SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

[ X ]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1996

                                       OR

[   ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                   For the transition period from ________ to ________

                        Commission File Number 333-07727

                           ALLEGIANT TECHNOLOGIES INC.
                 (Name of Small Business Issuer in Its Charter)

        Washington                                      98-0138706
(State or Other Jurisdiction of                     (I.R.S. Employer
 Incorporation or Organization)                      Identification  No.)

  9740 Scranton Place, Suite 300
     San Diego, California                                 92121
(Address of Principal Executive Offices)                 (Zip Code)

         Issuer's Telephone Number, Including Area Code: (619) 587-0500

Securities registered under Section 12(b) of the Exchange Act:  None

                                                      Name of Each Exchange on
 Title of Each Class                                       Which Registered

       None                                                     None

Securities  registered  under  Section  12(g)  of the Exchange Act:  None

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes X No

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB.[X]

Allegiant  Technologies  Inc.'s  revenues  for the most recent  fiscal year were
$1,357,965.

The  aggregate  market  value  of the  voting  stock of the  Registrant  held by
non-affiliates  of the  Registrant,  based upon the closing  price of the Common
Stock on the OTC Bulletin Board on March 17, 1997 was $1,850,000.

Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding  Common Stock have been excluded in that such
persons may be deemed to be affiliates.  This  determination of affiliate status
is not necessarily a conclusive determination for other purposes.

The number of shares  outstanding of the registrant's  Common Stock, as of March
17, 1997 was 8,107,295.

                       DOCUMENTS INCORPORATED BY REFERENCE

Document of the Registrant                     Form 10-KSB Reference Location
       None.                                               N/A

<PAGE>


                                     PART I


Item 1.  Description of Business.

General

The Company has a limited history of operations. It was incorporated on December
28, 1993,  acquired SuperCard together with its customer  franchise,  from Aldus
Corporation  ("Aldus")  on  February 4, 1994,  and  released  its first  product
upgrade in June 1994.  Since then the Company has released  version 2.0, 2.5 and
3.0 of SuperCard  and a new product  called  Marionet,  The Company has incurred
substantial start up, development and other expenses in excess of revenues which
has resulted in  cumulative  net losses to December 31, 1996 of  $4,438,653.
The Company's  revenues  to date have been  substantially  derived  from the
sale of SuperCard  and to a much  lesser  extent  the  sale of  Marionet,  both
for the Macintosh platform.

Allegiant Technologies Inc. designs, develops and markets multimedia,  Internet,
and application development software authoring tools used to create interactive,
multimedia communication, education, entertainment, presentation and information
management applications ("Multimedia  Applications").  The Company's proprietary
technology,  "SuperCard,"  comprises a set of sophisticated  software  authoring
tools which enable  professional  Multimedia  Application  developers to combine
text,  images,  graphics,  video,  animation,  and sound into a wide  variety of
application  software.  The primary applications for SuperCard include corporate
training  and  performance  support,  entertainment,  multimedia  presentations,
education,   interactive   information  kiosks  and  data  base  front-ends  for
information  systems  applications.  The  Company's  products  are  designed for
relative  ease  of  use  and  are  based  on a  high-level  scripting  language,
"SuperTalk,"  which does not require  knowledge  of an  independent  programming
language.  Currently,  SuperCard  runs  only on  computers  compatible  with the
Macintosh  operating  system.  The  Company is  currently  developing  a Windows
version of SuperCard, which it intends to ship it in 1997.

The Company's  strategy is to expand the availability  and  accessibility of its
SuperCard  core  technology by  developing  software  products  which (i) create
multiple  platform  software  applications  which can run in both  Macintosh and
Windows-based  operating  environments;  (ii) enable the  creation,  deployment,
access and  management of Multimedia  Applications  on the Web, and (iii) expand
the user base for the Company's products by enabling non-professional developers
and home  users to  create  custom  Multimedia  Applications.  The  Company  has
recently  announced  its  strategy  for  authoring  and  delivering   Multimedia
Applications  on the Internet  and the Web,  which  initially  consists of three
products  Marionet,  Roadster and Xenon.  These  products are designed to run on
multiple  platforms  and  operating  systems.  Marionet  allows  Multimedia  and
Internet  Application  developers to create completely custom  applications that
access and manage information across the Internet.  Roadster, designed to run as
a plug-in  application to Web browsers,  such as Netscape's  Navigator,  enables
SuperCard Multimedia  Applications to run interactively across the Web. In order
to establish  the  Company's  products as the standard  for the  development  of
Multimedia  Applications  on the  Web,  the  Company  intends  to make  Roadster
available free of charge to users. Xenon is intended as a Multimedia Application
development  tool for the  Internet  based on  SuperCard  technology  which will
permit businesses and organizations to build interactive Multimedia Applications
for Web sites. The Macintosh  version of Marionet began shipping in January 1996
and a  version  which  runs on the  Windows  operating  system  was  shipped  in
December, 1996.

