U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1997
|_| Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
Commission file number 333-07727
Allegiant Technologies Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Washington
(State or Other Jurisdiction of Incorporation or Organization)
98-0138706
(I.R.S. Employer Identification No.)
9740 Scranton Place, Suite 350, San Diego, California, 92121
(Address of Principal Executive Offices)
(619) 587 - 0500, Extension 105
(Issuer's Telephone Number, Including Area Code)
- -----------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No _________
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable Common stock, par value, $0.01
per share, 8,393,007 shares of common stock outstanding as of July 31, 1997
Transitional Small Business Disclosure Format (check one):
Yes __________ No X
<PAGE>
ITEM 1. FINANCIAL STATEMENTS-JUNE 30, 1997
ALLEGIANT TECHNOLOGIES INC.
(Expressed in United States Dollars)
FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
JUNE 30, 1997
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
BALANCE SHEET
(Expressed in United States Dollars)
AS OF JUNE 30
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 921,043 $ 33,388
Accounts receivable, net of allowance for doubtful accounts 125,615 23,366
Other receivable - 2,851
Inventories 79,033 147,827
Prepaid expenses 61,670 31,927
------------- ------------
Total current assets 1,187,361 239,359
Deposits 15,709 -
Property and equipment, net (Note 2) 275,302 80,402
Intangible assets, net (Note 3) 321,889 -
Deferred costs 30,000 -
------------- ------------
Total assets $ 1,830,261 $ 319,761
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 161,961 $ 414,218
Accrued liabilities 35,239 418,406
Deferred revenues 52,516 24,455
Notes payable (Note 4) 35,341 119,704
Current portion of debentures payable (Note 5) - 500,000
------------- ------------
Total current liabilities 285,057 1,476,783
Deferred rent 22,002 -
Debentures payable (Note 5) 492,798 -
------------- -------------
Total liabilities 799,857 1,476,783
------------- ------------
Shareholders' equity:
Capital stock (Note 6)
Authorized
50,000,000 preferred shares, par value $0.01 per share
100,000,000 common shares, par value $0.01 per share
Issued and outstanding
8,393,007 common shares (1996 - 8,107,295) 81,073 83,930
Additional paid-in capital 3,965,092 4,062,235
Accumulated deficit (3,015,761) (5,303,187)
------------- -----------
Total shareholders' equity 1,030,404 (1,157,022)
------------- -----------
Total liabilities and shareholders' equity $ 1,830,261 $ 319,761
============= ===========
</TABLE>
Unaudited - See accompanying notes.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
STATEMENTS OF OPERATIONS
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Three Month Period Ended Six Month Period Ended
June 30, June 30,
1996 1997 1996 1997
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
NET REVENUE $ 439,086 $ 138,845 $ 909,796 $ 454,357
COST OF REVENUE 92,307 62,195 193,210 149,770
-------------- ------------- -------------- -------------
GROSS PROFIT 346,779 76,650 716,586 304,587
-------------- ------------- -------------- -------------
EXPENSES
Sales and marketing 304,123 48,443 955,684 240,435
Research and development 233,142 53,938 483,016 216,024
General and administrative 263,337 166,809 512,128 406,216
Amortization of purchase of intangibles 33,649 31,149 68,548 62,298
Write-off of intangibles - 197,293 - 197,293
Loss on disposal of fixed assets - 21,654 - 21,654
-------------- ------------- -------------- -------------
Total operating expenses 834,251 519,286 2,019,376 1,143,920
-------------- ------------- -------------- -------------
Loss from operations (487,472) (442,636) (1,302,790) (839,333)
Interest income 4,347 166 8,479 166
Interest expense (18,034) (25,367) (37,386) (25,367)
-------------- ------------- -------------- -------------
Net loss $ (501,159) $ (467,837) $ (1,331,697) $ (864,534)
============== ============= ============== =============
Loss per share $ (0.065) $ (0.055) $ (0.173) $ (0.103)
=============== ============== ============== ==============
Shares used in computing per share amounts 7,692,295 8,393,007 7,692,295 8,393,007
============== ============= ============== =============
</TABLE>
Unaudited - See accompanying notes.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Additional Total
Number Paid-in Accumulated Shareholders'
of Shares Par Value Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
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 (1,331,697) (1,331,697)
