SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission File Number 333-07727
ALLEGIANT TECHNOLOGIES INC.
(Name of Small Business Issuer in Its Charter)
Washington 98-0138706
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9740 Scranton Place, Suite 300
San Diego, California 92121
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (619) 587-0500
Securities registered under Section 12(b) of the Exchange Act: None
Name of Each Exchange on
Title of Each Class Which Registered
None None
Securities registered under Section 12(g) of the Exchange Act: None
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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.[X]
Allegiant Technologies Inc.'s revenues for the most recent fiscal year were
$1,357,965.
The aggregate market value of the voting stock of the Registrant held by
non-affiliates of the Registrant, based upon the closing price of the Common
Stock on the OTC Bulletin Board on March 17, 1997 was $1,850,000.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
The number of shares outstanding of the registrant's Common Stock, as of March
17, 1997 was 8,107,295.
DOCUMENTS INCORPORATED BY REFERENCE
Document of the Registrant Form 10-KSB Reference Location
None. N/A
<PAGE>
PART I
Item 1. Description of Business.
General
The Company has a limited history of operations. It was incorporated on December
28, 1993, acquired SuperCard together with its customer franchise, from Aldus
Corporation ("Aldus") on February 4, 1994, and released its first product
upgrade in June 1994. Since then the Company has released version 2.0, 2.5 and
3.0 of SuperCard and a new product called Marionet, The Company has incurred
substantial start up, development and other expenses in excess of revenues which
has resulted in cumulative net losses to December 31, 1996 of $4,438,653.
The Company's revenues to date have been substantially derived from the
sale of SuperCard and to a much lesser extent the sale of Marionet, both
for the Macintosh platform.
Allegiant Technologies Inc. designs, develops and markets multimedia, Internet,
and application development software authoring tools used to create interactive,
multimedia communication, education, entertainment, presentation and information
management applications ("Multimedia Applications"). The Company's proprietary
technology, "SuperCard," comprises a set of sophisticated software authoring
tools which enable professional Multimedia Application developers to combine
text, images, graphics, video, animation, and sound into a wide variety of
application software. The primary applications for SuperCard include corporate
training and performance support, entertainment, multimedia presentations,
education, interactive information kiosks and data base front-ends for
information systems applications. The Company's products are designed for
relative ease of use and are based on a high-level scripting language,
"SuperTalk," which does not require knowledge of an independent programming
language. Currently, SuperCard runs only on computers compatible with the
Macintosh operating system. The Company is currently developing a Windows
version of SuperCard, which it intends to ship it in 1997.
The Company's strategy is to expand the availability and accessibility of its
SuperCard core technology by developing software products which (i) create
multiple platform software applications which can run in both Macintosh and
Windows-based operating environments; (ii) enable the creation, deployment,
access and management of Multimedia Applications on the Web, and (iii) expand
the user base for the Company's products by enabling non-professional developers
and home users to create custom Multimedia Applications. The Company has
recently announced its strategy for authoring and delivering Multimedia
Applications on the Internet and the Web, which initially consists of three
products Marionet, Roadster and Xenon. These products are designed to run on
multiple platforms and operating systems. Marionet allows Multimedia and
Internet Application developers to create completely custom applications that
access and manage information across the Internet. Roadster, designed to run as
a plug-in application to Web browsers, such as Netscape's Navigator, enables
SuperCard Multimedia Applications to run interactively across the Web. In order
to establish the Company's products as the standard for the development of
Multimedia Applications on the Web, the Company intends to make Roadster
available free of charge to users. Xenon is intended as a Multimedia Application
development tool for the Internet based on SuperCard technology which will
permit businesses and organizations to build interactive Multimedia Applications
for Web sites. The Macintosh version of Marionet began shipping in January 1996
and a version which runs on the Windows operating system was shipped in
December, 1996.
Products
SuperCard
The Company's proprietary technology, "SuperCard," comprises a set of
sophisticated software authoring tools which enable professional Multimedia
Application developers to combine text, images, graphics, video, animation, and
sound into a wide variety of application software. Version 2.5 was released on
August 8, 1995 and was chosen by MacUser Magazine as the winner of its 1995
Editor's Choice Award for Best New Multimedia Authoring Application and by
Macworld Magazine as a World Class Award finalist which honors the "Best of the
Best" Mac products. Version 3.0 was released in December, 1996. Currently,
SuperCard runs only on computers compatible with the Macintosh operating system.
The SuperCard "technology" consists of a development environment known as
SuperEdit, a run-time editor known as SuperCard, a debugging tool known as
ScriptTracer and a scripting language known as SuperTalk, all of which are
packaged and sold under the trade name "SuperCard." A SuperCard user needs to be
familiar with the Macintosh interface and have a basic knowledge of Macintosh
graphics applications that perform bitmapped editing ("painting") and
vector-editing ("drawing"). SuperCard is based on a high-level scripting
language which does not require knowledge of an independent programming
language. SuperCard offers a rich, object-based visual development environment
coupled with "SuperTalk," the most complete implementation of the industry
standard, fourth-generation programming language commonly known as HyperTalk.
SuperCard's SuperTalk supports the widest range of operating system-level
messages, which means that developers can script more sophisticated levels of
interactivity in their work. This combination of features enables developers to
easily and quickly create Multimedia Applications that in many cases couldn't be
executed in competing authoring tools and which would take more time and more
expensive engineering talent to execute in a conventional programming language.
One of the most common uses for SuperCard is the building of Multimedia
Applications or "titles" such as computer games or CD-ROMs which use more than
one media source (i.e. graphics and sound) to deliver content to users.
Applications that are created, tested and modified with SuperCard are designed
to function as stand-alone multimedia "titles" that do not require SuperCard to
run.
Another common use of SuperCard is the building of computer-based management
information systems for the delivery of information throughout an organization.
SuperCard allows the user to organize and present data including pictures or
full motion video, graphical illustrations, sound and text within an
easy-to-access environment.
SuperCard-based applications have won the 1994 MacUser Magazine Editor's Choice
Award for best new multimedia software (Digital Chisel) and several of the top
awards for the most innovative Multimedia Applications in 1993 (presented by
NewMedia Magazine), including the grand prize winner, the "Animated Dissection
of Anatomy for Medicine" (A.D.A.M.) from ADAM Software.
SuperCard has been used by Boeing Company to develop the prototype for its
computer-based training of pilots and mechanics for its 777 aircraft, by Harvard
and Yale University Medical Schools to develop training applications, by
Mercedes-Benz to develop performance support applications which deliver
schematics to the point of manufacture and by Toyota to develop presentation
applications, including an interactive marketing presentation of the Toyota
Tercel.
Based upon sales by the Company, the Company estimates that there are more than
7,000 active developer/users. As of December 31, 1996, total unit sales since
the introduction of SuperCard in 1989 were approximately 60,000.
Marionet
On January 9, 1996, the Company introduced its new Macintosh Internet scripting
kit, Marionet version 1.0 at the Macworld Exposition in San Francisco. Marionet
is a software solution that allows Internet developers to create custom
applications that access and manage information across the Internet. Designed to
work in conjunction with popular authoring tools such as SuperCard, Macromedia's
Director and AppleScript aware productivity applications, Marionet is a
complete, script-level interface to the Internet that runs transparently in the
background as a "faceless" background task. A convenient Control Panel allows
users to set common preferences. Responding to simple, English-like commands
from authoring tools that utilize an External Command (XCMD) interface, such as
the Company's SuperCard, Apple HyperCard and Macromedia Director, or from
productivity applications that support attachable AppleScripts, such as Claris
FileMaker Pro, Microsoft Excel and UserLand Frontier, Marionet offers complete
control over standard Internet protocols and also includes a dramatic new custom
peer-to-peer protocol called "Chat". Marionet uses Apple's Thread Manager to
full advantage for asynchronous operation and can also function synchronously.
Management believes that the applications for Marionet run from sophisticated
Web page authoring and maintenance tools to personal or collaborative
applications. Management believes that Marionet will enable (i) CD-ROM titles to
be integrated into dynamic Internet access and retrieval, (ii) software
companies to provide automatic software updates or build automatic e-mail
support as an integral part of their applications, (iii) educational
institutions to build Internet browsers that only offer access to selected
Internet sites (e.g. the university system), (iv) trainers to deliver
"distance-learning" applications that are easily and automatically updated from
a central web site and (v) individuals to create multi-player games, collaborate
with family members or develop tools to automatically gather information.
Marionet 1.1. An enhanced, multiple platform version of Marionet was released in
December, 1996. This release is the first version of Marionet for Windows-based
and Macintosh-based personal computers, and is designed to deliver enhancements
over the current version of Marionet on the Macintosh. Marionet includes more
complete support for the currently supported Internet protocols, support for
additional protocols for a broader range of host authoring tools.
Product Development Plans
The product release dates and anticipated shipping schedules of the products set
forth below are based on the Company's current schedule. In the normal course of
its business, the Company may decide to re-order its priorities and to
accelerate development of one product. Due to limitations on the Company's
resources, such a re-ordering of product priorities may cause the development
and shipment of other products to be delayed.
Roadster
Roadster is a multiple platform plug-in to Web browsers, such as Netscape's
Navigator, that is designed to play SuperCard-based content distributed over the
Web. Roadster is designed to enable Macintosh and Windows-based Web developers
to incorporate dynamic, media-rich SuperCard content directly into a Web page
and give anyone on the Internet access to content developed in SuperCard.
Roadster is derived from SuperCard software technology and will support all of
the SuperTalk language that is appropriate in the Internet environment. It is
designed to bridge the Web application development and multimedia worlds, just
as SuperCard appeals to those same audiences in the desktop market. The version
of Roadster was released in the fourth quarter of 1996. Roadster has several
inherent advantages over more complex solutions for delivering multimedia over
the Internet, including:
Roadster is an integrated environment that supports significant
application functionality and numerous media formats. With these
capabilities, it is possible to build rich multimedia experiences for
playback entirely within the single Roadster plug-in. While some individual
features of Roadster may be matched by a single-purpose plug-in, to the
Company's knowledge, no other plug-ins available today offer this level of
integration and ease of development. Approximating this functionality with
existing tools would require a complex combination of HTML scripting,
utilization of several other plug-ins and programming.
Roadster is a distributed environment. A key strength of SuperCard is
its ability to employ and play back external media within an application
shell. This strength enables Roadster to meet the requirements of
delivering meaningful interactive multimedia experiences within the
bandwidth limitations of the Internet. For instance, a Roadster developer
can create a simple shell application that can be downloaded quickly and
provide a fast response to the user. Additional data elements can then be
streamed to the user and cached locally to play back within the shell. In
the worst case the data will arrive as fast as it would in a conventional
HTML environment; in many cases the developer can anticipate and sequence
data downloading so that the user never has to experience wait times. In
this way the end user can have a positive experience with the data almost
immediately, bandwidth can be maximized by continuously downloading data
and the developer can exercise great control over the user experience
across a wide range of bandwidths.
Roadster is extensible. While the underlying SuperCard technology is
extensible on the Macintosh and Windows, that capability has been excised
from Roadster as a security measure. An extensible version of Roadster
which will permit a software developer to add capabilities to Roadster is
scheduled to be available during 1997. In addition, a future version of
Roadster will include support for Sun Microsystem's programming language,
Java.
Roadster is accessible. The underlying SuperTalk scripting engine is
based on HyperTalk the industry standard for fourth-generation scripting
languages. Out of the box, Roadster's scripting language will be
understandable to literally millions of content and applications developers
on both platforms who have used SuperCard, HyperCard, Director and
Toolbook.
Roadster will be available free of charge on the Internet.
The Company believes that its future success will depend in large part on its
ability to enhance its existing products and to develop and introduce new
products on a timely basis. New products or enhancements must keep pace with
competitive offerings, adapt to new delivery platforms and emerging industry
standards and provide additional functionality. If the Company were unable, due
to resource constraints or technological or other reasons, to develop and
introduce such products in a timely manner, this inability would have a material
adverse effect on the Company's results of operations. The Company currently has
a number of new product development efforts under way. Any delay in the release
of scheduled product offerings could have a material adverse impact on the
Company's results of operations.
Sales, Marketing and Distribution
The Company generates brand awareness and demand for its products through public
relations activities, advertising, product reviews, competitive upgrade
offerings, and national and local trade shows. The Company also uses direct mail
and support services to introduce and educate customers about new products and
enhancements, and to cross-sell additional products to current customers such as
new products resulting from the Company's development efforts or third-party
products that the Company licenses or co-markets. In addition, the Company uses
multimedia to sell multimedia by distributing a variety of interactive
demonstration materials directly to prospects. The Company has initiated a
direct mail-order campaign with registered users to introduce versions 1.7, 2.0
and 2.5 of SuperCard and version 1.0 of Marionet and will do the same with new
product enhancements and service offerings. The Company allows trial versions of
its products to be downloaded from its Internet home page on the Web so that
prospective purchasers may try the Company's products for specific periods of
time before purchase is required.
The Company distributes its products through multiple distribution channels,
including traditional software distributors, international distributors,
value-added-resellers, educational market distributors, hardware and software
vendors and for certain large customers, direct sales and licenses. The Company
has entered into a non-exclusive cooperative agreement with MacWarehouse and PC
Connection and is pursuing other traditional channels.
SuperCard is generally sold as part of a "studio," which includes a video
editor, animation package, sound editor, texture package and a morphing special
effects package. These additional products are sold under a license agreement
with the owners. The Company pays a total royalty of approximately $45 per
"studio." Certain of these vendors bundle SuperCard with their products and pay
the Company a royalty.
The Company grants its distributors limited rights under a stock balancing
policy to return unsold inventories of the Company's products in exchange for an
equal amount of new purchases. In addition, the Company provides price
protection to its distributors. The Company extends credit terms to its
resellers of 30 days net from the date of invoice (the date of shipment), but
may, under certain circumstances, grant terms of up to 60 days net, at the
discretion of the Company.
Although the Company intends to focus its sales and marketing efforts in the
United States, it has entered into software license, foreign localization and
distribution agreements with distributors in Japan, United Kingdom India, Italy,
Australia, Canada, France, Sweden and Israel, where English versions of
SuperCard had already gained market acceptance. In November and December 1995,
the Company released a Kanji and French version of SuperCard for sale in the
Japanese and French markets, respectively, which historically have been strong
Macintosh markets.
Competition
The markets in which the Company's products are sold are highly competitive and
are characterized by pressure to reduce prices, incorporate new features and
accelerate the release of new product versions. A number of companies, including
Apple, Asymetrix, Macromedia, Microsoft, Oracle and Sun Microsystems, currently
offer products or have products in the planning stages that compete or will
compete directly or indirectly with products and scheduled products of the
Company. These competitors have significantly greater financial, management,
technical and marketing resources than the Company.
The principal aspects of competition in the multimedia authoring tools market
are diverse and thus allow for potentially successful niche marketing
strategies. These principal aspects include product features and quality, price,
ease of use, brand name recognition, reliability and quality of support
services. Management of the Company believes that it can compete favorably with
respect to each of these factors.
Although there are products that provide script-level access to Internet
protocols through a specific interface (such as Visual Basic Extensions, or
VBXs), or that provide pre-built graphical user interface ("GUI") access to the
Internet through a multiple platform object model, (such as OpenDoc), there are
currently, to the Company's knowledge, no other products that provide a common
scripting interface to Internet protocols for popular authoring tools on both
MacOS and Windows platforms. The Company anticipates that as the use of the
Internet increases competitors will develop products that compete directly with
Marionet. This market is characterized by strong competition and significant
price pressure. Moreover, there is a reasonable expectation that system software
vendors, including Microsoft and Apple, will incorporate some degree of
Marionet's current functionality into their respective operating systems in the
foreseeable future.
Manufacture and Shipping
The production of SuperCard and Marionet for sale includes diskette duplication,
component assembly, printing of user manuals and final packaging, all of which
are performed by specialty contractors in accordance with the Company's
specifications and forecasts. There are a number of alternate sources for these
services that could be implemented without delay or any material adverse effect
on the Company's business or results of operation.
Customer Service and Technical Support
The Company's Customer Service and Technical Support Program offers three levels
of technical support during normal business hours intended to build and foster
the skills necessary to become proficient with the SuperCard and Marionet tool
set. Level I basic Technical Support assistance is provided at no charge.
