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, 1997
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.)
609 Granville Street, Suite 1500
Vancouver, B.C., Canada V7Y 1G5
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (604) 687-0888
Securities registered under Section 12(b) of the Exchange Act:
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
$585,266.
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 16, 1998 was approximately $175,000.
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
16, 1998 was 26,393,007.
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 on February 4, 1994, and released its first product upgrade in June
1994. Since then the Company released version 2.0, 2.5 and 3.0 of SuperCard and
a two new products called Marionet and Flamethrower. The Company incurred
substantial start up, development and other expenses in excess of revenues,
which resulted in cumulative net losses to December 31, 1997 of $5,037,672. The
Company's revenues were substantially derived from the sale of SuperCard and to
a much lesser extent the sale of Marionet and Flamethrower, all for the
Macintosh platform.
The Company's results of operations for the year ended December 31, 1997 were
adversely impacted by the following factors: (1) the Company was not able to
secure adequate financing to complete new products 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 two years, experienced significant sales declines, and (3) the decline
in sales of Macintosh computers and related Macintosh software in general. As a
consequence of these factors the Company was forced to cease product
development, reduce its full time staff from twenty-six to two, close down its
offices in San Diego, sell the majority of its tangible capital assets and
commence a capital reorganization (refer to Item 6-"Reorganization Plan").
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.
Going Concern
The Company does not have available working capital to market its products
effectively. As a consequence, sales have significantly decreased and it is
expected that sales will continue to be adversely affected. There exists a
substantial risk that the Company will have to discontinue its current business
operations.
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, 1997. As of
December 31, 1997 the Company had cash equivalents of $35,245 and a working
capital deficit of $158,146. Total liabilities exceeded the book value of total
assets by $891,507.
Included in total liabilities of $994,179 as at December 31, 1997 are Share
Subscriptions in the aggregate amount of $750,000, which were settled on January
15, 1998 by issuing equity securities (refer to Item 6-"Reorganization Plan").
The Company's ability to satisfy the balance of its liabilities and meet its
obligations as they become due is dependent upon its ability to secure
additional funding through public or private sales of securities, including
equity securities of the Company. Presently, there is no credible basis on which
the Company can project future cash flow from current operations and there are
no assurances that the Company will be successful in securing additional
funding. As a consequence, there exists a risk that the Company will be forced
to seek protection from its creditors under federal or state bankruptcy
statutes.
It is management's opinion, after reasonable investigation and inquiry, that the
realizable value of the Company's assets upon liquidation is insufficient to
satisfy the claims of creditors.
Legal Proceedings and Defaults
The Company has received notices of judgement liens against the assets of the
Company, in the approximate amount of $15,000, for failure to pay amounts due
for the purchase of goods or services. Such amounts are properly recorded in the
Company's accounts as due and payable.
The Company 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 each quarter 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
commenced any action or proceeding against the Company as a result of the
default. The lender was appointed to the Board of Directors of the Company
effective October 31, 1997.
There exists a risk that such creditors will attempt to seize assets of the
Company to satisfy their respective claims.
New Management; Future Operations
Effective October 31, 1997, the Company appointed new management. Such
management does not have the depth of software industry experience that is
considered necessary to maintain and grow the Company's existing business
operation. As a consequence, it intends to sell the Company's technology assets
and customer franchise, and explore and enter into as yet undetermined new lines
of business, which may be highly speculative ventures and which may not be
profitable.
Item 2. Description of Property.
Item 2 is not applicable
Item 3. Legal Proceedings.
The Company has received notices of judgement liens against the assets of the
Company, in the approximate amount of $15,000, for failure to pay amounts due
for the purchase of goods or services. Such amounts are properly recorded in the
Company's accounts as due and payable.
The Company is not a party to any other 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, 1997.
<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.
Quarter
Ended High Low
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
March 31, 1997 $0.50 $0.28
June 30, 1997 $0.25 $0.12
September 30, 1997 $0.16 $0.06
December 31, 1997 $0.15 $0.03
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 January 1, 1996.
Quarter
Ended High Low
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
March 31, 1997 $0.45 $0.29
June 30, 1997 $0.40 $0.08
September 30, 1997 $0.10 $0.03
December 31, 1997 $0.24 $0.03
On March 16, 1998, 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:
Bid Ask
OTC Bulletin Board $0.03 $0.06
Vancouver Stock Exchange $0.04 $0.07
As of December 31, 1997 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.
Sales of Unregistered Securities
Sales of unregistered securities, by the Company, during the year ended December
31, 1997 are as follows:
<TABLE>
<CAPTION>
Date Securities
Of Issuance Identity Sold Consideration Exemption
<S> <C> <C> <C> <C>
February 13, 1997 Investor Secured Note $100,000 Section 4(2)
(1 person)
April 15, 1997 Investor 28,571 shares of $ 10,000 Regulation S.
