UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
------------------
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number 33-55254-45
ASSOCIATED TECHNOLOGIES
(Exact name of registrant as specified in its charter)
NEVADA 87-0485306
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification Number)
1204 THIRD AVENUE, SUITE 172
NEW YORK, NY 10021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 988-0394
---------------------
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. [ X ] Yes [ ] No
Class Outstanding as of September 30, 1997
- --------------------------- ------------------------------------
CLASS A COMMON STOCK 2,303,520 Shares
Par Value $0.001
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Financial Statements Page
Consolidated Balance Sheets as at December 31, 1996 and
September 30, 1997 F-1
Consolidated Statements of Operations for the quarter ending
September 30, 1997 F-2
Consolidated Statement of Shareholders' Equity for the period
from August 9, 1990 to September 30, 1997 F-3
Consolidated Statements of Cash Flows for the quarter ending
September 30, 1997 F-4
Selected Notes to Consolidated Financial Statements F-5
2
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Associated Technologies continues to seek to acquire technology companies with
strong existing management growth potential and technology which can be utilised
in numerous market places. During the current quarter, negotiations were entered
into and terms agreed to in principle for the acquisition of a company based in
Massachusetts involved in the development of computer software games using
digital sound technology. At the date of this report, both parties are
finalising the details of the transaction and completing due diligence work. The
acquisition is expected to be finalised during the first quarter of 1998.
Meanwhile, the company's principal trading subsidiary, Ogenic Technologies Pty
Ltd, continues to focus on improving operating results with a view to moving
into a position of operating profit as early as possible in 1998. A thorough
management review of all operating systems and procedures is currently being
undertaken and is expected to be completed by the end of 1997.
Management's strategy is to ensure:-
that reporting systems clearly differentiate between the three components of
Ogenic's business i.e. analog systems, digital systems and research and
development.
a) that maximum returns are achieved from the company's traditional analog
radio broadcasting market including improved planning and forecasting and
as a consequence, longer production runs which will improve margins on
manufactured product.
b) that software development is clearly focussed on delivering saleable
software products which can be marketed according to an agreed strategy in
defined markets.
c) that maximum results are achieved from the company's research and
development programs to enable the company to position itself at the
forefront of future markets.
Ogenic continues to improve and upgrade its Virtuoso product with version 1.2
due for release in December 1997. At the same time, marketing strategies are
being developed for the release of a version of Virtuoso designed for the
Community Radio Broadcasting market.
During the quarter, Ogenic commenced research and development under the sub
research contract, referred to in the June quarter report, for $1.8 million. It
is expected that the research and development work will be completed during the
first half of the 1998 financial year.
Results of Operations
The company's subsidiary, Ogenic Technologies Pty Ltd, was acquired in June 1996
and the Statement of Operations shown in F-2, excludes trading activities prior
to this date. The comments that follow therefore, are based on the Statement of
Operations shown in F-10 which includes the trading activities of Ogenic
Technologies Pty Ltd prior to June 1996. The operating revenue for the year to
date was $1,370,351, an increase of more than 250% on the operating revenue for
the corresponding period to September 1996 and resulted in a gross profit of
$688,551 (50%) compared with a gross profit of $108,095 (28%) in the
corresponding period. General and administrative expenses are $1,228,801 which
compares favourably with the 1996 figure of $1,730,938 which includes $460,000
relating to parent company costs associated with the acquisition of Ogenic
Technologies Pty Ltd.
The operating revenue for the quarter to September 30, 1997 was $774,348 which
includes $426,938 relating to the sub research contract. Cost of sales amounted
to $386,100 which includes $101,990 relating to the sub research contract and
resulted in a gross profit of $388,248.
General and administrative expenditure amounted to $428,627 and included
$206,657 for wages and salaries of which $26,100 was related to remuneration
paid to the directors of the company or its subsidiary. Other major items of
expenditure were travel at $13,697, depreciation at $24,014, bad debts at
$11,468, consultancy fees at $34,916, telephone at $16,054 and project expenses
at $43,452.
