U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1997
|_| Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
Commission file number 333-07727
Allegiant Technologies Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Washington 98-0138706
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Suite 1500, 609 Granville Street, Vancouver, B.C. V7Y 1G5
(Address of Principal Executive Offices)
(604) 687-0888 ext. 306
(Issuer's Telephone Number, Including Area Code)
9740 Scranton Place, Suite 350, San Diego, California, 92121
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 X No _________
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable Common stock, par value, $0.01
per share, 7,743,007 shares of common stock outstanding as of October 31, 1997
Traditional Small Business Disclosure Format (check one):
Yes No ____X______
<PAGE>
PART I.
ITEM 1. FINANCIAL STATEMENTS-SEPTEMBER 30, 1997
ALLEGIANT TECHNOLOGIES INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
(Unaudited - Prepared by Management)
SEPTEMBER 30, 1997
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEET
(Expressed in United States Dollars)
AS AT SEPTEMBER 30
<TABLE>
<CAPTION>
1996 1997
-------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 480,722 $ 31,084
Accounts receivable, net 93,271 26,803
Inventories 72,266 119,342
Prepaid expenses 36,789 10,570
-------------- -------------
683,048 187,799
Deposits 17,709 -
Property and equipment, net (Note 1) 257,120 39,500
Intangible assets, net (Note 2) 290,740 -
Deferred costs 63,523 -
-------------- -------------
Total assets $ 1,312,140 $ 227,299
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 186,765 $ 404,155
Accrued liabilities 104,175 447,755
Deferred revenues 43,570 22,681
Notes payable (Note 2) 22,335 121,704
Current portion of debenture payable (Note 4) - 500,000
-------------- -------------
Total current liabilities 356,845 1,496,255
Deferred rent 36,502 -
Debentures payable (Note 4) 495,775 -
-------------- -------------
Total liabilities 889,122 1,496,255
-------------- -------------
Shareholders' equity Capital stock (Note 5)
Authorized:
50,000,000 preferred shares, par value $0.01 per share
100,000,000 common shares, par value $0.01 per share
Issued and outstanding:
8,393,007 common shares (1996 -8,107,295) 81,073 83,930
Additional paid-in capital 3,965,092 4,062,235
Accumulated deficit (3,623,147) (5,415,121)
-------------- -------------
Total shareholders' equity 423,018 (1,268,956)
-------------- -------------
Total liabilities and shareholders' equity $ 1,312,140 $ 227,299
============== =============
Unaudited - Prepared by Management
</TABLE>
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF EARNINGS AND DEFICIT
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Three Month Period Ended Nine Month Period Ended
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
<S> <C> <C>
NET REVENUE $ 243,629 $ 61,045 $ 1,153,425 $ 515,402
COST OF REVENUE 55,827 32,759 249,037 182,529
-------------- ------------- -------------- -------------
GROSS PROFIT 187,802 28,286 904,388 332,873
-------------- ------------- -------------- -------------
EXPENSES
Sales and marketing 293,027 30,077 1,248,711 270,512
Research and development 249,754 15,430 732,770 231,454
General and administrative 223,658 65,047 735,786 471,263
Amortization of purchase of intangibles 31,149 - 99,697 62,298
Write-off of intangibles - - - 197,293
Loss on disposal of fixed assets 27,327 - - 48,981
-------------- ------------- -------------- -------------
Total operating expenses 797,588 137,881 2,816,964 1,281,801
-------------- ------------- -------------- -------------
Loss from operations (609,786) (109,595) (1,912,576) (948,928)
Interest Income 12,741 60 21,220 226
Interest Expense (10,341) (2,399) (47,727) (27,766)
-------------- ------------- -------------- -------------
Net Loss $ (607,386) $ (111,934) $ (1,939,083) $ (976,468)
============== ============= ============== =============
Loss per share $ (0.07) $ (0.01) $ (0.26) $ (0.12)
=============== ============= ============== ==============
Shares used in computing per share amounts 8,393,007 8,107,295 7,574,795 8,393,007
============== ============= ============== =============
Unaudited - Prepared by Management
</TABLE>
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Amount Paid
Number in Excess of
of Shares Par Value par Value Deficit Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 7,042,295 70,423 2,404,398 (1,684,064) 790,757
Shares issued - cash 815,000 8,150 1,621,850 - 1,630,000
- exercise of warrants 250,000 2,500 247,500 - 250,000
Offering Costs - - (308,656) - (308,656)
Net loss - - - (1,939,083) (1,939,083)
------------- -------------- ------------- -------------- -------------