------------- ------------- ------------- ------------- -----------
Balances at June 30, 1996 8,107,295 81,073 3,965,092 (3,015,761) 1,030,404
Net loss (1,422,852) (1,422,852)
------------- ------------- ------------- ------------- -----------
Balances at December 31, 1996 8,107,295 81,073 3,965,092 (4,438,653) (392,488)
Shares issued - cash 285,712 2,857 97,143 100,000
Net loss (864,534) (864,534)
------------- ------------- ------------- ------------- -----------
Balances at June 30, 1997 8,393,007 $ 83,930 $ 4,062,235 $ (5,303,187) $(1,157,022)
============= ============= ============= ============= ===========
</TABLE>
Unaudited - See accompanying notes.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Three Month Period Ended Six Month Period Ended
June 30, June 30,
1996 1997 1996 1997
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (501,159) $ (467,837) $ (1,331,697) $ (864,534)
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization and depreciation 27,887 56,739 100,669 113,478
Write-off of intangible - 197,293 - 197,293
Loss on disposal of fixed assets - 21,654 - 21,654
Changes in operating assets and liabilities
Accounts and other receivables 32,270 32,784 8,661 10,867
Inventories 18,156 51,540 20,334 52,376
Prepaid expenses and deposits (49,469) 1,168 (3,564) 33,902
Accounts payable and accrued liabilities (219,990) 77,779 (48,739) 127,652
Deferred revenues 803 (2,912) (1,282) (10,108)
-------------- ------------- -------------- -------------
Net cash used for operating activities (691,502) (31,792) (1,255,618) (317,420)
-------------- ------------- -------------- -------------
INVESTING ACTIVITIES
Purchase of property and equipment (776) - (60,045) -
Proceed on sale of property and equipment - 51,475 - 51,475
-------------- ------------- -------------- -------------
Net cash used for investing activities (776) 51,475 (60,045) 51,475
-------------- ------------- -------------- -------------
FINANCING ACTIVITIES
Proceeds from issuance of capital stock 1,630,000 - 1,880,000 100,000
Share offering cost (308,656) - (308,656) -
Proceeds from issuance of notes - - - 100,000
Payments on notes payable (12,717) 9,034 (25,153) -
Deferred costs 107,332 15,000 46,250 15,000
Deferred rent (1,761) (36,502) (4,401) (36,502)
Amortization of debt discount 31,798 4,225 31,798 4,225
-------------- ------------- -------------- -------------
Net cash provided by financing activities 1,445,996 (8,243) 1,619,838 182,723
-------------- ------------- -------------- -------------
Increase (decrease) in cash and cash equivalents 753,718 11,440 304,175 (83,222)
Cash and cash equivalents, beginning of period 167,325 21,948 616,868 116,610
-------------- ------------- -------------- -------------
Cash and cash equivalents, end of period $ 921,043 $ 33,388 $ 921,043 $ 33,388
============== ============= ============== =============
</TABLE>
Unaudited - See accompanying notes.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
JUNE 30, 1997
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, in the United States, 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 June 30, 1997, current liabilities exceed current assets by
$1,237,424 and total liabilities exceed total assets by $1,157,022.
The Company's ability to satisfy projected working capital and capital
expenditure requirements is dependent upon its ability to secure additional
funding through public or private sales of securities. There are no assurances
that the Company will be able to secure the required capital on any terms. As a
result, there exists a substantial risk that the Company will have to
discontinue its operations. The financial statements include an adjustment to
the cost of intangible assets, relating to the Company's acquisition of
SuperCard, but do not include any other 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 assuming
the sale of product in the ordinary course at business.
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.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
JUNE 30, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(cont'd.....)
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. As at June 30, 1997, the Company's ability to continue as a going
concern is uncertain. Product sales have decreased significantly and it is
expected that sales will continue to be adversely affected. After reasonable
investigation and inquiry, management concluded that the future realization of
intangible assets, represented by the purchase of SuperCard, is substantially in
doubt and therefore decided to write-off and change the earnings the unamortized
balance of such costs.
