 and April 30, 2000 (in thousands):

|                |                                 | Cost |       | Accumulated
depreciation |     | Net book value
|--------------- | ------------------------------- | ---- | ----- | ------------------------ | --- | --------------
|March 31, 2001: |                                 |      |       |                          |     |               
|                | Computer equipment and software |      | $     | 4,929                    |     | 712           
|                | Furniture and fixtures          |      |       | 738                      |     | 73            
|                | Leasehold improvements          |      |       | 1,078                    |     | 69            
|                |                                 |      |       |                          |     |               
|                |                                 | $    | 6,745 |                          | 854 |               
|                |                                 |      |       |                          |     |               
|April 30, 2000: |                                 |      |       |                          |     |               
|                | Computer equipment and software |      | $     | 448                      |     | 24            
|                | Furniture and fixtures          |      |       | 66                       |     | 3             
|                | Leasehold improvements          |      |       | 169                      |     | 2             
|                | Construction work-in-process    |      |       | 148                      |     |              
|                |                                 |      |       |                          |     |               
|                |                                 | $    | 831   |                          | 29  |               
|                |                                 |      |       |                          |     |               

(4) Warrants

During the year ended April 30, 2000, the Company raised $9.0 million and $29.7 million through a private placement of 6,000,000
Series A Special Warrants, at a price of $1.50 per warrant, and 3,000,000 Series B Special Warrants, at a price of $9.90 per warrant, respectively, excluding issuance costs of
$3.1 million. Each Series A Special Warrant was exercisable, for no additional consideration, into one common share and one-half Series A Warrant upon receipt of the
final prospectus in each of the respective provinces in Canada. Each Series B Special Warrant was exercisable, for no additional consideration, into 1.1 common shares and 0.55 Series B
Warrant upon receipt of the final prospectus in each of the respective provinces in Canada. Each full Series A Warrant and Series B Warrant entitled the holder to purchase one common
share of the Company at a price of $1.80 and $15.00 per common share, respectively.

In
addition, the Company issued 250,000 Series A Broker Warrants and 260,995 Series B Broker Warrants in conjunction with the Series A and B Special Warrants
issuance. Of the Series A Broker Warrants, 200,000 were exercisable, at no cost, into one Series A Broker Option entitling the holder

72

---

thereof to purchase one common share at a price of $1.60. The remaining 50,000 Series A Broker Warrants were exercisable, at no cost, into one Series A Broker Option entitling the
holder thereof to purchase, at a price of $1.60, one common share and one-half Series A Warrant. Each Series B Broker Warrant was exercisable, at no cost, into one
Series B Broker Option entitling the holder thereof to purchase, at a price of $9.90, one common share and one-half Series B Warrant. The Company did not receive any proceeds
from the issuance of the Series A Broker Warrants and Series B Broker Warrants.

On
March 16, 2000, 426,000 Series C Special Warrants were issued to a third-party consultant for services rendered prior to the issuance date. Of the total Series C
Special Warrants, 300,000 were issued directly to the consultant with the balance issued to two directors of the Company in repayment of an aggregate of 126,000 common shares owed by the consultant to
those individuals. Each Series C Special Warrant was exercisable, at no cost, into one common share upon receipt of the final prospectus in each of the respective provinces in Canada. The
Company did not receive any proceeds from the issuance of the Series C Special Warrants.

The
Company received receipt of the final prospectus in each of the provinces of Alberta and British Columbia in July 2000, and receipt of the final prospectus from the province
of Ontario in December 2000. Upon receipt, the Company allocated the net proceeds from the Special Warrants to share capital. In connection with the receipt of the final prospectus, the Company
issued, upon exercise of the Series A and Series B Special Warrants, 3,000,000 Series A Warrants and 1,650,000 Series B Warrants, respectively. In addition, the
Series A Broker Warrants and Series B Broker Warrants were exercised and the Company issued 250,000 Series A Broker Options and 260,995 Series B Broker Options,
respectively. During the eleven months ended March 31, 2001, the Company issued 50,000 Series A Warrants and 39,000 Series B Warrants in connection with the exercise of 250,000
Series A Broker Options and 78,000 Series B Broker Options, respectively.

Warrant
activity is summarized as follows:

|                               |  | Number of special
warrants |   | Number of other
warrants |   | Total warrants |   | Weighted-average
exercise price
|------------------------------ |  | -------------------------- | - | ------------------------ | - | -------------- | - | -------------------------------
|Balance at May 1, 1999         |  |                           |   | 2,735,000                |   | 2,735,000      |   | $                              
|Issued                         |  | 9,936,995                  |   |                         |   | 9,936,995      |   |                                
|Exercised for cash             |  |                           |   | (2,350,001               | ) | (2,350,001     | ) |                                
|Expired                        |  |                           |   | (62,499                  | ) | (62,499        | ) |                                
|                               |  |                            |   |                          |   |                |   |                                
|Balance at April 30, 2000      |  | 9,936,995                  |   | 322,500                  |   | 10,259,495     |   |                                
|Issued                         |  |                           |   | 5,249,995                |   | 5,249,995      |   |                                
|Exercised for no consideration |  | (9,936,995                 | ) |                         |   | (9,936,995     | ) |                                
|Exercised for cash             |  |                           |   | (3,694,934               | ) | (3,694,934     | ) |                                
|Expired                        |  |                           |   | (35,566                  | ) | (35,566        | ) |                                
|                               |  |                            |   |                          |   |                |   |                                
|Balance at March 31, 2001      |  |                           |   | 1,841,995                |   | 1,841,995      |   | $                              
|                               |  |                            |   |                          |   |                |   |                                

73

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(5) Share Capital

An unlimited number of common shares without par value are authorized. Common share activity during the year ended April 30, 2000 and the eleven months
ended March 31, 2001 is as follows:

|                                                                                                                     |  | The Company |  | NVS |        
|-------------------------------------------------------------------------------------------------------------------- |  | ----------- |  | --- | -------
|
|Balance at May 1, 1999                                                                                               |  | 5,662,429   |  | $   | 25,330 
|Issued for cash in private placements                                                                                |  | 2,860,000   |  |     | 720    
|Issued for cash upon exercise of stock options                                                                       |  | 550,600     |  |     | 231    
|Issued for cash upon exercise of warrants                                                                            |  | 2,350,001   |  |     | 292    
|Issued to acquire NVS (Note 1)                                                                                       |  | 15,625,000  |  |     | (303   
|Continuation of NVS share capital (Note 1)                                                                           |  |            |  |     | 13     
|Issued to acquire NVKK (Note 1)                                                                                      |  | 375,000     |  |     | (45    
|Elimination of NVS shares and Net Resources share capital (Note 1)                                                   |  |            |  |     | (26,151
|                                                                                                                     |  |             |  |     |        
|Balance at April 30, 2000                                                                                            |  | 27,423,030  |  |     | 87     
|Issued for cash upon exercise of stock options                                                                       |  | 303,958     |  |     | 864    
|Issued upon receipt of final prospectus for Special Warrants from provinces of British Columbia, Alberta and Ontario |  | 9,726,000   |  |     | 35,413 
|Issued for cash upon exercise of warrants                                                                            |  | 3,694,934   |  |     | 6,894  
|Issued to acquire Tracer (Note 1)                                                                                    |  | 600,000     |  |     | 9,600  
|                                                                                                                     |  |             |  |     |        
|Balance at March 31, 2001                                                                                            |  | 41,747,922  |  | $   | 52,858 
|                                                                                                                     |  |             |  |     |        



In March 2000, in connection with the NVS acquisition, 10,425,000 common shares were deposited in escrow and were to be released as to
one-third on September 16, 2000, March 16, 2001 and September 16, 2001. In July 2000, in order to obtain receipt of the final prospectus from the Province of
Ontario, the Company entered into an additional escrow agreement covering 5,285,686 common shares. Of the July 2000 escrowed common shares, 4,956,686 related to the NVS acquisition and were
redeposited under this escrow agreement with an additional 329,000 common shares (or securities convertible into such shares) held by officers and directors of the Company. The related common shares
will be
released as to one-third on each of July 13, 2001, July 13, 2002 and July 13, 2003. The total common shares released during the eleven months ended March 31,
2001 was 3,645,542.

(6) Stock-Based Compensation

The Company has a stock option plan (the Plan) pursuant to which the Board of Directors of the Company may grant nontransferable stock options to purchase common
shares of the Company to directors, officers, employees, advisors and consultants. As of March 31, 2001 and April 30, 2000, 3,809,042 and 3,328,704 common shares, respectively, have been
reserved for issuance under this plan. The maximum number of common shares which may be reserved for issuance to any one person under the Plan is 5% of the common shares outstanding at the time of
grant (calculated on a nondiluted basis). The options vest generally over one to four years and are exercisable for a maximum term of ten years.

In
May 2000, the Company filed an application with the Toronto Stock Exchange (TSE) to reprice 1,698,000 stock options from $18.85 to $12.35 per share. The Company received TSE
approval and subsequently shareholder approval for the repricing in October 2000.

74

---

A summary of the status of the Company's stock option plan is as follows:

Number
of shares

Weighted-
average
exercise priceOutstanding at May 1, 1999

490,667

$
0.35Granted

2,472,504


11.10Exercised

(550,600
)

0.42Cancelled

(71,667
)

1.53Outstanding at April 30, 2000

2,340,904


11.65Granted

2,059,000


13.92Exercised

(303,958
)

2.84Cancelled

(760,908
)

13.26Outstanding at March 31, 2001

3,335,038

$
10.33Exercisable at March 31, 2001

1,710,131

$
9.53


The
following table summarizes information regarding stock options outstanding and exercisable at March 31, 2001:

|  |               | Options outstanding |           | Options exercisable
|- | ------------- | ------------------- | --------- | -------------------
|
|$ | 0.95    1.20 |                     | 316,400   |                    
|  | 5.65    6.16 |                     | 757,676   |                    
|  | 12.3512.50   |                     | 1,477,458 |                    
|  | 13.0014.20   |                     | 694,000   |                    
|  | 18.85         |                     | 89,504    |                    
|  |               |                     |           |                    
|  |               |                     | 3,335,038 |                    
|  |               |                     |           |                    

During
the year ended April 30, 2000, in order to attract and retain certain sales and executive employees, NVS issued 675,000 restricted common shares (the incentive shares) as
additional compensation to existing and targeted employees. Upon the acquisition of NVS on March 16, 2000, these shares were exchanged for restricted common shares of the Company. The incentive
shares are subject to vesting over a three to four-year period and will be distributed to each employee only if employed on each of the associated vesting dates.

During
the year ended April 30, 2000, as consideration for services rendered, the Company granted 722,000 stock options to advisors and consultants (the advisors options) at
prices ranging from $0.95 to $14.20 per share. Of the stock options granted, 572,000 were fully vested upon grant and related to services already rendered, with the remaining 150,000 stock options
vesting based on performance milestones specified in the consulting agreement. The related milestones were not met by the end of the contractual period and none of the 150,000 stock options vested.

During
the eleven months ended March 31, 2001, the Company granted 475,000 stock options to advisors at prices ranging from $6.16 to $13.00 per share. Of the stock options
granted, 25,000 were fully vested upon grant, 350,000 vest generally over one year based on the terms of the consulting agreements and 100,000 were to vest based on specified performance milestones.
However, these milestones were not met, and none of the 100,000 stock options vested.

75

---

(7) Income Taxes

For the eleven months ended March 31, 2001 and the year ended April 30, 2000, there was no provision for current or deferred income taxes. The
income tax effects of the temporary differences that give rise to significant portions of the Company's future tax assets as of March 31, 2001 and April 30, 2000 are presented below by
tax jurisdiction (in thousands):

|                |                                        | Canada                                |                       | United
States |        | United
Kingdom |         | Japan |        | Total |       
|--------------- | -------------------------------------- | ------------------------------------- | --------------------- | ------------- | ------ | -------------- | ------- | ----- | ------ | ----- | ------
|March 31, 2001: |                                        |                                       |                       |               |        |                |         |       |        |       |       
|                | Future tax assets:                     |                                       |                       |               |        |                |         |       |        |       |       
|                |                                        | Accruals                              |                       | $             |       |                | 185     |       |       |       |      
|                |                                        | Net operating losses                  |                       |               | 368    |                | 10,232  |       | 1,279  |       | 112   
|                |                                        |                                       |                       |               |        |                |         |       |        |       |       
|                |                                        |                                       | 368                   |               | 10,417 |                | 1,279   |       | 112    |       | 12,176
|                |                                        | Less valuation allowance              |                       |               | (368   | )              | (10,417 | )     | (1,279 | )     | (102  
|                |                                        |                                       |                       |               |        |                |         |       |        |       |       
|                |                                        |                                       | Deferred tax assets   |               |        |               |         |      |        |      |       
|                |                                        | Future tax liabilitiescapital assets |                       |               |       |                |        |       |       |       | (10   
|                |                                        |                                       |                       |               |        |                |         |       |        |       |       
|                |                                        |                                       | Net future tax assets |               | $      |               |         |      |        |      |       
|                |                                        |                                       |                       |               |        |                |         |       |        |       |       
|April 30, 2000: |                                        |                                       |                       |               |        |                |         |       |        |       |       
|                | Future tax assetsnet operating losses |                                       | $                     | 40            |        | 396            |         | 94    |        | 59    |       
|                | Less valuation allowance               |                                       |                       | (40           | )      | (396           | )       | (94   | )      | (56   | )     
|                |                                        |                                       |                       |               |        |                |         |       |        |       |       
|                |                                        |                                       | Deferred tax assets   |               |        |               |         |      |        |      |       
|                | Future tax liabilitiescapital assets  |                                       |                       |              |        |               |         |      |        | (3    | )     
|                |                                        |                                       |                       |               |        |                |         |       |        |       |       
|                |                                        |                                       | Net future tax assets |               | $      |               |         |      |        |      |       
|                |                                        |                                       |                       |               |        |                |         |       |        |       |       

The
Company has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets. Management periodically evaluates the
recoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced.

A
reconciliation of the expected income tax benefit to the actual income tax expense reported in the consolidated statements of operations and accumulated deficit is as follows (in
thousands):

2001

2000Computed expected income tax benefit at Canadian statutory income tax rate of 43.6%

$
(14,265
)
(573
)Foreign tax rate differential


1,637

79Permanent differences


21

Nondeductible intangibles


1,027

Unrecognized recoveries from losses


11,580

494Actual income tax expense

$





The
net change in the total valuation allowance for the eleven months ended March 31, 2001 and the year ended April 30, 2000 was an increase of $11,580,000 and $586,000,
respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers the scheduled reversal of deferred tax

76

---

liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the level of historical operating results and projections of future taxable income,
management has determined that it is more likely than not that the portion of deferred tax assets not utilized through the reversal of deferred tax liabilities will not be realized. Accordingly, the
Company has recorded a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized.