Balance at September 30, 1996 8,107,295 81,073 3,965,092 (3,623,147) 423,018
Net loss - - - (815,506) (815,506)
------------- -------------- ------------- -------------- -------------
Balance at December 31, 1996 8,107,295 81,073 3,965,092 (4,438,653) (392,488)
Shares issued - cash 285,712 2,857 97,143 - 100,000
Net loss - - - (976,468) (976,468)
------------- -------------- ------------- -------------- -------------
Balance at September 30, 1997 8,393,007 $ 83,930 $ 4,062,235 $ (5,415,121) $ (1,268,956)
============= ============== ============= ============== =============
Unaudited - Prepared by Management
</TABLE>
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Three Month Period Ended Nine Month Period Ended
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (607,386) $ (111,934) $ (1,939,083) $ (976,468)
Amortization and depreciation 50,468 2,550 151,137 116,028
Write-off of intangible - - - 197,293
Loss on disposal of fixed assets - 27,327 - 48,981
Changes in operating assets and liabilities
Accounts receivable 32,344 (586) 41,005 10,281
Inventories 6,767 28,485 27,101 80,861
Prepaid expenses and deposits 22,880 14,978 19,316 48,880
Accounts payable and accrued liabilities 93,740 21,246 45,001 148,898
Deferred revenues (8,946) (1,774) (10,228) (11,882)
-------------- ------------- -------------- -------------
Net cash used for operating activities (410,133) (19,708) (1,665,751) (337,128)
-------------- ------------- -------------- -------------
INVESTING ACTIVITIES
Purchase of property and equipment (1,136) - (61,181) -
Proceeds on sale of property and equipment - 17,404 - 68,879
-------------- ------------- -------------- -------------
Net cash used for investing activities (1,136) 17,404 (61,181) 68,879
-------------- ------------- -------------- -------------
FINANCING ACTIVITIES
Proceeds from issuance of capital stock - - 1,880,000 100,000
Share offering cost - - (308,656) -
Proceeds from notes payable - - - 100,000
Payments on notes payable (13,006) - (38,159) -
Deferred costs (33,523) - 12,727 15,000
Deferred rent 14,500 - 10,099 (36,502)
Amortization of debt discount 2,977 - 34,775 4,225
-------------- ------------- -------------- -------------
Net cash provided by financing activities (29,052) - 1,590,786 182,723
-------------- ------------- -------------- -------------
Decrease in cash and cash equivalents (440,321) (2,304) (136,146) (85,526)
Cash and cash equivalents, beginning of period 921,043 33,388 616,868 116,610
-------------- ------------- -------------- -------------
Cash and cash equivalents, end of period $ 480,722 $ 31,084 $ 480,722 $ 31,084
============== ============= ============== =============
Unaudited - Prepared by Management
</TABLE>
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1. PROPERTY AND EQUIPMENT
1996 1997
<S> <C> <C>
Property and Equipment consists of:
Furniture and fixtures $ 154,240 $ 10,510
Office equipment 22,290 17,780
Computer equipment 189,700 123,492
-------------- -------------
366,230 151,782
Accumulated depreciation (109,110) (112,282)
-------------- -------------
$ 257,120 $ 39,500
============== =============
</TABLE>
<TABLE>
<CAPTION>
2. INTANGIBLE ASSETS
1996 1997
<S> <C> <C>
Intangible assets consist of:
Acquisition costs of SuperCard $ 498,000 $ 498,000
Royalty buyout 100,000 100,000
-------------- -------------
598,000 598,000
Accumulated amortization (307,260) (400,707)
Write-off - (197,293)
-------------- -------------
$ 290,740 $ -
============== =============
</TABLE>
<TABLE>
<CAPTION>
3. NOTES PAYABLE
1996 1997
<S> <C> <C>
Note payable - On February 13, 1997 the Company issued a note payable (the
"Note") in connection with a proposed private placement of debt
securities in the amount of $750,000. The Company was advanced the
sum of $100,000 under the Note. The Note is secured by a general
charge over the assets of the Company and bears interest at the First
National Bank & Trust Company of Chicago prime rate plus 2% per
annum, which is payable quarterly commencing on July 15, 1997.
Amounts advanced under the Note, together with accrued interest, are
due on the earlier of the date on which the Company completes any
offering of equity securities for an amount
of not less than $1,500,000, and February 13, 1999. $ - $ 100,000
- continued -
</TABLE>
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
SEPTEMBER 30, 1997
3. NOTES PAYABLE
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Continued.....
Accrued interest - 8,000
On July 15, 1997, the Company failed to make an interest payment as
required under the terms of the Note. As a consequence of this
default, the Note, together with accrued interest, is currently due
and payable upon demand.