Since June 30 1997, the Group has received orders totalling $0.70 million and at
the date of this report, the company has outstanding orders of $0.8 million.
3
<PAGE>
Further contracts are anticipated from structured R&D programs involving fund
raising for the development and commercialisation of new software products.
Liquidity and Capital Resources
The Company's cash liquidity continued to improve as a result of the $1.8
million received as an advance payment on account of contracted research and
development work and contract deposits received on account of radio broadcasting
contracts ($279,557).
Current assets include:-
a) $290,420 relating to expenditure incurred in Research and Development which
the company expects to recoup from the R&D Syndication program expected to
commence in the first quarter of 1998; and
b) prepaid expenses which include $304,377 relating to expenses associated
with R&D structured funding programs with a total value of $4.3 million of
which $1.8 million had been received at June 30 1997. A proportion of the
total prepaid fees which are expected to relate to the period after
September 1998, have been included under non current assets in accordance
with normal accounting conventions.
Included under current liabilities, is a figure for income in advance of
$1,386,000. This represents the value of the sub research contract (gross value
$1.8 million) which has not been brought to account. The anticipated net income
on this sub research contract is expected to be $1.37 million of which $0.32
million has been taken to profit/loss in the current quarter.
The company repaid $450,000 in short term loans during the quarter including
interest of $15,000.
Impact of Inflation
The Company believes that its activities are not materially affected by
inflation.
Foreign Currency Exposure
Income from Ogenic Technologies Pty Ltd ("Ogenic"), the Company's operating
subsidiary, will be in the form of cash received from customers for sales of
products, services, and technology, and the reimbursement of funds expended on
Research & Development. In the main, contracts are negotiated in Australian
Dollars, with liabilities incurred in Australian Dollars.
Exchange Rate
The Exchange Rate at September 30, 1997 was: US$1.00 = A$1.38 (December 31 1996
A$1.27)
4
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included in this filing:
Page
Financial Statements as of September 30, 1997 F-1
Financial Data Schedule
(b) Reports on Form 8-K.
None.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ASSOCIATED TECHNOLOGIES
By: s/ Alan James Gallagher
Alan James Gallagher, President (Acting)
Dated : 18 November 1997
------------------------------
6
<PAGE>
ASSOCIATED TECHNOLOGIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS 9/30/97 12/31/96
(Unaudited) (Audited)
----------------- -----------------
CURRENT ASSETS
<S> <C> <C>
Cash $ 0 $ 18,054
Research & Development Project debtor 900,001 0
Accounts receivable 334,607 181,341
Inventories 253,891 187,062
Prepaid R&D Expenditure 290,420 0
Prepaid expenses 429,732 759,051
----------------- -----------------
TOTAL CURRENT ASSETS 2,208,651 1,145,508
PROPERTY, PLANT, AND EQUIPMENT
Equipment 366,064 425,003
Accumulated depreciation and amortization (270,411) (309,661)
------------------ ------------------
NET PROPERTY, PLANT AND EQUIPMENT 95,653 115,342
OTHER ASSETS
Investments 138 0
Prepaid expenses - R&D structured funding 328,125 0
----------------- -----------------
328,263 0
----------------- -----------------
TOTAL ASSETS $ 2,632,567 $ 1,260,850