The
Company has Canadian noncapital losses of $779,000 at March 31, 2001 which may be available to apply against future Canadian taxable income. These losses begin to expire in
2007.

BakBone
Software, Inc. has net operating loss carryforwards of US$16,298,000 at March 31, 2001 that are available as reductions to its taxable income in future years. These
carryforwards will begin to expire in 2020.

NVHL
has trade loss carryforwards of UK£1,300,000 at March 31, 2001 that are available as reductions to its taxable income in future years. These carryforwards
generally have an indefinite carryforward period.

NVKK
has net operating loss carryforwards of ¥42,250,000 at March 31, 2001 that are available as reductions to its taxable income in future years. These carryforwards
will begin to expire in 2003.

(8) Restricted Cash

During the eleven months ended March 31, 2001, in conjunction with a facility lease, the Company was required to enter into a standby letter of credit with
a bank whereby $1.2 million was deposited into an investment account to collateralize the letter. As the lease requires the Company to maintain the letter of credit until January 2003,
the related restricted cash amount has been classified as long-term.

The
Company maintains credit cards for use by certain executives for business-related expenses. In order to obtain the credit cards, the issuing bank required the Company to
cash-secure the total credit limits. As such, during the eleven months ended March 31, 2001, $142,000 was deposited into an investment account at the issuing bank. As the Company
may terminate the credit card agreement at any time, the related restricted cash amount has been classified as a current asset.

(9) Retirement Plans

During the eleven months ended March 31, 2001, the Company established a voluntary deferred contribution plan for employees in the United States (the U.S.
Plan) in accordance with the provisions of the Internal Revenue Code Section 401(k). The U.S. Plan allows participants to contribute up to 15% of their annual salary, subject to certain
limitations, as provided by federal law. Each year, the Company's Board of Directors determines the amount, if any, of the Company's matching contributions. There were no matching contributions during
the eleven months ended March 31, 2001.

The
Company maintains a voluntary defined contribution plan for employees in the United Kingdom (the U.K. Plan). The U.K. Plan allows participants to defer a minimum of 3% of their
annual salary with a maximum contribution ranging from 17.5% to 40% of salary, depending on the age of the participant. In addition, the U.K. Plan calls for the Company to annually match 5% of each
participant's salary; these matching contributions vest immediately. During the eleven months ended March 31, 2001 and the year ended April 30, 2000, the Company contributed $115,000 and
$8,000, respectively.

77

---

The
Company currently maintains no retirement plans for employees working in Japan and Canada.

(10) Notes Payable

The Company has entered into notes payable (notes) and a line of credit with banks in the ordinary course of business. The following is a summary of the Company's
notes and line of credit at March 31, 2001 (in thousands):

|The following notes were entered into between Tracer KK and a Japanese bank and, as such, are payable in Japanese yen: |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |   |       
|---------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------- | - | ------
|                                                                                                                       | An unsecured five-year note at 2.50% interest, dated February 1997, and having a monthly payment of $1.0. A principal of Tracer KK has personally guaranteed this note.                                                                                                                                                                                                                                                                          |                   | $ | 12    
|                                                                                                                       | An unsecured five-year note at 2.50% interest, dated February 1998, and having a monthly payment of $1.0. A principal of Tracer KK has personally guaranteed this note.                                                                                                                                                                                                                                                                          |                   |   | 24    
|                                                                                                                       | An unsecured seven-year note at 2.50% interest, dated June 1998, and having a monthly payment of $1.5. A principal of Tracer KK has personally guaranteed this note.                                                                                                                                                                                                                                                                             |                   |   | 77    
|                                                                                                                       | An unsecured five-year note at 2.325% interest, dated March 2000, and having a monthly payment of $6.2. A principal of Tracer KK has personally guaranteed this note.                                                                                                                                                                                                                                                                            |                   |   | 299   
|The following line of credit was entered into between the Company and a bank and is payable in U.S. dollars:           |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |   |       
|                                                                                                                       | In February 2001, the Company obtained an unsecured line of credit and fully borrowed the available proceeds of $3,942 (US$2,500). The line of credit bears an interest rate of 10% and matures in August 2001. If
not repaid upon maturity, the amount borrowed plus accrued interest will be converted into common shares of the Company based on the closing price of the Company's stock on the Toronto Stock Exchange on the maturity date. |                   |   | 3,942 
|                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |  
|                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Total             |   |       
|                                                                                                                       | Less current portion                                                                                                                                                                                                                                                                                                                                                                                                                             |                   |   | (4,058
|                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |  
|                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  | Long-term portion |   | $     
|                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                   |  

Principal
maturities for the Company's notes and line of credit for years ending March 31 are as follows (in thousands):

2002

$
4,0582003


1062004


932005


932006


4Total

$
4,354


(11) Related Party Transactions

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.

78

---

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.

A
director of the Company provides certain consulting and investor relations services to the Company. During the eleven months ended March 31, 2001 and the year ended
April 30, 2000, the Company paid the director $105,000 and $129,000, respectively, relating to the services rendered.

Prior
to the acquisition of NVKK, two directors and officers of the Company provided loans to NVKK. These loans have no maturity date and are interest-free. At
March 31, 2001 and April 30, 2000, the balance owed to these individuals totaled $118,000 and $366,000, respectively.

(12) Commitments and Contingencies

The
Company is involved in litigation and claims which arise from time to time in the normal course of business. In the opinion of management, based in part on the advice of legal
counsel, any liability that may arise from such contingencies would not have a significant adverse effect on the consolidated financial position, results of operations or liquidity of the Company.

The
Company leases certain facilities and equipment under noncancelable operating and capital leases. Future minimum lease payments for years ending March 31 are as follows (in
thousands):

Capital
leases

Operating
leases2002

$
373

$
2,2372003


332


2,1422004


81


1,3342005





1,3342006





852Thereafter





811Total minimum lease payments


786

$
8,710Less amount representing interest


(105
)Present value of net minimum lease payments, including current portion of $302

$
681


Rent
expense for the eleven months ended March 31, 2001 and the year ended April 30, 2000 was $1.8 million and $45,000, respectively.

(13) Segment Information

Management has determined that the Company operates in two segments, which are the Company's two product lines, NetVault and MagnaVault. Revenues are generated
from the licensing of software and sale of support services. Total assets, capital expenditures, depreciation and amortization, interest income and operating expenses are not disclosed by operating
segment as they are not specifically related to a particular product line. The following table represents a summary of revenues

79

---

of the product line operating segments for the eleven months ended March 31, 2001 and the year ended April 30, 2000 (in thousands):

2001

2000RevenuesLicensing:NetVault

$
3,602

350MagnaVault


2,726

Total


6,328

350Services:NetVault


800

122MagnaVault


391

Total


1,191

122Other


10

11Total revenues

$
7,529

483


The
following tables represent a summary of revenues, capital assets and intangibles by major geographic region as of and for the eleven months ended March 31, 2001 and as of and
for the year ended April 30, 2000 (in thousands):

2001

2000RevenuesLicensing:Europe

$
603

46Asia


3,801

304North America


1,924

Total


6,328

350Services:Europe


417

90Asia


301

32North America


473

Total


1,191

122OtherAsia


10

11Total revenues

$
7,529

483


Europe

Asia

North America

TotalIdentifiable assets as of March 31, 2001:Capital assets, net

$
802

535

4,554

5,891Intangibles, net


2,690



9,657

12,347Identifiable assets as of April 30, 2000:Capital assets, net

$
393

32

377

802Intangibles, net


4,129





4,129


80

---

(14) Subsequent Event

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 a final prospectus to be
filed in the provinces of Alberta and British Columbia. Each full share purchase warrant entitles the holder to purchase one common share at $7.50 and expires on the earlier of
(i) 30 days after the date on which the 10-day weighted-average price of the Company's common shares
traded on the TSE exceeds $10.00 and (ii) November 15, 2001. The Special Warrants were sold to existing shareholders and Company management.

(15) Differences between Accounting Principles Generally Accepted in Canada and in the United States

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted (GAAP) in Canada which differ in certain
respects from GAAP in the United States. The material differences between Canadian and United States GAAP affecting the Company's consolidated financial statements are summarized as follows:

For
U.S. GAAP purposes, the Company accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation(SFAS 123),
 Emerging Issues Task Force 96-18,Accounting for Equity
Instruments That Are Issued to Other Than Employees(EITF 96-18),and FASB Interpretation Number
44, Accounting for Certain Transactions Involving Stock Compensation(FIN 44). In addition, SFAS 123 allows entities to apply the provisions of
Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees(APB 25), to stock options granted to employees.



During the eleven months ended March 31, 2001 and the year ended April 30, 2000, a portion of the stock options granted to employees was at a price
less than the market value of the Company's stock, per the TSE, on the date of grant. In accordance with APB 25, the excess of the market value over the grant price, the intrinsic value, was recorded
as share capital and the related deferred compensation is being amortized on a straight-line basis over the vesting period of the related stock options, generally one to four years.

Under
U.S. GAAP, the Company recorded share capital of $873,000 and $14.2 million related to the intrinsic value of stock options granted during the eleven months ended
March 31, 2001 and the year ended April 30, 2000, respectively. The Company recorded compensation expense from the amortization of deferred compensation of $6.3 million and
$1.2 million during the eleven months ended March 31, 2001 and the year ended April 30, 2000, respectively. Deferred compensation remaining to be amortized as of March 31,
2001 and April 30, 2000 was $7.6 million and $13 million, respectively.



During the eleven months ended March 31, 2001 and the year ended April 30, 2000, the Company issued 9,000 and 1,961,000 EBT shares to employees,
respectively. Under U.S. GAAP, the EBT shares are accounted for in accordance with APB 25, which requires compensation expense to be recorded based on the intrinsic value of the shares issued. The
intrinsic value was determined using the closing price per the TSE on the date the related shares were allocated to each employee. The resulting value of the shares was recorded as share capital and
the related deferred compensation is being amortized over the related vesting period of generally three years for shares subject to vesting provisions. For

81

---

those shares which vested immediately, the associated value was recorded directly to compensation expense on the date of grant.

Under
U.S. GAAP, the Company recorded share capital of $125,000 and $84.1 million related to the value of the EBT shares allocated to employees during the eleven months ended
March 31, 2001 and the year ended April 30, 2000, respectively. The Company recorded compensation expense of $13.2 million and $43.6 million from the amortization of
deferred compensation during the eleven months ended March 31, 2001 and the year ended April 30, 2000, respectively. Deferred compensation remaining to be amortized as of
March 31, 2001 and April 30, 2000 was $27.5 million and $40.6 million, respectively.

As
of March 31, 2001 and April 30, 2000, there were 130,000 and 139,000 unallocated shares in the EBT, respectively. The Company recorded the aggregate value of the
unallocated shares using the closing price per share on the TSE as of March 31, 2001 and April 30, 2000 of $650,000 and $2.4 million, respectively, in share capital and in
employee benefit trust, a contra equity account.



Under U.S. GAAP, the 675,000 unvested incentive shares issued to employees during the year ended April 30, 2000 are accounted for in accordance with APB 25
which required compensation expense to be recorded based on the intrinsic value of the shares issued. As such, the value of the underlying restricted incentive shares was determined using the closing
price per the TSE on the date the incentive shares were allocated to each employee. The resulting value of the incentive shares was recorded as share capital and the related deferred compensation is
being amortized over the related vesting period, generally three to four years.

The
Company recorded deferred compensation and share capital of $22.3 million related to the value of the incentive shares issued during the year ended April 30, 2000. In
addition, the Company recorded
compensation expense of $6.7 million and $1.2 million related to the amortization of deferred compensation during the eleven months ended March 31, 2001 and the year ended
April 30, 2000, respectively. Deferred compensation remaining to be amortized as of March 31, 2001 and April 30, 2000 was $12.4 million and $21.1 million,
respectively. In addition, during the eleven months ended March 31, 2001, some of the employees holding incentive shares terminated service with the Company resulting in a reversal of share
capital and deferred compensation of $2.0 million representing the book value of the unvested shares.



During the year ended April 30, 2000, the Company granted 722,000 stock options to advisors, of which 572,000 were immediately vested upon grant. Under
U.S. GAAP, the fair value of the fully vested stock options is measured on the grant date. However, all of the fully vested options were granted prior to the acquisition of NVS and the related
compensation was recorded in the results of operations of Net Resources, having no effect on the results of operations of the Company after applying reverse takeover accounting. The remaining 150,000
stock options granted during the year ended April 30, 2000 had contingent vesting provisions, and as the related milestones were never met, no compensation expense was recorded.

The
Company recorded $1.0 million of compensation expense related to 475,000 stock options granted to advisors during the eleven months ended March 31, 2001. This charge
resulted from 350,000 stock options that generally vest over one year and 25,000 stock options that vested immediately. The

82

---

fair value of these options was determined using the Black-Scholes option-pricing model, and is being recorded to share capital and compensation expense over the vesting period. The remaining 100,000
stock options granted during the eleven months ended March 31, 2001 had contingent vesting provisions, and as the related milestones were not met as of March 31, 2001, no compensation
expense was recorded.



In October 2000, the Company repriced 1,698,000 stock options from $18.85 to $12.35 per share. The Company accounts for the repriced stock options using
variable plan accounting in accordance with FIN 44. From the date of the repricing to March 31, 2001, the Company's stock price did not exceed the repriced amount of $12.35, and therefore, the
Company has recorded no compensation expense related to the repricing.

Under
U.S. GAAP, the Financial Accounting Standards Board issued Statement No. 130,Reporting Comprehensive Income(SFAS 130), which requires that companies report comprehensive income as a measure of overall performance. SFAS 130 establishes standards for the reporting and display of comprehensive
income and its components. The following table sets forth comprehensive loss for the eleven months ended March 31, 2001 and the year ended April 30, 2000 (in thousands):

2001

2000Net loss under U.S. GAAP

$
(61,065
)
(47,466
)Cumulative exchange adjustment


507

16Comprehensive loss

$
(60,558
)
(47,450
)


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

Under
U.S. GAAP, the Financial Accounting Standards Board issued Statement No. 128,Earnings per Share(SFAS 128), which
provides for computing basic loss per share by dividing the net loss for the period by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed by
dividing the net loss for the period by the weighted-average number of common and potential common shares outstanding during the period. Certain securities were excluded from diluted loss per share
because of their antidilutive effect.