Level II Scripting Support provides assistance with high-level scripting and
script debugging. There is a $35 per incident charge or $299 annual charge for
this service.
The Company's Level III Developer Support provides professional developers with
significant external command development tools (external commands "extend"
SuperCard's built-in capabilities), a private account for use with the Company's
on-line servers, pre-release versions of software in development and priority
service. There is a $495 annual charge for this service. As of March 31, 1998,
the Level III program has approximately 225 members.
Proprietary Protection
The Company's success and ability to compete is dependent in part upon its
proprietary technology. While the Company relies on trademark, trade secret and
copyright law to protect its technology, the Company believes that factors such
as the technological and creative skills of its personnel, new product
developments, frequent product enhancements, name recognition and reliable
product maintenance are more essential to establishing and maintaining a
technology leadership position. The Company presently has no patents or patent
applications pending. There can be no assurance that others will not develop
technologies that are similar or superior to the Company's technology. The
source code for the Company's proprietary software is protected both as a trade
secret and as a copyrighted work. The Company generally enters into
confidentiality or license agreements with its employees, consultants and
vendors, and generally controls access to and distribution of its software,
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's products or technology without authorization, or to develop similar
technology independently. In addition, effective copyright and trade secret
protection may be unavailable or limited in certain foreign countries, and the
global nature of the Internet makes it virtually impossible to control the
ultimate destination of the Company's products. To license its products, the
Company primarily relies on "shrink wrap" licenses that are not signed by the
end-user. However, the enforceability of shrink wrap licenses is not well
established. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult. There can be no
assurance that the steps taken by the Company will prevent misappropriation of
its technology or that such agreements will be enforceable. In addition,
litigation may be necessary in the future to enforce the Company's intellectual
property rights, to protect the Company's trade secrets, to determine the
validity and scope of the proprietary rights of others, or to defend against
claims of infringement or invalidity. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, operating results or financial condition.
Unisys has announced its intention to require a license agreement for the use of
compression technology associated with the Graphics Interchange Format ("GIF").
Unisys asserts that this popular file format is based on compression technology
patented by Unisys. The Company's products have the ability to decompress files,
including files stored in GIF. Although the Company has not received notice of
Unisys' intention to enforce or license such patent, the Company believes that
certain of its competitors may have received such notice. The Company does not
believe that its products use a technology which violates Unisys' patents. If
Unisys were to assert a claim against the Company, the Company believes that
alternative technologies are available for use in the Company's products which
could be utilized without requiring significant modification or expense.
Although the Company does not believe that its products infringe the proprietary
rights of any third parties, there can be no assurance that infringement or
invalidity claims (or claims for indemnification resulting from infringement
claims) will not be asserted or prosecuted against the Company or that any such
assertions or prosecutions will not materially adversely affect the Company's
business, financial condition or results of operations. Irrespective of the
validity or the successful assertion of such claims, the Company could incur
significant costs and diversion of resources with respect to the defense thereof
which could have a material adverse effect on the Company's business, financial
condition or results of operations. If any claims or actions are asserted
against the Company, the Company may seek to obtain a license under a third
party's intellectual property rights. There can be no assurance, however, that
under such circumstances, a license would be available on reasonable terms or at
all.
The Company also relies on certain technology which it licenses from third
parties, including software which is integrated with internally developed
software and used in the Company's products to perform key functions. There can
be no assurance that these third party technology licenses will continue to be
available to the Company on commercially reasonable terms. The loss of or
inability to maintain any of these technology licenses could result in delays or
reductions in product shipments until equivalent technology could be identified,
licensed and integrated. Any such delays or reductions in product shipments
could materially adversely affect the Company's business, operating results and
financial condition.
Employees
At December 31, 1996, the Company employed 26 full-time persons, including 11 in
marketing, sales and customer service and technical support, 12 in product
development, product engineering and content development and 3 in
administration. The Company also employs a small number of temporary and
contract employees. None of the Company's employees is represented by a labor
union. The Company is not a party to any collective bargaining agreement or
other similar agreement. The Company has no work stoppages to date. The Company
believes that its relationship with its employees is good.
If the Company's growth continues and if the Company is able to fund such
growth, it is expected that additional employees will be required, primarily in
engineering, sales and customer service and technical support. No assurance can
be given that the Company will be able to locate and hire people with the
requisite experience and skills, or that the Company will have sufficient
working capital to hire all of the additional employees it could optimally
utilize facilities.
RISK FACTORS
This report contains forward-looking statements. Actual results of operations
may vary from such forward-looking statements for reasons which include those
set forth below.
Limited Operating History; Historical Operating Losses; Variability of Results
The Company is subject to risks associated with early stage companies, including
start-up losses, uncertainty of revenues, profitability and the need for
additional funding. The Company has a limited history of operations and no
history of profitability. The Company has incurred cumulative losses of
$4,438,653 from the date of incorporation on December 28, 1993 to December 31,
1996. There can be no assurance that product sales will either continue at
historical rates or increase, that the Company will achieve profitable
operations, or that new products introduced by the Company will achieve market
acceptance. The Company's results of operations vary significantly depending on
the timing of product introductions and enhancements by the Company and its
competitors, changes in pricing, execution of technology licensing agreements
and the volume and timing of orders received during the quarter, which are
difficult to forecast. Customers generally order on an as-needed basis, and the
Company normally ships products within one week after receipt of an order.
Accordingly, the Company has historically operated with minimal backlog. A
significant portion of the Company's expenses are relatively fixed and planned
expenditures are based on sales forecasts. As a result of the foregoing and
other factors, the Company anticipates that it may experience material and
adverse fluctuations in results of operations on a quarterly or annual basis.
Therefore, the Company believes that period to period comparisons of its
revenues and results of operations are not necessarily meaningful and that such
comparisons cannot be relied upon as indicators of future performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Future Capital Needs and Uncertainty of Additional Funding
The Company has expended, and will continue to expend in the future, substantial
funds to complete the research development, manufacturing and marketing of its
products. Based on its current staffing level and product development schedule,
the Company anticipates that it will not have sufficient working capital to
satisfy its capital and operating requirements through 1997 unless additional
capital is obtained. This estimate is based upon the assumptions that sales
remain at present levels and that the number of personnel remains unchanged. The
Company anticipates that it will seek additional funding through public or
private sales of its securities, including equity securities. Adequate funds,
whether through financial markets or collaborative or other arrangements with
corporate partners or from other sources may not be available when needed or on
terms acceptable to the Company. Therefore, there can be no assurance that the
Company will have sufficient working capital to satisfy the Company's capital
needs beyond April 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Emerging Multimedia and Internet
The market for multimedia and Internet authoring tools is emerging and is
dependent on the demand for Multimedia Applications, which is difficult to
predict with any assurance. The demand for Multimedia and Internet Applications
is dependent on a number of variables, including the installed base of
multimedia-capable personal computers, the number of computer users with access
to the Internet and the Web, the widespread availability of digital media and
the number of professional application developers capable of creating high
quality applications that achieve market acceptance. To date, the demand for
multimedia authoring tools has been limited to a relatively small number of
professional application developers of Multimedia Applications. Unless and until
the installed base of multimedia-capable personal computers and the number of
titles with wide market acceptance increase the market demand for Multimedia
Applications, the demand for multimedia authoring tools will be limited. Even if
there is an increase in demand for Multimedia Applications, the demand for
multimedia authoring tools is not expected to increase at the same rate. There
can be no assurance that the market for Multimedia Applications or authoring
tools will develop at the rate contemplated by the Company or that the demand
for multimedia authoring tools will grow at a rate sufficient to support the
Company's business plan.
Product and Platform Concentration
Substantially all of the revenues of the Company from its inception to date are
from the sale or license of SuperCard. The Company expects that its revenues
will continue to be dependent upon SuperCard and that competition for SuperCard
will intensify in the future. A decline in the sales of SuperCard, as a result
of competition, technological change or other factors, would have a material
adverse effect on the Company's results of operations. Currently, SuperCard is
only fully functional on the Macintosh computer. Although the Company plans to
release a version of SuperCard for the Windows operating system, a decline in
the sales rate of a multimedia-capable Macintosh computers could have a material
adverse effect on the Company's results of operations. Until the Company
releases a version of SuperCard for the Windows operating system, the future of
SuperCard and its economic viability will be tied to the perception of software
developers regarding the utility of developing software for Macintosh and other
Apple computers. In 1995, Apple announced restructuring plans to place increased
emphasis on customer needs and to expand its presence in the home, education and
business markets. In addition, Apple announced that it would license its
operating system to third party vendors in an attempt to expand the installed
base of Macintosh-compatible computers. As reported by Apple in its public
filings with the Securities and Exchange Commission, unit sales for the
MacIntosh computer declined 16% in the third quarter of 1996 compared to the
same period in the prior year. At the end of the third quarter of 1996, Apple's
share of the U.S. and worldwide personal computer markets had declined to 5.3%
and 7.4%, respectively, from 7.4% and 10.6%, respectively, at the end of same
period in the prior year. SuperCard 3.0 is designed to deliver a new interface
with support for plug-in tools, "smart" objects, drag-and-drop editing and
automated scripting for simple to moderately difficult tasks, enhanced
extensibility to allow SuperCard developers greater flexibility in adding
functionality they require, and a common file format on both platforms to
facilitate delivery on both platforms.
Rapid Technological Change
The emerging multimedia and Internet markets and the personal computer industry
in general are characterized by rapidly changing technology, resulting in short
product life cycles and rapid price declines. The Company must continuously
update its existing and planned products to keep them current with changing
technologies and must develop new products to take advantage of new technologies
that could render the Company's existing products obsolete. The Company's future
prospects are highly dependent on its ability to increase the functionality of
its products in a timely manner and to develop new products that address new
technologies and achieve market acceptance. There can be no assurance that the
Company will be successful in these efforts. If the Company were unable to
develop and introduce such products in a timely manner, due to resource
constraints or technological or other reasons, this inability could have a
material adverse effect on the Company's results of operations. In particular,
the introduction of new products, such as the Company's planned Windows-based
version of SuperCard, and its Roadster and Xenon products, is subject to the
inherent risk of development delays. The Company has experienced product
development delays in the past, and such delays may occur in the future. In
addition, due to the uncertainties associated with the Company's emerging
market, there can be no assurance that the Company will be able to forecast
product demand accurately or to respond in a timely manner to changing
technologies and customer requirements.
Competition
The market for the Company's products is highly competitive and is characterized
by pressures to reduce prices, incorporate new features and accelerate the
release of new product versions. A number of companies currently offer products
that compete directly or indirectly with one or more of the Company's products.
Certain of the Company's competitors or potential competitors have significantly
greater financial, management, technical and marketing resources than the
Company. In the event that price competition significantly increases,
competitive pressures could cause the Company to reduce the prices of its
products, which would adversely affect the Company's results of operations. A
variety of other potential actions by the Company's competitors, including
increased promotion and accelerated introduction of new or enhanced products,
could have a material adverse effect on the Company's results of operations.
There can be no assurance that the Company will be able to compete successfully
in the future. In addition, the Company's products compete to a certain extent
with multimedia authoring tools developed and used internally by developers of
Multimedia Applications. The Company's growth will depend in part on its ability
to persuade such potential customers to replace or augment their in-house tools
with the Company's products. There can be no assurance that the Company will be
able to do so.
Reliance on Third Party Resellers
A substantial majority of the Company's revenues is derived from the sale of its
products through third parties. Accordingly, the Company is dependent on the
continued viability and financial stability of these resellers. The Company is
particularly dependent on the resellers who generally offer products of several
different companies, including in some cases products that are competitive with
the Company's products. There can be no assurance that the Company's resellers
will continue to purchase the Company's products or provide them with adequate
levels of support. The loss of, or a significant reduction in sale volume to, a
number of the Company's resellers could have a material adverse effect on the
Company's results of operations.
The Company grants its distributors limited rights under a stock balancing
policy to return unsold inventories of the Company's products in exchange for an
equal amount of new purchases. The Company expects that the rate of new product
introductions by the Company and other participants in the multimedia software
tools market segment will increase, which could lead to an increased return rate
of the Company's products. Although the Company provides allowances that it
believes are adequate, and have been adequate in the past, there can be no
assurance that product returns will not exceed such allowances in the future. In
addition, the Company provides price protection to its distributors. Although
the Company accrues for such price protection in its allowance for product
returns, and such accruals have been adequate in the past, a decrease in the
price of the Company's products could have a material adverse effect on the
Company's results of operations.
Dependence on Key Personnel
The Company has a small core management and development team and the unexpected
loss of any of these individuals would have a material adverse effect on the
Company's business and results of operations. Each of the key executives of the
Company, including Mr. Staadecker (President, Chief Executive Officer and
Director) and Mr. Henigson (Vice President, Marketing), has an employment
contract with the Company which contains a non-competition covenant in the event
of voluntary termination. The enforceability and scope of these employment
agreements are subject to judicial interpretation and therefore, may not be
enforceable as written. At present, there is no key-man insurance in place for
any members of the Company.
Limited Protection of Proprietary Technology
The Company regards its software technology as proprietary and attempts to
protect it under copyright, trademark and trade secret laws as well as through
contractual restrictions on disclosure, copying and distribution. The Company
distributes individual copies of its software under a "shrinkwrap" license
agreement containing these restrictions and generally does not obtain signed
license agreements from its end users. Although the enforceability of shrinkwrap
licenses is not well established, the Company is not aware of any third parties
who are making unauthorized use of the Company's proprietary technology. It may
be possible for unauthorized third parties to copy the Company's products or to
reverse engineer or obtain and use information that the Company regards as
proprietary. There can be no assurance that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technologies. In addition, the laws of certain countries in
which the Company's products are or may be distributed do not protect the
Company's products and intellectual rights to the same extent as the laws of the
United States. As the number of software products increases and the
functionality of these products further overlaps, the Company believes that
software will increasingly become the subject of claims that such software
infringes the rights of others. For example, Unisys Corporation has a patent on
certain technology which is widely used in connection with reading and writing
the Graphics Interchange Format ("GIF") files. The Company's products have the
ability to decompress files stored in GIF and may therefore be subject to an
infringement claim from Unisys. To date no third party, including Unisys, has
filed an infringement claim against the Company and there have been no explicit
threats of litigation asserting that the Company's products infringe their
intellectual property rights. If Unisys were to assert a claim against the
Company, the Company believes that alternative technologies are available for
use in the Company's products which could be utilized without requiring
significant modification or expense. There can be no assurance that third
parties will not assert infringement claims against the Company in the future or
that any such assertion will not result in costly litigation or require the
Company to obtain a license to intellectual property rights of third parties. If
the Company were required to so obtain any such licenses, there can be no
assurance that such licenses will be available on reasonable terms, or at all.
Item 2. Description of Property.
The Company's headquarters are located at 9740 Scranton Place, Suite 300, San
Diego, California 92121 where the Company leases approximately 10,500 square
feet of office space. The lease expires on October 6, 1998.
Item 3. Legal Proceedings.
The Company is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
There have been no matters submitted to a vote of security holders during the
quarter ended December 31, 1996.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market for Common Equity
The Company's Common Stock is traded on the OTC Bulletin Board, under the symbol
"ALGT", and has been so traded since February 1, 1996. It is also traded on the
Vancouver Stock Exchange, under the trading symbol "AGH.U", and has been so
traded since May 24, 1995.
The following table sets forth the high and low prices per share of the
Company's Common Stock on the OTC Bulletin Board for all fiscal quarters since
the stock was first traded on the OTC Bulletin Board in February, 1996. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
<TABLE>
<CAPTION>
Quarter
Ended High Low
<S> <C> <C>
March 31, 1996 $3.63 $2.00
June 30, 1996 $3.25 $0.87
September 30, 1996 $1.75 $0.75
December 31, 1996 $0.94 $0.25
</TABLE>
The following table sets forth the high and low prices per share of the
Company's Common Stock on the Vancouver Stock Exchange for all fiscal quarters
since the stock was first traded on the Vancouver Stock Exchange in May, 1995.