------------ ================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 5,084 $ 0
Accounts payable 364,525 155,256
Accrued expenses 243,553 324,287
Income in Advance 1,386,000 0
Loans (secured) 150,000 66,562
Accrued Employee Benefits 51,708 27,216
Contract deposits 279,557 0
----------------- -----------------
TOTAL CURRENT LIABILITIES 2,480,427 573,321
NON-CURRENT LIABILITIES
Loans - related parties (unsecured) 123,312 500,321
----------------- -----------------
TOTAL LIABILITIES 2,603,739 1,073,642
SHAREHOLDERS' EQUITY Common stock par value $.001:
25,000,000 shares authorized; 2,303,520 shares issued
(2,148,000 in 1996) 2,304 2,148
Additional paid-in capital 3,332,204 2,830,112
Foreign exchange reserve 80,543 0
(Deficit) accumulated during development stage (3,386,223) (2,645,052)
------------------ ------------------
TOTAL SHAREHOLDERS' EQUITY 28,828 187,208
----------------- -----------------
$ 2,632,567 $ 1,260,850
================= =================
</TABLE>
F-1
<PAGE>
ASSOCIATED TECHNOLOGIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
8/9/90 (date
Three Months Ended Nine Months Ended of inception)
9/30/97 9/30/96 9/30/97 9/30/96 to 9/30/97
---------------- ------------ -------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Operating revenue $ 774,348 $ 248,053 $ 1,370,351 $ 248,053 $ 1,830,234
Cost of sales (386,100) (136,429) (681,800) (136,429) (1,039,918)
---------------- ------------ -------------- --------------- -----------------
GROSS PROFIT 388,248 111,624 688,551 111,624 790,316
General and administrative expenses (428,627) (761,072) (1,228,801) (1,221,072) (3,015,431)
---------------- ------------ -------------- --------------- -----------------
Loss before other items (40,379) (649,448) (540,250) (1,109,448) (2,225,115)
---------------- --------- ------------- --------------- ----------------
Other Items:
* Prior year adjustment (124,000) 0 (124,000) 0 (124,000)
Expenses of Voluntary Administration 0 0 0 0 (13,284)
Profit on sale of fixed assets (1,114) 102,052 35 102,052 88,070
Goodwill on acquisition of subsidiary
written off 0 0 0 0 (845,012)
Exchange loss on capitalisation of
subsidiary's loan 0 0 (92,068) 0 (92,068)
Debt Forgiveness 0 60,790 0 60,790 0
Performance Bond 0 (22,363) 0 (22,363) 0
Unrealised exchange gain - subsidiary
loan 15,112 0 15,112 0 15,112
Research and Development costs 162,215 (146,478) 0 (146,478) (189,926)
--------------- ------------ ------------- --------------- -----------------
52,213 (5,999) (200,921) (5,999) (1,161,108)
INCOME (LOSS) BEFORE INCOME
TAXES 11,834 (655,447) (741,171) (1,115,447) (3,386,223)
PROVISION FOR INCOME TAXES 0 0 0 0 0
--------------- ----------- ------------- -------------- ----------------
NET INCOME (LOSS) $ 11,834 $ (655,447) $ (741,171) $ (1,115,447) $ (3,386,223)
=============== ============ ============= =============== =================
Net income (loss) per weighted
average common share
outstanding $ 0.01 $ (0.46) $ (0.34) $ (0.96) $ (2.86)
=============== ============ ============= =============== =================
Weighted average number of
common shares outstanding 2,303,520 1,437,804 2,200,410 1,162,547 1,182,885
=============== =========== ============= ============== ================
</TABLE>
* The prior year adjustment represents an amount finally negotiated
subsequent to the previous year end in relation to a fee due to First
Sydney Capital Ltd for merchant banking services and advice rendered during
and prior to the acquisition of Ogenic Technologies Pty Ltd.