Products

    SuperCard

The  Company's  proprietary   technology,   "SuperCard,"   comprises  a  set  of
sophisticated  software  authoring  tools which enable  professional  Multimedia
Application developers to combine text, images, graphics,  video, animation, and
sound into a wide variety of application  software.  Version 2.5 was released on
August 8, 1995 and was  chosen by  MacUser  Magazine  as the  winner of its 1995
Editor's  Choice  Award for Best New  Multimedia  Authoring  Application  and by
Macworld  Magazine as a World Class Award finalist which honors the "Best of the
Best" Mac  products.  Version 3.0 was  released in  December,  1996.  Currently,
SuperCard runs only on computers compatible with the Macintosh operating system.

The  SuperCard  "technology"  consists  of a  development  environment  known as
SuperEdit,  a run-time  editor  known as  SuperCard,  a debugging  tool known as
ScriptTracer  and a  scripting  language  known as  SuperTalk,  all of which are
packaged and sold under the trade name "SuperCard." A SuperCard user needs to be
familiar  with the Macintosh  interface and have a basic  knowledge of Macintosh
graphics   applications  that  perform   bitmapped   editing   ("painting")  and
vector-editing  ("drawing").  SuperCard  is  based  on  a  high-level  scripting
language  which  does  not  require  knowledge  of  an  independent  programming
language.  SuperCard offers a rich,  object-based visual development environment
coupled  with  "SuperTalk,"  the most  complete  implementation  of the industry
standard,  fourth-generation  programming  language commonly known as HyperTalk.
SuperCard's  SuperTalk  supports  the  widest  range of  operating  system-level
messages,  which means that developers can script more  sophisticated  levels of
interactivity in their work. This combination of features enables  developers to
easily and quickly create Multimedia Applications that in many cases couldn't be
executed in  competing  authoring  tools and which would take more time and more
expensive engineering talent to execute in a conventional programming language.

One of the  most  common  uses  for  SuperCard  is the  building  of  Multimedia
Applications  or "titles" such as computer  games or CD-ROMs which use more than
one media  source  (i.e.  graphics  and  sound)  to  deliver  content  to users.
Applications  that are created,  tested and modified with SuperCard are designed
to function as stand-alone  multimedia "titles" that do not require SuperCard to
run.

Another  common use of SuperCard is the  building of  computer-based  management
information systems for the delivery of information  throughout an organization.
SuperCard  allows the user to organize  and present data  including  pictures or
full  motion  video,   graphical   illustrations,   sound  and  text  within  an
easy-to-access environment.

SuperCard-based  applications have won the 1994 MacUser Magazine Editor's Choice
Award for best new multimedia  software  (Digital Chisel) and several of the top
awards for the most  innovative  Multimedia  Applications  in 1993 (presented by
NewMedia Magazine),  including the grand prize winner, the "Animated  Dissection
of Anatomy for Medicine" (A.D.A.M.) from ADAM Software.

SuperCard  has been used by Boeing  Company to  develop  the  prototype  for its
computer-based training of pilots and mechanics for its 777 aircraft, by Harvard
and Yale  University  Medical  Schools  to  develop  training  applications,  by
Mercedes-Benz  to  develop  performance   support   applications  which  deliver
schematics  to the point of  manufacture  and by Toyota to develop  presentation
applications,  including an  interactive  marketing  presentation  of the Toyota
Tercel.

Based upon sales by the Company,  the Company estimates that there are more than
7,000 active  developer/users.  As of December 31, 1996,  total unit sales since
the introduction of SuperCard in 1989 were approximately 60,000.


    Marionet

On January 9, 1996, the Company  introduced its new Macintosh Internet scripting
kit, Marionet version 1.0 at the Macworld Exposition in San Francisco.  Marionet
is a  software  solution  that  allows  Internet  developers  to  create  custom
applications that access and manage information across the Internet. Designed to
work in conjunction with popular authoring tools such as SuperCard, Macromedia's
Director  and  AppleScript  aware  productivity  applications,   Marionet  is  a
complete,  script-level interface to the Internet that runs transparently in the
background as a "faceless"  background  task. A convenient  Control Panel allows
users to set common  preferences.  Responding to simple,  English-like  commands
from authoring tools that utilize an External Command (XCMD) interface,  such as
the Company's  SuperCard,  Apple  HyperCard  and  Macromedia  Director,  or from
productivity  applications that support attachable AppleScripts,  such as Claris
FileMaker Pro, Microsoft Excel and UserLand  Frontier,  Marionet offers complete
control over standard Internet protocols and also includes a dramatic new custom
peer-to-peer  protocol  called  "Chat".  Marionet uses Apple's Thread Manager to
full advantage for asynchronous operation and can also function synchronously.

Management  believes that the applications  for Marionet run from  sophisticated
Web  page  authoring  and  maintenance   tools  to  personal  or   collaborative
applications. Management believes that Marionet will enable (i) CD-ROM titles to
be  integrated  into  dynamic  Internet  access  and  retrieval,  (ii)  software
companies  to  provide  automatic  software  updates or build  automatic  e-mail
support  as  an  integral  part  of  their   applications,   (iii)   educational
institutions  to build  Internet  browsers  that only offer  access to  selected
Internet  sites  (e.g.  the  university   system),   (iv)  trainers  to  deliver
"distance-learning"  applications that are easily and automatically updated from
a central web site and (v) individuals to create multi-player games, collaborate
with family members or develop tools to automatically gather information.