<TABLE>
<CAPTION>
Quarter
Ended High Low
<S> <C> <C>
June 30, 1995 $1.28 $1.00
September 30, 1995 $2.00 $0.90
December 31, 1995 $2.90 $1.55
March 31, 1996 $3.50 $2.00
June 30, 1996 $2.95 $1.00
September 30, 1996 $2.00 $0.71
December 31, 1996 $0.88 $0.25
</TABLE>
On March 17, 1997, the last reported bid and ask prices of the Common Stock on
the OTC Bulletin Board and on the Vancouver Stock Exchange were as follows:
<TABLE>
<CAPTION>
Bid Ask
<S> <C> <C>
OTC Bulletin Board $0.31 $0.50
Vancouver Stock Exchange $0.31 $0.36
</TABLE>
As at December 31, 1996 there were approximately 50 holders of record of the
Company's Common Stock.
Dividends
The Company has not paid any dividends on its Common Stock since its inception.
The payment of future cash dividends will depend on such factors as earnings
levels, anticipated capital requirements, the operating and financial condition
of the Company and other factors deemed relevant by the Board of Directors.
Currently, the Company is prohibited from paying any dividends on its common
stock pursuant to the terms of outstanding debentures.
Sales of Unregistered Securities
Sales of unregistered securities, by the Company, during the year ended December
31, 1996 are as follows:
<TABLE>
<CAPTION>
Date Securities
Of Issuance Identity Sold Consideration Exemption
<S> <C> <C> <C> <C>
March 7, 1996 Investor 250,000 shares of $ 250,000 Regulation S.
(1 person) common stock on
exercise of warrants
April 26, 1996 Investors 815,000 shares of $1,630,000 Section 4(6)
(18 persons) common stock and
warrants to purchase
489,000 shares of
common stock
April 26, 1996 Consultant warrants to purchase services Section 4(2)
(1 person) 150,000 shares of
common stock
</TABLE>
All of the securities issued on April 26, 1996, together with certain other
unregistered securities issued in 1995, were registered for resale by a
registration statement on Form SB-2 which was declared effective by the
Securities and Exchange Commission on September 20, 1996.
Item 6. Management's Discussion and Analysis and Plan of Operations.
This section contains forward-looking statements regarding the Company's
business and financial condition. No assurance can be given that actual results
of operations will not differ materially from the forward-looking statements
contained herein. See "Business-Risk Factors."
Overview
The Company has a limited history of operations. It was incorporated on December
28, 1993, acquired SuperCard together with its customer franchise, from Aldus
Corporation ("Aldus") on February 4, 1994, and released its first product
upgrade in June 1994. The Company has incurred substantial start up, development
and other expenses in excess of revenues which has resulted in cumulative net
losses to December 31, 1996 of $4,438,653 The Company's revenues to date have
been substantially derived from the sale of SuperCard and to a much lesser
extent the sale of Marionet, both for the Macintosh platform. There can be no
assurance that product sales will either continue at historical rates or
increase or that the Company's products under development will achieve market
acceptance.
The Company expects that its revenues in the ensuing year will continue to be
dependent upon SuperCard and that competition for SuperCard will intensify.
Total net revenues for 1996 decreased by $869,617 or 39% from 1995. A further
decline in the sales of SuperCard, as a result of competition, technological
change or other factors, would have a material adverse effect on the Company's
results of operation. Currently, SuperCard is only fully functional on the
Macintosh computer. Although the Company plans to release a version of SuperCard
for the Windows operating system, a further decline in the sales rate of a
multimedia-capable Macintosh computers could have a material adverse effect on
the Company's results of operations. Until the Company releases a version of
SuperCard for the Windows operating system, the future of SuperCard and its
economic viability will be tied to the perception of software developers
regarding the utility of developing software for Macintosh and other Apple
computers.
The results of operation for the current year were significantly impacted by
three factors: (1) the Company was unable to secure adequate financing to expand
product development and marketing efforts, (2) the Company was unable to deliver
a version of SuperCard for the Windows operating system in 1996, and (3) the
decline in the sales of Macintosh computers. The Company's failure to deliver a
Windows product was the result of inadequate financial and engineering
resources.
On January 17, 1997, the Company announced that it had entered into an agency
agreement whereby the placement agent would use its best efforts to secure
additional capital for the Company in the amount of $750,000 by way of a bridge
loan which is to be repaid out of proceeds from the subsequent sale of equity
securities. As of March 31, 1997, the Company had only received $100,000 in
proceeds from the bridge loan. Though Management believes that the Company will
secure the additional capital necessary for the Company to continue its
operation as a going concern, there are no assurances that the Company will be
able to secure the required capital on terms favorable to the Company or on any
terms and as a result there exists a substantial risk that the Company will have
to reorganize or discontinue its operations in the future.
See Notes to the Financial Statements for a description of the Company's
significant accounting policies.
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, certain
operating data as a percentage of net revenue.
<TABLE>
<CAPTION>
1994 1995 1996
-------------------------------------------
<S> <C> <C>
Revenue:
Net product sales 99% 89% 93%
Service fees and royalty income 1 11 7
-------------------------------------------
100 100 100
Net revenue
Cost of revenue 21 29 22
-------------------------------------------
79 71 78
Gross profit
Expenses:
Sales and marketing 54 47 108
Research and development 35 27 77
General and administrative 56 39 84
Amortization of purchased intangibles 11 6 10
-------------------------------------------
Total operating expenses 156 119 279
-------------------------------------------
Loss from operations (77) (48) (201)
Interest income (expense), net 0 1 (2)
--------------------------------------------
Net loss (77)% (47)% (203)%
=============================================
</TABLE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net revenue includes revenues from sales of software products and services, less
reserves for anticipated product returns and future vendor support services.
Total net revenues decreased by 39% from $2,227,582 for the year ended December
31, 1995 to $1,357,965 for the year ended December 31, 1996. The decrease is due
to the following factors: (1) the Company's failure to deliver a version of
SuperCard for the Windows operating system and the announced changes at Apple
Computer adversely affected purchasing decisions because the Company's products
are currently dependent on the Macintosh operating platform, (2) net product
sales during 1995 were from the sale of SuperCard version 2.0 and 2.5 which were
at the beginning of a product upgrade cycles whereas sales for 1996 were
substantially from the sale of version 2.5 which was at the end of its product
upgrade cycle ( SuperCard version 3.0 was not released until mid-December,
1996), and (3) revenues for 1995 include a non recurring non-refundable advance
royalty of $100,000.
Cost of revenue includes the cost of manuals, diskettes and their duplication,
packaging materials, assembly, paper goods, bundled products, and shipping as
well as royalties and reserves for inventory obsolescence. Cost of revenue
decreased from $646,547 to $303,715 (29% of net revenues to 22%) for 1996 as
compared to 1995. The decrease is primarily due to the change in costs
associated with other vendor products that were bundled with SuperCard from time
to time.
Sales and marketing expenses include the costs of advertising, promotion, trade
shows and printed collateral materials, salaries and the costs of contracted
services. Total sales and marketing costs increased from $1,045,383 to
$1,466,254 (47% of net revenues to 108%) for 1996 as compared to 1995. The
increase is due to the following factors: (1) the Company substantially
increased its presence at the MacWorld conferences and other trade shows to
properly position the Company within the industry; (2) it increased its staff
levels from 19 employees in 1995 to 29 employees (it has subsequently reduced
the number of employees to 23); (3) it commenced a roll out program for its
first Windows product which was delayed as a result of financing delays and the
failure to successfully implement, on schedule, certain product functionality on
to the Windows platform; (4) it incurred approximately $150,000 in introductory
marketing costs associated with the introduction of Marionet, and it implemented
additional marketing programs in an attempt to off set the negative publicity
caused by the public's perception of Apple Computer. The Company is reviewing
its marketing plans and infrastructure costs in relation to its current product
development plans and its available working capital.
Research and development expenditures consisted of personnel expenses, costs of
independent contractors and supplies required to conduct the Company's
development efforts. Research and development expenditures increased from
$607,012 to $1,045,712 (from 27% of net revenues to 77%) for 1996 as compared to
1995. The increase in research and development costs is directly attributable to
the increase in engineering staff necessary to complete the Company's current
product development plan. The percentage change is primarily the result of a
decrease in net revenues.
General and administrative expenses consist primarily of the costs of the
Company's finance and administrative personnel, including the chief executive
officer. General and administrative expenses increased from $863,535 to
$1,141,990 (39% of net revenues to 84%) for 1996 as compared to 1995. The
increase in general and administrative expenses is attributable primarily to
increased staffing and occupying larger premises in 1996. The percentage
change is primarily the result of a decrease in net revenues.
Liquidity and Capital Resources
The Company has sustained substantial operating losses and has used substantial
amounts of working capital in its operations to December 31, 1996. As of
December 31, 1996 the Company had cash equivalents of $116,610 and a working
capital deficit of $848,326 which includes unsecured convertible debentures in
the aggregate amount of $500,000 due in December, 1997. The Company's ability to
satisfy projected working capital and capital expenditure requirements through
December 31, 1997 is dependent upon its ability to secure additional funding
through public or private sales of securities, including equity securities of
the Company, and the success of its future operations.
The Company's primary future needs for capital are for expanded product
development, marketing and selling expenses and working capital. The Company's
working capital requirements may vary depending upon numerous factors including
the progress of the Company's product development, competitive and technological
advances, marketing acceptance of the Company's products and other factors.
The Company is in need of approximately $1,500,000 in capital during 1997 to
satisfy projected working capital requirements and to pay out debentures in the
amount of $500,000 due on December 18, 1997. The Company is currently seeking to
raise $750,000 on or before April 30, 1997.
Though Management believes that the Company will secure the additional capital
necessary for the Company to continue its operation as a going concern, there
are no assurances that the Company will be able to secure the required capital
on terms favorable to the Company or on any terms and as a result there exists a
substantial risk that the Company will have to reorganize or discontinue its
operations in the future.
Item 7. Financial Statements.
The Financial Statements of the Company identified in the Index to Financial
Statements appearing under "Item 13." Exhibits and Reports on Form 8-K" of this
report are incorporated by reference to Item 13.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
There were no changes in or disagreements with accountants on accounting and
financial disclosure matters during the year ended December 31, 1996.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
The following individuals are the Directors and executive officers of the
Company. Pertinent information relating to these individuals is set forth below.
There are no family relationships between any of the Directors and officers.
The following table sets forth certain information concerning the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Joel B. Staadecker (1).......................... 50 President, Chief Executive Officer and Director
William D. McCartney............................ 41 Secretary, Chief Financial Officer and Director
Stuart F. Henigson.............................. 45 Vice President, Marketing
David Baron..................................... 36 Vice President, Engineering
Leonard Petersen (1)............................ 42 Director
William C. Appleton............................. 34 Director
- --------------------
(1) Member of the Audit Committee
</TABLE>
Mr. Staadecker has been President, Director and Chief Executive Officer of the
Company since January, 1994. Mr. Staadecker was the President of Allegiant
Financial Group Inc., of Seattle, Washington ("AFG"), a financial consulting
firm, from 1991 to 1994. AFG was responsible for organizing the acquisition of
SuperCard by the Company from Aldus. From 1989 to 1991, Mr. Staadecker was the
President and Chief Operating Officer of the Pacific Institute, a worldwide
education and training organization, in Seattle, Washington.
Mr. McCartney has been Chief Financial Officer and a director of the Company
since January, 1994. From 1990 to the present, he has been the President of
Pemcorp Management Inc., which provides corporate finance services to public and
private companies. Mr. McCartney is a chartered accountant in the Province of
British Columbia, Canada and has a bachelors degree in business from Simon
Fraser University.
Mr. Henigson has been the Vice President Marketing of the Company since January,
1994. Prior to this, Mr. Henigson was a Strategic Marketing Manager at Aldus
Corporation and its predecessor, Silicon Beach Software, from 1988 to 1992,
during which time he was responsible for the marketing of several software
products including SuperCard. From 1992 to 1994, he acted as an independent
consultant. Mr. Henigson has eleven years of software industry experience. Mr.
Henigson has a bachelors degree in economics from Whitman College, a masters
degree in economics from Yale University and an M.B.A. in marketing from the
University of California at Los Angeles.
Mr. Baron has been the Vice President of Engineering of the Company on a
full-time basis since May, 1995. Previously, he was the Director of Product
Design at Blyth Software from 1991 to 1995. Mr. Baron is a graduate of
Rensselaer Polytechnic Institute.
Mr. Petersen has been a director of the Company since February, 1994. From 1990
to the present, he has been a senior officer of Pemcorp Management Inc., which
provides corporate finance services to public and private companies. Mr.
Petersen has been a director of CVD Financial Corporation since May 1995 and of
Logan International Corp. since January 1994. Mr. Petersen is a chartered
accountant in the Province of British Columbia, Canada.
Mr. Appleton is the original creator of SuperCard. He has been a director of the
Company since February, 1994. Mr. Appleton has been self-employed or has acted
as the President of CyberFlix Incorporated, a developer of interactive
multimedia games since 1989.
Beneficial Ownership Reporting Compliance
Not applicable.
Item 10. Executive Compensation.
The following table sets forth all compensation awarded to, earned by, or paid
for services to the Company in all capacities during the fiscal years ended
December 31, 1995 and 1996 to the Company's chief executive officer. No director
or executive officer received total compensation in respect of the 1995 or 1996
fiscal year exceeding $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
Year Salary Other(2) Total
<S> <C> <C> <C> <C>
Joel B. Staadecker 1995 $ 60,000 $22,800 $ 82,800
President, C.E.O., Director.................
1996 $100,000(1) $22,800 $122,800
(1) Mr. Staadecker was paid $60,000 in 1996. The remaining $40,000 is payable.
(2) At the request of the Company, Mr. Staadecker relocated from Seattle
to San Diego. The Company pays the certain costs for Mr. Staadecker to
maintain his home in Seattle.
</TABLE>
Directors' Compensation
The Company does not currently compensate its directors under any standard
arrangement, but are reimbursed for their out-of-pocket expenses in serving on
the Board of Directors. Directors were granted incentive stock options during
fiscal 1995.
Pemcorp Management Inc., a management advisory services company controlled by
Mr. McCartney and Mr. Petersen, was paid $30,000 and is owed $30,000 for the
year ended December 31, 1996 pursuant to a management services contract.
The Company has entered into indemnification agreements with each of its
directors which provide for indemnification of the directors by the Company to
the fullest extent permitted by Washington law.
Grants of Stock Options
The following tables set forth information concerning the award of stock options
to Mr. Staadecker during the year ended December 31, 1996 and options held by
him at the end of such year.
Option Grants in the Last Fiscal Year
<TABLE>
<CAPTION>
Name Number of Securities
Underlying % of Total Options
Options Granted to Exercise or Base
Granted Employee Price ($/Sh) Expiration
in Fiscal Year Date
<S> <C> <C> <C> <C>
Joel B. Staadecker......... 100,000 12% $0.75 10/17/2001
</TABLE>
Fiscal Year End Option Table
<TABLE>
<CAPTION>
Number of Unexercised
Shares Acquired Securities Underlying Value of Unexercised In-The-Money
on Exercise Value Options/SARs at FY-End (#) Options/SARs at FY-End ($)
(#) Realized ($) Exercisable/Unexercisab Exercisable/Unexercisable
Name
<S> <C> <C> <C> <C>
Joel B. Staadecker.... 0 N/A 190,000/75,000 $0.00/0
</TABLE>
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information with respect to beneficial
ownership of Common Stock as of March 7, 1997, by (i) each person who is known
by the Company to beneficially own more than 5% of the outstanding shares of
Common Stock, (ii) each of the Company's directors, (iii) each of the executive
officers named in the Summary Compensation Table and (iv) all current directors
and executive officers as a group. Unless otherwise indicated in the footnotes
to the table, each person or entity has sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by such person
or entity.
<TABLE>
<CAPTION>
Name of Stockholder Number of Shares Percentage of
Beneficially Owned Outstanding Shares(1)
<S> <C> <C>
Joel B. Staadecker
President and Director
9740 Scranton Road 1,335,000(2) 16.0%
San Diego, CA 92121......................................