Under
Canadian GAAP, contingently issuable shares, including shares held in escrow, the unallocated EBT shares and the allocated but unvested EBT and incentive shares are included in the
calculation of basic loss per share. Under U.S. GAAP, contingently issuable shares including shares held in escrow, the unallocated EBT shares and the allocated but unvested EBT and incentive shares
are excluded from the weighted-average number of shares outstanding used for the computation of basic loss per share until such shares are released for trading. Escrowed shares, the unallocated EBT
shares

83

---

and the allocated but unvested incentive shares were excluded from the computation of diluted loss per share under U.S. GAAP due to their antidilutive effect.

In
connection with the acquisition of Tracer, the Company issued 250,000 stock options to principals of Tracer at a price of $6.00 per share. Of the stock options granted,
one-third vested immediately and two-thirds vest over a period of two years. Under U.S. GAAP, the fair value of the immediately vested stock options is included in the
acquisition cost of Tracer and was determined using the Black-Scholes option- pricing model resulting in a value of $941,000. The additional value resulted in an increase to intangibles associated
with the Tracer acquisition of $941,000, of which $261,000 was amortized during the eleven months ended March 31, 2001 under U.S. GAAP. The options that vest over a period of two years are
discussed in Note 15(a), Stock Options Issued with Exercise Prices Less Than Fair Value.

In
connection with the Special Warrant financing in March 2000, the Company issued 426,000 Series C Special Warrants to a consultant who provided services during 1999
pertaining primarily to the Special Warrant financing. Under U.S. GAAP, the fair value of the warrants is included in share capital as a cost of the financing and, therefore, has no net effect on the
Company's stockholders' equity.

Under
U.S. GAAP, in order to use the carryover basis for an acquisition involving an entity under common control, a company must demonstrate control of greater than 50% of the voting
interests of the acquired entity prior to the acquisition. Although the Company has effective control of NVKK through its direct ownership interest combined with the interests owned by certain Company
officers and directors, it does not control greater than 50% of the voting rights of NVKK. Therefore, under U.S. GAAP, the Company's purchase of 22% of NVKK on March 1, 2000 is accounted for by
using the purchase method of accounting based on the fair value of the consideration. Accordingly, the Company recorded an investment in affiliate and share capital of $3,713,000 for the fair value of
the shares
issued to consummate the transaction. The investment in affiliate 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 NVKK. The fair value of the shares was determined on the date the Company and NVKK reached agreement on the purchase price and the transaction was announced.

Under
U.S. GAAP, a company must own or demonstrate control of greater than 50% of an acquired entity's voting shares in order to consolidate the entity. The Company has effective control
over NVKK and Tracer KK through its respective ownership interest in each of the entities combined with the interests owned by certain Company officers and directors. Under U.S. GAAP, as the Company
does not control greater than 50% of the voting interests in either entity, the Company must use the equity method of accounting. Accordingly, the financial position and results of operations of NVKK
and Tracer KK have been removed from the consolidated financial statements of the Company as of and for the eleven months ended March 31, 2001 and as of and for the year ended April 30,
2000.

As
of March 31, 2001 and April 30, 2000, the Company recorded an investment in affiliate in the amount of $2,206,000 and $3,542,000, respectively, representing the carrying
value of its investment in NVKK. During the eleven months ended March 31, 2001, the Company recorded its 47% share of

84

---

NVKK's net loss of $202,000. During the year ended April 30, 2000, the Company recorded its 47% share of NVKK's net earnings of $35,000. In addition, as the carrying value of the Company's
investment in NVKK exceeds the underlying equity in net assets of NVKK, the Company recorded amortization expense of $1,134,000 and $206,000 during the eleven months ended March 31, 2001 and
the year ended April 30, 2000, respectively, related to the excess carrying value.

As
of March 31, 2001, the Company recorded an investment in affiliate in the amount of $172,000 representing the carrying value of its investment in Tracer KK. During the eleven
months ended March 31, 2001, the Company recorded equity in net loss of affiliate of $31,000 representing the Company's 50% share of Tracer KK's net loss.

Summarized financial information for NVKK and Tracer KK is as follows:

|                       |  | NVKK & Tracer KK
Combined |       | NVKK
|---------------------- |  | ------------------------- | ----- | ----
|
|Current assets         |  | $                         | 2,496 |     
|Noncurrent assets      |  |                           | 1,231 |     
|                       |  |                           |       |     
|Total assets           |  |                           | 3,727 |     
|                       |  |                           |       |     
|Current liabilities    |  |                           | 1,026 |     
|Noncurrent liabilities |  |                           | 2,779 |     
|                       |  |                           |       |     
|Total liabilities      |  | $                         | 3,805 |     
|                       |  |                           |       |     

|                        |  | NVKK & Tracer KK
Combined |       | NVKK
|----------------------- |  | ------------------------- | ----- | ----
|
|Net sales               |  | $                         | 2,622 |     
|                        |  |                           |       |     
|Gross profit            |  |                           | 2,416 |     
|                        |  |                           |       |     
|Operating (loss) income |  |                           | (699  | )   
|                        |  |                           |       |     
|Net (loss) income       |  | $                         | (441  | )   
|                        |  |                           |       |     

The
application of U.S. GAAP as described above had the following effects on the Company's net loss for the eleven months ended March 31, 2001 and the year ended
April 30, 2000 (in thousands):

|                                                                |                    | 2001 |         | 2000    |        
|--------------------------------------------------------------- | ------------------ | ---- | ------- | ------- | -------
|Net loss as reported                                            |                    | $    | (32,717 | )       | (1,314 
|Options issued at less than fair market value                   |                    |      | (6,250  | )       | (1,216 
|EBT shares                                                      |                    |      | (13,159 | )       | (43,570
|Incentive shares                                                |                    |      | (6,739  | )       | (1,160 
|Options issued to advisors                                      |                    |      | (1,008  | )       |       
|Options issued to principals of Tracer                          |                    |      | (261    | )       |       
|Amortization of investment in affiliate                         |                    |      | (1,134  | )       | (206   
|Change from consolidation method to equity method of accounting |                    |      | 203     |         |       
|                                                                |                    |      |         |         |        
|                                                                | Net lossU.S. GAAP |      | $       | (61,065 | )      
|                                                                |                    |      |         |         |        

85

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The
application of United States generally accepted accounting principles as described above has the following effects on the consolidated financial statements as of and for the eleven
months ended March 31, 2001 and as of and for the year ended April 30, 2000:

BAKBONE SOFTWARE INCORPORATED

Consolidated Balance Sheets

March 31, 2001 and April 30, 2000

(Canadian dollars in thousands)

|                                                     |                                              | 2001                                       |        | 2000    |       
|---------------------------------------------------- | -------------------------------------------- | ------------------------------------------ | ------ | ------- | ------
|
|Assets                                               |                                              |                                            |        |         |       
|Current assets:                                      |                                              |                                            |        |         |       
|                                                     | Cash and cash equivalents                    |                                            | $      | 6,012   |       
|                                                     | Restricted cash                              |                                            |        | 142     |       
|                                                     | Accounts receivable                          |                                            |        | 2,214   |       
|                                                     | Other assets                                 |                                            |        | 788     |       
|                                                     |                                              |                                            |        |         |       
|                                                     |                                              | Total current assets                       |        |         | 9,156 
|Capital assets, net                                  |                                              |                                            | 5,891  |         | (535  
|Restricted cash                                      |                                              |                                            | 1,230  |         |      
|Intangibles, net                                     |                                              |                                            | 12,347 |         | 472   
|Receivable from affiliates                           |                                              |                                            |       |         | 2,483 
|Investment in affiliates                             |                                              |                                            |       |         | 2,378 
|Other assets                                         |                                              |                                            | 949    |         | (696  
|                                                     |                                              |                                            |        |         |       
|Total assets                                         |                                              | $                                          | 29,573 |         | 1,606 
|                                                     |                                              |                                            |        |         |       
|Liabilities and Shareholders' Equity                 |                                              |                                            |        |         |       
|Current liabilities:                                 |                                              |                                            |        |         |       
|                                                     | Accounts payable                             |                                            | $      | 2,157   |       
|                                                     | Accrued liabilities                          |                                            |        | 1,767   |       
|                                                     | Deferred revenue                             |                                            |        | 1,058   |       
|                                                     | Current portion of capital lease obligations |                                            |        | 302     |       
|                                                     | Current portion of notes payable             |                                            |        | 4,058   |       
|                                                     | Loans from related parties                   |                                            |        | 118     |       
|                                                     |                                              |                                            |        |         |       
|                                                     |                                              | Total current liabilities                  |        |         | 9,460 
|Capital lease obligations, excluding current portion |                                              |                                            | 379    |         |      
|Notes payable, excluding current portion             |                                              |                                            | 296    |         | (296  
|                                                     |                                              |                                            |        |         |       
|                                                     |                                              | Total liabilities                          |        |         | 10,135
|                                                     |                                              |                                            |        |         |       
|Minority interest                                    |                                              |                                            | 158    |         | (158  
|Shareholders' equity:                                |                                              |                                            |        |         |       
|                                                     | Share capital                                |                                            |        | 52,858  |       
|                                                     | Share capital held by subsidiary             |                                            |        | (98     | )     
|                                                     | Special warrants                             |                                            |        |        |       
|                                                     | Employee benefit trust                       |                                            |        |        |       
|                                                     | Deferred compensation                        |                                            |        |        |       
|                                                     | Cumulative exchange adjustment               |                                            |        | 551     |       
|                                                     | Accumulated deficit                          |                                            |        | (34,031 | )     
|                                                     |                                              |                                            |        |         |       
|                                                     |                                              | Total shareholders' equity                 |        |         | 19,280
|                                                     |                                              |                                            |        |         |       
|                                                     |                                              | Total liabilities and shareholders' equity |        | $       | 29,573
|                                                     |                                              |                                            |        |         |       

---

86

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BAKBONE SOFTWARE INCORPORATED

Consolidated Statements of Operations and Accumulated Deficit

Eleven months ended March 31, 2001 and
the year ended April 30, 2000

(Canadian dollars in thousands, except loss per share)

|                                       |                                         | 2001                     |            | 2000   |            
|-------------------------------------- | --------------------------------------- | ------------------------ | ---------- | ------ | -----------
|
|Revenues                               |                                         | $                        | 7,529      |        | (2,622     
|Cost of revenues                       |                                         |                          | 1,187      |        | (210       
|                                       |                                         |                          |            |        |            
|                                       |                                         | Gross margin             |            |        | 6,342      
|                                       |                                         |                          |            |        |            
|Operating expenses:                    |                                         |                          |            |        |            
|                                       | Sales and marketing                     |                          |            | 17,295 |            
|                                       | Research and development                |                          |            | 4,439  |            
|                                       | General and administrative              |                          |            | 13,436 |            
|                                       | Amortization of intangibles             |                          |            |       |            
|                                       | Amortization of investment in affiliate |                          |            |       |            
|                                       |                                         |                          |            |        |            
|                                       |                                         | Total operating expenses |            |        | 35,170     
|                                       |                                         |                          |            |        |            
|                                       |                                         | Operating loss           |            |        | (28,828    
|Interest income, net                   |                                         |                          | 594        |        | 57         
|Amortization of intangibles            |                                         |                          | (4,829     | )      | 4,829      
|Foreign exchange gains, net            |                                         |                          | 30         |        |           
|Other income, net                      |                                         |                          | 267        |        | (266       
|Equity in income (loss) of affiliate   |                                         |                          |           |        | (237       
|Minority interest                      |                                         |                          | 49         |        | (49        
|                                       |                                         |                          |            |        |            
|                                       |                                         | Net loss                 |            |        | (32,717    
|Accumulated deficit, beginning of year |                                         |                          | (1,314     | )      | (46,152    
|                                       |                                         |                          |            |        |            
|Accumulated deficit, end of year       |                                         | $                        | (34,031    | )      | (74,500    
|                                       |                                         |                          |            |        |            
|Loss per share                         |                                         | $                        | (0.92      | )      | (1.53      
|                                       |                                         |                          |            |        |            
|Weighted-average common shares         |                                         |                          | 35,571,845 |        | (10,668,387
|                                       |                                         |                          |            |        |            

---

87

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BAKBONE SOFTWARE INCORPORATED

Consolidated Statements of Cash Flows

Eleven months ended March 31, 2001 and
the year ended April 30, 2000

(Canadian dollars in thousands)

|                                                             |                                                                             | 2001                                                               |                     | 2000                                                 |       
|------------------------------------------------------------ | --------------------------------------------------------------------------- | ------------------------------------------------------------------ | ------------------- | ---------------------------------------------------- | ------
|
|Cash flows from operating activities:                        |                                                                             |                                                                    |                     |                                                      |       
|                                                             | Net loss                                                                    |                                                                    | $                   | (32,717                                              | )     
|                                                             | Adjustments to reconcile net loss to net cash used in operating activities: |                                                                    |                     |                                                      |       
|                                                             |                                                                             | Depreciation and amortization                                      |                     |                                                      | 5,911 
|                                                             |                                                                             | Minority interest                                                  |                     |                                                      | (49   
|                                                             |                                                                             | Loss on disposal of capital assets                                 |                     |                                                      | 20    
|                                                             |                                                                             | Equity in loss of affiliate                                        |                     |                                                      |      
|                                                             |                                                                             | Amortization of deferred compensation                              |                     |                                                      |      
|                                                             |                                                                             | Changes in assets and liabilities, net of effects of acquisitions: |                     |                                                      |       
|                                                             |                                                                             |                                                                    | Accounts receivable |                                                      |       
|                                                             |                                                                             |                                                                    | Other assets        |                                                      |       
|                                                             |                                                                             |                                                                    | Accounts payable    |                                                      |       
|                                                             |                                                                             |                                                                    | Accrued liabilities |                                                      |       
|                                                             |                                                                             |                                                                    | Deferred revenue    |                                                      |       
|                                                             |                                                                             |                                                                    |                     |                                                      |       
|                                                             |                                                                             |                                                                    |                     | Net cash used in operating activities                |       
|                                                             |                                                                             |                                                                    |                     |                                                      |       
|Cash flows from investing activities:                        |                                                                             |                                                                    |                     |                                                      |       
|                                                             | Capital expenditures                                                        |                                                                    |                     | (4,790                                               | )     
|                                                             | Acquisitions of businesses, net of cash acquired                            |                                                                    |                     | (2,369                                               | )     
|                                                             | Proceeds from sale of capital assets                                        |                                                                    |                     | 43                                                   |       
|                                                             |                                                                             |                                                                    |                     |                                                      |       
|                                                             |                                                                             |                                                                    |                     | Net cash used in investing activities                |       
|                                                             |                                                                             |                                                                    |                     |                                                      |       
|Cash flows from financing activities:                        |                                                                             |                                                                    |                     |                                                      |       
|                                                             | Reduction of capital lease obligations                                      |                                                                    |                     | (234                                                 | )     
|                                                             | Proceeds from notes payable                                                 |                                                                    |                     | 3,942                                                |       
|                                                             | Payments on notes payable                                                   |                                                                    |                     | (153                                                 | )     
|                                                             | Advances to affiliates                                                      |                                                                    |                     |                                                     |       
|                                                             | Proceeds from issuance of special warrants                                  |                                                                    |                     |                                                     |       
|                                                             | Offering costs related to special warrants                                  |                                                                    |                     | (217                                                 | )     
|                                                             | Proceeds from exercise of stock options                                     |                                                                    |                     | 864                                                  |       
|                                                             | Proceeds from exercise of warrants                                          |                                                                    |                     | 6,894                                                |       
|                                                             | Payments on related party loans                                             |                                                                    |                     | (248                                                 | )     
|                                                             | Restricted cash                                                             |                                                                    |                     | (1,372                                               | )     
|                                                             |                                                                             |                                                                    |                     |                                                      |       
|                                                             |                                                                             |                                                                    |                     | Net cash provided by financing activities            |       
|                                                             |                                                                             |                                                                    |                     |                                                      |       
|Effect of exchange rate changes on cash and cash equivalents |                                                                             |                                                                    | (180                | )                                                    | (33   
|                                                             |                                                                             |                                                                    |                     |                                                      |       
|                                                             |                                                                             |                                                                    |                     | Net (decrease) increase in cash and cash equivalents |       
|Cash and cash equivalents, beginning of period               |                                                                             |                                                                    | 30,687              |                                                      | (331  
|                                                             |                                                                             |                                                                    |                     |                                                      |       
|Cash and cash equivalents, end of period                     |                                                                             | $                                                                  | 6,012               |                                                      | (1,104
|                                                             |                                                                             |                                                                    |                     |                                                      |       