Marionet 1.1. An enhanced, multiple platform version of Marionet was released in
December,  1996. This release is the first version of Marionet for Windows-based
and Macintosh-based  personal computers, and is designed to deliver enhancements
over the current  version of Marionet on the Macintosh.  Marionet  includes more
complete support for the currently  supported  Internet  protocols,  support for
additional protocols for a broader range of host authoring tools.

Product Development Plans

The product release dates and anticipated shipping schedules of the products set
forth below are based on the Company's current schedule. In the normal course of
its  business,  the  Company  may  decide  to  re-order  its  priorities  and to
accelerate  development  of one product.  Due to  limitations  on the  Company's
resources,  such a re-ordering of product  priorities may cause the  development
and shipment of other products to be delayed.


    Roadster

Roadster is a multiple  platform  plug-in to Web  browsers,  such as  Netscape's
Navigator, that is designed to play SuperCard-based content distributed over the
Web.  Roadster is designed to enable Macintosh and  Windows-based Web developers
to incorporate  dynamic,  media-rich  SuperCard content directly into a Web page
and give  anyone on the  Internet  access to  content  developed  in  SuperCard.
Roadster is derived from SuperCard  software  technology and will support all of
the SuperTalk  language that is appropriate in the Internet  environment.  It is
designed to bridge the Web application  development and multimedia worlds,  just
as SuperCard appeals to those same audiences in the desktop market.  The version
of Roadster  was  released in the fourth  quarter of 1996.  Roadster has several
inherent  advantages over more complex solutions for delivering  multimedia over
the Internet, including:

          Roadster  is  an  integrated  environment  that  supports  significant
     application   functionality   and  numerous  media   formats.   With  these
     capabilities,  it is  possible  to build rich  multimedia  experiences  for
     playback entirely within the single Roadster plug-in. While some individual
     features of Roadster  may be matched by a  single-purpose  plug-in,  to the
     Company's knowledge,  no other plug-ins available today offer this level of
     integration and ease of development.  Approximating this functionality with
     existing  tools  would  require a complex  combination  of HTML  scripting,
     utilization of several other plug-ins and programming.

          Roadster is a distributed environment.  A key strength of SuperCard is
     its ability to employ and play back  external  media within an  application
     shell.   This  strength  enables  Roadster  to  meet  the  requirements  of
     delivering  meaningful   interactive   multimedia  experiences  within  the
     bandwidth  limitations of the Internet.  For instance, a Roadster developer
     can create a simple shell  application  that can be downloaded  quickly and
     provide a fast response to the user.  Additional  data elements can then be
     streamed to the user and cached  locally to play back within the shell.  In
     the worst case the data will  arrive as fast as it would in a  conventional
     HTML  environment;  in many cases the developer can anticipate and sequence
     data  downloading so that the user never has to experience  wait times.  In
     this way the end user can have a positive  experience  with the data almost
     immediately,  bandwidth can be maximized by continuously  downloading  data
     and the  developer  can exercise  great  control  over the user  experience
     across a wide range of bandwidths.

          Roadster is extensible.  While the underlying  SuperCard technology is
     extensible on the Macintosh and Windows,  that  capability has been excised
     from  Roadster as a security  measure.  An  extensible  version of Roadster
     which will permit a software  developer to add  capabilities to Roadster is
     scheduled to be available  during 1997.  In addition,  a future  version of
     Roadster will include support for Sun Microsystem's  programming  language,
     Java.

          Roadster is accessible.  The underlying  SuperTalk scripting engine is
     based on HyperTalk the industry  standard for  fourth-generation  scripting
     languages.   Out  of  the  box,  Roadster's   scripting  language  will  be
     understandable to literally millions of content and applications developers
     on  both  platforms  who  have  used  SuperCard,  HyperCard,  Director  and
     Toolbook.

          Roadster will be available free of charge on the Internet.

The Company  believes  that its future  success will depend in large part on its
ability to enhance  its  existing  products  and to develop  and  introduce  new
products on a timely  basis.  New products or  enhancements  must keep pace with
competitive  offerings,  adapt to new delivery  platforms and emerging  industry
standards and provide additional functionality.  If the Company were unable, due
to  resource  constraints  or  technological  or other  reasons,  to develop and
introduce such products in a timely manner, this inability would have a material
adverse effect on the Company's results of operations. The Company currently has
a number of new product  development efforts under way. Any delay in the release
of  scheduled  product  offerings  could have a material  adverse  impact on the
Company's results of operations.

Sales, Marketing and Distribution

The Company generates brand awareness and demand for its products through public
relations  activities,   advertising,   product  reviews,   competitive  upgrade
offerings, and national and local trade shows. The Company also uses direct mail
and support  services to introduce and educate  customers about new products and
enhancements, and to cross-sell additional products to current customers such as
new products  resulting  from the Company's  development  efforts or third-party
products that the Company licenses or co-markets.  In addition, the Company uses
multimedia  to  sell   multimedia  by  distributing  a  variety  of  interactive
demonstration  materials  directly to  prospects.  The  Company has  initiated a
direct mail-order  campaign with registered users to introduce versions 1.7, 2.0
and 2.5 of  SuperCard  and version 1.0 of Marionet and will do the same with new
product enhancements and service offerings. The Company allows trial versions of
its products to be  downloaded  from its  Internet  home page on the Web so that
prospective  purchasers may try the Company's  products for specific  periods of
time before purchase is required.