William D. McCartney
Chief Financial Officer and Director
1270 - 609 Granville Street
Vancouver, BC
Canada, V7Y 1G6.......................................... 787,500(3) 9.6%
Stuart F. Henigson
Vice-President, Marketing
9740 Scranton Road
San Diego, CA 92121...................................... 412,500(4) 5.0%
David Baron
Vice President, Engineering
9740 Scranton Road
San Diego, CA 92121...................................... 150,000(5) 1.8%
Leonard Petersen
Director
1270 - 609 Granville Street
Vancouver, BC
Canada, V7Y 1G6.......................................... 787,500(6) 9.6%
William C. Appleton
Director and Product Strategist
4 Market Square
Knoxville, TN
U.S.A 37902.............................................. 125,000(7) 1.5%
Geller & Friend Partnership I
3333 Michelson Drive, Suite 650
Irvine, CA
U.S.A. 92715-1686....................................... 508,674(8) 5.9%
All directors and executive officers as a group (7
persons)(9).............................................. 3,597,500 40.3%
- -------------------------
(1) The percentages reflected in this column are based on the assumption that
the respective owner exercises any rights he or it has to purchase
additional shares of Common Stock within sixty days from the date hereof and
excludes all other shares of Common Stock reserved for issuance upon
exercise of outstanding options and warrants or upon conversion of
outstanding convertible debt of the Company.
(2) Includes 350,000 Escrowed Common Shares and 190,000 employee
incentive options.
(3) Includes 350,000 Escrowed Common Shares and 137,500 employee incentive
options. All of the issued shares are held indirectly by companies
controlled by William D. McCartney.
(4) Includes 300,000 Escrowed Common Shares and 112,500 employee incentive
options.
(5) Includes 150,000 employee incentive options.
(6) Leonard Petersen holds 137,500 employee incentive options directly and
650,000 shares, including 350,000 Escrowed Common Shares, indirectly by a
company controlled by Mr. Petersen.
(7) Includes 100,000 Escrowed Common Shares and 25,000 employee incentive
options.
(8) Includes a maximum of 216,837 shares to be issued upon the conversion of a
debenture in the amount of $425,000 and a maximum 291,837 shares to be
issued upon the exercise of warrants of which 75,000 are issued and 216,837
are to be issued upon the conversion of the debenture.
(9) Includes an aggregate of 1,625,000 Escrowed Common Shares and an aggregate
of 777,500 employee incentive options.
</TABLE>
Item 12. Certain Relationships and Related Transactions.
On January 24, 1995, the Company and Mr. William Appleton agreed to terminate
Mr. Appleton's royalty on sales of SuperCard effective January 31, 1995, for
consideration of $100,000 which continues to be paid over two years in equal
monthly installments of $4,568, inclusive of interest calculated at nine percent
per annum, to March 1, 1997.
Pemcorp Management Inc., a management advisory services company controlled by
Mr. McCartney and Mr. Petersen, was paid $30,000 and is owed $30,000 for the
year ended December 31, 1996 pursuant to a management services contract.
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) Index to Financial Statements. Page
Report of Independent Accountants
Balance Sheet at December 31, 1995 and 1996
Statements of Operations For the Period From Inception
(December 28, 1993) Through December 31, 1994 and For the
Years Ended December 31, 1995 and 1996
Statement of Shareholders' Equity For the Period from
Inception (December 28, 1993) Through December 31, 1996
Statements of Cash Flows For the Period From Inception
(December 28, 1993) Through December 31, 1994 and For the
Years Ended December 31, 1995 and 1996
Notes to Financial Statements
All schedules are omitted because the required information is not
present in amounts sufficient to require submission of the schedules
or because the information is included in the financial statements and
notes thereto.
(b) Exhibits.
3.1* Articles of Incorporation of
Allegiant Technologies, Inc.
3.2* Bylaws of Allegiant Technologies, Inc.
4.1(a)* Form of Share Purchase Warrant
4.1(b)* Form of Share Purchase Warrant
4.2* Convertible Debenture dated December 18, 1995
4.3* Form of Registration Rights Agreement
10.1* Employment Agreement with Stuart Henigson, as amended
10.2* Employment Agreement with Joel Staadecker
10.3* Employment Agreement with David Baron
10.4* Management Agreement among Allegiant Technologies Inc.,
Pemcorp Management Inc., William McCartney, and
Leonard Petersen
10.5* Incentive Stock Option Plan
10.6* Royalty Termination Agreement with William C. Appleton
10.7* Escrow Agreement with Montreal Trust Company of Canada
10.8* Form of Indemnity Agreement
10.9 Publishing Agreement between Micromat Corporation and
Allegiant Technologies Inc.
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
* Incorporated by reference to Registration Statement on Form SB-2,
Registration No. 333-07727
(c) Reports on Form 8-K.
None
<PAGE>
FINANCIAL STATEMENTS
ALLEGIANT TECHNOLOGIES INC.
Years Ended December 31, 1996, 1995 and 1994
with Report of Independent Auditors'
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Allegiant Technologies, Inc.
We have audited the balance sheets of Allegiant Technologies, Inc. as of
December 31, 1995 and 1996 and the related statements of operations,
shareholders' equity (deficit) and cash flows for the years ended December 31,
1995 and 1996. 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. The financial statements of Allegiant
Technologies, Inc. at December 31, 1994, and for the period from incorporation
on December 28, 1993 to December 31, 1994, were audited by other auditors whose
report, dated January 27, 1995, expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. The results of the audit would not be materially different
had the audit been conducted in accordance with generally accepted auditing
standards in Canada. However, in the United States, reporting standards for
auditors require the addition of an explanatory paragraph when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1 to these financial statements. 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 presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these financial statements referred to above present fairly, in
all material respects, the financial position of Allegiant Technologies Inc. at
December 31, 1995 and 1996 and the results of its operations and its cash flows
for the years ended December 31, 1995 and 1996 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that Allegiant
Technologies Inc. will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company has sustained substantial operating losses
since inception and has a working capital deficiency of approximately $850,000
at December 31, 1996. These conditions have raise substantial doubt about the
Company's ability to continue as a going concern. The 1996 financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
San Diego, United States
March 4, 1997
<PAGE>
AUDITORS' REPORT
To the Directors of
Allegiant Technologies Inc.
We have audited the balance sheet of Allegiant Technologies Inc. as at December
31, 1994 and the statements of earnings and deficit, changes in shareholders'
equity and changes in financial position for the period from incorporation on
December 28, 1993 to December 31, 1994. 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 audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as, evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1994 and the
results of its operations, changes in shareholders' equity and the changes in
its financial position for the period from incorporation on December 28, 1993 to
December 31, 1994 then ended in accordance with Canadian generally accepted
accounting principles.
/s/ Baker & Company
West Vancouver, Canada Chartered Accountants
January 27, 1995
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
BALANCE SHEETS
(Expressed in United States Dollars)
AS OF DECEMBER 31
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 616,868 $ 116,610
Accounts receivable, net of allowance for doubtful accounts
of $15,000 in 1995 and $32,892 in 1996 134,276 37,084
Inventories 99,367 200,203
Prepaid expenses and deposits 58,106 48,121
------------- ------------
Total current assets 908,617 402,018
Deposits 15,709 17,708
Property and equipment at cost, net (Note 2) 253,628 200,041
Intangible assets, net (Note 3) 384,187 259,591
Deferred offering costs 76,250 15,000
------------- ------------
Total assets $ 1,638,391 $ 894,358
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Debentures payable (Note 5) $ - $ 495,775
Notes payable (Note 4) 51,460 9,034
Accounts payable 212,380 401,968
Accrued liabilities 33,559 309,004
Deferred revenues 53,798 34,563
------------- ------------
Total current liabilities 351,197 1,250,344
Deferred rent 26,403 36,502
Notes payable, net of current portion (Note 4) 9,034 -
Debentures payable (Note 5) 461,000 -
------------- ------------
Total liabilities 847,634 1,286,846
------------- ------------
Commitments (Note 6)
Shareholders' equity (deficit):
Capital stock (Note 8)
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
8,107,295 common shares (1995 - 7,042,295) 70,423 81,073
Additional paid-in capital 2,404,398 3,965,092
Accumulated deficit (1,684,064) (4,438,653)
------------- ------------
Total shareholders' equity (deficit) 790,757 (392,488)
------------- ------------
Total liabilities and shareholders' equity $ 1,638,391 $ 894,358
============= ============
See accompanying notes.
</TABLE>
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
STATEMENTS OF OPERATIONS
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
From
Incorporation on
December 28,
1993 to Year Ended Year Ended
December 31, December 31, December 31,
1994 1995 1996
<S> <C> <C> <C>
NET REVENUE $ 818,153 $ 2,227,582 $ 1,357,965
COST OF REVENUE 170,192 646,547 303,715
------------- -------------- -------------
GROSS PROFIT 647,961 1,581,035 1,054,250
------------- -------------- -------------
EXPENSES
Sales and marketing 441,220 1,045,383 1,466,254
Research and development 288,563 607,012 1,045,712
General and administrative 454,915 863,535 1,141,990
Amortization of purchase of intangibles 91,300 131,263 130,846
------------- -------------- -------------
Total operating expenses 1,275,998 2,647,193 3,784,802
------------- -------------- -------------
Loss from operations (628,037) (1,066,158) (2,730,552)
Interest income 1,339 14,966 24,505
Interest expense - (6,174) (48,542)
------------- -------------- -------------
Net loss $ (626,698) $ (1,057,366) $ (2,754,589)
============= ============== =============
Loss per share $ (0.25) $ (0.24) $ (0.47)
============== =============== =============
Shares used in computing per share amounts 2,535,397 4,372,592 5,803,075
============= ============== =============
See accompanying notes.
</TABLE>
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Total
Additional Shareholders'
Number Paid-in Accumulated Equity
of Shares Par Value Capital Deficit (Deficit)
<S> <S> <C> <C> <C> <C>
Balances at December 28, 1993 1 $ 1 $ - $ - $ 1
Shares issued - cash 5,639,999 56,339 1,205,660 1,261,999
Net loss (626,698) (626,698)
------------- ------------ ------------ ------------- ------------
Balances at December 31, 1994 5,634,000 56,340 1,205,660 (626,698) 635,302
Shares issued - cash 875,000 8,750 866,250 875,000
- corporate finance fee 64,545 645 63,900 64,545
- exercise of warrants 218,750 2,188 216,562 218,750
- conversion of note payable 250,000 2,500 247,500 250,000
- issuance of warrants - - 39,000 39,000
Offering costs (234,474) (234,474)
Net loss (1,057,366) (1,057,366)
------------- ------------ ------------ ------------- ------------
Balances 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 (2,754,589) (2,754,589)
------------- ------------ ------------ ------------- ------------
Balance at December 31, 1996 8,107,295 $ 81,073 $ 3,965,092 $ (4,438,653) $ (392,488)
============= ============ ============ ============= ============
See accompanying notes.
</TABLE>
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
From
Incorporation on
December 28,
1993 to Year Ended Year Ended
December 31, December 31, December 31,
1994 1995 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (626,698) $ (1,057,366) $ (2,754,589)
Adjustments to reconcile net loss to net cash
used for operating activities
Amortization and depreciation 105,897 168,086 273,346
Changes in operating assets and liabilities
Accounts receivable (197,625) 63,349 97,192
Inventories (50,950) (48,417) (100,836)
Prepaid expenses and deposits (29,247) (44,568) 7,986
Accounts payable and accrued liabilities 181,717 64,222 465,033
Deferred revenues 19,800 33,998 (19,235)
------------- -------------- -------------
Net cash used for operating activities (597,106) (820,696) (2,031,103)
------------- -------------- -------------
INVESTING ACTIVITIES
Purchase of property and equipment (110,781) (194,268) (60,388)
Purchase of intangible assets (498,000) - -
------------- -------------- --------------
Net cash used for investing activities (608,781) (194,268) (60,388)
------------- -------------- -------------
FINANCING ACTIVITIES
Proceeds from issuance of capital stock, net 1,209,105 891,717 1,632,594
Proceeds from notes payable 250,000 - -
Payments on notes payable - (39,506) (51,460)
Proceeds from debentures payable - 500,000 -
Deferred rent - 26,403 10,099
------------- -------------- -------------
Net cash provided by financing activities 1,459,105 1,378,614 1,591,233
------------- -------------- -------------
Increase (decrease) in cash and cash equivalents 253,218 363,650 (500,258)
Cash and cash equivalents, beginning of period - 253,218 616,868
------------- -------------- -------------
Cash and cash equivalents, end of period $ 253,218 $ 616,868 $ 116,610
============= ============== =============
Supplemental Disclosures of Non-Cash
Investing and Financing Activities
Note payable issued for royalty buy-out $ - $ 100,000 $ -
Common shares issued for conversion of note payable - 250,000 -
Common shares issued for corporate finance fee - 64,545 -
See accompanying notes.
</TABLE>
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Allegiant Technologies Inc. was incorporated in Washington State,
U.S.A. on December 28, 1993 and was registered to carry on business in
the State of California on March 23, 1994.
The Company's principal line of business is developing, marketing and
supporting interactive multimedia development software.
Basis of Presentation
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates the
continuation of the Company as a going concern. However, the Company has
sustained substantial operating losses in recent years. In addition, the
Company has used substantial amounts of working capital in its
operations. Further, at December 31, 1996, current liabilities exceed
current assets by $848,326, and total liabilities exceed total assets by
$392,488.
In view of these conditions, additional working capital will need to be
raised through other debt and/or equity financings; however, there can
be no assurances that this can be accomplished, which may impact the
Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
recorded during the reporting period. Actual results could differ from
those estimates.
Inventories
Inventories consist primarily of software media, manuals and related
packing materials. Inventories are valued at standard cost, which
approximates the lower of cost, determined on a first-in, first-out
basis, or market.
Capital Assets
Capital assets are recorded at cost. Depreciation is provided over the
estimated useful lives ranging from three to seven years using the
straight-line method.
Intangible Assets
Intangible assets are recorded at cost. Amortization is provided over
the estimated useful lives of five years using the straight-line method.
Management evaluates the future realization of intangible assets
quarterly and writes down any amounts that management deems unlikely to
be recovered through future product sales. To date no write downs have
been recorded to intangible assets acquired from Aldus Corporation.
Deferred Costs
Deferred costs will be offset against the proceeds of equity financing
or amortized over the period of debt financing.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(cont'd.....)
Capitalized Software Costs
Financial accounting standards provide for capitalization of certain
software development costs after technical feasibility of the software
is attained. No such costs were capitalized in 1994, 1995 or 1996
because the impact on the financial statements would not be material.
Advertising Costs
Advertising costs are expensed as incurred. Included in sales and
marketing expense are advertising costs of $135,453, $376,860 and
$447,115 in 1994, 1995 and 1996, respectively.
Revenue Recognition
Revenue is derived from product sales and licenses, maintenance
contracts and consulting, training and other services. Revenues from
product sales and licenses are recognized upon shipment of the products.
Revenue from software maintenance contracts is recognized on a
straight-line basis over the term of the contract, generally one year.
Revenue from consulting, training and other services are recognized in
the period in which services are performed and earned in accordance with
the respective agreements. To the extent that an engagement is projected
to be completed at a loss, a provision for the full amount of the loss
is provided at that time.
The Company may enter into agreements whereby it licenses products or
provides customers the right to multiple copies. Such agreements
generally provide for non-refundable fixed fees which are recognized at
delivery of the product master or the first copy. Per copy royalties in
excess of the fixed minimum amounts and refundable license fees are
recognized as revenue when such amounts are reported to the Company and
no longer refundable.
The Company will sell its products throughout the world, however, the
most significant geographical area is the United States. The Company
performs ongoing credit evaluations of its customers and generally does
not require collateral on domestic sales. The Company maintains an
allowance for potential credit losses. Additionally, the Company
maintains an allowance for anticipated returns on products sold to
distributors.
Revenues from sales to two customers accounted for 11% and 10%,
respectively, of the Company's revenue in 1996, and 13% and 11%,
respectively, of the Company's revenue in 1995.
Foreign Currency Translation
The Company translates foreign currency transactions and balances using
the temporal method. Under this method, monetary assets and liabilities
are translated at period-end rates whereas non-monetary assets and
liabilities are recorded at rates prevailing at the transaction dates.
Revenue and expenses are translated at the average monthly rate
throughout the period. Currency gains and losses are reflected in the
results of operations for the periods and were not significant.