88

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BAKBONE SOFTWARE K.K.  (formerly NetVault Corporation)    Financial Statements for  the Period from January 1, 2000 through February 29, 2000,  the Year Ended December 31, 1999, and the
Period from February 2, 1998  (Date of Incorporation) through December 31, 1998    (With Independent Auditors' Report Thereon)

89

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Independent Auditors' Report

The
Board of Directors and shareholders
BakBone Software K.K.:

We
have audited the accompanying balance sheets of BakBone Software K.K. (formerly NetVault Corporation) as of February 29, 2000, December 31, 1999 and December 31, 1998, and the
related statements of operations, shareholders' capital deficiency, and cash flows for the period from January 1, 2000 through February 29, 2000, the year ended December 31, 1999,
and the period from February 2, 1998 (date of incorporation) through December 31, 1998 (all expressed in Japanese yen). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of BakBone Software K.K. (formerly NetVault Corporation) as of
February 29, 2000, December 31, 1999 and December 31, 1998, and the results of its operations and its cash flows for the periods then ended in conformity with accounting
principles generally accepted in the United States of America.

| |  | KPMG
| |  | ----

Tokyo,
Japan
October 5, 2001

90

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BAKBONE SOFTWARE K.K.

Balance Sheets

February 29, 2000, December 31, 1999 and December 31, 1998

|                                                 |                                                                                                      | Thousands of Yen                     |                                       
|------------------------------------------------ | ---------------------------------------------------------------------------------------------------- | ------------------------------------ | --------------------------------------
|
|Assets                                           |                                                                                                     
|Current assets:                                  |                                                                                                      |                                      |                                       
|                                                 | Cash                                                                                                 |                                      |                                       
|                                                 | Receivables:                                                                                         |                                      |                                       
|                                                 |                                                                                                      | Trade accounts                       |                                       
|                                                 |                                                                                                      | Other                                |                                       
|                                                 | Inventories (note 4)                                                                                 |                                      |                                       
|                                                 | Due from related party                                                                               |                                      |                                       
|                                                 | Prepaid expenses and other current assets                                                            |                                      |                                       
|                                                 |                                                                                                      |                                      |                                       
|                                                 |                                                                                                      |                                      | Total current assets                  
|                                                 |                                                                                                      |                                      |                                       
|Equipment, at cost:                              |                                                                                                      |                                      |                                       
|                                                 | Equipment                                                                                            |                                      |                                       
|                                                 | Less accumulated depreciation                                                                        |                                      |                                       
|                                                 |                                                                                                      |                                      |                                       
|                                                 |                                                                                                      |                                      | Net equipment                         
|                                                 |                                                                                                      |                                      |                                       
|Other assets:                                    |                                                                                                      |                                      |                                       
|                                                 | Intangibles                                                                                          |                                      |                                       
|                                                 | Lease deposit                                                                                        |                                      |                                       
|                                                 |                                                                                                      |                                      |                                       
|                                                 |                                                                                                      |                                      | Total other assets                    
|                                                 |                                                                                                      |                                      |                                       
|                                                 | Total assets                                                                                         |                                      |                                       
|                                                 |                                                                                                      |                                      |                                       
|Liabilities and Shareholders' Capital Deficiency |                                                                                                     
|Current liabilities:                             |                                                                                                      |                                      |                                       
|                                                 | Short-term shareholder loans(note 5)                                                                |                                      |                                       
|                                                 | Payables:                                                                                            |                                      |                                       
|                                                 |                                                                                                      | Trade accounts to NetVault Ltd. (UK) |                                       
|                                                 |                                                                                                      | Other                                |                                       
|                                                 | Income taxes payable                                                                                 |                                      |                                       
|                                                 | Other current liabilities                                                                            |                                      |                                       
|                                                 |                                                                                                      |                                      |                                       
|                                                 |                                                                                                      |                                      | Total current liabilities             
|                                                 |                                                                                                      |                                      |                                       
|Shareholders' capital deficiency:                |                                                                                                      |                                      |                                       
|                                                 | Common stock, ¥50,000 par value.                                                                     |                                      |                                       
|                                                 | Authorized 800 shares; issued and outstanding 200 shares at December 31, 1999 and 1998, respectively |                                      |                                       
|                                                 | Accumulated deficit                                                                                  |                                      |                                       
|                                                 |                                                                                                      |                                      |                                       
|                                                 |                                                                                                      |                                      | Total shareholders' capital deficiency
|                                                 |                                                                                                      |                                      |                                       
|Commitments (note 7)                             |                                                                                                      |                                      |                                       
|                                                 | Total liabilities and shareholders' capital deficiency                                               |                                      |                                       
|                                                 |                                                                                                      |                                      |                                       

See
accompanying notes to financial statements.

91

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BAKBONE SOFTWARE K.K.

Statements of Operations

Period from January 1, 2000 through February 29, 2000, Year ended December 31, 1999, and
Period from February 2, 1998 (date of incorporation) through December 31, 1998

|                                             |                 | Thousands of yen        |        
|-------------------------------------------- | --------------- | ----------------------- | -------
|
|Net sales                                    |                 |                         | ¥26,430
|Cost of sales                                |                 |                         | 9,191  
|                                             |                 |                         |        
|                                             |                 | Gross profit            |        
|Selling, general and administrative expenses |                 |                         | 7,799  
|                                             |                 |                         |        
|                                             |                 | Operating income (loss) |        
|                                             |                 |                         |        
|Other income (expenses):                     |                 |                         |        
|                                             | Interest income |                         |        
|                                             | Other income    |                         |        
|                                             | Exchange loss   |                         |        
|                                             |                 |                         |        
|                                             |                 | Other expensesnet      |        
|                                             |                 |                         |        
|Income (loss) before income taxes            |                 |                         | 8,646  
|                                             |                 |                         |        
|Income taxes (note 6)                        |                 |                         |       
|                                             |                 |                         |        
|Net income (loss)                            |                 |                         | ¥8,646 
|                                             |                 |                         |        

See
accompanying notes to financial statements.

92

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BAKBONE SOFTWARE K.K.        Statements of Shareholders' Capital Deficiency        Period from January 1, 2000 through February 29, 2000, Year ended
December 31, 1999, and  Period from February 2, 1998 (date of incorporation) through December 31, 1998

|                             |            |     |  | Thousands of yen | 
|---------------------------- | ---------- | --- |  | ---------------- | 
|
|
|Balance at February 2, 1998  |            | 200 |  | ¥10,000          | 
|                             | Net loss   |     |  |                  | 
|                             |            |     |  |                  | 
|Balance at December 31, 1998 |            | 200 |  | 10,000           | 
|                             | Net income |     |  |                  | 
|                             |            |     |  |                  | 
|Balance at December 31, 1999 |            | 200 |  | ¥10,000          | 
|                             | Net income |     |  |                  | 
|                             |            |     |  |                  | 
|Balance at February 29, 2000 |            | 200 |  | ¥10,000          | 
|                             |            |     |  |                  | 

See
accompanying notes to financial statements.

93

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BAKBONE SOFTWARE K.K.        Statements of Cash Flows        Period from January 1, 2000 through February 29, 2000, Year ended December 31, 1999, and
Period from February 2, 1998 (date of incorporation) through December 31, 1998

|                                       |                                                                                                    | Thousands of yen                                      |                                                    
|-------------------------------------- | -------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | ---------------------------------------------------
|
|Cash flows from operating activities:  |                                                                                                    |                                                       |                                                    
|                                       | Net income (loss)                                                                                  |                                                       | ¥  8,646                                           
|                                       | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                                       |                                                    
|                                       |                                                                                                    | Depreciation and amortization                         |                                                    
|                                       |                                                                                                    | (Increase) decrease in receivables                    |                                                    
|                                       |                                                                                                    | (Increase) decrease in inventories                    |                                                    
|                                       |                                                                                                    | (Increase) decrease in amounts due from related party |                                                    
|                                       |                                                                                                    | Increase in prepaid expenses and other current assets |                                                    
|                                       |                                                                                                    | Increase in payables to NetVault Ltd. (UK)            |                                                    
|                                       |                                                                                                    | Increase (decrease) in payablesother                 |                                                    
|                                       |                                                                                                    | Increase (decrease) in income tax payable             |                                                    
|                                       |                                                                                                    | Increase (decrease) in other current liabilities      |                                                    
|                                       |                                                                                                    |                                                       |                                                    
|                                       |                                                                                                    |                                                       | Net cash provided by (used in) operating activities
|                                       |                                                                                                    |                                                       |                                                    
|Cash flows from investment activities: |                                                                                                    |                                                       |                                                    
|                                       | Purchase of equipment                                                                              |                                                       | (1,312                                             
|                                       | Increase in lease deposit                                                                          |                                                       |                                                   
|                                       | Increase in intangibles                                                                            |                                                       |                                                   
|                                       |                                                                                                    |                                                       |                                                    
|                                       |                                                                                                    |                                                       | Net cash used in investing activities              
|                                       |                                                                                                    |                                                       |                                                    
|Cash flows from financing activities:  |                                                                                                    |                                                       |                                                    
|                                       | Increase (decrease) in short-term shareholder loans                                                |                                                       | (6,052                                             
|                                       | Shares issued                                                                                      |                                                       |                                                   
|                                       |                                                                                                    |                                                       |                                                    
|                                       |                                                                                                    |                                                       | Net cash provided by (used in) financing activities
|                                       |                                                                                                    |                                                       |                                                    
|Net increase in cash                   |                                                                                                    | 2,566                                                 |                                                    
|                                       |                                                                                                    |                                                       |                                                    
|Cash at beginning of year/period       |                                                                                                    | 17,258                                                |                                                    
|                                       |                                                                                                    |                                                       |                                                    
|Cash at end of year/period             |                                                                                                    | ¥19,824                                               |                                                    
|                                       |                                                                                                    |                                                       |                                                    

See
accompanying notes to financial statements.

94

---



BAKBONE SOFTWARE K.K.        Notes to Financial Statements        February 29, 2000, December 31, 1999 and December 31, 1998

1.Basis of Presenting Financial Statements

The
accompanying financial statements are stated in Japanese yen, the currency of the country in which BakBone Software K.K. (the "Company") is incorporated and principally operates.

The
accompanying financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America. In certain respects, effect has been
given in the financial statements to adjustments that have not been entered in the company's general books of account, which are maintained principally in accordance with accounting principles and
practices prevailing in Japan.

2.Incorporation and Business

The
Company was incorporated on February 2, 1998.

The
principal business of the Company is to import, distribute and expand the market in Japan for "NetVault' computer back-up software, produced by NetVault Ltd. (UK),
located in the United Kingdom. Pursuant to the terms of the software license distribution agreement entered into between NetVault Ltd. and the Company, NetVault Ltd. may terminate the
agreement at any time, without cause, upon six months written notice, and may terminate the agreement upon ninety days written notice in the event of a material breach or if payments made to it from
the Company are less than US$500,000
from October 23, 1997, the effective date of the agreement, to May 31, 1998, or less than $1.5 million from the effective date of the agreement to May 31, 1999, or less
than $750,000 during any subsequent year.

3.Summary of Significant Accounting Policies



95

---



4.Inventories

Inventories
at February 29, 2000, December 31, 1999 and December 31, 1998 consisted of the following:

Thousands of yen2000

1999

1998Merchandise

¥


1,848

1,265Raw material and supplies


600

600

Total

¥
600

2,448

1,265


5.Related Party Transactions

Patrick
Barcus, Representative Director, and Anthony Cerqueira, Director, have made interest-free loans to the Company. These loans have no specific maturity dates and are
provided to the Company to purchase goods from NetVault Ltd. (UK), and for other capital needs.

As
shown in the accompanying financial statements, the Company has experienced significant operating losses resulting in a net capital deficiency, and therefore, its continued existence
is dependent upon the resolution of Company's liquidity issues. In order to resolve such issues management of the Company has taken several steps to achieve profitable operations. In addition, the
Parent has agreed that they will provide the Company with the financial support to ensure continued existence.

96

---

Accordingly, management of the Company remains confident that it will be able to continue operating as a going concern.

6.Income Taxes

The
Company is subject to corporate tax, inhabitants tax and enterprise tax based on the income which, in the aggregate, resulted in a normal effective statutory rate of 42% in 2000 and
1999 and 48% in 1998, respectively. Income taxes incurred in 1999 and 1998 were per capita portion only. The Company incurred tax losses in 1998, which can be used as a deduction in the determination
of taxable income in future periods through 2003.