The Company  distributes its products  through multiple  distribution  channels,
including  traditional  software   distributors,   international   distributors,
value-added-resellers,  educational market  distributors,  hardware and software
vendors and for certain large customers,  direct sales and licenses. The Company
has entered into a non-exclusive  cooperative agreement with MacWarehouse and PC
Connection and is pursuing other traditional channels.

SuperCard  is  generally  sold as part of a  "studio,"  which  includes  a video
editor,  animation package, sound editor, texture package and a morphing special
effects package.  These additional  products are sold under a license  agreement
with the  owners.  The Company  pays a total  royalty of  approximately  $45 per
"studio."  Certain of these vendors bundle SuperCard with their products and pay
the Company a royalty.

The Company  grants its  distributors  limited  rights  under a stock  balancing
policy to return unsold inventories of the Company's products in exchange for an
equal  amount  of  new  purchases.  In  addition,  the  Company  provides  price
protection  to  its  distributors.  The  Company  extends  credit  terms  to its
resellers  of 30 days net from the date of invoice (the date of  shipment),  but
may,  under  certain  circumstances,  grant  terms of up to 60 days net,  at the
discretion of the Company.

Although  the Company  intends to focus its sales and  marketing  efforts in the
United States,  it has entered into software license,  foreign  localization and
distribution agreements with distributors in Japan, United Kingdom India, Italy,
Australia,  Canada,  France,  Sweden  and  Israel,  where  English  versions  of
SuperCard had already gained market  acceptance.  In November and December 1995,
the Company  released a Kanji and French  version of  SuperCard  for sale in the
Japanese and French markets,  respectively,  which historically have been strong
Macintosh markets.

Competition

The markets in which the Company's  products are sold are highly competitive and
are  characterized  by pressure to reduce prices,  incorporate  new features and
accelerate the release of new product versions. A number of companies, including
Apple, Asymetrix, Macromedia, Microsoft, Oracle and Sun Microsystems,  currently
offer  products or have  products in the  planning  stages that  compete or will
compete  directly or  indirectly  with  products and  scheduled  products of the
Company.  These competitors have significantly  greater  financial,  management,
technical and marketing resources than the Company.

The principal  aspects of competition in the multimedia  authoring  tools market
are  diverse  and  thus  allow  for  potentially   successful   niche  marketing
strategies. These principal aspects include product features and quality, price,
ease  of use,  brand  name  recognition,  reliability  and  quality  of  support
services.  Management of the Company believes that it can compete favorably with
respect to each of these factors.

Although  there are  products  that  provide  script-level  access  to  Internet
protocols  through a specific  interface  (such as Visual Basic  Extensions,  or
VBXs), or that provide pre-built  graphical user interface ("GUI") access to the
Internet through a multiple platform object model, (such as OpenDoc),  there are
currently,  to the Company's knowledge,  no other products that provide a common
scripting  interface to Internet  protocols for popular  authoring tools on both
MacOS and  Windows  platforms.  The Company  anticipates  that as the use of the
Internet increases  competitors will develop products that compete directly with
Marionet.  This market is  characterized  by strong  competition and significant
price pressure. Moreover, there is a reasonable expectation that system software
vendors,  including  Microsoft  and  Apple,  will  incorporate  some  degree  of
Marionet's current  functionality into their respective operating systems in the
foreseeable future.

Manufacture and Shipping

The production of SuperCard and Marionet for sale includes diskette duplication,
component assembly,  printing of user manuals and final packaging,  all of which
are  performed  by  specialty  contractors  in  accordance  with  the  Company's
specifications and forecasts.  There are a number of alternate sources for these
services that could be implemented  without delay or any material adverse effect
on the Company's business or results of operation.

Customer Service and Technical Support

The Company's Customer Service and Technical Support Program offers three levels
of technical  support during normal  business hours intended to build and foster
the skills  necessary to become  proficient with the SuperCard and Marionet tool
set. Level I basic Technical Support assistance is provided at no charge.

Level II Scripting  Support  provides  assistance with high-level  scripting and
script  debugging.  There is a $35 per incident charge or $299 annual charge for
this service.

The Company's Level III Developer Support provides professional  developers with
significant  external  command  development  tools (external  commands  "extend"
SuperCard's built-in capabilities), a private account for use with the Company's
on-line  servers,  pre-release  versions of software in development and priority
service.  There is a $495 annual charge for this service.  As of March 31, 1998,
the Level III program has approximately 225 members.