Accounting for Long Lived Assets
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and For Long-Lived Assets to be Disposed of (SFAS
121). The adoption of SFAS 121 did not impact the financial position or
the results of operations of the Company in 1996.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(cont'd.....)
Stock Options
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because as
discussed in Note 8, alternative fair value accounting provided under
FASB Statement No. 123, "Accounting for Stock Based Compensation"
(Statement 123), requires the use of option value models that were not
developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
United States Generally Accepted Accounting Principles
Accounting under United States and Canadian generally accepted
accounting principles is substantially the same with respect to the
accounting principles used by the Company in the preparation of these
financial statements.
2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Property and Equipment consists of:
Furniture and fixtures $ 114,933 $ 154,240
Office equipment 17,416 23,723
Computer equipment 172,699 187,473
------------- ------------
305,048 365,436
Accumulated depreciation (51,420) (165,395)
------------- ------------
$ 253,628 $ 200,041
============= ============
</TABLE>
3. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
1995 1996
<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 (213,813) (338,409)
------------- ------------
$ 384,187 $ 259,591
============= ============
</TABLE>
Acquisition costs include goodwill, product technology and related
acquisition costs. On February 4, 1994 the Company purchased from a
non-related party, the rights to a product sold under the name
"SuperCard" and the underlying software technology for cash and other
consideration.
Royalty buyout represents a fixed sum payment for the termination of the
royalty interest on SuperCard sales. The buyout option was negotiated as
part of the original acquisition of SuperCard.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1996
4. NOTES PAYABLE
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
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. $ 60,494 $ 9,034
Less: current portion 51,460 9,034
------------- ------------
Notes payable net of current portion $ 9,034 $ -
============= ============
</TABLE>
Cash paid for interest was $6,174 and $3,356 for 1995 and 1996,
respectively.
5. DEBENTURES PAYABLE
<TABLE>
<CAPTION>
1995 1996
<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 no longer secured by a general charge over the assets
of the Company and no longer bears interest effective
September 20, 1996. $ 500,000 $ 500,000
Less: discount 39,000 4,225
------------- ------------
461,000 495,775
Less: current portion - 495,775
------------- ------------
Debentures net of current portion $ 461,000 $ -
============= ============
</TABLE>
6. COMMITMENTS
Lease
The Company leases office space. Future minimum lease payments, at
December 31, 1996, are as follows:
1997 $ 147,630
1998 123,377
Rent expense for the years ending 1994, 1995 and 1996 totalled
$27,306, $82,549 and $166,473, respectively.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1996
7. INCOME TAXES
Significant components of the Company's deferred tax assets as of
December 31, 1996 and 1995, respectively, are shown below. A valuation
allowance has been recognized to offset the deferred tax assets as
realization of such assets is uncertain.
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards $ 600,000 $ 1,666,000
Research and development credits 80,000 157,000
Other - net 52,000 66,000
------------- ------------
Total deferred tax assets 732,000 1,889,000
Valuation allowance for deferred tax assets (732,000) (1,889,000)
------------- ------------
Net deferred tax assets $ - $ -
============= ============
</TABLE>
At December 31, 1996, the Company has federal and California tax net
operating loss carryforwards of approximately $4,203,000 and $3,953,001,
respectively. The Company also has federal and California research
credit carryforwards of approximately $93,000 and $64,000, respectively.
The federal tax loss carryforward and the research credit carryforwards
will begin expiring in 2009 unless previously utilized. The California
tax loss carryforward will begin expiring in 2002 unless previously
utilized.
In accordance with certain provisions of the Internal Revenue Code, a
change in ownership of a corporation of greater than 50 percent within a
three-year period will place an annual limitation on the corporation's
ability to utilize its existing tax loss and tax credit carryforwards.
8. 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
performance shares to be released from escrow on the basis of 1 share
for every $0.52 Cdn of pre-tax cash earned by the Company on a
cumulative basis. Of the performance shares, 675,000 shares have further
vesting provisions attached to them in addition to the earn-out
provisions. The value of these performance shares will be charged to
expense at the time of their release from escrow. These shares are not
included in the determination of loss per share until there is
reasonable certainty that they will be released from escrow.
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 2,187,688 shares of its common stock as of December 31,
1996. There are 260,188 options available that may be granted in the
future under the stock option plan.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1996
8. CAPITAL STOCK (cont'd.....)
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.
In September, 1996 the Board of Directors approved a plan to amend the
exercise price of vested and unvested options to purchase 1,250,000
common shares of the Company at prices, ranging from Cdn $1.40 to Cdn
$3.66, to $0.75 per share. The amended exercise price was greater than
the market price of the shares at the time of amendment. All other terms
of the options, including vesting provisions, remained the same. The
number of options granted and cancelled, in 1996, as set out in the
table below includes these amended options.
A summary of the Company's stock option activity, and related
information for the years ended December 31, 1995 and 1996 are as
follows:
<TABLE>
<CAPTION>
1995 1996
-------------------------- ------------------------------
<S> <C> <C> <C> <C>
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
Outstanding at beginning of year - $ - 1,530,000 $ 1.14
Granted 1,530,000 1. 14 2,087,500 0.93
Cancelled - - (1,690,000) 1.20
------------ ------------ ------------- ---------------
Outstanding at end of year 1,530,000 1.14 1,927,500 0.75
Exercisable at end of year 1,015,833 1.14 1,203,541 0.75
Weighted-average fair value of options
granted during the year 0.71 0.94
</TABLE>
Pro forma information regarding net loss is required to be
disclosed in accordance with Statement 123, and has been determined as
if the Company has accounted for its employee stock options under the
fair value method prescribed in that Statement. The fair value of these
options was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions for
1995 and 1996; risk free interest rate of 5% to 6%, dividend yield of
0%, and a weighted-average expected life of the options of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferrable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the related
options. The Company's pro forma information follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Pro forma net loss $1,638,177 $2,823,194
Pro forma loss per share $0.375 $0.550
</TABLE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1996
8. CAPITAL STOCK (cont'd.....)
The exercise price for options outstanding as of December 31, 1996
is $0.75. The weighted-average remaining contractual life of those
options is 3.9 years.
Warrants
During the 1996 year, the Company issued a total of 639,000 share
purchase warrants in connection with an offering of equity securities as
described below.
In March, 1996, the Company sold, pursuant to a private placement
memorandum, 407,500 Units at $4.00 per Unit. Each Unit consisted of two
shares (815,000 shares in total) and one share purchase warrant (407,500
warrants in total) entitling the holder to purchase one additional
common share at $2.30 per share. In addition, the Agent, for the sale of
securities, and an arms-length consultant to the Company received share
purchase warrants, entitling them to purchase 81,500 and 150,000 common
shares of the Company at $2.30 per share and Cdn $3.15 per share
respectively, as part of a compensation arrangement.
As of December 31, 1996, the Company has outstanding share purchase
warrants entitling the holders to purchase a total of 727,235 common
shares of the Company as follows:
<TABLE>
<CAPTION>
Number Exercise
of Shares Price Expiry Date
--------------------------------------------------------------------------------
<S> <C> <C> <C>
88,235 $ 1.96 December 18, 1997
150,000 Cdn 3.15 to April 25, 1997
Cdn 3.62 from April 26, 1997
to April 25, 1998 April 25, 1998
489,000 2.30 April 26, 1998
-------------
727,235
</TABLE>
9. RELATED PARTY TRANSACTIONS
During 1994, 1995 and 1996, the Company paid or accrued $90,000, $Nil
and $Nil, respectively, in consulting fees and $32,500, $30,000 and
$60,000, respectively, in management fees to companies controlled by
certain directors of the Company. The consulting fees were paid in
connection with and were contingent upon the acquisition of SuperCard
and have been included in the acquisition costs capitalized (refer to
Note 3).
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1996
10. GEOGRAPHIC INFORMATION
Substantially all the Company's operations, employees and assets are
located in the United States.
A significant portion of the Company's sales are to customers in foreign
countries:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Sales by geographical region:
Japan $ 46,100 $ 260,506 $ 139,960
Europe 48,990 246,231 223,799
Other 16,907 131,856 99,966
------------ ------------- ------------
Total export sales 111,997 638,593 463,725
United States 706,156 1,588,989 894,240
------------ ------------- ------------
Net sales $ 818,153 $ 2,227,582 $ 1,357,965
============ ============= ============
</TABLE>
11. SUBSEQUENT EVENT
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. To date, the Company has been 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
of interest plus 2% per annum, which is payable quarterly commencing on July 15,
1997. Amounts advance 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ALLEGIANT TECHNOLOGIES INC.
Date: March 31, 1997 By: /s/ Joel B. Staadecker
--------------------------
Joel B. Staadecker
President and C.E.O.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Joel B. Staadecker March 31, 1997
- ----------------------
Joel B. Staadecker
President and Director
(Chief Executive Officer)
/s/ William D. McCartney March 31, 1997
- ------------------------
William D. McCartney
Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
/s/ Leonard Petersen March 31, 1997
- ------------------------
Leonard Petersen
Director
- ------------------------
William C. Appleton
Director
Page 1
PUBLISHING AGREEMENT (EXCLUSIVE LICENSE)
THIS PUBLISHING AGREEMENT (this "Agreement") made and entered into
effective this ____ day of______________, 19__, by and between Micromat
Corporation (hereinafter "Author"), a California Corporation with offices at
7796 Bell Road, Windsor, California 95492, and Allegiant Technologies, Inc.
(hereinafter "Publisher"), a Washington Corporation with offices at 9740
Scranton Road, Suite 300, San Diego, California 92121:
WITNESSETH:
WHEREAS, Author has created a Work (as hereinafter defined) that consists of a
computer program in machine-readable form and a manuscript of instructional and
operating documentation relating to the computer program entitled SoundMaker
Version 1.0; and
WHEREAS, Publisher desires to market, manufacture, publish, and distribute the
Product (as hereinafter defined); and
WHEREAS, Author is willing to allow Publisher to so create and market the
Product on the terms and conditions of this Agreement;
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby agree
as follows:
Section 1
DEFINITIONS
For purposes of this Agreement, the following capitalized terms are
defined as follows:
1.1 "Computer Trade." Wholesale distributors, retailers, mail-order
companies, corporate resellers, government resellers, education resellers,
software specialty resellers, Internet-based resellers, value-added resellers,
and any other company for whom a substantial percentage of gross revenues are
derived from the sale of computers and software.
1.2 "End-User License." Publisher's standard license used by Publisher
to market microcomputer software, as such form of license may be amended from
time to time. A version of such license is attached hereto as Exhibit A.
1.3 "Product." A combination of computer code (exclusive of source
code) and user documentation that represents the Work. The Product will consist
primarily of object code and user documentation.
1.4 "Supplementary Channels." Direct sales to End-users or
organizations, OEM sales to other software or hardware manufacturers, sales via
electronic commerce, or sales to or via any other professional organization
having an interest in the subject matter of the Product.
1.5 "Work." Computer program(s) and related documentation set forth in
Exhibit B hereto.
1.6 "Product Inventory." All Product components including manuals,
boxes, diskettes, and any other materials that are related to the Product.
Author shall produce a schedule, attached as Exhibit D hereto, reflecting all
items of Product Inventory to be transferred to Publisher, less amounts retained
by Author as provided for herein, under the terms of this agreement.
1.7 "Accountable Product Production Costs." As described in Exhibit C,
all costs associated with the production of shrink-wrapped copies of the
Product, including any promotional and Not for Resale copies of the Product, and
all Work in Process represented by all Product components including manuals,
boxes, diskettes, and any other materials that are related to the Product.
Section 2
WARRANTY OF ORIGINALITY AND OWNERSHIP
2.1 Author warrants that it is the sole owner of the Work and has full
and exclusive right, title, and interest in the Work, including all intellectual
property rights associated therewith.
2.2 Author warrants that the Work in the form to be delivered to
Publisher will not infringe any U.S. and or other copyright, trade secret, or
other proprietary rights of any third party.
2.3 Author warrants that it has full right, power, and authority to
enter into and perform this Agreement, and to grant all of the rights granted
and agreed to be granted pursuant to this Agreement; and that the execution of
this Agreement does not and will not violate or require any consent under any
agreement or instrument to which Author is a party.
Section 3
LICENSE GRANT TO PUBLISHER
3.1 Author hereby grants to Publisher exclusive world-wide right and
license, under any copyrights or other intellectual property rights of Author
associated with the Work, to copy, modify, and distribute the Work, including
modified versions thereof, and to authorize others to do some or all of the
foregoing throughout the world. Such right and license shall commence upon the
effective date of this Agreement and shall continue for the Term of this
Agreement. Publisher may assign all of its rights in this Agreement and License
from Author, at its sole discretion, provided however, that any such assignment
or transfer of Publishers rights shall be made subject to the terms and
conditions of this Agreement.
3.2 For the term of this Agreement, Publisher agrees to permit the
Author to bundle a limited functionality version of the Product with Author's
PhoneMaker product. The limited functionality version shall be created by the
Author, and shall consist of version 1.0 of the Product with the following
modifications: limited to two channels, limited to 22 kHz, limited to 8-bit,
limited to 5 stock effects, a marketing message from Publisher appears at the
program start-up and when quitting the program, and electronic end-user
documentation that designates what functionality is available in the limited
functionality version as well as what functionality is available in the complete
version. Author agrees to include in the PhoneMaker product packaging, printed
material supplied by Publisher that enables the PhoneMaker customer to purchase
the complete version of the Product directly from Publisher. In addition, Author
agrees to supply Publisher with the names, addresses, phone and fax numbers, and
email addresses if supplied, of all registered PhoneMaker users on a quarterly
basis. In the event that Publisher reasonably believes that the inclusion of the
limited functionality version of the Product causes loss of sales of the
complete version of the Product, or any other damage to Publisher, then Author
within sixty days written notice of such damage from Publisher, shall modify the
limited functionality version of the Product so that the loss of Product sales
or any other damage to Publisher ceases.
Section 4
PAYMENT AND ROYALTIES
4.1 Publisher shall pay to Author the following royalties:
4.1.1 Author shall be paid eight percent (8%, the "Eight
Percent Royalty") of the Net Revenue (as hereinafter defined) received by
Publisher with respect to sales of the Product. In the event the Program is ever
marketed bundled with SuperCard, then the term "cash receipts" shall mean that
portion of the cash receipts from the bundled product (the "Bundled Receipts")
determined by multiplying the Bundled Receipts by a fraction, the numerator of
which is the published wholesale list price of the stand-alone version of the
Program, and the denominator of which is the sum of the published wholesale list
prices of the stand-alone versions of the Program and SuperCard. In addition,
4.1.2 Author shall be paid an additional twenty percent (20%,
the "Twenty Percent Royalty") of the Net Revenue received by Publisher with
respect to sales of the Product until such time as Author has received such
payments totaling an amount equal to the total of all Accountable Product
Production Costs. The total of all Accountable Product Production Costs eligible
to be paid by Publisher to Author in accordance herewith shall be the sum listed
as such on Exhibit C attached hereto.
4.2 In the event that the Eight Percent Royalty payments paid during
each year, commencing on March 1, l997, are less than $25,000.00, and unless
Publisher makes a supplemental payment to Author such that the total of all
Eight Percent Royalty payments plus any supplemental payments are equal to or
greater than $25,000 during such year, Author shall be entitled to terminate
this agreement in accordance with Section 8.4 hereof.
4.3 For purposes of computing royalties, the term "Net Revenues" means
gross revenue received by Publisher from the sale of Products adjusted for
returns, shipping, taxes, shipping insurance, and refunds granted by Publisher
for Products in accordance with its standard practice. In calculating Net
Revenues it is not intended that such sum shall include any payment received by
Publisher in connection with the sale or transfer of its rights in the Work, but
rather, only receipts from Computer Trade sales as described in Section 1.1 or
Supplementary Channels sales as described in Section 1.4 of the Product.
4.4 Royalties, as defined in Section 4.1.1 and 4.1.2 shall be paid
within thirty (30) days after the end of each calendar quarter. Each royalty
payment to Author shall be accompanied by a report that summarizes by type all
transactions producing revenue from Products and sets forth gross revenue and
adjustments for returns, shipping, taxes, shipping insurance, and refunds.