Components
of the deferred tax assets at February 29, 2000, December 31, 1999 and December 31, 1998 were as follows:

Thousands of yen2000

1999

1998Net operating loss carryforwards

¥
6,601

7,633

19,972Accruals and other items




2,802

3,048Gross deferred tax assets


6,601

10,435

23,020Less valuation allowance


(6,601
)
(10,435
)
(23,020
)Net deferred tax assets

¥







In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the level of historical operating results
and projections for the taxable income for the future, management has determined that it is more likely than not that the portion of deferred tax assets not utilized through the reversal of deferred
tax liabilities will not be realized. Accordingly, the Company has recorded a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company
has a tax loss carryforward of ¥13,881 thousand, ¥18,173 thousand, and ¥41,608 thousand for the period from January 1, 2000 through
February 29, 2000, the year ended December 31, 1999, and for the period from February 2, 1998 through December 31, 1998, respectively, which expires in 2003.

Income
tax expense consists of per capita tax only but not other current or deferred income taxes.

A
reconciliation of the combined statutory tax rates for the the period from January 1, 2000 through February 29, 2000, the year ended December 31, 1999, and the
period from February 2, 1998

97

---

through December 31, 1998 to the effective rates of income tax reflected in the accompanying statements of operations is as follows:

2000

1999

1998Statutory income tax rate

42.0
%
42.0
%
(48.0
)%Operating loss





41.6Loss carryforwards used

(39.7
)
(38.2
)
Accrued expense disallowed



(2.4
)
4.1Other

(2.3
)
(1.4
)
2.3Effective income tax rate

0.0
%
0.0
%
0.0
%


7.Commitments

The
Company occupies office space under a cancelable lease agreement. The lease deposit made under this agreement is included in other assets on the accompanying balance sheets. Rent
expenses for the period from January 1, 2000 through February 29, 2000, the year ended December 31, 1999, and the period from February 2, 1998 (date of incorporation)
through December 31, 1998 amounted to ¥835 thousand, ¥5,018 thousand, and ¥5,116 thousand, respectively.

The
Company had no non-cancelable lease commitments at February 29, 2000, December 31, 1999 or December 31, 1998.

98

---



BAKBONE SOFTWARE LIMITED        (FORMERLY NETVAULT LIMITED)Audited financial statements        Two-month period ended 29
February 2000 and years ended 31 December 1999 and 1998

99

---

BakBone Software Limited  (formerly NetVault Limited)        Audited financial statements        Two-month period ended 29 February 2000 and years ended 31
December 1999 and 1998

Contents

|Report of the independent auditors to the Board of Directors of BakBone Software Limited (formerly NetVault Limited) |  | 101
|-------------------------------------------------------------------------------------------------------------------- |  | ---
|Profit and loss accounts for the two-month period ended 29 February 2000 and years ended 31 December 1999 and 1998   |  | 102
|Balance sheets as at 29 February 2000, 31 December 1999 and 1998                                                     |  | 103
|Cash flow statements for the two-month period ended 29 February 2000 and years ended 31 December 1999 and 1998       |  | 104
|Notes to the financial statements                                                                                    |  | 106

100

---



Independent Auditors' Report

To
the Board of Directors of BakBone Software Limited (formerly NetVault Limited)

We
have audited the accompanying balance sheets of BakBone Software Limited (formerly NetVault Limited) as of 29 February 2000, 31 December 1999 and 1998, and the related
profit and loss accounts and cash flow statements for the two-month period ended 29 February 2000 and years ended 31 December 1999 and 1998. These financial statements are
the responsibility of BakBone Software Limited's (formerly NetVault Limited's) management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United Kingdom and the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion the financial statements referred to above present fairly, in all material respects, the financial position of BakBone Software Limited (formerly NetVault Limited) as of
29 February 2000, 31 December 1999 and 1998, and the results of its operations and its cash flows for the two-month period ended 29 February 2000 and years ended 31
December 1999 and 1998, in conformity with accounting principles generally accepted in the United Kingdom.

Generally
accepted accounting principles in the United Kingdom vary in certain significant respects from generally accepted accounting principles in the United States of America.
Application of generally accepted accounting principles in the United States of America would have affected net (loss)/income for the two-month period ended 29 February 2000 and
years ended 31 December 1999 and 1998, and
deficit on shareholders' funds as of 29 February 2000, 31 December 1999 and 1998, to the extent summarised in note 24 of the financial statements.

KPMGChartered Accountants

Southampton,
England
12 October 2001

101

---

BakBone Software Limited

(formerly NetVault Limited)

Audited financial statements

Two-month period ended 29 February 2000 and years ended 31 December 1999 and 1998

Profit and loss accounts

|                                                     |  | Note |  | Two-month
period ended
29 February
2000
£ |   | Restated
(see note 2)
Year ended
31 December
1999
£ |   | Year ended
31 December
1998
£ |  
|---------------------------------------------------- |  | ---- |  | ----------------------------------------- | - | --------------------------------------------------- | - | ----------------------------- | -
|Turnover                                             |  | 1, 2 |  | 120,987                                   |   | 1,059,170                                           |   | 588,896                       |  
|Cost of sales                                        |  |      |  | (23,170                                   | ) | (340,992                                            | ) | (73,707                       | )
|                                                     |  |      |  |                                           |   |                                                     |   |                               |  
|Gross profit                                         |  |      |  | 97,817                                    |   | 718,178                                             |   | 515,189                       |  
|Administrative expenses                              |  |      |  | (107,425                                  | ) | (704,677                                            | ) | (772,931                      | )
|Other operating income                               |  |      |  | 600                                       |   | 5,054                                               |   |                              |  
|                                                     |  |      |  |                                           |   |                                                     |   |                               |  
|Operating (loss)/profit                              |  | 3    |  | (9,008                                    | ) | 18,555                                              |   | (257,742                      | )
|Interest receivable and similar income               |  | 6    |  | 335                                       |   | 1,933                                               |   | 3,199                         |  
|Interest payable and similar charges                 |  | 7    |  | (1,915                                    | ) | (6,614                                              | ) | (20,637                       | )
|                                                     |  |      |  |                                           |   |                                                     |   |                               |  
|(Loss)/profit on ordinary activities before taxation |  |      |  | (10,588                                   | ) | 13,874                                              |   | (275,180                      | )
|Tax on (loss)/profit on ordinary activities          |  | 8    |  |                                          |   | (391                                                | ) | 6,800                         |  
|                                                     |  |      |  |                                           |   |                                                     |   |                               |  
|(Loss)/profit for the financial period               |  |      |  | (10,588                                   | ) | 13,483                                              |   | (268,380                      | )
|Dividends                                            |  | 9    |  |                                          |   | (1                                                  | ) |                              |  
|                                                     |  |      |  |                                           |   |                                                     |   |                               |  
|Retained (loss)/profit for the financial period      |  |      |  | (10,588                                   | ) | 13,482                                              |   | (268,380                      | )
|Retained loss brought forward                        |  |      |  | (254,898                                  | ) | (268,380                                            | ) |                              |  
|                                                     |  |      |  |                                           |   |                                                     |   |                               |  
|Retained loss carried forward                        |  |      |  | (265,486                                  | ) | (254,898                                            | ) | (268,380                      | )
|                                                     |  |      |  |                                           |   |                                                     |   |                               |  

There
are no recognised gains and losses other than the loss for the financial period of £10,588 for the two-month period ended 29 February 2000, the
profit for the financial period of £13,482 for the year ended 31 December 1999, and the loss for the financial period of £268,380 for the year ended 31
December 1998. There is no difference between the results reported above and their historical cost equivalents. All of the above results relate to continuing operations. All of the results for
1998 relate to an acquired business.

The
accompanying notes are an integral part of these financial statements.

102

---

BakBone Software Limited

(formerly NetVault Limited)

Audited financial statements

Two-month period ended 29 February 2000 and years ended 31 December 1999 and 1998

Balance sheetsAt 29 February 2000, 31 December 1999 and 1998

|                                                       |  |    |  |          |   |          |   | Restated (see note 2) |   |          |   |          |  
|------------------------------------------------------ |  | -- |  | -------- | - | -------- | - | --------------------- | - | -------- | - | -------- | -
|
|
|Fixed assets                                           |  |    |  |          |   |          |   |                       |   |          |   |          |  
|Intangible assets                                      |  | 11 |  |          |   | 3        |   |                       |   | 3        |   |          |  
|Tangible assets                                        |  | 12 |  |          |   | 157,620  |   |                       |   | 164,322  |   |          |  
|Investments                                            |  | 13 |  |          |   |         |   |                       |   |         |   |          |  
|                                                       |  |    |  |          |   |          |   |                       |   |          |   |          |  
|                                                       |  |    |  |          |   | 157,623  |   |                       |   | 164,325  |   |          |  
|Current assets                                         |  |    |  |          |   |          |   |                       |   |          |   |          |  
|Stocks                                                 |  |    |  | 1,460    |   |          |   | 1,460                 |   |          |   | 197,192  |  
|Debtors                                                |  | 14 |  | 332,775  |   |          |   | 455,317               |   |          |   | 71,753   |  
|Cash at bank and in hand                               |  |    |  | 89,787   |   |          |   | 76,500                |   |          |   | 222,553  |  
|                                                       |  |    |  |          |   |          |   |                       |   |          |   |          |  
|                                                       |  |    |  | 424,022  |   |          |   | 533,277               |   |          |   | 491,498  |  
|Creditors:amounts falling due within one year          |  | 15 |  | (697,031 | ) |          |   | (802,400              | ) |          |   | (788,423 | )
|                                                       |  |    |  |          |   |          |   |                       |   |          |   |          |  
|Net current liabilities                                |  |    |  |          |   | (273,009 | ) |                       |   | (269,123 | ) |          |  
|                                                       |  |    |  |          |   |          |   |                       |   |          |   |          |  
|Total assets less current liabilities                  |  |    |  |          |   | (115,386 | ) |                       |   | (104,798 | ) |          |  
|                                                       |  |    |  |          |   |          |   |                       |   |          |   |          |  
|Creditors:amounts falling due after more than one year |  | 16 |  |          |   |         |   |                       |   |         |   |          |  
|                                                       |  |    |  |          |   |          |   |                       |   |          |   |          |  
|Net liabilities                                        |  |    |  |          |   | (115,386 | ) |                       |   | (104,798 | ) |          |  
|                                                       |  |    |  |          |   |          |   |                       |   |          |   |          |  
|Capital and reserves                                   |  |    |  |          |   |          |   |                       |   |          |   |          |  
|Called up share capital                                |  | 18 |  |          |   | 150,100  |   |                       |   | 150,100  |   |          |  
|Profit and loss account                                |  |    |  |          |   | (265,486 | ) |                       |   | (254,898 | ) |          |  
|                                                       |  |    |  |          |   |          |   |                       |   |          |   |          |  
|Deficit on equity shareholders' funds                  |  |    |  |          |   | (115,386 | ) |                       |   | (104,798 | ) |          |  
|                                                       |  |    |  |          |   |          |   |                       |   |          |   |          |  

The accompanying notes are an integral part of these financial statements.

103

---

BakBone Software Limited

(formerly NetVault Limited)

Audited financial statements

Two-month period ended 29 February 2000 and years ended 31 December 1999 and 1998

Cash flow statementsFor the two-month period ended 29 February 2000 and years ended 31 December 1999 and 1998

|                                                    |  |    |  | Two-month period
ended 29 February 2000 |   | Year ended
31 December 1999 |   | Year ended
31 December 1998 |  
|--------------------------------------------------- |  | -- |  | --------------------------------------- | - | --------------------------- | - | --------------------------- | -
|
|Net cash inflow/(outflow) from operating activities |  | 22 |  |                                         |   | 92,510                      |   |                             |  
|Returns on investment and servicing of finance      |  |    |  |                                         |   |                             |   |                             |  
|Interest received                                   |  |    |  |                                        |   |                             |   | 1,933                       |  
|Interest paid                                       |  |    |  | (417                                    | ) |                             |   | (2,459                      | )
|Interest on finance leases                          |  |    |  | (357                                    | ) |                             |   | (4,155                      | )
|                                                    |  |    |  |                                         |   |                             |   |                             |  
|                                                    |  |    |  |                                         |   | (774                        | ) |                             |  
|Capital expenditure                                 |  |    |  |                                         |   |                             |   |                             |  
|Payments to acquire tangible fixed assets           |  |    |  |                                        |   |                             |   | (13,748                     | )
|Receipts from sales of tangible fixed assets        |  |    |  |                                        |   |                             |   | 2,774                       |  
|Payments to acquire intangible fixed assets         |  |    |  |                                        |   |                             |   |                            |  
|                                                    |  |    |  |                                         |   |                             |   |                             |  
|                                                    |  |    |  |                                         |   |                            |   |                             |  
|                                                    |  |    |  |                                         |   |                             |   |                             |  
|Equity dividends paid                               |  |    |  |                                         |   |                            |   |                             |  
|                                                    |  |    |  |                                         |   |                             |   |                             |  
|Financing                                           |  |    |  |                                         |   |                             |   |                             |  
|Issuing of ordinary share capital                   |  |    |  |                                        |   |                             |   |                            |  
|Capital element of finance lease rental payments    |  |    |  | (3,830                                  | ) |                             |   | (23,971                     | )
|                                                    |  |    |  |                                         |   |                             |   |                             |  
|                                                    |  |    |  |                                         |   | (3,830                      | ) |                             |  
|                                                    |  |    |  |                                         |   |                             |   |                             |  
|Increase/(decrease) in cash                         |  |    |  |                                         |   | 87,906                      |   |                             |  
|                                                    |  |    |  |                                         |   |                             |   |                             |  

The accompanying notes are an integral part of these financial statements.

104

---

BakBone Software Limited

(formerly NetVault Limited)

Audited financial statements

Two-month period ended 29 February 2000 and years ended 31 December 1999 and 1998

Reconciliation of net cash flow to movement in net debt

|                                                                  |  | Two-month
period ended
29 February 2000
£ |   | Year ended
31 December 1999
£ |   | Year ended
31 December 1998
£ |  
|----------------------------------------------------------------- |  | ----------------------------------------- | - | ----------------------------- | - | ----------------------------- | -
|Increase/(decrease) in cash in the period                         |  | 87,906                                    |   | (93,651                       | ) | 24,227                        |  
|Cash outflow from decrease/(increase) in debt and lease financing |  | 3,830                                     |   | 23,971                        |   | 14,337                        |  
|                                                                  |  |                                           |   |                               |   |                               |  
|Change in net funds resulting from cash flows                     |  | 91,736                                    |   | (69,680                       | ) | 38,564                        |  
|New finance leases                                                |  |                                          |   | (16,315                       | ) | (32,729                       | )
|                                                                  |  |                                           |   |                               |   |                               |  
|Movement in cash in the period                                    |  | 91,736                                    |   | (85,995                       | ) | 5,835                         |  
|Net (debt)/cash at start of period                                |  | (80,172                                   | ) | 5,823                         |   | (12                           | )
|                                                                  |  |                                           |   |                               |   |                               |  
|Net cash/(debt) at end of period                                  |  | 11,564                                    |   | (80,172                       | ) | 5,823                         |  
|                                                                  |  |                                           |   |                               |   |                               |  

The accompanying notes are an integral part of these financial statements.