F-2
<PAGE>
ASSOCIATED TECHNOLOGIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Period from August 9, 1990 (Date of Inception) to September 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During
Common Stock Paid-in Development
Shares Amount Capital Stage
--------------- ----------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Balances at 8/9/90 (Date of Inception) 0 $ 0 $ 0 $ 0
Issuance of common stock (restricted) at
$.001 per share at 8/9/90 1,000,000 1,000 0 0
Net loss for period (1,000)
--------------- ----------------- ---------------- ------------------
Balances at 12/31/90 1,000,000 1,000 0 (1,000)
Net income for year 0
--------------- ----------------- ---------------- ------------------
Balances at 12/31/91 1,000,000 1,000 0 (1,000)
Net income for year 0
--------------- ----------------- ---------------- ------------------
Balances at 12/31/92 1,000,000 1,000 0 (1,000)
Net income for year 0
--------------- ----------------- ---------------- ------------------
Balances at 12/31/93 1,000,000 1,000 0 (1,000)
Net income for year 0
--------------- ----------------- ---------------- ------------------
Balances at 12/31/94 1,000,000 1,000 0 (1,000)
Net income for year 0
--------------- ----------------- ---------------- ------------------
Balances at 12/31/95 1,000,000 1,000 0 (1,000)
Issuance of common stock (restricted) at
$5.00 per share for cash at 1/10/96 20,000 20 99,980
Issuance of common stock (80,000
Regulation S and 100,000 restricted)
at par to acquire subsidiary and
associated loan at 6/28/96 (Value based
on assets received) 180,000 180 -
Issuance of common stock (restricted) at
$2.00 per share for expenses at 6/28/96 230,000 230 459,770
Issuance of common stock (restricted) at
$2.00 per share to retire debt at
9/30/96 270,000 270 539,730
Issuance of common stock (Regulation S)
at $4.50 per share to retire debt at
9/30/96 218,000 218 980,782
Issuance of common stock (restricted) at
$0.001 per share for prepaid expenses
At 9/30/96 80,000 80 -
Issuance of common stock (restricted) at
$5.00 per share for prepaid expenses 150,000 150 749,850
at 9/30/96
Net loss for the year to 12/31/96 (2,644,052)
--------------- ----------------- ---------------- -------------------
Balances at 12/31/96 2,148,000 2,148 2,830,112 (2,645,052)
Issuance of common stock (Reg S) at $4 per
share to retire debt at 6/30/97 95,605 96 382,322 0
Issuance of common stock (Reg S) at $2 per
share to retire debt at 6/30/97 59,915 60 119,770 0
Net loss for the period to 9/30/97 0 0 0 (741,171)
--------------- ----------------- ---------------- -------------------
Balances at 9/30/97 2,303,520 $ 2,304 $ 3,332,204 $ (3,386,223)
=============== ================= ================ ===================
</TABLE>
F-3
<PAGE>
ASSOCIATED TECHNOLOGIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
8/9/90 (date
Nine Months Ended of inception)
9/30/97 9/30/96 to 9/30/97
---------------- ---------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (741,171) $ (1,115,447) $ (3,386,223)
Adjustments to reconcile net (loss) to net
cash required by operating activities:
(Profit)/Loss on sale of non current assets (16,308) (88,037) (104,344)
Stock issued for expenses 0 460,000 0
Depreciation 46,518 14,467 78,755
Goodwill written off 0 0 845,012
Accrued Employee Benefits 28,614 0 41,231
Investments written off 11,907 0 11,907
Changes in assets and liabilities
Accounts receivable (1,102,665) 0 (1,304,704)
Inventories (89,709) 0 37,841
Prepaid expense (350,930) 0 (1,109,306)
Accounts payable 286,287 0 427,027
Accrued expenses (78,275) 0 (63,573)
Income in advance 1,429,313 0 1,429,313
Contract deposits 288,293 0 288,293
---------------- ---------------- -----------------
453,045 386,430 577,452
---------------- ---------------- -----------------
NET CASH REQUIRED BY
OPERATING ACTIVITIES (288,126) (5,043) (2,808,771)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of non current assets 0 693,615 713,797
Cash acquired from subsidiaries 0 104,353 147,939
Investment in joint venture (12,164) 0 (12,164)
Purchase of Fixed Assets (42,870) 0 (61,622)
----------------- ---------------- ------------------
NET CASH PROVIDED (REQUIRED)
BY INVESTING ACTIVITIES (55,034) 797,968 787,950
----------------- ---------------- -----------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Loan Repayments - Bank 0 0 (657,307)
Stock sold 502,248 100,000 3,334,508
Loans - related parties 366,236 572,208 866,557
Loan repayments - other (514,762) (748,157) (514,762)
Loans - other 600,000 0 668,369
Loan repayments - related parties (502,248) 0 (1,550,176)
----------------- ---------------- ------------------
NET CASH PROVIDED (REQUIRED)
BY FINANCING ACTIVITIES 451,474 (75,949) 2,147,189
---------------- ----------------- -----------------
NET INCREASE IN CASH 108,314 23,361 126,368
Foreign exchange translation adjustment (131,452) 0 (131,452)
----------------- ---------------- ------------------
(23,138) 23,361 (5,084)
CASH AT BEGINNING OF PERIOD 18,054 0 0
---------------- ---------------- -----------------
CASH AT END OF PERIOD $ (5,084) $ 23,361 $ (5,084)
================= ================ ==================
</TABLE>
F-4
<PAGE>
SUPPLEMENTAL FINANCING ACTIVITIES
During the period ended September 30 1997, the Company issued 155,520 Regulation
S shares in satisfaction of loans due to the following related parties.