(1 person) common stock and
warrants to purchase
28,571 shares of
common stock
April 15, 1997 Investors 257,141 shares of $ 90,000 Section 4(2)
(5 persons) common stock and
warrants to purchase
257,141 shares of
common stock
</TABLE>
Sales of unregistered securities, by the Company, subsequent to the year ended
December 31, 1997 are as follows (refer to Item 6-"Reorganization Plan"):
<TABLE>
<CAPTION>
Date Securities
Of Issuance Identity Sold Consideration Exemption
<S> <C> <C> <C> <C>
January 15, 1998 Investors 5,600,000 shares of $210,000 Section 4(2)
(2 persons) common stock (1)
January 15, 1997 Creditor 1,200,000 shares of $ 45,000
(1 person) common stock Regulation S.
January 15, 1997 Creditors 13,200,000 shares of $495,000 Section 4(2)
Common stock (2)
(1) The Company shall issue warrants to purchase an additional 1,400,000 shares
of common stock of the Company upon the completion a four for one reverse
split (refer to Item 6-"Reorganization Plan")
(2) The Company shall issue warrants to purchase an additional 283,333 shares
of common stock of the Company upon the completion a four for one reverse
split (refer to Item 6-"Reorganization Plan")
</TABLE>
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 and no history of profitability.
As at December 31, 1997 the Company had cumulative net losses of $5,037,672.
During the year then ended the Company was forced to cease product development,
reduce its full time staff from twenty-six to two, close down its offices in San
Diego, sell the majority of its tangible capital assets and commence a capital
reorganization, described below.
See Notes to the Financial Statements for a description of the Company's
significant accounting policies.
<PAGE>
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, 1997. As of
December 31, 1997 the Company had cash equivalents of $35,245 and a working
capital deficit of $158,146. Total liabilities exceeded the book value of total
assets by $891,507.
Included in total liabilities of $994,179 as of December 31, 1997 are Share
Subscriptions of $540,000 and $210,000, which were settled on January 15, 1998
by issuing equity securities as described below (refer to Note 5 to the attached
Financial Statements).
The Company's ability to satisfy the balance of its liabilities and meet its
obligations as they become due is dependent upon its ability to secure
additional funding through public or private sales of securities, including
equity securities of the Company. Presently, there is no credible basis on which
the Company can project future cash flow from current operations and there are
no assurances that the Company will be successful in securing additional
funding. As a consequence, there exists a risk that the Company will be forced
to seek protection from its creditors under federal or state bankruptcy
statutes.
It is management's opinion, after reasonable investigation and inquiry, that the
realizable value of the Company's assets upon liquidation is insufficient to
satisfy the claims of creditors.
Reorganization Plan
In September, 1997 the Company made agreements in principle to facilitate a
reorganization of its capital and to change management and the Company's Board
of Directors as follows:
1. Principals of the Company agreed to surrender for cancellation 2,000,000
escrowed shares of common stock. A total of 650,000 of these shares were
surrendered and cancelled before the end of the year. The balance, being
1,350,000 shares, were cancelled on March 4, 1998.
2. The Company will seek approval for a four for one reverse split of its
common stock and a change of its name at the Company's next meeting of
shareholders. Management intends to vote its shares in favor of these
resolutions. After the reverse split the number of common shares issued and
outstanding will be, subject to any further share issuances, 6,598,252.
3. The Company agreed to issue 3,600,000 shares of common stock (the "Debt
Settlement Shares") at a deemed price of $0.15 per share, post reverse split,
and two year non-transferable warrants to purchase 283,333 shares of common
stock, at $0.15 per share in the first year and at $0.1725 per share in the
second year, in full settlement and satisfaction of debts of the Company
amounting to $540,000. In January, 1998 the Company received Vancouver Stock
Exchange approval to issue the Debt Settlement Shares on a pre reverse split
basis resulting in the issuance of 14,400,000 shares of common stock (refer to
Item 5-"Sales of Unregistered Securities"). The warrants will be issued upon the
completion of the reverse split.
4. The Company arranged for a private placement of 1,400,000 Units at $0.15
per Unit, post reverse split, for aggregate proceeds of $210,000. Each Unit
consists of one share of common stock and one two year non-transferable warrant
to purchase one additional share of common stock at $0.15 per share during the
first year and at $0.1725 per share during the second year. The proceeds of the
private placement were primarily used to fund the settlement of trade debts of
the Company as described below, and for costs of the reorganization. In January,
1998 the Company received Vancouver Stock Exchange approval to issue the shares
relating to the private placement on a pre reverse split basis resulting in the
issuance of 5,600,000 shares of common stock (refer to Item 5-"Sales of
Unregistered Securities"). The warrants will be issued upon the completion of
the reverse split.