105

---



BakBone Software Limited        (formerly NetVault Limited)        Audited financial statements        Two-month period ended 29 February 2000 and years ended 31
December 1999 and 1998

Notes(forming part of the financial statements)

1    Accounting policies

The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the company's financial
statements.

Basis of preparation

The financial statements have been prepared in accordance with applicable accounting standards, and under the historical cost accounting rules. The financial
statements have also been prepared on the going concern basis because the company's ultimate holding company has undertaken to provide such financial and other support as is necessary for the company
to continue to trade for the foreseeable future.

Intangible fixed assets and amortisation

Intangible assets acquired as part of an acquisition are capitalised at their fair value where this can be measured reliably. Intangible assets are amortised on a
straight line basis over their estimated useful life of 10 years.

Fixed assets and depreciation

Depreciation is provided to write off the cost less estimated residual value of each asset over its expected useful life as follows:

Fixtures and fittings

15% of net book value per annumComputer equipment

331/3% of net book value per annumMotor vehicles

25% of net book value per annum


Foreign currencies

Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in
foreign currencies are translated at the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the profit and loss account.

Leases

Assets acquired under finance leases are capitalised and the outstanding future lease obligations are shown in creditors. Operating lease rentals are charged to
the profit and loss account on a straight line basis over the period of the lease.

Money purchase pension scheme

The company operates a money purchase pension scheme. The assets of the scheme are held separately from those of the company in an independently administered
fund. The amount charged against profits represents the contributions payable to the scheme in respect of the accounting period.

106

---

Research and development

Expenditure on research and development is written off against profits in the year in which it is incurred.

Stocks

Stocks are stated at the lower of cost and net realisable value utilising the first-in first-out inventory method.

Taxation

The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment of
certain items for taxation and accounting purposes. Provision is made for deferred tax only to the extent that it is probable that an actual liability will crystallise.

Turnover

Turnover represents the amounts derived from the provision of goods and services which fall within the company's ordinary activities, stated net of value added
tax.

Income
from the sale of software is recognised when a contract with a customer has been executed, the collection of the related receivables is deemed probable by management and the
delivery to and acceptance by customers of software products has occurred and in advance of them requesting a key to have permanent access to this software. The permanent key is not required for the
customer to access fully functional software, nor is the customer's obligation contingent on receipt of the key. An accrual is made at the period end, based on historical trends, to cover anticipated
future returns from customers.

Royalty
income receivable from related parties is recognised upon customer acceptance of the software and issuance of the permanent key.

Income
invoiced in advance on maintenance contracts and development projects is deferred and released to the profit and loss account over the period of the contract or project.

Cash and liquid resources

Cash, for the purpose of the cash flow statement, comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand. Liquid resources are
current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at or close to their carrying values or
traded in an active market.

2    Restatement of the financial statements for the year ended 31 December 1999

Management has reconsidered the appropriateness of recognising an amount of £192,115, which was received from a re-seller in 1999, as
revenue in the company's 1999 financial statements. During 1999, the company entered into a contract with the re-seller whereby the company was to produce a plug-in component
to the re-seller's own developed product. The contract called for the re-seller to advance US$350,000 to the company to fund the development work. This advance was to be repaid
by deducting 50% of the royalty fee payable to the company under a re-seller agreement on future sales of

107

---

the plug-in. After recouping the full amount of the advance, the re-seller would remit the full royalty fee to the company for each sale made. Management now believes the
correct treatment is to record the receipt of the US$350,000 advance as deferred income until the future sales of the plug-in are made by the re-seller. As 50% of the sales
price is remitted by the re-seller, the other 50% will be released from deferred income. The effect of the restatement on the profit and loss account for the year ended 31
December 1999 is to reduce revenue and profit by £192,115. In addition, management recognises the need to accrue in the company's 1999 financial statements for a £17,904
cash payment made in the year ended 31 December 2000 in respect of overtime worked during 1999 on the plug-in development. The effect of the accrual on the profit and loss account
for the year ended 31 December 1999 is to increase administrative expenses and reduce profit by £17,904. A consequential tax adjustment related to the reduced revenues from the
re-seller agreement has been made, and the tax charge for the year ended 31 December 1999 has been reduced from £5,060 to £391. The profit and loss account
and balance sheet have been restated to reflect these changes.

3    Operating profit/(loss)

Two-month
period ended
29 February
2000
£

Year ended
31 December
1999
£

Year ended
31 December
1998
£(Loss)/profit on ordinary activities before taxation is stated after charging:Auditors' remuneration:Audit

2,000

5,500

6,000Depreciation and other amounts written off tangible fixed assets:Owned

5,189

37,043

57,483Leased

1,513

11,288

10,658Loss on disposal of fixed assets



996

4,388Research and development

45,732

270,406

224,530


4    Remuneration of directors

Two-month
period ended
29 February
2000
£

Year ended
31 December
1999
£

Year ended
31 December
1998
£Directors' emoluments

27,831

154,110

112,787Company contributions to money purchase pension schemes

1,892

9,027

13,031


The
directors' emoluments in 1998 were settled by way of a management charge payable to Willow Limited.

108

---

Retirement
benefits are accruing to two directors (1999: 2; 1998: 2) under money purchase schemes.

5    Staff numbers and costs

Number of employeesTwo-month
period ended
29 February 2000

Year ended
31 December
1999

Year ended
31 December
1998Average number of persons employed by the company (including directors)

15

15

13


The
aggregate payroll costs of these persons were as follows:

Two-month
period ended
29 February
2000
£

Year ended
31 December
1999
£

Year ended
31 December
1998
£Wages and salaries

70,133

417,147

335,384Social security costs

7,543

41,620

44,865Other pension costs

3,532

19,842

21,81481,208

478,609

402,063


6    Interest receivable and similar income

Two-month
period ended
29 February
2000
£

Year ended
31 December
1999
£

Year ended
31 December
1998
£Bank interest receivable

335

1,933

3,199


7    Interest payable and similar charges

Two-month
period ended
29 February
2000
£

Year ended
31 December
1999
£

Year ended
31 December
1998
£Finance lease interest

357

4,155

9,367Bank interest payable

1,558

2,459

11,2701,915

6,614

20,637


109

---

8    Taxation

Two-month
period ended
29 February
2000
£

Year ended
31 December
1999
£

Year ended
31 December
1998
£UK Corporation tax at 20%(1999: 20.25%; 1998: 21%)



391

(6,800
)


At
29 February 2000, tax losses amounting to £197,746(1999: £191,639; 1998: £203,306)are
available to relieve future profits of the company.

9    Dividends

Two-month
period ended
29 February
2000
£

Year ended
31 December
1999
£

Year ended
31 December
1998
£Equity shares:Paid0.0007p per share



1




10    Acquisitions

On 30 April 1998 NetVault Limited acquired the trade and certain of the assets of Willow Limited a fellow subsidiary for a consideration of
£225,263.

Book and fair values
£Fixed assetsIntangible

3Tangible

294,696Total assets

294,699Creditorsamounts falling due within one yearObligations under finance leases

(47,427
)Creditorsamounts falling due after one yearObligations under finance leases

(22,009
)Total liabilities

(69,436
)Net assets

225,263Discharged by:Cash

75,263Shares

150,000225,263


110

---

Willow
Limited had the following trading results for the full and part financial years prior to acquisition:

Four-month period ended
30 April 1998
£

Year ended
31 December 1997
£Turnover

135,655

1,556,284Operating (loss)/profit

(164,180
)
132,130Other income

4,843

19,289Net interest payable

(23,781
)
(31,362
)(Loss)/profit before taxation

(183,118
)
120,057Taxation

51,130

(11,386
)(Loss)/profit after taxation

(131,988
)
108,671


11    Intangible fixed assets

Goodwill and
intellectual
property
£Cost and net book valueAt 1 January 1998, 31 December 1998 and 1999, and 29 February 2000

3


On
21 December 1999, the company's intangible assets were sold to Willow Group Limited, the company's then ultimate parent company, for £3. Willow Group Limited
subsequently transferred the intangible assets to NetVault Holdings Limited (formerly Bondco 742 Limited), the company's then immediate and ultimate parent company. The company reacquired the
intangible assets from NetVault Holdings Limited on the same date for £3.

111

---

12    Tangible fixed assets

Fixtures and
fittings
£

Computer
equipment
£

Motor
vehicles
£

Total
£CostAt 1 January 1998







Transfer from immediate parent undertaking

89,200

98,197

107,299

294,696Additions

980

14,027

14,596

29,603Disposals





(28,989
)
(28,989
)Transfer to fellow subsidiary undertaking





(55,851
)
(55,851
)At 31 December 1998

90,180

112,224

37,055

239,459Additions



30,063



30,063Disposals





(3,432
)
(3,432
)Transfer to fellow subsidiary undertaking



(1,774
)


(1,774
)At 31 December 1999

90,180

140,513

33,623

264,316Additions







Disposals







At 29 February 2000

90,180

140,513

33,623

264,316DepreciationAt 1 January 1998







Charge for the year

9,392

36,140

22,609

68,141Eliminated on disposals





(5,027
)
(5,027
)Transfer to fellow subsidiary undertaking





(10,015
)
(10,015
)At 31 December 1998

9,392

36,140

7,567

53,099Charge for year

10,978

31,050

6,303

48,331On disposals





(1,436
)
(1,436
)At 31 December 1999

20,370

67,190

12,434

99,994Charge for 2 months

1,745

4,074

883

6,702At 29 February 2000

22,115

71,264

13,317

106,696Net book valueAt 29 February 2000

68,065

69,249

20,306

157,620At 31 December 1999

69,810

73,323

21,189

164,322At 31 December 1998

80,788

76,084

29,488

186,360


The
net book value of motor vehicles includes £20,306 (1999: £21,189; 1998: £27,510) in respect of assets held under hire purchase and finance lease
agreements. The amount of depreciation in respect of such assets amounted to £883 (1999: £6,303; 1998: £6,113) for the period. The net book value of computer
equipment and fixtures and fittings includes £ 10,699 (1999: £11,329; 1998: £15,712) in

112

---

respect of assets held under hire purchase and finance lease agreements. The amount of depreciation in respect of such assets amounted to £630 (1999:£4,985; 1998:
£4,545) for the period.

13    Fixed asset investments

Shares in
subsidiary
undertaking
£CostAt 1 January 1998, 31 December 1998 and 1999, and 29 February 2000

25ProvisionAt 1 January 1998

Provided in year

At 31 December 1998

Provided in year

25At 31 December 1999

25Provided in 2 months

At 29 February 2000

25Net book valueAt 29 February 2000

At 31 December 1999

At 31 December 1998

25


The
company's fixed asset investments consist of 100% of the ordinary share capital of NetVault Inc, a dormant company incorporated in the US.

113

---

14 Debtors

29 February
2000
£

31 December
1999
£

31 December
1998
£Trade debtors

263,564

297,323

22,099Amounts owed by group undertakings

48,024

40,198

2,839Other debtors

14,052

39,543

38,812Prepayments and accrued income

335

71,453

1,203Recoverable taxation

6,800

6,800

6,800332,775

455,317

71,753


15 Creditors: amounts falling due within one year

29 February
2000
£

31 December
1999
£

31 December
1998
£Bank overdraft

71,317

145,936

198,338Obligations under finance leases (see note 16)

6,906

10,736

10,649Trade creditors

19,303

41,068

259,833Amounts owed to group undertakings

142,143

111,191

267,802UK Corporation tax

391

391

Other taxes and social security

13,388

36,384

21,042Other creditors

7,415

7,239

4,500Accruals and deferred income

436,168

449,455

26,259697,031

802,400

788,423


Obligations
under finance leases are secured by related leased assets.

As
at 29 February 2000, 31 December 1999 and 1998, the company's bank overdraft was secured by a fixed and floating charge over all the fixed and current assets of the
company. The bank overdraft is repayable on demand and interest is charged at 2.5% above bank base rate.

Accruals
and deferred income include £221,701 (1999: £192,115; 1998: £Nil) of deferred income relating to funding received for the development of a
plug-in component for a re-seller (see note 2), and £177,473 (1999: £232,831; 1998: £17,817) of deferred income relating to
maintenance contracts (see note 1).

16 Creditors: amounts falling due after more than one year

29 February
2000
£

31 December
1999
£

31 December
1998
£Obligations under finance leases





7,743


114

---

Analysis
of debt:

29 February
2000
£

31 December
1999
£

31 December
1998
£Debt can be analysed as falling due:In one year or less, or on demand

71,317

145,936

198,338


The
maturity of obligations under finance leases is as follows:

29 February
2000
£

31 December
1999
£

31 December
1998
£Within one year

9,140

13,218

12,920In the second to fifth years





10,3169,140

13,218

23,236Less future finance charges

(2,234
)
(2,482
)
(4,844
)6,906

10,736

18,392


17 Provisions for liabilities and charges

Deferred taxation

There was no provision for deferred taxation and no unprovided deferred tax liabilities at 29 February 2000, 31 December 1999 or 31
December 1998. As 29 February 2000, the company had a deferred tax asset of £4,774 (1999: £5,231; 1998: £6,950). This asset has not been recognised
because, in the opinion of management, its realisation is not assured beyond reasonable doubt.

18 Called up share capital

29 February
2000
£

31 December
1999
£

31 December
1998
£Authorised250,000 ordinary shares of £1 each

250,000

250,000

250,000Allotted, called up and fully paid150,100 ordinary shares of £1 each

150,100

150,100

150,100


On
11 March 1998, the authorised share capital was increased from 100 to 250,000 ordinary shares of £1 each. On 30 April 1998, a further 150,000 ordinary shares
of £1 each were issued at par (see note 10).