No. of shares
Project & General Finance Pty Ltd 95,605
First Sydney Capital Ltd 59,915
-------------
155,520
=============
On 10 March 1997 the Company entered into a promissory agreement in regard to
loan funds advanced of $300,000. In addition to interest at 10% per annum on the
amount outstanding, the Company entered into a stock option agreement with the
lender for 120,000 shares at a price of $2.50 per share exercisable until 7
March 2002. The loan is secured over the Company's shares in its subsidiary,
Ogenic Technologies Pty Ltd. The loan was fully repaid in the September 1997
quarter together with interest of $15,000.
In June 1997, the Company entered into a promissory agreement in regard to loan
funds advanced of $300,000. The promissory agreement bears no interest and is
repayable by December 1997. In lieu of interest, the borrower was granted an
option to purchase 205,000 shares in the Company at a price of $2 per share
exercisable until 30 June 2003. At 30 September 1997, $150,000 had been duly
repaid to the lender.
On 16 May 1997, the Board of Directors resolved to set aside for issuance under
a Stock Option Plan up to 1,000,000 shares of common stock options to be granted
to employees and directors of the Group.
F-5
<PAGE>
ASSOCIATED TECHNOLOGIES AND SUBSIDIARIES
SELECTED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements as of September 30, 1997 include the
accounts of the Company and its wholly-owned subsidiary Ogenic Technologies Pty
Ltd, Ogenic's 95% owned inactive subsidiary Ogenic Industries Pty Ltd and
Ogenic's dormant subsidiary Ogenic Sales Pty Ltd. All significant inter-company
balances and transactions have been eliminated in consolidation.
Accounting Methods
The Company recognizes income and expenses based on the accrual method of
accounting.
Cash and Cash Equivalents
All short term investments purchased with an original maturity of three months
or less are considered to be cash equivalents. Cash and cash equivalents
primarily include cash on hand and amounts on deposit with financial
institutions.
Dividend Policy
The Company has not yet adopted any policy regarding payment of dividends.
Non Current Investments Investments are brought to account at cost.
Property, Plant and Equipment
Property, plant and equipment are brought to account at cost, less, where
applicable, any accumulated depreciation or amortisation. The carrying amount of
property, plant and equipment is reviewed annually by Directors to ensure it is
not in excess of the recoverable amount from these assets. The recoverable
amount is assessed on the basis of the expected net cash flows which will be
received from the assets employed and subsequent disposal. The expected net cash
flows have not been discounted to their present values in determining
recoverable amounts.
The depreciable amount of all fixed assets including buildings and capitalised
lease assets, but excluding freehold land, is depreciated over their useful
lives commencing from the time the asset is held ready for use.
The gain or loss on disposal of all fixed assets is determined as the difference
between the carrying amount of the asset at the time of disposal and the
proceeds of disposal, and is included in operating profit before income tax of
the economic entity in the year of disposal.