5. The Company has paid, in cash, the approximate sum of $168,000 and
delivered title to certain used property and equipment having a deemed value of
approximately $23,000 in full settlement and satisfaction of debts of the
Company in the approximate amount of $ 685,000. This resulted in a gain on
settlement of debts of $494,658.
6. On October 31, 1997 Joel Staadecker and Leonard Petersen resigned from
the Board of Directors of the Company and Joel Staadecker resigned as President
and Chief Executive Officer of the Company. Mr. Steven Rothstein, Chairman of
National Securities Corporation of Chicago Ill., was appointed Chairman and
Chief Executive Officer of the Company.
7. New management does not have the depth of software industry experience
that is considered necessary to maintain and grow the Company's existing
business operation. As a consequence, it intends to sell the Company's
technology assets and customer franchise, and explore and enter into as yet
undetermined new lines of business, which may be highly speculative ventures and
which may not be profitable.
Results of Operations
The following table sets forth, for the periods indicated, certain
operating data as a percentage of net revenue.
<TABLE>
<CAPTION>
1997 1995 1996
<S> <C> <C> <C>
Revenue:
Net product sales 89% 93% 100%
Service fees and royalty income 11 7 -
-------------------------------------------
100 100 100
Net revenue
Cost of revenue 29 22 42
-------------------------------------------
71 78 58
Gross profit
Expenses:
Sales and marketing 47 108 49
Research and development 27 77 39
General and administrative 39 84 100
Amortization of purchased intangibles 6 10 11
-------------------------------------------
119 279 199
-------------------------------------------
Loss from Operations (48) (201) (141)
Other Income (Expense)
Interest income (expense), net 1 (2) (5)
Write-off of intangibles - - (34)
Loss on disposal of property and equipment - - (7)
Gain on settlement of debts - - 86
-------------------------------------------
Net loss (4 7)% (203)% (101)%
=============================================
</TABLE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 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 57% from $1,357,965 for the year ended December
31, 1996 to $585,266 for the year ended December 31, 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 two
years, experienced significant sales declines, and (3) the decline in sales of
Macintosh computers and related Macintosh software in general. It is expected
that sales will continue to be adversely affected.
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
increased as a percentage of net revenues 22% for 1996 to 42% for 1997. This
increase is primarily due to the write down of obsolete inventories in 1997.
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 $1,466,254 for 1996 to
$287,386 (108% of net revenues to 49%) for 1997. The decrease is due to the
cessation of substantially all marketing activities during the year.
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
$1,045,712 for 1996 to $231,260 (77% of net revenues to 39%) for 1997. The
decrease in research and development costs is due to the cessation of product
development activities during the year.
General and administrative expenses consist primarily of the costs of the
Company's finance and administrative personnel, including the chief executive
officer, rent, telephone and utilities and all costs associated with maintaining
a public company in good standing. General and administrative expenses decreased
from $1,141,990 for 1996 to $585,319 (84% of net revenues to 100%) for 1997. The
decrease in general and administrative expenses is attributable primarily to a
reduction in staffing and the closure of the San Diego office. These expenses
increased as a percentage of net revenues because they were relatively fixed in
nature. It is expected that they will decrease substantially during the ensuing
year.
The Company claimed amortization on intangible assets to June 30, 1997 of
$62,298 at which time management concluded that the future realization of the
costs of intangible assets through product sales was doubtful and therefore
charged to deficit $197,293 being the unamortized balance of such costs.
During the year the Company was able to reach agreements and settle certain
trade debts and employee claims for amounts less than their face value. These
agreements resulted in a gain on settlement of debts of $494,658.
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
In 1997 the Company selected Moss Adams LLP as its new auditors. During the
year ended December 31, 1997, 1996 and 1995, there were no disagreements with
Moss Adams LLP or Ernst & Young LLP, the predecessor auditors, on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which if not resolved to the satisfaction of the firm, would
have caused them to make reference to the subject matter of such disagreements
in their reports on such financial statements.
<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.
Name Age Position
Steven A. Rothstein(1).......................... 47 President,
Chief Executive Officer
and Director
William D. McCartney(1)......................... 42 Director
Craig Gould(1).................................. 28 Director
Leonard Petersen ............................... 43 Secretary
- --------------------
(1) Member of the Audit Committee
Mr. Rothstein was appointed President, Chief Executive Officer and a
Director of the Company on October 31, 1997. From June, 1995 to the present, he
has been the Chairman and Chief Executive Officer of National Securities
Corporation and more recently the Chairman and Chief Executive officer of
Olympic Cascades Financial Corporation. Prior to 1995 Mr. Rothsetien worked at
Bear Stearns & Co. and Oppenheimer & Co. He has an A..B. degree from Brown
University.
Mr. Gould was appointed as Director of the Company on October 31, 1997.