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, 1996 or 1997 because the
impact on the financial statements would not be material.
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.
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.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
JUNE 30, 1997
2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Property and Equipment consists of:
Furniture and fixtures $ 154,240 $ 17,619
Office equipment 17,416 23,723
Computer equipment 193,437 187,473
------------- ------------
365,093 228,815
Accumulated depreciation (89,791) (148,413)
------------- ------------
$ 275,302 $ 80,402
============= ============
</TABLE>
3. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Intangible assets consist of:
Acquisition costs of SuperCard $ 498,000 $ 498,000
Royalty buyout 100,000 100,000
------------- ------------
598,000 598,000
Accumulated amortization (276,111) (400,707)
Write-off - (197,293)
------------- ------------
$ 321,889 $ -
============= ============
</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. The 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. The unamortized balance of such costs have
been written-off and charged to earnings because of the substantial doubt that
exists regarding the realization of such costs through future product sales.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
JUNE 30, 1997
4. NOTES PAYABLE
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Note payable - On February 13, 1997 the Company issued a note payable
(the "Note") in connection with a proposed private placement of debt
securities in the amount of $750,000. The Company was advanced the
sum of $100,000 under the Note. The Note is secured by a general
charge over the assets of the Company and bears interest at the First
National Bank & Trust Company of Chicago prime rate plus 2% per
annum, which is payable quarterly commencing on July 15, 1997.
Amounts advanced under the Note, together with accrued interest, are
due on the earlier of the date on which the Company completes any
offering of equity securities for an amount
of not less than $1,500,000, and February 13, 1999. $ - $ 100,000
Accrued interest - 6,000
On July 15, 1997, the Company failed to make an interest payment as
required under the terms of the Note. As a consequence of this
default, the Note, together with accrued interest, is currently due
and payable upon demand.
Note payable on buyout of royalty on SuperCard sales, payable over two
years in equal monthly installments commencing March 1, 1995
with interest at 9% per annum. 35,341 13,704
------------- ------------
35,341 119,704
Less: current portion (35,341) (119,704)
------------- ------------
Notes payable, net of current portion $ - $ -
============= =============
</TABLE>
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
JUNE 30, 1997
5. DEBENTURES PAYABLE
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
The Company issued debentures in the aggregate amount of $500,000 which
which may be converted into Units of the Issuer at a price $1.96
until December 18, 1997, at the option of the holder. Each Unit
consists of one common share and one share purchase warrant entitling
the holder to purchase an additional common share at $1.96 until
December 18, 1997. The debentures, if not converted into Units, are
due on December 18, 1997.
The debentures are not secured and do not bear interest. $ 500,000 $ 500,000
Less: discount (7,202) -
------------- ---------
492,798 500,000
Less: current portion - (500,000)
------------- ------------
Debentures payable, net of current portion $ 492,798 $ -
============= ============
</TABLE>
6. 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 2,517,902 shares of its common stock as of June 30, 1997.
There are 1,580,402 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)
JUNE 30, 1997
6. CAPITAL STOCK (cont'd.....)
Stock options (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.
During the period, 990,000 options were cancelled as a result of
employee terminations. At June 30, 1997, there are 937,500 options
outstanding at an exercise price of $0.75 per share expiring from
periods ranging from May 24, 2000 to November 26, 2001
As of June 30, 1997, the Company has outstanding share purchase warrants
entitling the holders to purchase a total of 1,012,947 common shares of
the Company as follows:
<TABLE>
<CAPTION>
Number Exercise
of Shares Price Expiry Date
<S> <C> <C>
88,235 $ 1.96 December 18, 1997
150,000 $ 3.62 (Cdn) April 25, 1998
489,000 $ 2.30 April 26, 1998
285,712 $ 0.35 to April 15, 1998
$ 0.40 from April 16, 1998
to April 15, 1999 April 15, 1999
-------------
1,012,947
=============
</TABLE>
7. RELATED PARTY TRANSACTIONS
During the six months ended June 30, 1997, the Company paid or accrued
$30,000 (1996 - $30,000) in management fees to companies controlled by
certain directors of the Company.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
JUNE 30, 1997
8. 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.