Proprietary Protection

The  Company's  success  and  ability to compete is  dependent  in part upon its
proprietary technology.  While the Company relies on trademark, trade secret and
copyright law to protect its technology,  the Company believes that factors such
as  the  technological  and  creative  skills  of  its  personnel,  new  product
developments,  frequent  product  enhancements,  name  recognition  and reliable
product  maintenance  are more  essential  to  establishing  and  maintaining  a
technology  leadership position.  The Company presently has no patents or patent
applications  pending.  There can be no  assurance  that others will not develop
technologies  that are  similar or  superior to the  Company's  technology.  The
source code for the Company's  proprietary software is protected both as a trade
secret  and  as  a  copyrighted   work.  The  Company   generally   enters  into
confidentiality  or  license  agreements  with its  employees,  consultants  and
vendors,  and generally  controls  access to and  distribution  of its software,
documentation and other proprietary information.  Despite these precautions,  it
may be  possible  for a third  party  to copy or  otherwise  obtain  and use the
Company's  products or technology without  authorization,  or to develop similar
technology  independently.  In addition,  effective  copyright  and trade secret
protection may be unavailable or limited in certain foreign  countries,  and the
global  nature of the  Internet  makes it  virtually  impossible  to control the
ultimate  destination of the Company's  products.  To license its products,  the
Company  primarily  relies on "shrink wrap"  licenses that are not signed by the
end-user.  However,  the  enforceability  of shrink  wrap  licenses  is not well
established.  Despite the Company's  efforts to protect its proprietary  rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information  that the Company  regards as  proprietary.  Policing
unauthorized  use  of the  Company's  products  is  difficult.  There  can be no
assurance that the steps taken by the Company will prevent  misappropriation  of
its  technology  or that  such  agreements  will be  enforceable.  In  addition,
litigation may be necessary in the future to enforce the Company's  intellectual
property  rights,  to protect the  Company's  trade  secrets,  to determine  the
validity and scope of the  proprietary  rights of others,  or to defend  against
claims  of  infringement  or  invalidity.   Such  litigation   could  result  in
substantial  costs and diversion of resources and could have a material  adverse
effect on the Company's business, operating results or financial condition.

Unisys has announced its intention to require a license agreement for the use of
compression  technology associated with the Graphics Interchange Format ("GIF").
Unisys asserts that this popular file format is based on compression  technology
patented by Unisys. The Company's products have the ability to decompress files,
including  files stored in GIF.  Although the Company has not received notice of
Unisys'  intention to enforce or license such patent,  the Company believes that
certain of its competitors  may have received such notice.  The Company does not
believe that its products use a technology which violates  Unisys'  patents.  If
Unisys were to assert a claim  against the Company,  the Company  believes  that
alternative  technologies are available for use in the Company's  products which
could be utilized without requiring significant modification or expense.

Although the Company does not believe that its products infringe the proprietary
rights of any third  parties,  there can be no assurance  that  infringement  or
invalidity  claims (or claims for  indemnification  resulting from  infringement
claims) will not be asserted or prosecuted  against the Company or that any such
assertions or prosecutions  will not materially  adversely  affect the Company's
business,  financial  condition or results of  operations.  Irrespective  of the
validity or the  successful  assertion of such claims,  the Company  could incur
significant costs and diversion of resources with respect to the defense thereof
which could have a material adverse effect on the Company's business,  financial
condition  or results of  operations.  If any  claims or  actions  are  asserted
against the  Company,  the  Company  may seek to obtain a license  under a third
party's intellectual  property rights. There can be no assurance,  however, that
under such circumstances, a license would be available on reasonable terms or at
all.

The Company  also  relies on certain  technology  which it  licenses  from third
parties,  including  software  which is  integrated  with  internally  developed
software and used in the Company's products to perform key functions.  There can
be no assurance that these third party  technology  licenses will continue to be
available  to the  Company  on  commercially  reasonable  terms.  The loss of or
inability to maintain any of these technology licenses could result in delays or
reductions in product shipments until equivalent technology could be identified,
licensed and  integrated.  Any such delays or  reductions  in product  shipments
could materially adversely affect the Company's business,  operating results and
financial condition.

Employees

At December 31, 1996, the Company employed 26 full-time persons, including 11 in
marketing,  sales and  customer  service and  technical  support,  12 in product
development,   product   engineering   and   content   development   and   3  in
administration.  The  Company  also  employs  a small  number of  temporary  and
contract  employees.  None of the Company's  employees is represented by a labor
union.  The Company is not a party to any  collective  bargaining  agreement  or
other similar agreement.  The Company has no work stoppages to date. The Company
believes that its relationship with its employees is good.

If the  Company's  growth  continues  and if the  Company  is able to fund  such
growth, it is expected that additional employees will be required,  primarily in
engineering,  sales and customer service and technical support. No assurance can
be given  that the  Company  will be able to  locate  and hire  people  with the
requisite  experience  and  skills,  or that the  Company  will have  sufficient
working  capital  to hire all of the  additional  employees  it could  optimally
utilize facilities.

                               RISK FACTORS

This report contains  forward-looking  statements.  Actual results of operations
may vary from such  forward-looking  statements  for reasons which include those
set forth below.