From 1995 to the present, he has been a Vice President Corporate Finance of
National Securities Corporation. Prior to 1995, Mr. Gould was a finance
consultant at Merrill, Lynch, Pierce, Fenner and Smith, Inc. He has a B.A.
degree from the University of Wisconsin.
Mr. McCartney has been Director of the Company since January, 1994. He was
Chief Financial Officer and Secretary of the Company from January 1994 to
October 31, 1997. 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. Petersen was appointed Secretary of the Company on October 31, 1997. He
was a Director of the Company from February, 1994 to October 31, 1997. 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.
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, 1996 and 1997 to the Company's chief executive officer. Except as
described below, no director or executive officer received total compensation in
respect of the 1996 or 1997 fiscal year exceeding $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
Year Salary Other(1) Total
<S> <C> <C> <C> <C>
Joel B. Staadecker 1997 $ 47,000 $ 17,100 $ 64,100
President, C.E.O., Director
to October 31, 1997 1996 $ 100,000 $ 22,800 $122,800
Steven A. Rothstein............................. 1997 nil nil nil
President, C.E.O., Director
from November 1 to
December 31, 1997
(1) Housing allowance
</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.
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
No stock options were granted during the year and no options were outstanding as
of December 31, 1997.
<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 15, 1998, 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>
Number of
Shares Percentage of
Beneficially Outstanding
Name of Stockholder Owned Shares(1)
- ------------------- ------------ --------------
<S> <C> <C>
Steven A. Rothstein
Chief Executive Officer, Director
2737 Illinois Road
Chicago, Illinois............................... 2,800,000(2) 10.6%
Craig Gould
Director
1560-875 Michigan Ave.
Chicago Illinois................................ 3,622,220 13.7%
William D. McCartney
Director
1500-609 Granville Street
Vancouver, Canada............................... 1,545,000(3) 5.8%
Leonard Petersen
Secretary
1500-609 Granville Street
Vancouver, Canada............................... 1,545,000(4) 5.8%
Steven Rabinovici
48 Country Drive
Plainview, New York............................. 2,800,000(5) 10.6%
Kelly O'Brien
1540 North Paulina Ave.
Chicago, Illinois............................... 3,622,224 13.7%
Mark Roth
2200-1001 Fourth Ave.
Seattle, Washington............................. 3,622,224 13.7%
Joel B. Staadecker
1-1091 Walkers Hook Road
Salt Spring Island, Canada..................... 1,995,000 7.6%
Geller & Friend Partnership I
650-3333 Michelson Drive
Irvine, California.............................. 1,133,333(6) 4.3%
All directors and executive
officers as group (4 persons)................... 8,267,220 31.3%
(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.
(2) Does not include warrants to purchase the equivalent of an additional
2,800,000 shares of common stock (refer to Item 6-"Reorganization Plan").
(3) Includes 1,200,000 shares held indirectly by a company jointly
controlled by Mr. McCartney and Mr. Petersen (further reference to these same
shares is made in note 4). The balance of shares are held indirectly by
companies controlled by Mr. McCartney.
(4) Includes 1,200,000 shares held indirectly by a company jointly
controlled by Mr. Petersen and Mr. McCartney (further reference to these same
shares is made in note 3). The balance of shares are held indirectly by
companies controlled by Mr. Petersen.
(5) Does not include warrants to purchase the equivalent of an additional
2,800,000 shares of common stock (refer to Item 6-"Reorganization Plan").
(6) Does not include warrants to purchase the equivalent of an additional
1,133,333 shares of common stock (refer to Item 6-"Reorganization Plan").
</TABLE>
Item 12. Certain Relationships and Related Transactions.
Pemcorp Management Inc., a management advisory services company controlled by
Mr. McCartney and Mr. Petersen, was paid $69,000 for services rendered for the
year ended December 31, 1997.
<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, 1996 and 1997
Statements of Operations For the Years Ended December 31, 1995,
1996 and 1997.
Statement of Shareholders' Equity For the Period from December 31, 1994
Through December 31, 1997
Statements of Cash Flows For the Years Ended December 31, 1995,
1996 and 1997.
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.
(c) Reports on Form 8-K.
October 10, 1997
December 5, 1997
January 16, 1998
<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, 1998 By: /s/ Steven A. Rothstein
Steven A. Rothstein
President and Director
(Chief Executive Officer)
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/ Steven A. Rothstein March 31, 1998
Steven A. Rothstein
President and Director
(Chief Executive Officer)
/s/ William D. McCartney March 31, 1998
William D. McCartney
Director
(Principal Financial and Accounting Officer)
/s/ Craig Gould March 31, 1998
Craig Gould
Director
<PAGE>
FINANCIAL STATEMENTS
ALLEGIANT TECHNOLOGIES INC.
Years Ended December 31, 1997, 1996 and 1995
with Report of Independent Auditors'
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Allegiant Technologies, Inc.