Sales by geographical region for the six months ended June 30, 1997 are
as follows:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Japan $ 104,418 $ 24,182
Europe 155,946 75,929
Other 73,433 25,707
------------- ------------
Total export sales 333,797 125,818
United States 575,999 328,539
------------- ------------
Net sales $ 909,796 $ 454,357
============= ============
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
The Company designs, develops and markets multimedia, Internet, and application
development software authoring tools used to create interactive, multimedia
communication, education, entertainment, presentations and information
management applications. Currently, the Company's core product only runs on
computers compatible with the Macintosh operating system.
The Company has incurred substantial start up, development and other expenses in
excess of revenues which has resulted in cumulative net losses to June 30, 1997
of $5,303,187. As at June 30, 1997, the Company had a working capital deficit of
$1,237,424,and total liabilities exceed book value of total assets by
$1,157,022.
The Company's results of operations for the last two quarters have been
adversely affected by three significant factors: (1) the Company was not able to
secure adequate financing to complete new product under development, including a
Windows version of SuperCard, and to maintain effective marketing strategies,
(2) the Company's existing products are sold into a market segment that has, in
the past year, experienced significant sales declines, and (3) sales of
Macintosh computers and related Macintosh software in general have continued to
decline. Management continues to investigate and evaluate various means by which
it can generate incremental revenues at reduced cost, however, it is expected
that sales in the immediate future will continue to be adversely affected.
The Company's ability to continue as a going concern is dependent upon its
ability to secure additional funding through public or private sales of
securities, including equity securities of the Company, the successful and
timely completion of product development on a Windows version of SuperCard,
material creditor concessions and the success of its future operation. As a
result, there exists a substantial risk that the Company will have to
discontinue its operations. The financial statements presented as at June 30,
1997 do not include any adjustments that might result from the outcome of this
uncertainty, except for a write down of intangibles assets, as described below.
The Company has developed and has commenced reorganization plans that, if
successfully implemented, will allow the Company to continue as a going concern.
However, 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. In addition,
even in the event the necessary capital is made available to the Company, there
are no assurances that it can retain or, if necessary, hire key personnel to
implement such plans successfully nor are there any assurances that such plans
will gain the acceptance of the Company's creditors. Negotiations are on going
where necessary and it is expected that the results of management's efforts to
reorganize the Company will be known within ninety days of this report.
<PAGE>
Liquidity and Capital Resources
The Company has sustained substantial operating losses and has used substantial
amounts of working capital in its operations to June 30, 1997. As of June 30,
1997 the Company had cash equivalents of $33,388 and a working capital deficit
of $1,237,424. Total liabilities exceed the book value of total assets by
$1,157,022. The Company's ability to satisfy projected working capital and
capital expenditure requirements is dependent upon its ability to secure
additional funding through public or private sales of securities, including
equity securities of the Company. Presently, there is no credible basis on which
the Company can project future cash flow form 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.
It is management's opinion, after reasonable investigation and inquiry, that the
realizable value of the Company's assets is insufficient to satisfy the claims
of creditors in the event of a liquidation and therefore shareholders would be
virtually certain not to receive any liquidation proceeds on their shares should
the Company be dissolved.
Results of Operation
The following table sets forth, for the periods indicated, certain operating
data as a percentage of net revenue.