Note payable on buyout of royalty on SuperCard sales, payable over two
years in equal monthly installments commencing March 1, 1995
with interest at 9% per annum. 22,335 13,704
-------------- -------------
$ 22,335 $ 121,704
============== =============
</TABLE>
4. DEBENTURES PAYABLE
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
The Company issued debentures in the aggregate amount of $500,000 which
which may be converted into Units of the Issuer at a price $1.96
until December 18, 1997, at the option of the holder. Each Unit
consists of one common share and one share purchase warrant entitling
the holder to purchase an additional common share at $1.96 until
December 18, 1997. The debentures, if not converted into Units, are
due on December 18, 1997.
The debentures are not secured and do not bear interest. $ 500,000 $ 500,000
Less: discount (4,225) -
-------------- -------------
495,775 500,000
Less: current portion - (500,000)
-------------- -------------
Debentures payable, net of current portion $ 495,775 $ -
============== =============
</TABLE>
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
SEPTEMBER 30, 1997
5. CAPITAL STOCK
Authorized
50,000,000 preferred stock, par value $0.01 per share. The Board of
Directors has the authority to divide the shares into one or more series and to
determine their attributes at the time of issuance. 100,000,000 common stock,
par value $0.01 per share
Performance shares
Included in issued and outstanding common shares are 2,000,000 escrowed
performance shares.
Stock options
The Company established a stock option plan ("the Plan") to grant
options to purchase common stock to employees, officers, non-employee
directors of the Company and certain other individuals. The Plan
authorizes the Company to issue or grant and incentive stock options to
purchase up to 2,517,902 shares of its common stock as of September 30,
1997. There are 1,645,402 options available that may be granted in the
future under the stock option plan.
Under the terms of the Plan, incentive options may be granted to
employees, officers, directors and consultants at prices not less than
the fair market value on the date of grant. Options vest over various
terms not exceeding four years and expire five years from the date of
grant.
During the period, 1,055,000 options were cancelled as a result of
employee terminations. At September 30, 1997, there are 872,500 options
outstanding at an exercise price of $0.75 per share expiring from
periods ranging from May 24, 2000 to November 26, 2001
Warrants
As of September 30, 1997, the Company has outstanding share purchase
warrants entitling the holders to purchase a total of 1,012,947 common
shares of the Company as follows:
<TABLE>
<CAPTION>
Number Exercise
of Shares Price Expiry Date
<S> <C> <C>
88,235 $ 1.96 December 18, 1997
150,000 $ 3.62 (Cdn) April 25, 1998
489,000 $ 2.30 April 26, 1998
285,712 $ 0.35 to April 15, 1998
$ 0.40 from April 16, 1998
to April 15, 1999 April 15, 1999
-------------
1,012,947
</TABLE>
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
SEPTEMBER 30, 1997
6. SUBSEQUENT EVENTS
The following events occurred subsequent to September 30, 1997:
1. The Company agreed to seek approval of a four for one reverse split
of its common stock (the "Reverse Split") and a change of name at a
future meeting of its shareholders in connection with a
reorganization of its capital.
2. Principals of the Company agreed to surrender for cancellation
2,000,000 escrowed performance shares upon the completion of certain
events. The Company cancelled 650,000 of such shares on October 22,
1997. The balance will be surrendered and cancelled upon receipt of
shareholder approval of the Reverse Split.
3. The Company agreed to issue, upon receipt of Shareholder approval of
the Reverse Split, 3,600,000 shares of common stock at a deemed price
of US$0.15 per share, post reverse split, and two year
non-transferable warrants to purchase 283,333 shares of common stock,
at US$0.15 per share in the first year and at US$0.1725 per share in
the second year, in full settlement and satisfaction of debts of the
Company of US$540,000.
4. The Company issued unsecured, non-interest bearing promissory notes,
having the following additional attributes, to settle $72,500 in
debts of the Company:
a) $30,000 is payable in increments of $3,000 per month commencing
on November 1, 1997; and
b) $42,500 is payable on November 4, 1998 and may be converted at
the option of the holder into common shares of the Company at
any time after October 30, 1998 and before November 4, 1998 at a
deemed price per share equal to the average closing price of the
Company's common shares on the Vancouver Stock Exchange for the
ten days immediately proceeding November 4, 1998.
1. The Company received proceeds of $210,000 from a private placement of
1,400,000 Units at US$0.15 per Unit, post reverse split. Each Unit
consists of one share of common stock and one two year
non-transferable warrant to purchase one additional share of common
stock at US$0.15 per share during the first year and at US$0.1725 per
share during the second year. The proceeds of the private placement
will be accounted for as a non-interest bearing loan until the
Company is in receipt of shareholder approval of the Reverse Split
whereupon the Units shall be issued.