We have audited the balance sheet of Allegiant Technologies, Inc. as of December
31, 1997, and the related statements of operations, retained earnings, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The financial statements of
Allegiant Technologies, Inc. as of December 31, 1996 and 1995, were audited by
other auditors whose report dated March 4, 1997 expressed an unqualified opinion
on those statements with an emphasis paragraph expressing substantial doubt
about the Company's ability to continue as a going concern.
We conducted our audit 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 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 from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above present fairly,
in all material respects, the financial position of Allegiant Technologies, Inc.
as of December 31, 1997, and the results of its operations and cash flows for
the year then ended in conformity with generally accepted accounting principles.
<PAGE>
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 deficit of approximately $150,000 at
December 31, 1997. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The 1997 financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classifications of assets or the amounts and classification
of liabilities that may result from the outcome of this uncertainty.
/s/ Moss-Adams LLP
Seattle, Washington
March 12, 1998
<PAGE>
Report of Ernst & Young L.L.P., Independent Auditors
The Board of Directors
Allegiant Technologies, Inc.
We have audited the balance sheet of Allegiant Technologies, Inc. as of
December 31, 1997, 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 responsibililty of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards 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 the 1996 financial statements. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these financial statements referred to above present
fairly, in all material respects, the financial position of Allegiant
Technologies, Inc. at December 31, 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.
<PAGE>
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 1996 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 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 liabilities that may
result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
San Diego, California
March 4, 1998
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
BALANCE SHEETS
(Expressed in United States Dollars)
AS OF DECEMBER 31
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 116,610 $ 35,245
Accounts receivable, net of allowance for doubtful accounts 37,084 12,642
of $32,892 in 1996 and $10,062 in 1997
Inventories 200,203 38,146
Prepaid expenses and other 48,121 -
-----------
Total current assets 402,018 86,033
Property and equipment, net 200,041 16,639
Intangible assets, net 259,591 -
Deposits 17,708 -
Deferred offering costs 15,000 -
------------
$ 894,358 $ 102,672
============ ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Debentures payable $ 495,775 $ -
Notes payable 9,034 165,000
Accounts payable 401,968 62,074
Accrued liabilities 309,004 17,105
Deferred revenues 34,563 -
----------- ----------
Total current liabilities 1,250,344 244,179
Deferred rent 36,502 -
Share subscriptions payable - 750,000
----------- ----------
1,286,846 994,179
----------- ----------
Shareholders' deficit:
Preferred stock, 50,000,000 shares authorized, $0.01 par value,
none issued or outstanding - -
Common stock, 100,000,000 shares authorized, $0.01 par value, 8,107,295 and
7,743,007 issued and outstanding, in 1996 and 1997, respectively 81,073 77,430
Additional paid-in capital 3,965,092 4,068,735
Accumulated deficit (4,438,653) (5,037,672)
------------ -----------
(392,488) (891,507)
----------- -----------
$ 894,358 $ 102,672
============ ===========
</TABLE>
See accompanying notes.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
1995 1996 1997
--------------- ------------ ------------
<S> <C> <C> <C>
NET REVENUE $ 2,227,582 $ 1,357,965 $ 585,266
COST OF REVENUE 646,547 303,715 249,092
---------------- ----------- ------------
GROSS PROFIT 1,581,035 1,054,250 336,174
---------------- ----------- ------------
EXPENSES
Sales and marketing 1,045,383 1,466,254 287,386
Research and development 607,012 1,045,712 231,260
General and administrative 863,535 1,141,990 585,319
Amortization of purchased intangibles 131,263 130,846 62,298
---------------- ---------- ----------
2,647,193 3,784,802 1,166,263
---------------- ---------- ----------
LOSS FROM OPERATIONS (1,066,158) (2,730,552) (830,089)
OTHER INCOME (EXPENSE)
Interest income 14,966 24,505 239
Interest expense (6,174) (48,542) (28,188)
Write-off of intangibles - - (197,293)
Loss on disposal of property and equipment - - (38,346)
Gain on settlement of obligations - - 494,658
---------------- ------------ ----------
NET LOSS $ (1,057,366) $(2,754,589) $ (599,019)
================ =========== ==========
BASIC LOSS PER SHARE $ (0.24) $ (0.47) $ (0.09)
================ =========== ==========
SHARES USED IN COMPUTING PER SHARE AMOUNTS 4,372,592 5,803,075 6,310,816
================ =========== =========
</TABLE>
See accompanying notes.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
STATEMENT OF SHAREHOLDERS' DEFICIT
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Total
Common Stock Additional Accumulated Shareholders'
Shares Amount Paid-in Deficit Deficit
<S> <C> <C> <C> <C> <C> <C>
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)
----------- ------- --------- --------- ---------
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
Shares canceled (650,000) (6,500) 6,500 -
Net loss (599,019) (599,019)
----------- ------- ---------- --------- --------
Balance at December 31, 1997 7,743,007 $ 77,430 $ 4,068,735 $(5,037,672) $(891,507)
=========== ====== ========== ========= =======
</TABLE>
See accompanying notes.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