4.5 Author shall have the right to audit the Publisher's records in
accordance with Section 6.8 of this agreement.
Section 5
TESTING, CHANGES, CUT-OFF AND TRANSFER OF PRODUCT INVENTORY
5.1 Author shall deliver the Work to Publisher at the offices of
Publisher and shall provide, at the request of Publisher, within 45 days of the
execution hereof, up to ten (10) days (limited to a maximum of eight hours per
day) for demonstrations of the Work and consultation and information concerning
the Work for Publisher's employees and agents. Publisher shall pay Author
reasonable travel and living costs for each such appearance upon submission by
Author of an invoice for reasonable and actual expenditures.
5.2 Author agrees to make reasonable changes in the Work to cause the
computer code contained in the Work to conform to the Specifications and to
cause the Work to operate in such a manner as to demonstrate the functions
described in the Specifications.
5.3 Author shall transfer to Publisher all Product Inventory and
customer lists relating to all versions of the Product in Macintosh readable
form, on the Cut-Off Date, which shall be deemed to be January 1, l997.
Publisher shall designate the method for shipping the Product Inventory and
shall bear the costs of such shipment. Except as provided for in Section 5.4,
the transfer of Product Inventory shall include all Product Inventory, where
ever such Inventory shall be located, and shall include all Product Inventory in
the possession of the Computer Trade or in Supplementary Channels that has not
as of the Cut-Off Date been sold through by such vendors. All revenue associated
with Product Inventory so transferred shall accrue to the benefit of Publisher
from and after the Cut-Off Date. In the event that the Author has already been
paid, or shall subsequently be paid, for such transferred Product Inventory,
then such amounts so received by Author shall be paid to Publisher within 30
days of Author's receipt of same.
5.4 Author will retain the right to sell through MacZone through
February 28, 1997. No additional advertising may be made by Author after MacZone
Catalog 52 which was entered into before the Cut-Off Date of January 1, l997.
All unsold Product remaining at MacZone on March 1, l997, will be returned to
the Publisher. Author shall arrange the return of such Product inventory with
MacZone. Publisher agrees to pay for shipping costs to deliver such Product
inventory to Publisher, and Publisher shall have the right to designate the
shipping method and shipping carrier.
Section 6
PUBLISHER'S DUTIES
6.1 Publisher shall have the responsibility to conduct its product
approval and acceptance testing in good faith and to determine during such
testing the suitability of the Work for the Product. Upon such determination by
Publisher of such suitability, Publisher shall promptly notify Author in writing
of the acceptance or rejection of the Work.
6.2 Publisher may, upon acceptance of the Work, alter, edit,
supplement, and/or further document the Work to create the Product to such
extent and in such manner as Publisher, in its sole discretion, deems
appropriate. Publisher shall be responsible for representations made by
Publisher or its Agents to End-Users with respect to the Product.
6.3 Publisher shall test the Product as it determines to be necessary.
Publisher shall produce copies of the Products including by recording computer
code in appropriate media and preparation of user documentation.
Publisher shall package the Product for distribution with the End-User License.
6.4 Publisher shall promote the sale of, solicit orders for, and
distribute copies of, the Product throughout the world and shall offer the
Product to the Computer Trade on reasonable terms calculated to maximize the
revenues attainable on distribution of the Product.
6.5 Publisher shall demonstrate the Product in Supplementary Channels
to promote its distribution to End-Users.
6.6 Publisher shall prepare cover design and graphics for the Product
and develop advertising, marketing materials, and promotional activities
calculated to successfully promote distribution of the Product.
6.7 Publisher shall manufacture and stock adequate copies of the
Product to provide timely response to fill demand for the Products from the
Computer Trade.
6.8 Publisher shall maintain accurate records of all manufacture,
shipment, and distribution activities regarding the Product and revenue received
with respect to such activities, and shall maintain such records during the term
of this Agreement and for three years after the termination hereof. All such
records shall be made available to Author's outside accounting firm for purposes
of audit at reasonable times no more frequently than once each year. If such
audit shows that Publisher's records in respect to payment to Author are off by
10% or more, Publisher shall pay the cost of the audit. If such audit shows that
Publisher's records in respect to payment to Author are off by less than 10%,
Author shall pay the cost of the audit.
Section 7
COMMITMENTS AND MARKETING EFFORTS
7.1 Publisher agrees to engage in commercially reasonable efforts to
utilize all its existing infrastructure such as domestic and international sales
channels, strategic industry partners, and marketing programs to promote the
Work.
7.2 Notwithstanding any other provision of this Agreement, Publisher
makes no guarantee of success regarding its efforts under this Agreement and
makes no commitment whatever with respect to revenue to be achieved after
engaging in commercially reasonable efforts in accordance with Section 7.1 or
royalties to be earned from the Product.
7.3 Author agrees that performance of Publisher's duties in a manner
that is reasonably calculated after engaging in commercially reasonable efforts
to bring the Products to the attention of the Computer Trade and to provide the
Computer Trade with a reasonable opportunity to procure and distribute the
Products shall be sufficient to satisfy any marketing obligation of Publisher
hereunder, including those in Sections 6 and 7.
Section 8
TERM AND TERMINATION
8.1 Unless earlier terminated pursuant to Sections 8.2 - 8.5 below,
this Agreement shall be effective as of the date signed by all parties and shall
continue in full force and effect until December 31, 2001 (the "Term").
8.2 Author may terminate this Agreement if Publisher has not accepted
the Work within 45 days after the effective date of this Agreement.
8.3 Author may terminate this Agreement for any material breach of this
Agreement by Publisher that continues, without waiver or cure, thirty (30) days
after written notice to Publisher. Such written notice shall describe such
breach in reasonable detail. It is agreed by the parties that failure to pay
royalties when due shall constitute a material breach.
8.4 Author may terminate this Agreement ninety (90) days after written
notice to Publisher, issued within four (4) weeks after any calendar year-end,
if during the preceding calendar year the Minimum Annual Royalty realized by
Author from Publisher hereunder is less than $25,000.00.
8.5 Publisher may terminate this Agreement ninety (90) days after
providing written notice to Author of such termination.
8.6 Notwithstanding any termination of this Agreement, Publisher shall
have the right to continue to market and distribute all copies of Product
produced prior to termination for a period of 12 months following such
termination and Author shall have the right to continue to receive royalties on
all net revenues of Publisher from the Product. All Publisher rights to any OEM
or bundling agreements for the Product shall survive this agreement for a period
of 12 months after termination, at which time all such rights shall revert to
the Author.
8.7 Not withstanding the termination of this Agreement, for any reason,
Sections 2, 9.2, 9.3, 9.4, 11 and 14 shall survive and remain in full force and
effect.
8.8 Upon termination of this Agreement, Publisher agrees to provide to
Author, within thirty (30) days after receiving Author's written request, a copy
of Publisher's registered user database, in electronic format, for the Product.
Publisher shall have the right to retain a copy of such registered user database
for its own purposes.
Section 9
COPYRIGHT AND TRADEMARK
9.1 Publisher may market and distribute the Product under Publisher's
trademarks and trade names so long as "Copyright l996 Micromat Corporation"
shall be displayed in the About Box and on all Products. Publisher may also mark
Products that contain copyrightable subject matter of Publisher with its own
copyright.
9.2 Author shall indemnify, defend and hold harmless Publisher from and
against any and all claims, actions, losses, costs, and liabilities based on or
arising out of any breach of warranties set forth in Sections 2.1, 2.2 or 2.3.
9.3 Publisher shall indemnify Author and hold harmless Author from and
against any and all claims, actions, losses, costs, and liabilities based on any
claims by third parties relating to the Products, or arising with respect to
their sale and distribution, with the sole exception of the matters covered by
the Author's indemnity set forth in Section 9.2 hereof.
9.4 The foregoing rights of indemnification shall be conditioned on the
indemnified party (1) furnishing prompt notification to the indemnifying party;
(2) permitting the indemnifying party to control the defense and settlement of
any third-party claim or action; and (3) cooperating in the defense by the
indemnifying party at the indemnifying party's expense.
Section 10
PROMOTIONAL ACTIVITIES OF AUTHOR
Author, or a qualified employee of Author, agrees to engage in
promotional activities at the request of Publisher to promote the marketing and
distribution of Products by appearing at up to three trade shows or retail
outlets designated by Publisher for a one-day period at each such location
during a one-year period commencing January 1, l997. The time and place of such
appearance shall be mutually agreed to and consent of Author shall not be
unreasonably withheld. Publisher shall pay Author reasonable travel and living
costs for each such appearance upon submission by Author of an invoice for
reasonable and actual expenditures.
Section 11
LIMITATIONS ON LIABILITY
Author makes no warranty that all errors have been or can be eliminated
from the Work and, with respect thereto, Author shall not be responsible for
losses, damages, costs, or expenses of any kind resulting from the use or
distribution of the Work by Publisher or use by any End-User, including, without
limitation, any liability for business expenses, machine downtime, or damages
experienced by Publisher or any third persons as a result of any deficiency,
defect, error, or malfunction. Author shall not be liable for any indirect,
special, incidental, or consequential damages relating to or arising out of the
subject matter of this Agreement or actions taken thereunder. EXCEPT AS
EXPRESSLY PROVIDED IN THIS AGREEMENT, AUTHOR MAKES NO WARRANTY, EITHER EXPRESS
OR IMPLIED, AS TO THE PROGRAMS OR THE USE THEREOF, AND SPECIFICALLY DISCLAIMS
ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
Section 12
BUY-OUT OPTION
Publisher shall have a right to purchase the Work, including all
intellectual property rights and source code versions of the Work, in their
entirety after one year from the date of first shipment by Publisher of Product
for the sum of $250,000, or a sum equal to three (3) times the average annual
Eight Percent Royalty paid during the preceding 36 months, or so much of such
period as may have transpired at the time of Publisher's election to purchase
the Work, whichever amount is higher. Payments for Accountable Product
Production Costs shall not be included in the calculation of the royalty from
the previous twelve months.
Section 13
PRODUCT DEVELOPMENT AND MANAGEMENT
13.1 Author agrees to perform all product development and product
management functions, as such may be commonly performed by similar companies
engaged in similar software business activities, during the term of this
Agreement. Product Development shall include, but not be limited to, fixing
errors in the Product, the development of updates and upgrades to the Product,
source code documentation, testing, and investigating and developing new
features and functions. Product Management shall include, but not be limited to,
obtaining user requirements, determination of new features, maintaining a keen
awareness of competitive products, creating the functional specification, a
comprehensive description of all product functionality, with supporting screen
shots, comprehensive beta testing and managing schedules. Publisher shall be
responsible for and manage the printed material production including any press
checks. Publisher and Author shall mutually agree on the product design and
development direction of the product. Publisher and Author agree to meet in
person two (2) days every other month, with such time divided equally between
Publisher's and Author's facilities, to review Product status and plans.
13.2 Author agrees to create the Work in a manner that makes it
suitable for localization to other languages, and agrees to provide assistance
to Publisher or Publisher's International Distributors in any localization of
the Work undertaken. Author shall not be required to localize the Work but shall
make adjustments as necessary to modify the Work to run on international
operating systems and to otherwise allow localization of the work.
13.3 Author shall deliver an Upgrade to the Product at least once
during every twelve month period during the term of this Agreement, starting
from January 1, l997. For the purpose of this Agreement. "Upgrade" shall be
defined as: A major revision, improvement, enhancement, and addition to the
feature set signified by a change in the number to the left of the decimal point
in the product version number. Publisher shall have thirty (30) calendar days
from receipt of the Upgrade to accept and approve it. If Publisher fails to
notify Author of its approval or disapproval, in writing, within such thirty
(30) day period Publisher shall be deemed to have approved it. In the event that
Author does not deliver an approved Upgrade within such twelve month periods,
the Eight Percent Royalty due to Author shall be one-half (1/2) of the otherwise
applicable royalty rate until Author delivers an Upgrade approved by Publisher,
and the Minimum Royalty Amount shall be inapplicable to such period.
13.4 Multi-Platform Development. In the event that Author does not: (a)
agree to develop a comparable version of the Work that operates on the Windows
operating system or any other platform within 30 days of being requested to do
so by Publisher; or (b) after agreeing to develop a comparable version of the
Work within the time period specified above, complete development of the new
version within 180 days of agreeing to develop such version, then Publisher may,
at its sole discretion, develop such version of the Work and Author, at Author's
sole discretion, shall make the Work's source code available to Publisher for
such undertaking. In the event Publisher develops such a version of the Work,
Author hereby grants to Publisher the irrevocable right to copy, use,
distribute, sell and otherwise exploit the version developed by Publisher,
subject to the royalty obligations set forth below, which grant of rights shall
survive any termination of this agreement. In the event Publisher sells a
version of the Work developed by Publisher, the royalties set forth in Section 4
shall be reduced to: (1) one-third of the applicable Eight Percent Royalty if
Author's source code for an existing version of the Work was provided by Author
to Publisher to develop such version; or (2) zero (0) if Author's source code
for an existing version of the Work was not provided by Author to Publisher to
develop such version. If Author creates the Work in accordance with the same
functional specification as the Macintosh version of the Product for operation
on another platform, then all the rights and provisions outlined in this
agreement shall apply to such Work.
13.5 In the event that Author has invented or subsequently develops new
Sound editing and creation technologies during the term of this agreement,
Author agrees to (i) incorporate such technologies into future versions of the
Product that Publisher may sell and market under the terms of this agreement, or
(ii) create a new product that Publisher may sell and market under the same
terms and conditions as are applicable under this Agreement. The determination
of whether the new Sound editing and creation technologies shall be incorporated
into a future version of the Product or into a separate product shall be at the
sole discretion of Publisher. In any event, except as provided in Section 3.2,
Author agrees not to sell, license, market, or give-away any product
incorporating Sound editing and creation functionality not incorporated into the
Product, to any another entity in any form, during the term of this Agreement
and, in the event Publisher purchases the Work pursuant to Section 12 hereof,
for a period of two (2) years after this agreement has been terminated.
13.6 In order to allow Publisher access to the source code version of
the Work, under certain circumstances, Author and Publisher agree to enter into
the Source Code Escrow Agreement attached hereto as Exhibit E.
Section 14
GENERAL
14.1 All notices, payments, or deliveries called for by this Agreement
shall be deemed sufficient upon actual delivery to the address set forth above
or upon mailing by registered mail, return receipt requested.
14.2 Each party agrees to comply with all applicable laws and
regulations of governmental bodies having jurisdiction over the subject matter
of this Agreement.
14.3 Neither party shall be held liable to the other for failure of
performance where such failure is caused solely by supervening conditions beyond
that party's control, including acts of God, civil disturbance, strikes, labor
disputes, and lawful governmental action. If any provision of this Agreement
shall be deemed to be unlawful or unenforceable by a court of competent
jurisdiction, such termination shall have no effect on the validity and
enforceability of the other terms and conditions of this Agreement, and the
challenged term shall be deemed deleted.
14.4 Arbitration. Any claim between the parties, under this agreement
or otherwise, will be determined by arbitration in San Diego under the American
Arbitration Association (AAA) Commercial Arbitration Rules with Expedited
Procedures in effect on the date hereof, as modified by this Agreement. There
will be one arbitrator selected by the parties within seven (7) days of the
arbitration demand or if not, pursuant to the AAA Rules, who will be an attorney
with at least fifteen (15) years commercial law experience and with at least
five (5) years experience in the computer software industry. Any issue about
whether a claim is covered by this Agreement will be determined by the
arbitrator. At the request of either party made not later than seventy-five (75)
days after the arbitration demand, the parties agree to submit the dispute to
non-binding mediation which will not delay the arbitration hearing date. There
will be no substantive motions or discovery, except the arbitrator will
authorize such discovery as may be necessary to insure a fair private hearing,
which shall be held within one hundred twenty (120) days of the demand; and
concluded within three (3) days. These time limits are not jurisdictional. The
arbitrator shall apply substantive law and may award injunctive relief or any
other remedy available from a judge, including attorney fees and costs to the
prevailing party, but shall not have the power to award punitive damages.
14.5 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any one or more of the
provisions hereof shall not affect the validity and enforceability of the other
provisions hereof.