Income Tax
The economic entity adopts a liability method of tax effect accounting whereby
the income tax expense shown in the Profit & Loss Account is based on the
operating profit before income tax adjusted for permanent differences.
Timing differences which arise due to the different accounting periods in which
items of revenue and expense are included in the determination of operating
profit before income tax and taxable income are brought to account either as a
provision for deferred income tax or as an asset described as future income tax
benefit at rates of income tax applicable to the period in which the benefit
will be received or the liability will become payable.
Future income tax benefits are not brought to account unless realisation of the
asset is assured beyond any reasonable doubt. The amount of benefit brought to
account or which may be realised in the future is based on the assumption that
no adverse change will occur in income tax legislation and the anticipation that
the
F-6
<PAGE>
economic entity will derive sufficient future assessable income and comply with
the conditions of deductibility imposed by the Law to permit a future income tax
benefit to be claimed.
At the date of this report, the economic entity has tax losses of approximately
$5.6m of which $1.3m relates to Associated Technologies and the balance relates
to its principal subsidiary Ogenic Technologies Pty Ltd. The Directors are
confident that the Research and Development syndication and funding arrangements
to be completed during 1998, will result in the full amount of the accumulated
tax losses being recovered against future taxable income. The Directors have
however, adopted a conservative view in regard to these losses until such time
as full documentation is completed and operating results improve. Accordingly,
no value has been included in the accounts for the future income tax benefit
that is expected to arise in the foreseeable future. This treatment is in
accordance with US G.A.A.P. and Australian accounting standards.
Inventories
With the exception of contract work in progress all inventories are valued at
the lower of cost and net realisable value. The cost of manufactured products
includes direct materials, direct labour and an appropriate portion of variable
and fixed overheads. Overheads are applied on the basis of normal operating
capacity. Costs are assigned on the basis of weighted average.
Construction Contracts
All contracts which are on a fixed price basis are accounted for on the basis
that profit is recognised in proportion to the progress of each contract when
the following conditions are satisfied:
- Total contract revenues to be received can be reliably estimated.
- The costs to complete the contract can be reliably estimated.
- The stage of contract completion can be reliably determined (and
is at least 30% of the total contract;)
- The costs attributable to the contract to date can be clearly
identified and can be compared with prior estimates.
Research & Development Contracts
Contracts for Research & Development which are on a fixed price basis, are
accounted for on the basis that profit is recognised in proportion to the
progress of each contract when the following conditions are satisfied:
- Total contract revenues to be received can be reliably estimated.
- The costs to complete the contract can be reliably estimated.
- The stage of contract completion can be reliably determined.
- The costs attributable to the contract to date can be clearly
identified and can be compared with prior estimates.
At the date of this report, the Directors estimate that the sub research
contract for $1.8 million is 23% complete. As this contract meets the conditions
specified above, the following income and expenditure has been brought to
account as profit in the current quarter.
<TABLE>
<CAPTION>
Total Profit & Foreign Unexpired
Contract Loss A/C Exchange Portion
Reserve
------------ ---------- --------- ------------
<S> <C> <C> <C> <C>
Gross Revenue 1,800,000 426,938 12,938 1,386,000
Less Expenditure 430,000 101,990 3,090 331,100
------------ ---------- --------- ------------
Net Income 1,370,000 324,948 9,848 1,054,900
============ ========== ========= ============
</TABLE>
Operating Revenue
Sales revenue represents revenue earned from the sale of the group's products,
research and development work, net of returns, trade allowances and duties and
taxes paid. Other revenue includes interest income, proceeds from disposal of
non current assets and insurance recoveries.
F-7
<PAGE>
Receivables
A provision is raised for any doubtful debts based on a review of all
outstanding amounts at year end. Bad debts are written off during the period in
which they are identified.