1995 1996 1997
--------------- ---------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,057,366) $ (2,754,589) $ (599,019)
Adjustments to reconcile net loss to net cash from
operating activities
Amortization and depreciation 168,086 273,346 126,523
Write-off of intangibles - - 197,293
Loss on disposal of property and equipment - - 38,346
Gain on settlement of obligations (494,650)
Changes in operating assets and liabilities
Accounts receivable 63,349 97,192 24,442
Inventories (48,417) (100,836) 162,057
Prepaid expenses and other (44,568) 7,986 80,829
Accounts payable and accrued liabilities 64,222 465,033 (31,327)
Deferred revenues 33,998 (19,235) (34,563)
---------------- --------------- ------------
(820,696) (2,031,103) (530,069)
--------------- --------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (194,268) (60,388) -
Proceeds on sale of property and equipment - - 62,738
---------------- --------------- -------------
(194,268) (60,388) 62,738
--------------- --------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of capital stock, net 891,717 1,632,594 100,000
Proceeds from share subscriptions - - 210,000
Proceeds from issuance of notes payable - - 100,000
Payments on notes payable (39,506) (51,460) (16,534)
Proceeds from debentures payable 500,000 - -
Payment on debentures payable - - (7,500)
Deferred rent 26,403 10,099 -
---------------- -------------- ------------
1,378,614 1,591,233 385,966
---------------- --------------- ------------
Change in cash and cash equivalents 363,650 (500,258) (81,365)
Cash and cash equivalents, beginning of period 253,218 616,868 116,610
---------------- -------------- ------------
Cash and cash equivalents, end of period $ 616,868 $ 116,610 $ 35,245
================ =============== ============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 6,174 $ 48,542 $ 20,188
================ =============== ============
Non-cash investing and financing activities
Note payable issued for royalty buy-out $ 100,000
================
Common stock issued for conversion of note payable $ 250,000
================
Common stock issued for corporate finance fee $ 64,545
================
Share subscription issued for settlement of debentures $ 450,000
============
Note payable issued for settlement of debentures $ 42,500
============
</TABLE>
See accompanying notes.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 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 included developing, marketing and
supporting interactive multimedia development software.
Management Plans on Continued Existence
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 and used substantial amounts
of working capital in its operations in recent years. As of December 31, 1997,
current liabilities exceed current assets by $158,146, and total liabilities
exceed total assets by $891,507.
In view of these circumstances, the Company discontinued product
development, closed its offices in California, resigned the majority of its
staff and sold off unused property and equipment. In addition, management
concluded that the future realization of the costs of intangible assets through
product sales is doubtful and therefore charged to deficit the unamortized
balance of such costs. It is management's intent to discontinue its principal
line of business, liquidate remaining assets and settle remaining obligations.
After completing this process the Company will remain dormant until additional
financing and new operations are determined.
The Company's ability to continue as a going concern is dependent upon,
among other things, its ability to secure additional funding which is not
assured. 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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on deposit and highly liquid
investments with original maturities of three months or less.
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.
Property and Equipment
Property and equipment 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)
DECEMBER 31, 1997
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. The unamortized balance of $197,293 was charged to expense during
1997.
Advertising Costs
Advertising costs are expensed as incurred. Included in sales and marketing
expense are advertising costs of $376,860, $447,115 and $55,924 in 1995, 1996
and 1997, 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.
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.
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. Under APB 25,
because the exercise price of the Company's employee stock options equals, or is
greater than, the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1997
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Share
During 1997 the Company adopted Statement of Financial Accounting Standard
(SFAS) No. 128. "Earnings Per Share". Under SFAS No. 128 basic earnings per
share (EPS) of common stock is calculated based upon the weighted average number
of common stock outstanding. The computation of diluted EPS is similar to the
computation of basic EPS except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued. As the Company recorded losses
in 1995, 1996 and 1997 there were no dilutive potential common shares. Adoption
of SFAS No. 128 did not result in a difference from loss per share, previously
stated in 1995 and 1996.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Nos. 130
and 131. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components. SFAS No. 131 establishes
standards for reporting about operating segments, products and services,
geographic areas, and major customers. The standards become effective
for fiscal years beginning after December 15, 1997. Management plans to
adopt these standards in the year ending December 31, 1998. Management
believes that provisions of SFAS Nos. 130 and 131 will not have a
material effect on its financial condition or reported results of
operation.