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
June 30 June 30
------------------- ---------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues 100% 100% 100% 100%
Cost of revenues 21 45 21 33
---- ---- ----- ----
Gross profit 79 55 79 67
---- ---- ----- ----
Expenses:
Sales and marketing 69 35 105 53
Research and development 53 39 53 48
General and administrative 60 120 56 89
Amortization 8 22 8 14
Write-off of intangibles - 142 - 43
Loss on disposal of fixed assets - 16 - 5
------ ----- ----- -----
Total operating expenses 190 374 222 (252)
--- ---- --- ---
Loss from operations (111) (319) (143) (185)
Net interest income (expense) ( 3) (18) (3) (5)
------ ----- ------ ------
Net loss (114)% (337)% (146)% (190)%
==== ==== ==== ====
</TABLE>
<PAGE>
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
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 68% from $439,086 for the three months ended
June 30, 1996 to $138,845 for the three months ended June 30, 1997. The decrease
is due to the following factors: (1) the Company was not able to secure adequate
financing to complete new product under development, including a Windows version
of SuperCard, and to maintain effective marketing strategies, (2) the Company's
existing products are sold into a market segment that has, in the past year,
experienced significant sales declines, and (3) sales of Macintosh computers and
related Macintosh software in general have continued to decline.
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 $92,307 to $62,195 (as a percentage of net revenues it increased
from 21% to 45%) for the first three months of 1997 as compared to 1996. The
absolute dollar decrease is due to the reduction in sales. The percentage
increase is primarily due to the change in costs associated with other vendor
products that were bundled with SuperCard from time to time and the write down
of obsolete inventory.
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 decreased from $304,123 to $48,443
(as a percentage of net revenues it decreased from 69% to 35%) for the first
three months of 1997 as compared to 1996. The reduction in expenditures is a
direct result of inadequate financial resources. The percentage increase is as a
result of a reduction in sales and fixed salaries attributed to sales and
marketing.
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 decreased from
$233,142 to $53,938 (from 53% of net revenues to 39%) for the first three months
of 1997 as compared to 1996. The decrease in research and development costs is
directly attributable to the decrease in engineering and support level staff.
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 decreased from $263,337 to $166,809
(as a percentage of net revenues it increased from 60% to 120%) for the first
three months of 1997 as compared to 1996. General and administrative expenses
have substantially decreased as a result of steps undertaken by management to
reduce costs.
As at June 30, 1997, the Company's ability to continue as a going concern is
uncertain. Product sales have decreased substantially and it is expected that
sales will continue to be adversely affected. After reasonable investigation and
inquiry, management concluded that the future realization of the costs of
intangible assets through product sales is substantially in doubt and therefore
decided to write-off and charge to earnings, in the current period, the
unamortized balance of such costs.
During the period the Company disposed of certain fixed assets, comprising
furniture and fixtures, in connection with an agreement to sub-lease office
space at no cost, and it adjusted the value of certain other assets that are no
longer in use to an estimate of their realizable value.
<PAGE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
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 50% from $909,796 for the six months ended June
30, 1996 to $454,357 for the six months ended June 30, 1997. The decrease is due
to the following factors: (1) the Company was not able to secure adequate
financing to complete new product under development, including a Windows version
of SuperCard, and to maintain effective marketing strategies, (2) the Company's
existing products are sold into a market segment that has, in the past year,
experienced significant sales declines, and (3) sales of Macintosh computers and
related Macintosh software in general have continued to decline.
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 $193,210 to $149,770 (as a percentage of net revenues it
increased from 21% to 33%) for the first six months of 1997 as compared to 1996.
The absolute dollar decrease is due to the reduction in sales. The percentage
increase is primarily due to the change in costs associated with other vendor
products that were bundled with SuperCard from time to time and the write down
of obsolete inventory.
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 decreased from $955,684 to $240,435
(from 105% of net revenues to 53%) for the first six months of 1997 as compared
to 1996. The reduction in expenditures is a direct result of inadequate
financial resources.
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 decreased from
$483,016 to $216,024 (from 53% of net revenues to 48%) for the first six months
of 1997 as compared to 1996. The decrease in research and development costs is
directly attributable to the decrease in engineering and support level staff.
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 decreased from $512,128 to $406,216
(as a percentage of net revenues it increased from 56% to 89%) for the first six
months of 1997 as compared to 1996. General and administrative expenses have
been substantially as a result of steps undertaken by management to reduce
costs.