Limited Operating History; Historical Operating Losses; Variability of Results

The Company is subject to risks associated with early stage companies, including
start-up  losses,  uncertainty  of  revenues,  profitability  and the  need  for
additional  funding.  The Company  has a limited  history of  operations  and no
history  of  profitability.  The  Company  has  incurred  cumulative  losses  of
$4,438,653 from the date of  incorporation  on December 28, 1993 to December 31,
1996.  There can be no  assurance  that  product  sales will either  continue at
historical  rates  or  increase,   that  the  Company  will  achieve  profitable
operations,  or that new products  introduced by the Company will achieve market
acceptance.  The Company's results of operations vary significantly depending on
the timing of product  introductions  and  enhancements  by the  Company and its
competitors,  changes in pricing,  execution of technology  licensing agreements
and the volume  and timing of orders  received  during  the  quarter,  which are
difficult to forecast.  Customers generally order on an as-needed basis, and the
Company  normally  ships  products  within one week  after  receipt of an order.
Accordingly,  the Company has  historically  operated  with minimal  backlog.  A
significant  portion of the Company's  expenses are relatively fixed and planned
expenditures  are based on sales  forecasts.  As a result of the  foregoing  and
other  factors,  the Company  anticipates  that it may  experience  material and
adverse  fluctuations  in results of  operations on a quarterly or annual basis.
Therefore,  the  Company  believes  that  period  to period  comparisons  of its
revenues and results of operations are not necessarily  meaningful and that such
comparisons  cannot be relied  upon as  indicators  of future  performance.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

Future Capital Needs and Uncertainty of Additional Funding

The Company has expended, and will continue to expend in the future, substantial
funds to complete the research  development,  manufacturing and marketing of its
products.  Based on its current staffing level and product development schedule,
the Company  anticipates  that it will not have  sufficient  working  capital to
satisfy its capital and operating  requirements  through 1997 unless  additional
capital is  obtained.  This  estimate is based upon the  assumptions  that sales
remain at present levels and that the number of personnel remains unchanged. The
Company  anticipates  that it will seek  additional  funding  through  public or
private sales of its securities,  including equity  securities.  Adequate funds,
whether through  financial  markets or collaborative or other  arrangements with
corporate  partners or from other sources may not be available when needed or on
terms acceptable to the Company.  Therefore,  there can be no assurance that the
Company will have sufficient  working  capital to satisfy the Company's  capital
needs beyond April 1997. See "Management's  Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

Emerging Multimedia and Internet

The market for  multimedia  and  Internet  authoring  tools is  emerging  and is
dependent  on the demand for  Multimedia  Applications,  which is  difficult  to
predict with any assurance.  The demand for Multimedia and Internet Applications
is  dependent  on a  number  of  variables,  including  the  installed  base  of
multimedia-capable  personal computers, the number of computer users with access
to the Internet and the Web, the  widespread  availability  of digital media and
the number of  professional  application  developers  capable of  creating  high
quality  applications  that achieve market  acceptance.  To date, the demand for
multimedia  authoring  tools has been  limited to a  relatively  small number of
professional application developers of Multimedia Applications. Unless and until
the installed base of  multimedia-capable  personal  computers and the number of
titles with wide market  acceptance  increase the market  demand for  Multimedia
Applications, the demand for multimedia authoring tools will be limited. Even if
there is an  increase  in demand  for  Multimedia  Applications,  the demand for
multimedia  authoring tools is not expected to increase at the same rate.  There
can be no assurance  that the market for  Multimedia  Applications  or authoring
tools will  develop at the rate  contemplated  by the Company or that the demand
for  multimedia  authoring  tools will grow at a rate  sufficient to support the
Company's business plan.

Product and Platform Concentration

Substantially  all of the revenues of the Company from its inception to date are
from the sale or license of  SuperCard.  The Company  expects  that its revenues
will continue to be dependent upon SuperCard and that  competition for SuperCard
will intensify in the future.  A decline in the sales of SuperCard,  as a result
of  competition,  technological  change or other factors,  would have a material
adverse effect on the Company's results of operations.  Currently,  SuperCard is
only fully functional on the Macintosh  computer.  Although the Company plans to
release a version of SuperCard for the Windows  operating  system,  a decline in
the sales rate of a multimedia-capable Macintosh computers could have a material
adverse  effect on the  Company's  results  of  operations.  Until  the  Company
releases a version of SuperCard for the Windows operating system,  the future of
SuperCard and its economic  viability will be tied to the perception of software
developers  regarding the utility of developing software for Macintosh and other
Apple computers. In 1995, Apple announced restructuring plans to place increased
emphasis on customer needs and to expand its presence in the home, education and
business  markets.  In  addition,  Apple  announced  that it would  license  its
operating  system to third party  vendors in an attempt to expand the  installed
base of  Macintosh-compatible  computers.  As  reported  by Apple in its  public
filings  with  the  Securities  and  Exchange  Commission,  unit  sales  for the
MacIntosh  computer  declined 16% in the third  quarter of 1996  compared to the
same period in the prior year. At the end of the third quarter of 1996,  Apple's
share of the U.S. and worldwide  personal  computer markets had declined to 5.3%
and 7.4%, respectively,  from 7.4% and 10.6%,  respectively,  at the end of same
period in the prior year.  SuperCard  3.0 is designed to deliver a new interface
with  support for plug-in  tools,  "smart"  objects,  drag-and-drop  editing and
automated  scripting  for  simple  to  moderately   difficult  tasks,   enhanced
extensibility  to allow  SuperCard  developers  greater  flexibility  in  adding
functionality  they  require,  and a common  file  format on both  platforms  to
facilitate delivery on both platforms.