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
Property and equipment at December 31 consists of:
<TABLE>
<CAPTION>
1996 1997
-------------- ---------------
<S> <C> <C>
Furniture and fixtures $ 154,240 $ 6,639
Office equipment 23,723 15,998
Computer equipment 187,473 37,035
--------------- ----------------
365,436 59,672
Accumulated depreciation (165,395) (43,033)
-------------- ----------------
$ 200,041 $ 16,639
=============== ================
</TABLE>
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1997
3. INTANGIBLE ASSETS
Intangible assets at December 31 consist of:
<TABLE>
<CAPTION>
1996 1997
--------------- ----------------
<S> <C> <C>
Acquisition costs $ 498,000 $ 498,000
Royalty buyout 100,000 100,000
--------------- ----------------
598,000 598,000
Accumulated amortization (338,409) (400,707)
Write-off of unamortized balance - (197,293)
--------------- ----------------
$ 259,591 $ -
=============== ================
</TABLE>
Acquisition costs include goodwill, product technology and related
acquisition costs.
4. NOTES PAYABLE
<TABLE>
<CAPTION>
1996 1997
--------------- ----------------
<S> <C> <C>
Note payable - On February 13, 1997 the Company issued a note payable (the $ - $ 100,000
"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 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, or February 13, 1999. 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, due November 4, 1998. The note is unsecured, non-interest - 42,500
bearing and convertible into common shares of the Company at the option of
the holder at any time after October 30, 1998 and before November 4, 1998 at
a deemed price per share equal to the average closing price of the Company's
shares on the Vancouver Stock Exchange for the ten days immediately
proceeding November 4, 1998.
Notes payable in increments of $3,000 per month. The note is unsecured and - 22,500
non-interest bearing.
Note payable paid in 1997. 9,034 -
--------------- ----------------
$ 9,034 $ 165,000
=============== ================
</TABLE>
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1997
5. SUBSCRIPTIONS PAYABLE
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
<S> <C> <C>
On October 15, 1997, the Company received proceeds from a private placement $ - $ 210,000
of 1,400,000 Units. These Units are to be issued at $0.15 each after giving
effect to four for one reverse split of the Company's common stock. Each Unit
consists of one share of common stock and one two year non-transferrable
warrant to purchase on additional share of common stock at $0.15 per share
during the first year and at $0.1725 per share during the second year, on a post
reverse split basis. The proceeds of the private placement are accounted for as
a non-interest bearing loan until the Units are issued. These subscription
proceeds are repayable if the reverse split is not effected and the Units are not
issued by June 30, 1998.
The Company agreed to issue, after giving effect to a four for one reverse split $ - $ 540,000
--------------- ---------------
of the Company's common stock, 3,600,000 shares of common stock at a
deemed price of $0.15 per share post reverse split, and two year non-
transferable warrants to purchase an additional 283,333 shares of common
stock, at $0.15 per share in the first year and at $0.1725 per share in the second
year, in full settlement and satisfaction of certain debts of the Company. These
debts are due and payable if the reverse split is not effected and the Units are
not issued by June 30, 1998.
$ - $ 750,000
=============== ===============
</TABLE>
Subsequent to December 31, 1997, the Company sought and received
approval from the Vancouver Stock Exchange to issue shares of common
stock on a pre-reverse split basis in connection with the private
placement and the settlement of debts, as described above. On January
18, 1998, the Company issued 20,000,000 shares (the equivalent of
5,000,000 shares on a post reverse split basis as described above) of
common stock in partial settlement of subscriptions payable. The
warrants, described above, will be issued upon the completion of the
reverse split.
6. INCOME TAXES
Significant components of the Company's deferred tax assets as of
December 31, 1997 and 1996, 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>
1996 1997
-------------- ----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,666,000 $ 1,935,000
Research and development credits 157,000 157,000
Other - net 66,000 30,000
--------------- ----------------
Total deferred tax assets 1,889,000 2,122,000
Valuation allowance for deferred tax assets (1,889,000) (2,122,000)
--------------- ---------------
$ - $ -
=============== ===============
</TABLE>
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1997
6. INCOME TAXES (Continued)
At December 31, 1997, the Company has federal and California tax net
operating loss carryforwards of approximately $4.9 million and $4.4 million,
respectively. The Company also has federal and California research credit
carryforwards of approximately $114,000 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.
7. CAPITAL STOCK
Performance shares
Included in issued and outstanding common shares at December 31, 1996 and
1997 are 2,000,000 and 1,350,000 performance shares, respectively, which would
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. In March 1998, the holders of
these shares surrendered them for cancellation without consideration. These
shares are not included in the determination of loss per share.
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 stock options to purchase up to 2,517,902 shares of its common stock as
of December 31, 1997.