Research & Development
During the period to September 30 1997, the company's principal subsidiary
Ogenic Technologies Pty Ltd, incurred Research and Development Expenditure of
$290,420 in the development of Virtuoso, a digital audio playback and recording
system for the radio broadcasting industry. Virtuoso has been designed to form
the foundation of the company's future PC based play-out software systems. These
systems are intended for traditional markets and new markets in the commercial
entertainment industries. Virtuoso forms the foundation of the proposed R&D
Syndication to develop the Virtual Interactive Radio Station. Documentation on
the R&D Syndication is expected to be completed during the December 1997
quarter. The Directors are of the opinion that the full amount of expenditure
incurred on the development of Virtuoso during the current year, will be
recoverable from the R&D Syndication income. Accordingly, the charge to Profit
and Loss for the half year to June 1997 ($162,215) and expenditure incurred
during the current quarter ($128,205), has been treated as a recoverable item in
current assets.
The company adopts the policy of writing off against current revenue, any R&D
costs which are not directly funded from external sources.
Intangible Assets
The company's principal trading subsidiary which was acquired in June 1996,
possesses significant core technology which has not been recorded in the
company's books. This core technology was valued by Ernst & Young at $4.3m in
1996 for the purposes of the proposed Research and Development Syndication.
In addition since November 1995, Ogenic Technologies Pty Ltd has spent in excess
of $530,000 in Research and Development of a new digital recording and playback
system for the radio broadcasting industry (Virtuoso). As noted above, costs for
the year to date ($290,420) have been treated as a current asset at September 30
1997 as the Directors are of the opinion that these costs will be recoverable
out of the proposed R&D Syndication which is expected to be finalised before
December 31, 1997.
There is a further intangible asset relating to a future income tax benefits
which has also not been brought to account. This treatment is consistent with
the Directors conservative approach to the recognition of intangible assets and
is in accordance with both US G.A.A.P. and Australian accounting standards.
Goodwill
Goodwill arising on consolidation of subsidiaries is capitalised and written off
over a maximum period of 5 years. However, in accordance with SEC practice and
in view of the fact that Ogenic represented the first acquisition of AT,
goodwill arising on the acquisition of Ogenic, was written off during the year
ended December 31, 1996.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated to US
dollars at the exchange rate at the balance sheet date. Income statement items
are translated at an average currency exchange rate. The resulting translation
adjustment is recorded as a separate component of stockholders' equity.
NOTE 2: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principals for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, all
adjustments (consisting of normal accruals) considered necessary for a fair
presentation of these financial statements have been included. Operating results
for the nine months ended September 30, 1997 are not necessarily indicative of
the results that can be expected for the year ending December 31, 1997.
F-8
<PAGE>
NOTE 3: RELATED PARTY TRANSACTIONS
The Company's subsidiary Ogenic, leases property in Perth, Western Australia and
the Company utilises office space in New York and Sydney, Australia when
necessary.
Included under non-current liabilities are loans totalling $123,312 due to
companies associated with First Sydney Capital Ltd which is a shareholder in the
Company. Both Mr. Len McDowall and Mr. Alan Gallagher are Directors of First
Sydney Capital Ltd. The loan bears interest at 12%.
NOTE 4: RESEARCH AND DEVELOPMENT
On June 29, 1996, a Research and Development syndicate was entered into by
Ogenic with a joint venture party for funding over a 2 year period of $1.7
million. Details of the key terms of these agreements have been provided in
previous filings.
In December 1996, these agreements were unwound as a result of the inability to
complete the transaction within the specified time period following a change of
policy by the Australian Government. After extensive lobbying, Ogenic's
syndication was allowed to proceed subject to appropriate approvals by the
Government.
At the date of this report, Ogenic has received approval from the Australian
Government for this R & D Syndication and documentation is progressing with a
view to completion prior to December 31, 1997.
In addition to the R&D Syndication, on June 30 1997 Ogenic was appointed as a
sub-researcher under a structured R&D funding program with a total value of $1.8
million over the year to June 30, 1998. This contract was arranged through a
related entity, First Sydney Capital Ltd. Further research contracts are
anticipated over the next 12 months.