Rapid Technological Change

The emerging  multimedia and Internet markets and the personal computer industry
in general are characterized by rapidly changing technology,  resulting in short
product  life cycles and rapid price  declines.  The Company  must  continuously
update its  existing and planned  products to keep them  current  with  changing
technologies and must develop new products to take advantage of new technologies
that could render the Company's existing products obsolete. The Company's future
prospects are highly  dependent on its ability to increase the  functionality of
its  products in a timely  manner and to develop new  products  that address new
technologies and achieve market  acceptance.  There can be no assurance that the
Company  will be  successful  in these  efforts.  If the Company  were unable to
develop  and  introduce  such  products  in a  timely  manner,  due to  resource
constraints  or  technological  or other reasons,  this  inability  could have a
material adverse effect on the Company's  results of operations.  In particular,
the introduction of new products,  such as the Company's  planned  Windows-based
version of  SuperCard,  and its Roadster and Xenon  products,  is subject to the
inherent  risk of  development  delays.  The  Company  has  experienced  product
development  delays in the past,  and such  delays may occur in the  future.  In
addition,  due to the  uncertainties  associated  with  the  Company's  emerging
market,  there can be no  assurance  that the  Company  will be able to forecast
product  demand  accurately  or  to  respond  in a  timely  manner  to  changing
technologies and customer requirements.

Competition

The market for the Company's products is highly competitive and is characterized
by pressures to reduce  prices,  incorporate  new  features and  accelerate  the
release of new product versions.  A number of companies currently offer products
that compete directly or indirectly with one or more of the Company's  products.
Certain of the Company's competitors or potential competitors have significantly
greater  financial,  management,  technical  and  marketing  resources  than the
Company.   In  the  event  that  price  competition   significantly   increases,
competitive  pressures  could  cause the  Company  to reduce  the  prices of its
products,  which would adversely affect the Company's  results of operations.  A
variety of other  potential  actions  by the  Company's  competitors,  including
increased  promotion and accelerated  introduction of new or enhanced  products,
could have a material  adverse  effect on the Company's  results of  operations.
There can be no assurance that the Company will be able to compete  successfully
in the future. In addition,  the Company's  products compete to a certain extent
with  multimedia  authoring tools developed and used internally by developers of
Multimedia Applications. The Company's growth will depend in part on its ability
to persuade such potential  customers to replace or augment their in-house tools
with the Company's products.  There can be no assurance that the Company will be
able to do so.

Reliance on Third Party Resellers

A substantial majority of the Company's revenues is derived from the sale of its
products  through third  parties.  Accordingly,  the Company is dependent on the
continued viability and financial  stability of these resellers.  The Company is
particularly  dependent on the resellers who generally offer products of several
different companies,  including in some cases products that are competitive with
the Company's  products.  There can be no assurance that the Company's resellers
will continue to purchase the  Company's  products or provide them with adequate
levels of support. The loss of, or a significant  reduction in sale volume to, a
number of the Company's  resellers  could have a material  adverse effect on the
Company's results of operations.

The Company  grants its  distributors  limited  rights  under a stock  balancing
policy to return unsold inventories of the Company's products in exchange for an
equal amount of new purchases.  The Company expects that the rate of new product
introductions by the Company and other  participants in the multimedia  software
tools market segment will increase, which could lead to an increased return rate
of the Company's  products.  Although the Company  provides  allowances  that it
believes  are  adequate,  and have been  adequate  in the past,  there can be no
assurance that product returns will not exceed such allowances in the future. In
addition,  the Company provides price protection to its  distributors.  Although
the  Company  accrues for such price  protection  in its  allowance  for product
returns,  and such  accruals  have been  adequate in the past, a decrease in the
price of the  Company's  products  could have a material  adverse  effect on the
Company's results of operations.

Dependence on Key Personnel

The Company has a small core management and development  team and the unexpected
loss of any of these  individuals  would have a material  adverse  effect on the
Company's business and results of operations.  Each of the key executives of the
Company,  including  Mr.  Staadecker  (President,  Chief  Executive  Officer and
Director)  and Mr.  Henigson  (Vice  President,  Marketing),  has an  employment
contract with the Company which contains a non-competition covenant in the event
of  voluntary  termination.  The  enforceability  and scope of these  employment
agreements  are subject to judicial  interpretation  and  therefore,  may not be
enforceable as written.  At present,  there is no key-man insurance in place for
any members of the Company.