A summary of the Company's stock option activity, and related information
for the years ended December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,530,000 $ 1.14 1,927,500 $ 0.75
Granted 2,087,500 0.93 - -
Canceled (1,690,000) 1.20 (1,927,500) 0.75
--------------- ------------- ------------- -----------
Outstanding at end of year 1,927,500 0.75 - -
Exercisable at end of year 1,203,541 0.75 - -
Weighted-average fair value of
options granted during the year 0.94 -
</TABLE>
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1997
7. CAPITAL STOCK (Continued)
Pro forma information regarding net loss is required to be disclosed in
accordance with SFAS No. 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 1996; risk
free interest rate of 5% to 6%, dividend yield of 0%, and a
weighted-average life of the options of 5 years.
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>
1996 1997
-------------- ---------------
<S> <C> <C>
Pro forma net loss $ 2,823,194 $ 589,995
Pro forma loss per share $ 0.55 $ 0.09
</TABLE>
Warrants
In 1997, the Company sold, pursuant to a private placement, 285,712 Units at
$0.35 per Unit. Each Unit consisted of one common share and one warrant
entitling the holder to purchase one additional common share at $0.35 per share
until April 15, 1998 and at $0.40 per share thereafter until April 15, 1999.
As of December 31, 1997, the Company has outstanding warrants entitling the
holders to purchase a total of 924,712 common shares of the Company as follows:
<TABLE>
<CAPTION>
Number
of Exercise
Shares Price Expiration Date
<S> <C> <C>
150,000 Cdn$ 3.62 April 26, 1998
489,000 2.30 April 26, 1998
285,712 0.35 to April 15, 1998 April 15, 1999
0.40 to April 15, 1999
924,712
</TABLE>
8. RELATED PARTY TRANSACTIONS
During 1995, 1996 and 1997, the Company paid or accrued, $30,000,
$60,000 and $69,000, respectively, in management fees to companies
controlled by certain directors and officers of the Company.
Included in Notes Payable and accrued liabilities is the aggregate
amount of $118,500, including accrued interest of $8,000, owing to
directors of the Company or to companies controlled by directors and
officers of the Company.
Included in Subscription Payable at December 31, 1997 is the aggregate
amount of $285,833 owing to directors of the Company or to companies
controlled by directors and officers of the Company.
<PAGE>
ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1997
9. 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>
1995 1996 1997
------------- --------------- --------------
<S> <C> <C> <C>
Sales by geographical region
Japan $ 260,506 $ 139,960 $ 27,350
Europe 246,231 223,799 93,378
Other 131,856 99,966 36,604
---------------- --------------- ---------------
Total export sales 638,593 463,725 157,332
United States 1,588,989 894,240 427,934
---------------- --------------- ---------------
Net sales $ 2,227,582 $ 1,357,965 $ 585,266
================ =============== ===============
</TABLE>
Exhibit 11
ALLEGIANT TECHNOLOGIES INC.
LOSS PER SHARE
DECEMBER 31, 1997
Shares Days Shares for
Issued (1) Outstanding Calculation
3,634,000 365 3,634,000
939,545 May 19, 1995 581,746
226
186,250 July 11, 1995 88,277
173
250,000 September 29, 1995 64,385
94
32,500 November 11, 1995 4,184
- ----------- ------------
47
5,042,295 December 31, 1995 4,372,592
- ----------- ------------
5,042,295 365 5,042,295
250,000 March 7, 1996 204,794
299
815,000 April 26, 1996 555,986
- ---------- ------------
249
6,107,295 December 31, 1996 5,803,075
- --------- ------------
6,107,295 365 6,107,295
285,712 April 15, 1997 203,521
- ---------- -------------
260
6,393,007 December 31, 1997 6,310,816
- --------- -------------
(1) Excludes escrow shares (1997-1,350,000; 1996 and 1995-2,000,000).
1997 EPS
($599,019)/6,310,816 ($0.09)
1996 EPS
($2,754,589)/5,803,075 ($0.47)
1995 EPS
($1,057,366)/4,372,592 ($0.24)
<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, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 35,245
<SECURITIES> 0
<RECEIVABLES> 22,704<F1>
<ALLOWANCES> (10,062)
<INVENTORY> 38,146
<CURRENT-ASSETS> 86,033
<PP&E> 59,672<F2>
<DEPRECIATION> (43,033)
<TOTAL-ASSETS> 102,672
<CURRENT-LIABILITIES> 244,179
<BONDS> 0
0
0
<COMMON> 4,146,165<F3>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 102,672
<SALES> 585,266
<TOTAL-REVENUES> 585,266
<CGS> 249,092
<TOTAL-COSTS> 249,092
<OTHER-EXPENSES> 1,166,263
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,949<F4>
<INCOME-PRETAX> (858,038)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 259,109<F5>
<CHANGES> 0
<NET-INCOME> (599,019)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
<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 $239.
<F5>This includes loss on the sale of PP&E of $38,346; write-off of intangibles of
$197,293 and gain on settlement of obligations of $494,658.
</FN>
</TABLE>