2. The Company paid, in cash, the approximate sum of US$166,500 and
delivered title to certain used computer equipment having a deemed
value of US$12,000 in full settlement and satisfaction of debts of
the Company in the approximate amount of US$650,000.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company sells multimedia, Internet, and application development software
authoring tools used to create interactive, multimedia communication, education,
entertainment, presentations and information management applications. The
Company's products only run on computers compatible with the Macintosh operating
system.
The Company has incurred substantial expenses in excess of revenues, which has
resulted in cumulative net losses to September 30, 1997 of $5,415,121. The
Company has discontinued product development, closed its offices in California
and resigned the majority of its staff. The Company's ability to continue as a
going concern is dependent upon, among other things, its ability to secure
additional and significant funding for such purpose, which is doubtful. As a
result, there exists a substantial risk that the Company will have to
discontinue its current operations. In such event, the Company will seek new
business opportunities in due course.
Liquidity and Capital Resources
The Company has sustained substantial operating losses and has used substantial
amounts of working capital in its operations to date. As at September 30, 1997
the Company had cash equivalents of $31,084 and a working capital deficit of
$1,308,456. Total liabilities exceeded the book value of total assets by
$1,268,956.
In October, the Company received $210,000 in connection with a proposed private
placement of equity securities. Such proceeds were substantially used to settle,
on a discounted basis, trade creditors and employee claims. In addition, the
Company agreed to issue shares of common stock in full settlement and
satisfaction of debts in the aggregate amount of $540,000. As at October 31,
1997 the Company's outstanding liabilities were approximately $1,050,000,
including the fore-noted $750,000 (the "Shares for Debt Amount") to be settled
at a later date by issuing equity securities, as compared to $1,496,255, which
was outstanding as at September 30, 1997.
The Shares for Debt Amount will be accounted for as a non-interest bearing loan
to the Company until such time the Company obtains the requisite approvals for
the issuance of the agreed upon equity securities. If such approvals are not
received and such securities are not issued by June 30 1998, the Shares for Debt
Amount shall be due and payable on demand. The reader should refer to Item 6 of
Part II of this Report and Note 6 to the attached financial statements for
additional information regarding the reorganization of the Company's capital.
The Company's ability to satisfy projected working capital and capital
expenditure requirements is dependent upon its ability to secure additional
funding through public or private sales of securities, including equity
securities of the Company. Presently, there is no credible basis on which the
Company can project future cash flow from current operations.
It is management's opinion, after reasonable investigation and inquiry, that the
realizable value of the Company's assets is insufficient to satisfy the claims
of creditors, even after the reorganization of capital referenced above, in the
event of a liquidation and therefore shareholders would be virtually certain not
to receive any liquidation proceeds on their shares should the Company be
dissolved.
Results of Operation
Product sales have decreased substantially and it is expected that sales and
sales margins will continue to be adversely affected. After reasonable
investigation and inquiry, management concluded that the future realization of
the costs of intangible assets through product sales is doubtful and therefore
decided to charge to earnings the unamortized balance of such costs.
The Company disposed of certain fixed assets, comprising furniture and fixtures
and computer equipment, in connection with settlements of certain obligations of
the Company, and it adjusted the value of certain other assets that are no
longer in use to an estimate of their realizable value. The remaining balance of
capital assets are recorded at cost net of accumulated depreciation.
Inventory, currently recorded at cost, may be subject to a downward valuation
adjustment, which may be material, in the event operations are discontinued in
the future.
As a consequence of the Company's financial position, the nature and scope of
its current operation and the strong likelihood that the Company will have to
discontinue its operation, Management has not provided a detailed comparative
analysis of results of operation to results of prior periods.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has received notices of judgement liens against the assets of the
Company, in the approximate amount of $15,000, for failure to pay amounts due
for the purchase of goods or services. Such amounts are properly recorded in the
Company's accounts as due and payable. The Company expects that other trade
creditors will eventually commence proceedings against the Company for failure
to pay amounts due.
ITEM 2. CHANGES IN SECURITIES
Item 2 is not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company borrowed the sum of $100,000 pursuant to a secured promissory note
dated February 13, 1997. The terms of the note provided for the payment of
interest quarterly commencing on July 15, 1997. The Company failed to make any
payment of interest on or since July 15, 1997. The note is secured by a
registered lien against all of the assets of the Company. The lender has not, as
at the date hereof, commenced any action against the Company as a result of the
default. The principle beneficiary of the lender has consented to act as a
Director and as the Chief Executive Officer of the Company effective October 31,
1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 4 is not applicable.