115

---

19 Reconciliation of movements in shareholders' (deficit)/funds

Two-month
period
ended
29 February
2000
£

Year ended
31 December
1999
£

Year ended
31 December
1998
£(Loss)/profit for the financial period

(10,588
)
13,483

(268,380
)New share capital subscribed





150,000Dividends



(1
)
Net (reduction in)/addition to shareholders' funds

(10,588
)
13,482

(118,380
)Opening shareholders' (deficit)/funds

(104,798
)
(118,280
)
100Closing shareholders' deficit

(115,386
)
(104,798
)
(118,280
)


20 Operating lease commitments

Annual
commitments under non-cancellable operating leases are as follows:

Two-month
period
ended
29 February
2000
£

Year ended
31 December
1999
£

Year ended
31 December
1998
£Leases which expire:Within two to five years

40,000

40,000

40,000


21 Related party disclosures

During the two month period ended 29 February 2000 and the years ended 31 December 1999 and 1998, the company entered into transactions, in the
ordinary course of business, with various related

116

---

parties. Transactions entered into and trading balances outstanding at 29 February 2000 and 31 December 1999 and 1998 are as follows:

|                          |  | Sales to
related party
£ |  | Purchases from
related party
£ |  | Amounts owed by
related party
£ |  | Amounts owed to related
party
£
|------------------------- |  | ------------------------ |  | ------------------------------ |  | ------------------------------- |  | -------------------------------
|Related party             |  |                          |  |                                |  |                                 |  |                                
|Willow Group Limited      |  |                          |  |                                |  |                                 |  |                                
|2000                      |  |                         |  |                               |  |                                |  |                               
|1999                      |  | 3                        |  |                               |  |                                |  |                               
|1998                      |  |                         |  |                               |  |                                |  |                               
|Willow Limited            |  |                          |  |                                |  |                                 |  |                                
|2000                      |  |                         |  |                               |  | 292                             |  | 63,009                         
|1999                      |  |                         |  |                               |  | 292                             |  | 48,880                         
|1998                      |  | 292                      |  | 3,067                          |  | 292                             |  | 230,728                        
|Willow Starcom Limited    |  |                          |  |                                |  |                                 |  |                                
|2000                      |  |                         |  | 18,651                         |  | 9,581                           |  | 79,134                         
|1999                      |  | 7,034                    |  | 24,432                         |  | 9,581                           |  | 62,311                         
|1998                      |  | 2,547                    |  | 24,432                         |  | 2,547                           |  | 37,074                         
|NetVault Holdings Limited |  |                          |  |                                |  |                                 |  |                                
|2000                      |  |                         |  |                               |  |                                |  |                               
|1999                      |  |                         |  | 3                              |  |                                |  |                               
|1998                      |  |                         |  |                               |  |                                |  |                               
|NetVault Corporation      |  |                          |  |                                |  |                                 |  |                                
|2000                      |  | 36,500                   |  |                               |  | 38,151                          |  |                               
|1999                      |  | 100,699                  |  |                               |  | 30,325                          |  |                               
|1998                      |  |                         |  |                               |  |                                |  |                               

Until
21 December 1999, the company's immediate and ultimate parent companies were Willow Limited and Willow Group Limited, respectively, and Willow Starcom Limited was a fellow
subsidiary.

With
effect from 21 December 1999, the company's immediate and ultimate parent became NetVault Holdings Limited.

117

---

22 Reconciliations of operating (loss)/profit to net cash (outflow)/inflow from operating activities

Two-month period
ended
29 February
2000
£

Year ended
31 December
1999
£

Year ended
31 December
1998
£Operating (loss)/profit

(9,008
)
18,555

(257,742
)Depreciation charge

6,702

48,331

68,141Loss on disposal of tangible fixed assets



996

4,388Decrease/(increase) in stocks



195,732

(197,192
)Decrease/(increase) in debtors

122,877

(383,564
)
(64,866
)(Decrease)/increase in creditors

(28,061
)
65,901

579,436Write down of fixed asset investments



25

Net cash inflow/(outflow) from operating activities

92,510

(54,024
)
132,165


23 Analysis of net (debt)/funds

At
1 January
1998
£

Cash
flows
£

Other
changes
£

At
31 December
1998
£Cash in bank, at hand



222,553



222,553Overdraft

(12
)
(198,326
)


(198,338
)(12
)
24,227



24,215Debt due within one yearFinance leases



14,337

(24,986
)
(10,649
)Debt due after one yearFinance leases





(7,743
)
(7,743
)(12
)
38,564

(32,729
)
5,823


At
1 January
1999
£

Cash
flows
£

Other
changes
£

At
31 December
1999
£Cash in bank, at hand

222,553

(146,053
)


76,500Overdraft

(198,338
)
52,402



(145,936
)24,215

(93,651
)


(69,436
)Debt due within one yearFinance leases

(10,649
)
23,971

(24,058
)
(10,736
)Debt due after one yearFinance leases

(7,743
)


7,743

5,823

(69,680
)
(16,315
)
(80,172
)


118

---

At
1 January
2000
£

Cash
flows
£

Other
changes
£

At
29 February
2000
£Cash in bank, at hand

76,500

13,287



89,787Overdraft

(145,936
)
74,619



(71,317
)(69,436
)
87,906



18,470Debt due within one yearFinance leases

(10,736
)
3,830



(6,906
)Debt due after one yearFinance leases







(80,172
)
91,736



11,564


24 Summary of differences between United Kingdom and United States of America generally accepted accounting principles ("UK GAAP" and "US GAAP")

The
company's financial statements are prepared in accordance with UK GAAP, which differ in certain significant respects from US GAAP. The significant differences affecting the company
relate principally to the following items and the effects of the adjustments on net (loss)/income for the two-month period ended 29 February 2000 and the years ended 31
December 1999 and 1998, and deficit on shareholders' funds as at 29 February 2000 and 31 December 1999 and 1998 are as set out below.



119

---



A
summarised cash flow under US GAAP is as follows:

Two-month
period ended
29 February
2000
£

Year ended
31 December
1999
£

Year ended
31 December
1998
£Cash inflow/(outflow) from operating activities

91,736

(58,705
)
114,727Cash outflow on investing activities



(10,974
)
(226,163
)Cash (outflow)/inflow from financing activities

(3,830
)
(23,972
)
135,663Increase/(decrease) in cash and cash equivalents

87,906

(93,651
)
24,227Cash and cash equivalents at the start of the year

(69,436
)
24,215

(12
)Cash and cash equivalents at the end of the year

18,470

(69,436
)
24,215






25 Parent company and ultimate controlling party

At
31 December 1998, the company was a subsidiary undertaking of Willow Group Limited. At 31 December 1999 and 29 February 2000, the company was a subsidiary
undertaking of NetVault Holdings Limited. Both Willow Group Limited and NetVault Holdings Limited are companies registered in England and Wales. Willow Group Limited did not prepare consolidated
financial statements for 1998 and NetVault Holdings Limited did not prepare consolidated financial statements for 1999 or 2000. On 16 March 2000 NetVault Holdings Limited, the company's
ultimate parent company, was acquired by BakBone Software Inc, a company registered in Canada.

120

---



TRACER TECHNOLOGIES, INC. AND SUBSIDIARY        FINANCIAL STATEMENTS

121

---

|GOLD, LEINS & ADOFFCertified Public Accountants                     |  |                                                                  
|------------------------------------------------------------------- |  | -----------------------------------------------------------------
|                                                                    |  | Donald Gold, CPA
Charles R. Leins, CPA
Stanley Adoff, CPA        
|                                                                    |  |                                                                
|                                                                    |  | Members of the
American Institute of
Certified Public Accountants
|Board of Directors
Tracer Technologies, Inc.
Gaithersburg, Maryland |  |                                                                  

INDEPENDENT AUDITORS' REPORT

We have audited the accompanying consolidated balance sheets of Tracer Technologies, Inc. and Subsidiary (Tracer Japan, K.K.) as of March 31, 2000,
1999 and 1998 and the related consolidated statements of income and retained earnings, changes in stockholders' equity, and cash flows for the three years then ended. These financial statements are
the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positions as of March 31, 2000, 1999 and 1998, and
the results of operations and cash flows for the years then ended of Tracer Technologies, Inc. and Subsidiary in conformity with generally accepted accounting principles.

(Signed)
"GOLD, LEINS & ADOFF"
July 1, 2000
Rockville, Maryland

51 Monroe Street · Suite 1900 · Rockville, Maryland 20850  301-340-6300 Office · 301-340-7168 Telefax

122

---



TRACER TECHNOLOGIES, INC. AND SUBSIDIARY        CONSOLIDATED BALANCE SHEETS        March 31, 2000, 1999 and 1998

|                                           |                                                    | 2000                       |           | 1999     |           | 1998      |         
|------------------------------------------ | -------------------------------------------------- | -------------------------- | --------- | -------- | --------- | --------- | --------
|
|ASSETS                                     |                                                   
|Current assets:                            |                                                    |                            |           |          |           |           |         
|                                           | Cash                                               |                            | $         | 902,243  |           | $         | 572,690 
|                                           | Accounts receivable                                |                            |           | 463,743  |           |           | 470,292 
|                                           | Prepaid expenses                                   |                            |           | 61,312   |           |           | 48,942  
|                                           | Advances                                           |                            |           | 634      |           |           | 45,316  
|                                           |                                                    |                            |           |          |           |           |         
|                                           |                                                    | Total current assets       |           |          | 1,427,932 |           |         
|Fixed assets:                              |                                                    |                            |           |          |           |           |         
|                                           | Furniture and equipment                            |                            |           | 353,963  |           |           | 268,384 
|                                           | Less: accumulated depreciation                     |                            |           | (169,002 | )         |           | (108,589
|                                           |                                                    |                            |           |          |           |           |         
|                                           |                                                    | Total fixed assets         |           |          | 184,961   |           |         
|Other assets:                              |                                                    |                            |           |          |           |           |         
|                                           | Deposits                                           |                            |           | 14,526   |           |           | 12,785  
|                                           | Intangible assets, net of accumulated amortization |                            |           | 1,827    |           |           | 1,626   
|                                           |                                                    |                            |           |          |           |           |         
|                                           |                                                    | Total other assets         |           |          | 16,353    |           |         
|                                           |                                                    |                            |           |          |           |           |         
|Total assets                               |                                                    | $                          | 1,629,246 |          | $         | 1,311,446 |         
|                                           |                                                    |                            |           |          |           |           |         
|LIABILITIES AND STOCKHOLDERS' EQUITY       |                                                   
|Current liabilities:                       |                                                    |                            |           |          |           |           |         
|                                           | Accounts payable                                   |                            | $         | 374,861  |           | $         | 320,942 
|                                           | Accrued expenses                                   |                            |           | 166,392  |           |           | 246,327 
|                                           | Deferred income taxes                              |                            |           | 1,774    |           |           | 2,730   
|                                           | Deferred revenue                                   |                            |           | 166,097  |           |           | 263,040 
|                                           | Notes payablecurrent portion                      |                            |           | 97,139   |           |           | 33,345  
|                                           |                                                    |                            |           |          |           |           |         
|                                           |                                                    | Total current liabilities  |           |          | 806,263   |           |         
|Long term liabilities                      |                                                    |                            |           |          |           |           |         
|                                           | Notes payablelong-term                            |                            |           | 323,764  |           |           | 133,270 
|                                           |                                                    |                            |           |          |           |           |         
|Total liabilities                          |                                                    |                            | 1,130,027 |          |           | 999,654   |         
|Stockholders' equity:                      |                                                    |                            |           |          |           |           |         
|                                           | Controlling interests:                             |                            |           |          |           |           |         
|                                           |                                                    | Common stock               |           |          | 137,755   |           |         
|                                           |                                                    | Retained earnings          |           |          | 230,105   |           |         
|                                           |                                                    |                            |           |          |           |           |         
|                                           |                                                    |                            | 367,860   |          |           | 253,889   |         
|Minority interests                         |                                                    |                            | 131,359   |          |           | 57,903    |         
|                                           |                                                    |                            |           |          |           |           |         
|                                           |                                                    | Total stockholders' equity |           |          | 499,219   |           |         
|                                           |                                                    |                            |           |          |           |           |         
|Total liabilities and stockholders' equity |                                                    | $                          | 1,629,246 |          | $         | 1,311,446 |         
|                                           |                                                    |                            |           |          |           |           |         

See
accompanying notes and independent auditors' report.

123

---

TRACER TECHNOLOGIES, INC. AND SUBSIDIARY        CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS        For the years ended March 31, 2000, 1999 and 1998

|                                                    |                                            | 2000                     |           | 1999      |           | 1998      |          
|--------------------------------------------------- | ------------------------------------------ | ------------------------ | --------- | --------- | --------- | --------- | ---------
|
|Sales, net                                          |                                            | $                        | 3,692,039 |           | $         | 3,384,462 |          
|Cost of goods sold                                  |                                            |                          | 96,476    |           |           | 286,389   |          
|                                                    |                                            |                          |           |           |           |           |          
|Gross profit                                        |                                            |                          | 3,595,563 |           |           | 3,098,073 |          
|Operating expenses:                                 |                                            |                          |           |           |           |           |          
|                                                    | General and administrative expenses        |                          |           | 1,131,505 |           |           | 1,160,661
|                                                    | Marketing and sales expenses               |                          |           | 897,584   |           |           | 985,315  
|                                                    | Research and development costs             |                          |           | 1,393,451 |           |           | 986,307  
|                                                    |                                            |                          |           |           |           |           |          
|                                                    |                                            | Total operating expenses |           |           | 3,422,540 |           |          
|                                                    |                                            |                          |           |           |           |           |          
|Net income (loss) from operations                   |                                            |                          | 173,023   |           |           | (34,210   | )        
|Other income and expenses:                          |                                            |                          |           |           |           |           |          
|                                                    | Interest income                            |                          |           | 11,603    |           |           | 7,788    
|                                                    | Interest expense                           |                          |           | (4,946    | )         |           | (3,203   
|                                                    | Loss on disposal of fixed assets           |                          |           |          |           |           | (1,280   
|                                                    | Minority interests in income of subsidiary |                          |           | (64,588   | )         |           | (22,576  
|                                                    | Foreign currency gain (loss)               |                          |           | 59,667    |           |           | 26,626   
|                                                    |                                            |                          |           |           |           |           |          
|Net income (loss) before provision for income taxes |                                            |                          | 174,759   |           |           | (26,855   | )        
|                                                    | Provision for income taxes                 |                          |           | 60,788    |           |           | 13,309   
|                                                    |                                            |                          |           |           |           |           |          
|Net income (loss)                                   |                                            |                          | 113,971   |           |           | (40,164   | )        
|Retained earnings (deficit), beginning of year      |                                            |                          | 116,134   |           |           | 156,298   |          
|                                                    |                                            |                          |           |           |           |           |          
|Retained earnings, end of year                      |                                            | $                        | 230,105   |           | $         | 116,134   |          
|                                                    |                                            |                          |           |           |           |           |          

See
accompanying notes and independent auditors' report.