NOTE 5: INTANGIBLE ASSETS
No account has been taken of the intangible or contingent assets to which the
Company has title. These include the Company's existing analogue product range,
the released version of Virtuoso, general technological and market knowledge in
regard to the radio broadcasting industry and the income tax benefit that may
arise once the Company has secured its Research and Development funding
programs.
F-9
<PAGE>
ASSOCIATED TECHNOLOGIES AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
9/30/97 9/30/96 9/30/97 9/30/96
-------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Operating Revenue $ 774,348 $ 248,053 $ 1,370,351 $ 387,813
Cost of Sales (386,100) (136,429) (681,800) (279,718)
-------------- ------------- ------------------ -----------------
GROSS PROFIT 388,248 111,624 688,551 108,095
General and Administrative expenses (428,627) (761,072) (1,228,801) (1,730,938)
-------------- ------------- ------------------ -----------------
Loss before other items (40,379) (649,448) (540,250) (1,622,843)
Other Items:
Prior Period Adjustment (124,000) 0 (124,000) 0
Research and Design costs 162,215 (146,478) 0 (191,583)
Bad debt - subsidiary & write off investment 0 0 0 (23,700)
Bankruptcy expenses 0 (62,961) 0 (112,222)
Debt forgiveness 0 60,790 0 650,042
Profit on sale of fixed asset (1,114) 102,052 35 102,052
Realised exchange loss on capitalisation of
subsidiary's loan 0 0 (92,068) 0
Unrealised exchange gain on loan with
subsidiary 15,112 0 15,112 0
Performance Bond 0 (22,363) 0 (22,363)
------------- ------------- ----------------- -----------------
52,213 (5,999) (200,922) 402,226
------------- ------------- ----------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES 11,834 (655,447) (741,171) (1,220,617)
PROVISION FOR INCOME TAXES 0 0 0 0
------------- ------------ ----------------- ----------------
NET INCOME (LOSS) $ 11,834 $ (655,447) $ (741,171) $ (1,220,617)
============= ============= ================== ================
INCOME (LOSS) PER COMMON SHARE
Net income (loss) per weighted average
common share outstanding $ 0.01 $ (0.46) $ (0.34) $ (0.98)
============= ============= ================== ================
Weighted average number of common
shares outstanding 2,303,520 1,437,804 2,200,410 1,242,547
============= ============ ================= ================
</TABLE>
NB 1 The Corporation's principal trading subsidiary Ogenic Technologies Pty
Ltd, was acquired on June 28 1996. The above statements have been
prepared for comparison purposes only and excludes the profit on the
abortive R&D Syndication in June 1996.
NB 2 The prior period adjustment represents an amount finally negotiated
subsequent to the previous year end in relation to a fee due to First
Sydney Capital Ltd for merchant banking services and advice rendered
during and prior to the acquisition of Ogenic Technologies Pty Ltd.
F-10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Associated Technologies and Subsidiaries September 30, 1997 financial
statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000894565
<NAME> Associated Technologies
<S>
<C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,234,608
<ALLOWANCES> 0
<INVENTORY> 253,891
<CURRENT-ASSETS> 2,208,651
<PP&E> 366,064
<DEPRECIATION> (270,411)
<TOTAL-ASSETS> 2,632,567
<CURRENT-LIABILITIES> 2,480,427
<BONDS> 0
0
0
<COMMON> 2,304
<OTHER-SE> 26,524
<TOTAL-LIABILITY-AND-EQUITY> 2,632,567
<SALES> 1,370,351
<TOTAL-REVENUES> 1,370,351
<CGS> 681,800
<TOTAL-COSTS> 681,800
<OTHER-EXPENSES> 1,228,801
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (741,171)
<INCOME-TAX> 0
<INCOME-CONTINUING> (540,250)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (741,171)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