14.6 Attorneys' Fees. If either party hereto commences an arbitration
or other action against the other party to enforce any of the terms hereof or
because of the breach by such other party of any of the terms hereof, the
prevailing party shall be entitled, in addition to any other relief granted, to
all actual out-of-pocket costs and expenses incurred by such prevailing party in
connection with such action, including, without limitation, all reasonable
attorneys' fees, and a right to such costs and expenses shall be deemed to have
accrued upon the commencement of such action and shall be enforceable whether or
not such action is prosecuted to judgment.
14.7 No Third Party Benefits. None of the provisions of this
Agreement shall be for the benefit of, or enforceable by, any third-party
beneficiary.
14.8 Counterparts. This Agreement may be executed in several
counterparts all of which together shall constitute one and the same instrument
with the same force and effect as though each of the parties had executed the
same document.
14.9 Governing Law. This Agreement is made and shall be governed by,
and construed and enforced in accordance with, the internal laws of the State of
California, without regard to the conflict of laws principles thereof, as the
same apply to agreements executed solely by residents of California and wholly
to be performed within California.
14.10 Venue; Submission to Jurisdiction. Each of the parties submits to
the jurisdiction of any state or federal court sitting in San Diego County,
California, in any action or proceeding arising out of or relating to this
Agreement, agrees that all claims in respect of the action or proceeding may be
heard and determined in any such court, and agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other party with respect thereto.
14.11 Authority. Each of the persons executing this Agreement
represents and warrants that it is authorized to execute this Agreement and the
entity on whose behalf they are signing is bound by the terms hereof.
14.12 This Agreement constitutes the entire agreement between the
parties and supersedes all prior statements, representations, and agreements on
this subject matter. This Agreement may be amended only by a writing that refers
to this Agreement and that is signed by both parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
by their authorized representatives below as of the date first above written.
MICROMAT CORPORATION:
By:_________________________
Jeff Baudin
Title: __President______________
Date: ______________, 19____
ALLEGIANT TECHNOLOGIES INC.:
By:_________________________
Joel B. Staadecker
Title:__President_& CEO________
Date: ______________, 19____
<PAGE>
Exhibit A
END-USER LICENSE
ALLEGIANT USE LICENSE AGREEMENT
CAREFULLY READ THE FOLLOWING LICENSE AGREEMENT BEFORE OPENING THE DISK PACK. BY
OPENING THE DISK PACK YOU INDICATE YOUR ACCEPTANCE OF THE TERMS OF THIS
AGREEMENT. IF YOU DO NOT ACCEPT THE TERMS OF THIS AGREEMENT, DO NOT OPEN THE
DISK PACK, PROMPTLY RETURN THE ENTIRE PACKAGE TO THE PLACE YOU OBTAINED IT FOR A
FULL REFUND.
DEFINITIONS
The following definitions apply to the terms as they appear in this agreement.
Allegiant means Allegiant Technologies Inc.
Software means the computer programs contained in this package, and all
updates to the computer programs. The term also includes all copies of any
part of the computer programs.
Documentation means the user's manual(s) and other printed materials
accompanying the Software.
Product means the Software and Documentation.
COPYRIGHT/PROPRIETARY PROTECTION
The Product is owned by Allegiant or its suppliers and is protected by United
States copyright laws and international treaties. You must treat the Product
like any other copyrighted material. This license and your right to use the
Product terminate automatically if you violate any part of this agreement. In
the event of termination, you must immediately destroy all copies of the Product
or return them to Allegiant, including copies resident in computer memory.
LICENSE GRANT Allegiant grants you a non-exclusive license to:
1. Use one copy of the Software on a single computer
("Dedicated Computer").
2. Copy the Software onto the hard disk of the Dedicated Computer and retain the
original for archival purposes. If one individual uses the Software on the
Dedicated Computer more than 80% of the time it is in use, then that individual
may use a second copy of the Software for use on a single home computer,
provided use on the home computer is never at the same time the Software is in
use on the Dedicated Computer.
3. After written notification to Allegiant, transfer the entire Product on a
permanent basis to another person or entity, provided you retain no copies of
the Product and the transferee agrees to the terms of this agreement.
You may not:
Copy the documentation;
Copy or modify all or any portion of the Product or merge it into another
program. Copies shall include, without limitation, any complete or partial
duplications on any media adaptations, translations, compilations, partial
copies within modifications, mergers with other material from whatever
source, and updated works. You will use your best efforts to prevent any
unauthorized copying of the Product; IF YOU COPY, MODIFY OR MERGE ANY
PORTION OF THE PRODUCT OR IF YOU TRANSFER POSSESSION OF ANY COPY,
MODIFICATION, OR MERGED PORTION OF THE PRODUCT TO ANOTHER PARTY, YOUR
LICENSE IS AUTOMATICALLY TERMINATED.
Reverse-engineer, disassemble, decompile, or make any attempt to discover
the source code of the Software;
Sublicense, rent, or lease any portion of the Product; or
Use the previous version of the Software that has been upgraded or
updated under this agreement. Upon upgrading or updating the Software,
the old copy must be deleted from the computer and the original disks
must be physically destroyed.
LIMITED WARRANTY
Allegiant warrants the disks on which the Software is distributed to be free
from defects in materials and workmanship and that the unaltered Software will
perform substantially in accordance with the Documentation for a period of 90
days from your receipt of the Product. Any written or oral information or advice
given by Allegiant dealers, distributors, agents, or employees will in no way
increase the scope of this warranty. YOU MUST ASSUME FULL RESPONSIBILITY FOR THE
SELECTION OF THE PRODUCT TO ACHIEVE YOUR INTENDED PURPOSES, FOR THE PROPER
INSTALLATION AND USE OF THE PRODUCT AND FOR VERIFYING THE RESULTS OBTAINED FROM
USE OF THE PRODUCT, ALLEGIANT DOES NOT WARRANT THAT THE FUNCTIONS CONTAINED IN
THE PRODUCT WILL MEET YOUR REQUIREMENTS, THAT THE PRODUCT IS FIT FOR ANY
PARTICULAR PURPOSE OR THAT THE OPERATION OF THE PRODUCT WILL BE INTERRUPTION OR
ERROR FREE. If the Product fails to comply with the warranty set forth above,
Allegiant's entire liability and your exclusive remedy will be replacement of
the disk or, at Allegiant's sole option, Allegiant's reasonable efforts to make
the Product meet the warranty set forth above. This limited warranty applies
only if you return all copies of the Product, along with a copy of your paid
invoice, to an authorized Allegiant dealer within 90 days of the date you
received the Product. If Allegiant is unable to make the Product conform to the
above warranty, Allegiant, at its option, will refund all or a fair portion of
the price you paid for this package. Any replacement Software will be warranted
for the remainder of the original 90-day warranty period or for 30 days from the
date you received the replacement, whichever is longer. These remedies are not
available outside of the United States and Canada. ALLEGIANT EXPRESSLY DISCLAIMS
ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
TITLE, OR INFRINGEMENT WITH RESPECT TO THE PRODUCT. ALL WARRANTIES SHALL
TERMINATE 90 DAYS FROM DATE OF DELIVERY OF THE PRODUCT TO YOU. Some states do
not allow limitations on how long an implied warranty lasts, so the above
limitation may not apply to you. THIS LIMITED WARRANTY GIVES YOU SPECIFIC LEGAL
RIGHTS. YOU MAY HAVE OTHERS, WHICH VARY FROM STATE TO STATE. EXCLUSIVE REMEDY
YOUR EXCLUSIVE REMEDY AND ALLEGIANT AND ITS SUPPLIERS' ENTIRE LIABILITY ARISING
FROM OR IN CONNECTION WITH THE SOFTWARE, DOCUMENTATION, PRODUCT AND/OR THIS
LICENSE (INCLUDING WITHOUT LIMITATION FOR BREACH OF WARRANTY OR
NON-INFRINGEMENT) SHALL BE REFUND OF LICENSE FEES.
LIMITATIONS OF LIABILITY
A. IN NO EVENT WILL ALLEGIANT BE LIABLE TO YOU FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES, ARISING OUT OF OR IN
CONNECTION WITH YOUR USE OR INABILITY TO USE THE PRODUCT OR DOCUMENTATION,
THE BREACH OF ANY EXPRESS OR IMPLIED WARRANTY, OR OTHERWISE IN CONNECTION
WITH THE PRODUCT, THE PRODUCT DOCUMENTATION AND/OR THIS LICENSE EVEN IF
ALLEGIANT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. Some states
do not allow limitation or exclusion of incidental or consequential
damages, so that above limitation or exclusion may not apply to you.
B. IN NO EVENT SHALL ALLEGIANT'S TOTAL LIABILITY FOR ANY DAMAGES, DIRECT OR
INDIRECT, IN CONNECTION WITH THE PRODUCT, THE PRODUCT DOCUMENTATION, AND/OR
THIS LICENSE EXCEED THE LICENSE FEES PAID FOR YOUR RIGHT TO USE THIS COPY
OF THE PRODUCT WHETHER SUCH LIABILITY ARISES FROM ANY CLAIM BASED UPON
CONTRACT, WARRANTY, TORT OR OTHERWISE.
ALLOCATION OF RISK.
Provisions of this Agreement such as the warranty limitations, exclusive
remedies and limitations of liability are unrelated, independent allocations of
risks between you and Allegiant. Unenforceability of any such allocations shall
not affect the enforceability of other such allocations. Allegiant's pricing
reflects the allocations of risk contained in this Agreement. GENERAL This
agreement constitutes the entire agreement between you and Allegiant and
supersedes any prior agreement concerning the contents of this package. It shall
not be modified except by written agreement dated subsequent to the date of this
agreement signed by an authorized Allegiant representative. Allegiant is not
bound by any provision of any purchase order, receipt, acceptance, confirmation,
correspondence, or otherwise, unless Allegiant specifically agrees to the
provision in writing. U.S. GOVERNMENT RESTRICTED RIGHTS The Product is provided
with RESTRICTED RIGHTS. Use, duplication, or disclosure by the government is
subject to restrictions set forth in subparagraph (c)(1)(ii) of the Rights in
Technical Data and Computer Software clause at DFARS 252.227-7013, and paragraph
(c(1) and (2) of the Commercial Computer Software--Restricted Rights clause at
FAR 52.227-19. The manufacturer is Allegiant Technologies Inc., 9740 Scranton
Road, Suite 300, San Diego, California 92121.
Export Laws. You understand that the Product may require a license from
the U.S. Department of Commerce or other government agency before it may be
taken or sent outside the United States. You agree to obtain any required
license before taking or sending the Product outside the United States. You will
not permit the export or re-export of the Product without obtaining required
licenses or letters of further assurance.
Taxes. You must pay all taxes that may now or hereafter be imposed,
levied, or assessed with respect to the possession or use of the Product or this
license. YOU ACKNOWLEDGE THAT YOU UNDERSTAND THIS AGREEMENT, AND AGREE TO BE
BOUND BY ITS TERMS AND CONDITIONS. YOU FURTHER AGREE THAT IT IS THE COMPLETE,
FINAL AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN YOU AND ALLEGIANT AND
SUPERSEDES ANY PROPOSAL OR PRIOR AGREEMENT OR ANY OTHER COMMUNICATIONS BETWEEN
ALLEGIANT AND YOU RELATING TO THE USE OF THE PRODUCT. If any provision of this
Agreement is unenforceable, all others will remain in effect. If any provision
of this Agreement is held unenforceable as written, it shall be enforced to the
maximum extent allowed by applicable law. This Agreement shall be governed by
the internal laws of the State of Washington and the United States, including
U.S. copyright laws, and venue in the event of any suit, proceeding or claim
shall be in the Courts located in King County, Washington. If you have any
questions regarding this Agreement, you may contact Allegiant by writing
Allegiant at the following address:
Allegiant Technologies, Inc.
9740 Scranton Rd., Suite 300
San Diego, California 92121
<PAGE>
Exhibit B
SPECIFICATION OF THE WORK(S)
All previously or subsequently created versions of the SoundMaker software
program, including without limitation shareware versions and Version 1.0,
regardless of operating platform, including all documentation, electronic files
and physical artwork.
Any software program (including all documentation, electronic files and physical
artwork) created or acquired by Author containing substantially the same
functionality, regardless of whether additional functionality is included or
whether the product is offered under the SoundMaker name.
<PAGE>
Exhibit C
ACCOUNTABLE PRODUCTION COSTS
<TABLE>
<CAPTION>
Inventory Materials Cost Each Quantity Total
<S> <C> <C> <C>
Boxes $.68 10,180 $6,922.40
Manuals $1.07 10,810 $11,566.70
Disk Label Sets (2) $.043 30,000 $1,290.00
Serial Number Labels (2) $.042 25,000 $1,050.00
Subtotal, Inventory Costs: N/A N/A $20,829.10
Pre-Production Services
Manual copywriting $600.00 1 $600
Manual lay-out $500.00 1 $500
Mechanical Logo Design & Box Layout $1300.00 1 $1300
Cover Art Creation $2000.00 1 $2000
Development Materials $500.00 1 $500
Subtotal, Pre-Production Costs: N/A N/A $4900.00
*Total Accountable Production Costs: $25729.10
*Author and Publisher agree that the Total Accountable Production Costs above
due Author under the terms of this Agreement shall be reduced by value of
Inventory Materials and pro-rata Pre-Production Services attributable to the
Product Inventory that Author retains versus that quantity shipped to Publisher
in accordance with Section 5.3 of the Agreement.
</TABLE>
<PAGE>
Exhibit D
PRODUCT INVENTORY
Inventory Materials Quantity
Boxes 10,180
Manuals 10,810
Disk Label Sets (2) 30,000
Serial Number Labels (2) 25,000
<PAGE>
Exhibit E
SOURCE CODE ESCROW AGREEMENT
THIS SOURCE CODE ESCROW AGREEMENT ("Agreement") is made and entered into by and
between Micromat Corporation ("Author"); Allegiant Technologies, Inc.
("Publisher"); and ESCROW AGENT FULL NAME ("Escrow Agent") and is made with
reference to the following:
A. This Agreement is supplementary to the agreement between the parties hereto
entitled "Publishing Agreement (Exclusive License)" and having an effective date
of _______________ (together with any modification, supplement, or replacement
thereof agreed to by Publisher, the "Publishing Agreement";
B. Author has agreed to place such Source Code in escrow for the benefit of the
Publisher on the terms and conditions hereof.
NOW, THEREFORE, for the mutual promises and representations contained
herein as well as other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby
covenant and agree to be bound as follows:
1. Definitions. For purposes of this Agreement, the following definitions shall
apply to the following respective capitalized terms:
1.1 Work. "Work" shall mean the entire computer programming code,
together with all Updates thereto, relating to the program offerings specified
in Exhibit B of the Publishing Agreement, which is hereby incorporated by
reference.
1.2 Update. "Update" shall mean a copy of the source code version of
each modification or revision to the Work that (a) corrects errors, problems, or
defects caused by or resulting from an incorrect functioning of the Work, (b)
supports new releases of the Work made available generally to the Publisher, or
(c) provides other updates or corrections.
1.3 Source Code. "Source Code" shall mean a copy of the source code
corresponding to the Work, including all Updates delivered to the Escrow Agent
from time to time pursuant to this Agreement, plus any pertinent commentary or
explanation that may be necessary to render the Source Code understandable and
useable by a trained computer-programming expert who is generally familiar with
hardware and software systems using the Work. The Source Code shall include
system documentation, statements of principles of operation, and schematics, all
as necessary or useful for the effective understanding and use of the Source
Code. Insofar as the "development environment" employed by Author for the
development, maintenance, and implementation of the Source Code includes any
device, programming, or documentation not commercially available to the
Publisher on reasonable terms through readily known sources other than the
Author, the Source Code shall include all such devices, programming, or
documentation. The foregoing reference to such "development environment" is
intended to apply to any programs, including compilers, "workbenches," tools,
and higher-level (or "proprietary") languages, used by the Author for the
development, maintenance, and implementation of the Source Code.