124

---



TRACER TECHNOLOGIES, INC. AND SUBSIDIARY        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY        For the years ended March 31, 2000, 1999 and 1998

|                       |            | Common
Stock |         | Retained
Earnings
(Deficit) |   | Total   |        
|---------------------- | ---------- | ------------ | ------- | --------------------------- | - | ------- | -------
|
|Balance April 1, 1997  |            | $            | 137,755 |                             | $ | (97,817 | )      
|                       | Net income |              |         |                            |   |         | 254,115
|                       |            |              |         |                             |   |         |        
|Balance March 31, 1998 |            |              | 137,755 |                             |   | 156,298 |        
|                       | Net (loss) |              |         |                            |   |         | (40,164
|                       |            |              |         |                             |   |         |        
|Balance March 31, 1999 |            |              | 137,755 |                             |   | 116,134 |        
|                       | Net income |              |         |                            |   |         | 113,971
|                       |            |              |         |                             |   |         |        
|Balance March 31, 2000 |            | $            | 137,755 |                             | $ | 230,105 |        
|                       |            |              |         |                             |   |         |        

See
accompanying notes and independent auditors' report.

125

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TRACER TECHNOLOGIES, INC. AND SUBSIDIARY        CONSOLIDATED STATEMENTS OF CASH FLOWS        For the years ended March 31, 2000, 1999 and 1998

|                                                 |                                                                                          | 2000                                        |                       | 1999    |        | 1998    |        
|------------------------------------------------ | ---------------------------------------------------------------------------------------- | ------------------------------------------- | --------------------- | ------- | ------ | ------- | -------
|
|Cash flows from operating activities:            |                                                                                          |                                             |                       |         |        |         |        
|                                                 | Net income (loss)                                                                        |                                             | $                     | 113,971 |        | $       | (40,164
|                                                 | Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                             |                       |         |        |         |        
|                                                 |                                                                                          | Depreciation and amortization               |                       |         | 60,413 |         |        
|                                                 |                                                                                          | Increase in minority interest in subsidiary |                       |         | 73,456 |         |        
|                                                 |                                                                                          | (Increase) decrease in assets:              |                       |         |        |         |        
|                                                 |                                                                                          |                                             | Accounts receivable   |         |        | 6,549   |        
|                                                 |                                                                                          |                                             | Prepaid expenses      |         |        | (12,370 | )      
|                                                 |                                                                                          |                                             | Advances              |         |        | 44,682  |        
|                                                 |                                                                                          |                                             | Deposits              |         |        | (1,741  | )      
|                                                 |                                                                                          | Increase (decrease) in liabilities:         |                       |         |        |         |        
|                                                 |                                                                                          |                                             | Accounts payable      |         |        | 53,919  |        
|                                                 |                                                                                          |                                             | Accrued expenses      |         |        | (79,935 | )      
|                                                 |                                                                                          |                                             | Deferred income taxes |         |        | (956    | )      
|                                                 |                                                                                          |                                             | Deferred revenue      |         |        | (96,943 | )      
|                                                 |                                                                                          |                                             |                       |         |        |         |        
|Net cash provided (used) by operating activities |                                                                                          |                                             | 161,045               |         |        | (14,616 | )      
|Cash flows from investing activities:            |                                                                                          |                                             |                       |         |        |         |        
|                                                 | Purchase of fixed assets                                                                 |                                             |                       | (85,579 | )      |         | (66,324
|                                                 | Intangible assets                                                                        |                                             |                       | (201    | )      |         | (1,277 
|                                                 |                                                                                          |                                             |                       |         |        |         |        
|Net cash (used) by investing activities          |                                                                                          |                                             | (85,780               | )       |        | (67,601 | )      
|Cash flows from financing activities:            |                                                                                          |                                             |                       |         |        |         |        
|                                                 | Net proceeds from notes payable                                                          |                                             |                       | 254,288 |        |         | 59,115 
|                                                 |                                                                                          |                                             |                       |         |        |         |        
|Increase (decrease) in cash                      |                                                                                          |                                             | 329,553               |         |        | (23,102 | )      
|Cash, beginning of year                          |                                                                                          |                                             | 572,690               |         |        | 595,792 |        
|                                                 |                                                                                          |                                             |                       |         |        |         |        
|Cash, end of year                                |                                                                                          | $                                           | 902,243               |         | $      | 572,690 |        
|                                                 |                                                                                          |                                             |                       |         |        |         |        
|Supplemental disclosures:                        |                                                                                          |                                             |                       |         |        |         |        
|                                                 | Cash paid for income taxes                                                               |                                             | $                     | 80,930  |        | $       | 59,621 
|                                                 |                                                                                          |                                             |                       |         |        |         |        
|                                                 | Cash paid for interest                                                                   |                                             | $                     | 4,946   |        | $       | 3,203  
|                                                 |                                                                                          |                                             |                       |         |        |         |        

See
accompanying notes and independent auditors' report.

126

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TRACER TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2000, 1999 and 1998

1. DESCRIPTION OF THE COMPANIES

The accompanying consolidated financial statements include the following entities hereinafter referred to as "the Companies":



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The consolidated financial statements of the Companies are prepared using the accrual basis of accounting where as revenues are recognized when earned and
expenses are recognized when incurred in accordance with generally accepted accounting principles.

Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Principles of Consolidation

Tracer Technologies, Inc. holds a 50 percent interest in Tracer Technologies, Japan, Inc. In addition, a party related to Tracer
Technologies, Inc. has a 25 percent interest in Tracer Technologies Japan, K.K. Accordingly, Tracer Technologies, Inc. is required to prepare consolidated financial statements.
Eliminations of minority interests in stockholder's equity have been adjusted based on a 50 percent ownership of Tracer Technologies Japan, K.K. All significant intercompany transactions have
been eliminated.

Translation of Foreign Currencies

Translation of revenues and expenses in foreign currency have been converted to U.S. dollars using a weighted average. Balance sheet account balances have been
converted to U.S. dollars based on the foreign currency value as of year end.

Cash and Cash Equivalents

The Companies considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

127

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Accounts Receivable

Accounts receivable are recorded net of an allowance for uncollectible receivables, based on management's evaluation of outstanding accounts receivable at year
end.

Property and Equipment

Property and equipment is recorded at cost. Depreciation is recorded on a straight-line basis over the estimated useful lives of 5 to 7 years.
Registered trademarks are recorded at cost. Goodwill is recorded at fair market value. Amortization is recorded on a straight-line basis over the estimated useful life of 5 to
10 years.

Deferred Revenue

The Companies receive payment in advance of providing goods and services. Such payments are recorded as deferred revenue until the goods and services are
rendered.

Revenue Recognition

Revenue includes the sales of software and peripherals that have been licensed. Software and peripherals that are released and remain unlicensed are not
considered as revenue.

Stockholders' Equity

The following amounts of stock have been authorized and issued:

Tracer
Technologies, Inc.no par value, 5,000 shares authorized, 4,904 shares issued and outstanding.

Research and Development Expenses

Expenditures for research, development and engineering of products and manufacturing processes are expensed as incurred.

Income Taxes

The liability method is used in accounting for income taxes for the Company. Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to
reverse. Total income tax expense is the sum of the change in deferred income taxes and the current year income tax liability.

3. LEASES

The Companies have entered into various leases for office space. The following is a schedule by year of future minimum lease payments for all leases as of
March 31, 2000. Also see Note 4 below.

March 31,

Amount($U.S.)2001

$
105,8162002


63,783Totals:

$
169,599


128

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4. CONCENTRATION OF CREDIT RISK

The Company maintains cash balances in accounts which are insured by the Federal Deposit Insurance Corporation for amounts up to U.S.$100,000. As of
March 31, 2000, 1999 and 1998, the amounts held in those accounts in excess of the U.S.$100,000 insurance limit was U.S.$71,497, U.S.$303,593 and U.S.$604,703, respectively.

5. INCOME TAXES

The provision for income taxes has been made based on estimated taxable income at the end of the year. Due to timing differences caused by depreciation, and other
tax modifications, the tax liability for certain items has been deferred.

The
components of the provision for income tax consisted of the following as of March 31:

2000

1999

1998($U.S.)

($U.S.)

($U.S.)Current provisionFederal

$
4,352

$


$
33,471State


2,184





10,011Foreign subsidiary


65,804


13,696


Deferred taxesFederal


(653
)

(263
)

1,190State


(305
)

(124
)

555Total

$
71,382

$
13,309

$
45,227


Deferred
income taxes reflect the following adjustments for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

2000

1999

1998($U.S.)

($U.S.)

($U.S.)Depreciation

$
(8,063
)
$
(12,411
)
$
(14,167
)Deferred tax liability:Federal

$
1,209

$
1,861

$
2,125State


565


869


992Total

$
1,774

$
2,730

$
3,117


6. RELATED PARTY TRANSACTIONS

The Company's sales to the Subsidiary were U.S.$671,843, U.S.$764,484, and U.S.$731,730, respectively, for the years ended March 31, 2000, 1999 and 1998.
As of March 31, 2000, 1999 and 1998, amounts due to the Company from the Subsidiary were U.S.$120,854, U.S.$167,390, and U.S.$131,586, respectively.

7. RETIREMENT PLANS

In 1995, the Company established a defined benefit plan, profit sharing plan and a money purchase plan. The plans cover substantially all full-time
employees who have obtained a minimum age and service period. An explanation of each of the plans is as follows:

The
defined benefit plan entitles each eligible employee to receive a retirement benefit based on an actuarial formula of four and three quarters percent of the employees average annual
compensation

129

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based on the number of years of service. The maximum number of years of service under the plan is twenty five. The actuarial value of the profit sharing plan and the money purchase plan are reduced
from the actuarial value of the employees normal retirement benefit under the defined benefit plan.

The
profit sharing plan provides for elective annual Company contributions based on eligible employee compensation for the year.

Under
the money purchase plan the Company contributes five percent of eligible employee compensation annually.

The
defined benefit plan, profit sharing plan and money purchase plan were discontinued effective March 1999.

In
1999, the Company established a simple IRA plan for all eligible full-time employees that have obtained minimum age, service and compensation requirements. Under the plan,
eligible employees can contribute up to a maximum of U.S.$6,000 annually, based on compensation. The Company can elect to contribute up to three percent of the eligible employee's annual compensation
up to a maximum of U.S.$6,000 or two percent of the eligible employee's annual compensation up to a maximum of U.S.$3,200. The Company must make contribution determinations in a reasonable time period
prior to the commencement of a plan year.

For
the years ended March 31, 2000, 1999 and 1998 the Company contributed U.S.$42,756, U.S.$18,926, U.S.$211,319, respectively, to the plans. As of March 31, 2000, 1999 and
1998 U.S.$15,858, U.S.$10,516 and U.S.$211,319 was payable to the plans.

130

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8. NOTES PAYABLE

The Subsidiary has entered into several notes payable as follows:

|                                                                                                                                                                                                                                                                                                       |  | ($U.S.) |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------- | -------
|A note payable due to a shareholder of the Subsidiary from various advances to the Subsidiary during 1998 and 1999. The loan is non interest bearing and payable upon demand. The note is not secured by collateral and not
guaranteed                                                                 |  | $       | 8,281  
|A U.S.$48,710 note payable at 2.125% interest with Asahi Bank dated February 1997. The loan is payable over 5 years with monthly payments of U.S.$838 including principal and interest. An officer of the Subsidiary has personally guaranteed
the note payable. The note is not secured by collateral |  |         | 20,805 
|A U.S.$48,710 note payable at 2.5% interest with Asahi Bank dated February 1998. The loan is payable over 5 years with monthly payments of U.S.$867 including principal and interest. An officer of the Subsidiary has personally guaranteed the
note payable. The note is not secured by collateral   |  |         | 29,897 
|A U.S.$97,420 note payable at 2.5% interest with Asahi Bank dated June 1998. The loan is payable over 7 years with monthly payments of U.S.$1,265 including principal and interest. An officer of the Subsidiary has personally guaranteed the
note payable. The note is not secured by collateral     |  |         | 74,638 
|A U.S.$292,260 note payable at 2.2% interest with Asahi Bank dated March 2000. The loan is payable over 5 years with monthly payments of U.S.$5,148 including principal and interest. An officer of the Subsidiary has personally guaranteed the
note payable. The note is not secured by collateral   |  |         | 287,282
|                                                                                                                                                                                                                                                                                                       |  |         |        
|Total                                                                                                                                                                                                                                                                                                  |  |         | 420,903
|Less current portion                                                                                                                                                                                                                                                                                   |  |         | (97,139
|                                                                                                                                                                                                                                                                                                       |  |         |        
|Long term portion                                                                                                                                                                                                                                                                                      |  | $       | 323,764
|                                                                                                                                                                                                                                                                                                       |  |         |        

Principal
maturities are as follows for the next five years ending March 31:

($U.S.)2001

$
97,1392002


90,8962003


83,8842004


74,2432005 and thereafter


74,741Total

$
420,903


9. CONCENTRATION OF SALES

For the years ended March 31, 2000, 1999 and 1998, five of the Company's customers accounted for more than 56%, 49%, and 45% of sales, respectively.

10. SUBSEQUENT EVENTS

The Company has terminated its previous lease agreement at a monthly base rental of U.S.$7,801, as described in Note 3 above, with no early termination
penalties effective April 2000. After this termination, the Company entered into a twenty one month lease agreement for office space. The lease

131

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calls for monthly base rental payments of U.S.$11,325 beginning April 15, 2000. The lease also provides for a rental abatement during the first four months of the lease totaling U.S.$22,650.
In addition to the lease, the Company purchased from the landlord existing office furniture for U.S.$4,850.

On
June 9, 2000, Tracer Technologies, Inc. exchanged 100% of its common stock to acquire the equivalent of 600,000 common shares in BakBone Software, Inc. at a
minimum market value of U.S.$10 per share or total minimum market value of U.S.$6,000,000. The Company also received U.S.$2,251,934 as part of the transaction.

11. RECONCILIATION FROM U.S. GAAP TO CANADIAN GAAP

Although these financial statements were prepared in accordance with generally accepted accounting principles in the United States of America, there are no
adjustments required to convert the financial statements to generally accepted accounting principles in Canada.

132

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Item 18. Financial Statements.

Not applicable.

133

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Item 19. Exhibits.

INDEX TO EXHIBITS

|Exhibit |  | Description                          
|------- |  | -------------------------------------
|1.1     |  | Articles of Continuance *            
|1.2     |  | Bylaws *                             
|4.1     |  | Form of Domestic Reseller Agreement *
|8.1     |  | List of Subsidiaries *               
|10.1    |  | Consent of KPMG LLP                  
|10.2    |  | Consent of KPMG                      
|10.3    |  | Consent of KPMG                      
|10.4    |  | Consent of Gold, Liens & Adoff       

---

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this registration statement on its behalf.

| |  | BAKBONE SOFTWARE INCORPORATED
| |  | -----------------------------
| |  | By:                          
| |  |                              

Date: February 4, 2002

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