ITEM 5. OTHER INFORMATION
On October 22, 1997 the Company received and cancelled, without payment, 650,000
shares of its common stock thereby reducing the total number of common shares
issued and outstanding to 7,743,007.
Effective October 31, 1997, Joel B. Staadecker and Leonard Petersen resigned
from the Board of Directors of the Company. Mr. Staadecker also resigned as
President and Chief Executive Officer.
Effective October 31, 1997, Steven A. Rothstein and Craig Gould were appointed
to the Board of Directors of the Company. Mr. Rothstein was also appointed Chief
Executive Officer and Leonard Petersen was appointed Secretary.
ITEM 6. EXIBITS AND REPORTS ON FORM 8-K
The Company announced that it had reached certain agreements to effect a
reorganization of its capital subject to the receipt of final documentation and
certain required approvals. Such announcement was filed on FORM 8-K in October,
1997 and is attached hereto as EXHIBIT I.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Vancouver,
Province of British Columbia, Canada, on November 13, 1997.
ALLEGIANT TECHNOLOGIES INC.
/s/ William McCartney
By: ------------------------------------
William McCartney
Chief Financial Officer
EXHIBIT I
FORM 8-K EXTRACT
OCTOBER, 1997
The Company has made agreements in principle, subject to receipt and acceptance
of final documentation, to facilitate a reorganization of its capital as
follows;
1. Principals of the Company have agreed to surrender for cancellation
2,000,000 escrowed performance shares.
2. The Company will seek approval for a four for one reverse split of its
common stock and a change of name at a future meeting of its shareholders.
3. The Company has agreed, subject to Vancouver Stock Exchange approval, to
issue 3,600,000 shares of common stock at a deemed price of US$0.15 per share,
post reverse split, and two year non-transferable warrants to purchase 283,333
shares of common stock, at US$0.15 per share in the first year and at US$0.1725
per share in the second year, in full settlement and satisfaction of debts of
the Company amounting to US$540,000.
4. The Company has agreed to pay, in cash, the approximate sum of
US$172,000, on or about October 15, 1997, and deliver title to certain used
computer equipment having a deemed value of US$28,000 in full settlement and
satisfaction of debts of the Company in the approximate amount of US$672,000.
5. The Company has arranged for the private placement of 1,400,000 Units at
US$0.15 per Unit, post reverse split, for aggregate proceeds of US$210,000,
subject to Vancouver Stock Exchange approval. Each Unit shall consist of one
share of common stock and one two year non-transferable warrant to purchase one
additional share of common stock at US$0.15 per share during the first year and
at US$0.1725 per share during the second year. The proceeds of the private
placement will be primarily used to fund the settlement of trade debts of the
Company as described above, and for costs of the reorganization.
Upon completion of the private placement and the settlement of debts, Joel
Staadecker and Leonard Petersen will resign from the Board of Directors of the
Company and Joel Staadecker will resign as President and Chief Executive Officer
of the Company. Mr. Steven Rothstein, Chairman of National Securities
Corporation of Chicago Ill., has agreed to act as Chairman and Chief Executive
Officer of the Company. A second person to be designated by Mr. Rothstein will
also be appointed to the Board of Directors of the Company.
William McCartney will remain as a Director and Secretary of the Company.
The number of shares of the Company's common stock outstanding upon
completion of the transactions described above, but before the exercise of
warrants, is expected to be approximately 6.6 million, of which 5 million shares
will have been issued to creditors and subscribers of the private placement.
Upon the settlement of debts as described above, the Company's liabilities
will be reduced from an estimated US$1.5 million to an estimated US$288,000,
exclusive of reserves and deferred revenues. Of this balance, US$108,000 is
represented by a secured note that is due and payable to Steven Rothstein, a
proposed director of the Company, and US$72,500 is represented by unsecured
promissory notes issued in connection with the reorganization.
The Company recently closed its offices on Scranton Road in San Diego, CA,
reduced the number of persons employed by the Company to four, excluding senior
management and directors, and relocated its head office to Suite 1500, 609
Granville Street, Vancouver, B.C., Canada, V7Y 1G5. The Company's operations
personnel remain domiciled in California.
None of the proceeds of the private placement will be used to fund ordinary
business operations and as a consequence it is expected that sales of the
Company in the immediate future will continue to be adversely affected. It is
also expected that new management will make a determination regarding the
continuance of the existing business operations over the ensuing months.