1.4 Impact Event. "Impact Event" shall mean (a) any rejection or
termination of the Publishing Agreement or this Agreement by Author or its
successors or representatives in breach of the provisions of the Publishing
Agreement or this Agreement, including in all events any rejection or
termination of the Publishing Agreement or any proposal to do so under Title 11
of the United States Code, as now constituted or hereafter amended (the
"Bankruptcy Code"), or any other federal or state bankruptcy, insolvency,
receivership, or similar law; (b) failure of a trustee, including Author as
debtor in possession, in any bankruptcy case hereafter filed by or against
Author either to assume the Publishing Agreement and this Agreement within
fifteen (15) days after the filing of the initial bankruptcy petition or to
perform the Publishing Agreement and this Agreement within the meaning of
Section 365(a)(4)(I) of the Bankruptcy Code; (c) the termination of
substantially all of Author's ongoing business operations relating to the
subject matter of the Publishing Agreement and this Agreement; (d) any
liquidation of Author, or any sale, assignment, or foreclosure of or upon assets
that are necessary for the performance by Author of its responsibilities under
the Publishing Agreement and this Agreement; and (e) any failure of Author to
cure a breach by Author within the cure period specified in the Publishing
Agreement.
2. Representations and Warranties of Author
2.1 Work Correspond With Source Code. Author represents and warrants to
Publisher that the Source Code deposited with Escrow Agent will at all times be
the source code version of the current release of the Work, as offered to
Publisher from time to time.
2.2 Usability of Source Code. Author represents and warrants that the
Source Code is and shall be understandable and useable by a trained
computer-programming contractor who is generally familiar with hardware and
software systems using the Work. Author further represents and warrants that the
Source Code includes all of the devices, programming, and documentation
necessary for the maintenance of the Work by Publisher upon release of the
Source Code pursuant to this Agreement, except for devices, programming, and
documentation commercially available to Publisher on reasonable terms through
readily known sources other than the Author.
3. Purpose of Agreement; Deposit of Source Code
3.1 Deposit and Custody of Source Code.
3.1.1 The deposit of the Source Code and the license thereof
to Publisher pursuant to Section 8 hereof are intended to provide assurance to
Publisher of access to, and right of use of, the Source Code in the event that
Author fails (or is rendered unable by an Impact Event) to perform as required
by the Publishing Agreement. Escrow Agent shall release copies of the Source
Code deposited in escrow pursuant to this Agreement only in accordance with the
terms of this Agreement. In each instance where Escrow Agent is authorized to
release a copy of the Source Code to Publisher, Escrow Agent may either release
a copy on hand (provided that at all times it shall retain at least one copy of
the Source Code) or make a duplicate copy to be released to Publisher.
3.1.2 Escrow Agent agrees to accept from Author, and Author
agrees to deposit with Escrow Agent, within ten (10) days of the Effective Date
of this Agreement, one (1) copy of the Source Code relating to the current
versions of the Work. For each deposit, Escrow Agent will issue a receipt to
Author, accompanied by a general list or description of the materials so
deposited.
3.1.3 Escrow Agent agrees to accept from Author, and Author
agrees to deposit with Escrow Agent, within ten (10) days after each Update is
made available generally to Publisher, one (1) copy of the Source Code relating
to each such Update. For each deposit, Escrow Agent will issue a receipt to
Author, accompanied by a general list or description of the materials so
deposited. In the event that an Update or series of Updates supersede a prior
version of the Work in their entirety, Escrow Agent shall retain both the Update
and the superseded version.
3.1.4 Escrow Agent shall exercise reasonable care to protect
and safeguard all Source Code delivered pursuant to this Agreement and shall
segregate and label such Source Code according to the date of delivery and any
other identifying information supplied by Author.
3.2 Verification and Testing of Source Code. Publisher may appoint
either (a) an independent firm of certified public accountants of national
reputation (which shall certify for the benefit of Author that it does not, and
does not intend to, conduct business in competition with Author) or (b) an
independent, professional computer-programming consultant mutually agreeable to
Author and such Publisher to inspect, compile, test, and review the Source Code
(subject to appropriate undertakings of confidentiality and restrictions on
subsequent use or disclosure) at any time, and Escrow Agent shall permit such
inspections and testing promptly upon request. Except as otherwise authorized by
Author (which authorization will not be unreasonably withheld), such inspections
and testing shall be conducted at the principal offices of the Escrow Agent. All
costs relating to said verification and testing shall be borne exclusively by
Publisher.
4. Confidentiality. Upon receipt of the Source Code, Publisher shall maintain
the Source Code in strict confidence, shall use and disclose it only as
reasonably appropriate to exercise such Publisher's rights in the Work, and
shall use the same degree of care it provides for its own programs in source
code form to protect the Source Code as restricted, proprietary, and
confidential.
5. Impact Event As Basis for Release of Source Code
5.1 Release. If Author suffers an Impact Event at any time or for any
reason, Publisher may so notify Escrow Agent in writing. Such notice shall be
accompanied by reliable evidence of such occurrence. Upon receipt of such notice
and proof, Escrow Agent shall promptly release and deliver a copy of the Source
Code to all Publisher.
5.2 Intention. In the event that Author or its successors or
representatives rejects or terminates the Publishing Agreement or this Agreement
in breach of the provisions thereof or hereof, including as contemplated under
Section 365 of the Bankruptcy Code, it is acknowledged that this Agreement
contemplates the manner in which Publisher may retain its rights in the Work,
including associated intellectual property rights, if Publisher chooses to do so
in accordance with Section 365(n) of the Bankruptcy Code. This Agreement serves
as a contract supplementary to the Publishing Agreement in such regard. It is
the parties' intent that the rights Publisher shall be entitled to retain shall
be of the scope provided in Section 6 hereof in all items delivered or required
to be delivered under the Publishing Agreement and this Agreement. Further, such
rights shall be subject to no restriction following an election by Author to
reject or terminate the Publishing Agreement or this Agreement, except (a) the
confidentiality provisions contained in Section 4 of this Agreement, (b) the
sublicense terms, if any, required of Publisher under the Publishing Agreement,
and (c) the territorial limitations, if any, contained in the Publishing
Agreement. Such rights shall be exclusive and either renewable or perpetual to
the extent so provided under the Publishing Agreement.
5.3 Trademark Rights. The rights in the Work, including associated
intellectual property rights, that Publisher may elect to retain following a
rejection of the Publishing Agreement or this Agreement under Section 365(n) of
the Bankruptcy Code includes Author's trademarks affixed to the Work. In view of
that fact, the parties hereby agree and acknowledge that in the event Author
makes such a rejection and Publisher elects to retain its rights in the Software
under Section 365(n) of the Bankruptcy Code, Publisher shall be entitled to
continue use of such trademark in connection with the marketing, sublicensing or
distribution of the Work.
6. License of Source Code. In the event that a copy of the Source Code is
authorized hereunder to be delivered out of escrow to Publisher, Publisher,
subject to the royalty obligations set forth in the Publishing Agreement, shall
immediately obtain, without any further action, authorization, or instrument, an
irrevocable, perpetual, license from Author to use, modify, maintain, and update
the Source Code in any manner that may be necessary or appropriate to enable
such Publisher to use and distribute the Work.
7. Escrow Fees. Publisher shall pay to Escrow Agent, annually in advance during
the term hereof, all fees of the Escrow Agent at its prescribed rate.
8. Limitation upon Obligation of Escrow Agent
8.1 Limited Duty of Inquiry. Escrow Agent shall not be required to
inquire into the truth of any statements or representations contained in any
notices, certificates, or other documents required or permitted hereunder, and
it may assume that the signatures on any such documents are genuine, that the
persons signing on behalf of any party thereto are duly authorized to issue such
document, and that all actions necessary to render any such documents binding on
any party thereto have been duly undertaken. Without limiting the foregoing,
Escrow Agent may in its discretion require from Author or Publisher additional
documents which it deems to be necessary or appropriate to aid it in the course
of performing its obligations hereunder.
8.2 Right to Interpleader. Notwithstanding any other provision of this
Agreement, in the event Escrow Agent receives conflicting demands from Author
and Publisher respecting the release of the Source Code to Publisher hereunder,
Escrow Agent may, in its sole discretion, file an interpleader action with
respect thereto in any court of competent jurisdiction and deposit the Source
Code with the clerk of the court or withhold release of the Source Code until
instructed otherwise by court order.
8.3 Release and Indemnification of Escrow Agent. Author and Publisher
do hereby (a) release, and agree to indemnify and hold harmless, Escrow Agent
from and against any and all liability for losses, damages, and expenses
(including attorneys' fees) that may be incurred by it on account of any action
taken by Escrow Agent in good faith pursuant to this Agreement, and (b) agree to
defend and indemnify Escrow Agent from and against any and all claims, demands,
or actions arising out of or resulting from any action taken by Escrow Agent in
good faith pursuant to this Agreement.
9. Term and Termination.
9.1 Term. The term of this Agreement shall commence on the date signed
by all parties (the "Effective Date") and shall continue until this Agreement is
terminated as provided for herein.
9.2 Termination. This Agreement shall terminate:
a. By mutual consent of Author and
Publisher at any time;
b. By Escrow Agent at any time, provided
that Escrow Agent has given Author and Publisher
notice to that effect in writing at least ninety (90)
days before the contemplated date of termination,
whereupon Author shall diligently attempt to identify
an independent successor Escrow Agent, reasonably
acceptable to Publisher, who is agreeable to assuming
all further obligations of Escrow Agent hereunder;
c. Automatically, in the event that
copies of the Source Code are released to
Publisher in accordance with the terms of this
Agreement; or
d. Sixty (60) days after Author issues to
Publisher and Escrow Agent a certificate confirming
that such Publisher is no longer entitled to Support
Services from Author, provided that such termination
shall not occur on such basis if Publisher disputes
such certificate by sending Author and Escrow Agent
notice to that effect in writing within such period.
<PAGE>
9.3 Disposition of Remaining Copies Upon Termination. Upon termination
of this Agreement, following distribution of copies to Publisher to the extent
so required hereunder, all remaining copies of the Source Code shall be
delivered to Author, except that in the event of termination at the instance
solely of the Escrow Agent, such copies shall be delivered to the successor
Escrow Agent.
10. Miscellaneous.
10.1 Complete Statement of Agreement. The parties agree that this
Agreement is the complete and exclusive statement of their agreement with
respect to the subject matter hereof, and supersedes all oral or written
proposals, understandings, representations, warranties, covenants, and
communications between the parties relating hereto. This Agreement is intended
by the parties to constitute an agreement completely independent of any other
agreement between or among any combination of the parties hereto, whether or not
any such other agreement involves the Work, except to the limited extent
necessary to define the Work for purposes of this Agreement. The continuing,
contingent, or future rights or obligations of any party under any other
agreement whatsoever shall not be regarded as necessary or implied consideration
for the execution, validity, or performance of this Agreement.
10.2 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any one or more of the
provisions hereof shall not affect the validity and enforceability of the other
provisions hereof.
10.3 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of delivery if delivered personally to the party to whom
notice is to be given, or on the third (3rd) day after mailing if mailed to the
party to whom notice is given, by first class mail, registered or certified,
postage prepaid, and properly addressed to that party's regular place of
business. Either party may change the address to which notices to such party are
to be addressed by giving the other party hereto written notice of such change
in the manner herein set forth.
10.4 Arbitration. In the event of any dispute concerning or arising out
of this Agreement (other than a dispute arising out of Section 5 which is
provided for in Section 6), such dispute shall be submitted by the parties to
arbitration. Arbitration proceedings may be commenced by either party giving the
other party written notice thereof and proceeding thereafter in accordance with
the rules and procedures of the American Arbitration Association. Any such
arbitration shall take place before a single arbitrator only in San Diego,
California. Any such arbitration shall be governed by and subject to the
applicable laws of the State of California (including the discovery provisions
of the California Civil Code and the California Code of Civil Procedure,
including specifically Section 1283.05 of the California Code of Civil
Procedure), and the then prevailing rules of the American Arbitration
Association. The arbitrator's award in any such arbitration shall be final and
binding, and a judgment upon such award may be enforced by any court of
competent jurisdiction.
10.5 Attorneys' Fees. If either party hereto commences an arbitration
or other action against the other party to enforce any of the terms hereof or
because of the breach by such other party of any of the terms hereof, the
prevailing party shall be entitled, in addition to any other relief granted, to
all actual out-of-pocket costs and expenses incurred by such prevailing party in
connection with such action, including, without limitation, all reasonable
attorneys' fees, and a right to such costs and expenses shall be deemed to have
accrued upon the commencement of such action and shall be enforceable whether or
not such action is prosecuted to judgment.
10.6 No Third-Party Benefits. None of the provisions of this
Agreement shall be for the benefit of, or enforceable by, any third-party
beneficiary.
10.7 Counterparts. This Agreement may be executed in several
counterparts all of which together shall constitute one and the same instrument
with the same force and effect as though each of the parties had executed the
same document.
10.8 Governing Law. This Agreement is made and shall be governed by,
and construed and enforced in accordance with, the internal laws of the State of
California, USA, without regard to the conflict of laws principles thereof, as
the same apply to agreements executed solely by residents of California and
wholly to be performed within California.
10.9 Venue; Submission to Jurisdiction. Each of the parties submits to
the jurisdiction of any state or federal court sitting in San Diego County,
California, in any action or proceeding arising out of or relating to this
Agreement, agrees that all claims in respect of the action or proceeding may be
heard and determined in any such court, and agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other party with respect thereto.
10.10 Authority. Each of the persons executing this Agreement
represents and warrants that it is authorized to execute this Agreement and the
entity on whose behalf they are signing is bound by the terms hereof.
/ / / /
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as set forth below.
MICROMAT CORPORATION
By: __________________________
Title: __________________________
Date: __________________________
ALLEGIANT TECHNOLOGIES, INC.
By: __________________________
Title: __________________________
Date: __________________________
ESCROW AGENT
By: __________________________
Title: __________________________
Date: __________________________
ALLEGIANT TECHNOLOGIES INC.
LOSS PER SHARE
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Shares Days Shares for
Issued Outstanding Calculation
<S> <C> <C> <C>
Issued
December 31, 1993 1 - 1
February 4, 1994 1,999,999 330 1,808,218
March 31, 1994 644,000 275 485,205
May 31, 1994 410,000 214 240,384
December 31, 1994 580,000 1 1,589
------------ ------------
December 31, 1994 3,634,000 2,535,397
=======================================================================================================================
Issued
December 31, 1994 3,634,000 365 3,634,000
May 19, 1995 875,000 226 541,781
May 19, 1995 64,545 226 39,965
July 11, 1995 186,250 173 88,277
September 29, 1995 250,000 94 64,384
November 11, 1995 32,500 47 4,185
------------ ------------
December 31, 1995 5,042,295 4,372,592
=======================================================================================================================
Issued
December 31, 1995 5,042,295 5,042,295
March 7, 1996 250,000 299 204,794
April 26, 1996 815,000 249 555,986
------------ ------------
December 31, 1996 6,107,295* 5,803,075*
========================================================================================================================
*Excludes 2 million escrow shares.
1996 EPS ($2,754,589)/5,803,075 ($0.47)
1995 EPS ($1,057,366)/4,372,592 ($0.24)
1994 EPS ($626,698)/2,535,397 ($0.25)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND THE STATEMENT OF OPERATIONS ATTACHED AS AN EXHIBIT TO THE
COMPANY'S FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 116,610
<SECURITIES> 0
<RECEIVABLES> 69,976<F1>
<ALLOWANCES> (32,892)
<INVENTORY> 200,203
<CURRENT-ASSETS> 402,018
<PP&E> 365,436<F2>
<DEPRECIATION> (165,395)
<TOTAL-ASSETS> 894,358
<CURRENT-LIABILITIES> 1,250,344
<BONDS> 0
0
0
<COMMON> 4,046,165<F3>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 894,358
<SALES> 1,357,965
<TOTAL-REVENUES> 1,357,965
<CGS> 303,715
<TOTAL-COSTS> 303,715
<OTHER-EXPENSES> 3,784,802
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,037<F4>
<INCOME-PRETAX> (2,754,589)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,754,589)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,754,589)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.47)
<FN>
<F1>This is the balance before deducting allowance for doubtful accounts.
<F2>This is the balance before deducting accumulated depreciation.
<F3>This includes amounts paid in excess of par value.
<F4>This is net of interest income of $24,505.
</FN>
</TABLE>