As at June 30, 1997, the Company's ability to continue as a going concern is
uncertain. Product sales have decreased substantially and it is expected that
sales will continue to be adversely affected. After reasonable investigation and
inquiry, management concluded that the future realization of the costs of
intangible assets through product sales is substantially in doubt and therefore
decided to write-off and charge to earnings, in the current period, the
unamortized balance of such costs.
During the period the Company disposed of certain fixed assets, comprising
furniture and fixtures, in connection with an agreement to sub-lease office
space at no cost, and it adjusted the value of certain other assets that are no
longer in use to an estimate of their realizable value.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has received notices of legal proceedings that have been commenced
against the Company by several of its creditors for failure to pay amounts due
for the purchase of goods or services. Such amounts are properly recorded in the
Company's accounts as due and payable. In addition, several former employees of
the Company have filed formal complaints with the California Labour Board for
failure to pay amounts due in respect of unpaid salaries, accrued vacation pay
and severance. All such amounts are properly recorded in the Company's accounts
as due and payable.
ITEM 2. CHANGES IN SECURITIES
Item 2 is not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company borrowed the sum of $100,000 pursuant to a secured promissory note
dated February 13, 1997. The terms of the note provided for the payment of
interest quarterly commencing on July 15, 1997. The Company failed to make any
payment of interest on or since July 15, 1997. The note is secured by a
registered lien against all of the assets of the Company. The lender has not, as
at the date hereof, commenced any action against the Company as a result of the
default. The Company has commenced negotiations with the lender to amend the
terms of the note.
There is no assurance that an agreement will be made.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual General Meeting on June 10, 1997 to present the
audited financial statements of the Company for the year ended December 31, 1996
together with the auditors' report thereon, and to vote upon certain matters set
out below. The total number of common shares represented at the meeting by
shareholders in person or by proxy was 5,295,350 which represented approximately
63% of the total number of common shares issued and outstanding.
The following persons, all of whom were nominated by management, were appointed
to the board of directors of the Company to hold office until the Company's next
Annual General Meeting.
NAME OF DIRECTOR VOTES FOR VOTES AGAINST VOTES WITHHELD
Joel Staadecker 5,055,450 234,000 5,900
William McCartney 5,289,450 - 5,900
Leonard Petersen 5,055,450 234,000 5,900
William Appleton 5,245,450 44,000 5,900
Edward Lewis 5,155,450 90,000 44,000
In addition, David Coggeshall was nominated from the floor and received 319,000
votes for and 4,976,350 against and as a consequence was not appointed to the
board of directors.
The following other matters were also voted upon and agreed to by shareholders
at the Meeting.
1. To approve Ernst & Young LLP as auditors for the ensuing year and to
authorize the directors to fix the remuneration to be paid to the auditors.
VOTES FOR 5,293,350 VOTES AGAINST - VOTES WITHHELD 2,000
2. To approve, subject to the approval of the Vancouver Stock Exchange, an
amendment to the Company's existing stock option plan to increase the
maximum number of shares issuable under the plan from 2,187,688 to
2,517,902.[ Insiders abstained from voting]
VOTES FOR 2,202,949 VOTES AGAINST 157,400 VOTES WITHHELD 2,935,000
3. To authorize the directors to carry out a private placement or other
issuance(s) of an amount of shares or units that is equal to or greater
than 20% of the issued share capital of the Company, at such price or
prices and to such persons on such terms as may be determined by the
Directors, subject to the approval of the Vancouver Stock Exchange.
VOTES FOR 5,002,950 VOTES AGAINST 158,400 VOTES WITHHELD 134,000
ITEM 5. OTHER INFORMATION
On July 7, 1997 Edward Lewis resigned from the Board of Directors of the
Company.
On July 15, 1997 the Company received early notice to vacate its premises in San
Diego on or before September 15, 1997 pursuant to the terms of a sub-lease
agreement.
On July 30, 1997 William Appleton resigned from the Board of Directors of the
Company.
ITEM 6. EXIHBITS AND REPORTS ON FORM 8-K
None filed during the period ended June 30, 1997
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
State of California, on August 12, 1997.
ALLEGIANT TECHNOLOGIES INC.
By: /s/ William D. McCartney
William D. McCartney
Chief Financial Officer