Limited Protection of Proprietary Technology

The Company  regards its  software  technology  as  proprietary  and attempts to
protect it under  copyright,  trademark and trade secret laws as well as through
contractual  restrictions on disclosure,  copying and distribution.  The Company
distributes  individual  copies of its  software  under a  "shrinkwrap"  license
agreement  containing  these  restrictions  and generally does not obtain signed
license agreements from its end users. Although the enforceability of shrinkwrap
licenses is not well established,  the Company is not aware of any third parties
who are making unauthorized use of the Company's proprietary technology.  It may
be possible for unauthorized  third parties to copy the Company's products or to
reverse  engineer  or obtain and use  information  that the  Company  regards as
proprietary.  There can be no assurance that the Company's  competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's  technologies.  In addition,  the laws of certain  countries in
which the  Company's  products  are or may be  distributed  do not  protect  the
Company's products and intellectual rights to the same extent as the laws of the
United  States.   As  the  number  of  software   products   increases  and  the
functionality  of these products  further  overlaps,  the Company  believes that
software  will  increasingly  become the  subject of claims  that such  software
infringes the rights of others. For example,  Unisys Corporation has a patent on
certain  technology  which is widely used in connection with reading and writing
the Graphics  Interchange  Format ("GIF") files. The Company's products have the
ability to  decompress  files  stored in GIF and may  therefore be subject to an
infringement  claim from Unisys. To date no third party,  including Unisys,  has
filed an infringement  claim against the Company and there have been no explicit
threats of litigation  asserting  that the  Company's  products  infringe  their
intellectual  property  rights.  If Unisys  were to assert a claim  against  the
Company,  the Company believes that  alternative  technologies are available for
use  in the  Company's  products  which  could  be  utilized  without  requiring
significant  modification  or  expense.  There can be no  assurance  that  third
parties will not assert infringement claims against the Company in the future or
that any such  assertion  will not result in costly  litigation  or require  the
Company to obtain a license to intellectual property rights of third parties. If
the  Company  were  required  to so obtain  any such  licenses,  there can be no
assurance that such licenses will be available on reasonable terms, or at all.

Item 2.  Description of Property.

The Company's  headquarters  are located at 9740 Scranton Place,  Suite 300, San
Diego,  California  92121 where the Company leases  approximately  10,500 square
feet of office space. The lease expires on October 6, 1998.

Item 3.  Legal Proceedings.

The Company is not a party to any material pending legal proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders.

There have been no matters  submitted to a vote of security  holders  during the
quarter ended December 31, 1996.





<PAGE>


                                     PART II


Item 5.  Market for Common Equity and Related Stockholder Matters.

Market for Common Equity

The Company's Common Stock is traded on the OTC Bulletin Board, under the symbol
"ALGT",  and has been so traded since February 1, 1996. It is also traded on the
Vancouver  Stock  Exchange,  under the trading symbol  "AGH.U",  and has been so
traded since May 24, 1995.

The  following  table  sets  forth  the high  and low  prices  per  share of the
Company's  Common Stock on the OTC Bulletin Board for all fiscal  quarters since
the stock was first traded on the OTC Bulletin  Board in February,  1996.  These
quotations reflect  inter-dealer  prices,  without retail mark-up,  mark-down or
commission and may not represent actual transactions.

<TABLE>
<CAPTION>
                         Quarter
                          Ended                           High              Low
                  <S>                                     <C>              <C>

                  March 31, 1996                          $3.63            $2.00
                  June 30, 1996                           $3.25            $0.87
                  September 30, 1996                      $1.75            $0.75
                  December 31, 1996                       $0.94            $0.25

</TABLE>

The  following  table  sets  forth  the high  and low  prices  per  share of the
Company's  Common Stock on the Vancouver  Stock Exchange for all fiscal quarters
since the stock was first traded on the Vancouver Stock Exchange in May, 1995.

<TABLE>
<CAPTION>
                         Quarter
                         Ended                           High              Low
                   <S>                                     <C>              <C>

                  June 30, 1995                           $1.28            $1.00
                  September 30, 1995                      $2.00            $0.90
                  December 31, 1995                       $2.90            $1.55

                  March 31, 1996                          $3.50            $2.00
                  June 30, 1996                           $2.95            $1.00
                  September 30, 1996                      $2.00            $0.71
                  December 31, 1996                       $0.88            $0.25

</TABLE>

On March 17, 1997,  the last  reported bid and ask prices of the Common Stock on
the OTC Bulletin Board and on the Vancouver Stock Exchange were as follows:

<TABLE>
<CAPTION>
                                                  Bid               Ask
<S>                                             <C>               <C>
OTC Bulletin Board                              $0.31             $0.50
Vancouver Stock Exchange                        $0.31             $0.36

</TABLE>

As at  December  31, 1996 there were  approximately  50 holders of record of the
Company's Common Stock.

Dividends

The Company has not paid any dividends on its Common Stock since its  inception.
The payment of future  cash  dividends  will depend on such  factors as earnings
levels, anticipated capital requirements,  the operating and financial condition
of the  Company and other  factors  deemed  relevant by the Board of  Directors.
Currently,  the Company is  prohibited  from paying any  dividends on its common
stock pursuant to the terms of outstanding debentures.

Sales of Unregistered Securities

Sales of unregistered securities, by the Company, during the year ended December
31, 1996 are as follows:

<TABLE>
<CAPTION>
   Date                                     Securities
Of  Issuance               Identity           Sold                      Consideration             Exemption
<S>                        <C>              <C>                           <C>                    <C>

March 7, 1996              Investor         250,000 shares of             $  250,000             Regulation S.
                           (1 person)       common stock on
                                            exercise of warrants

April 26, 1996             Investors        815,000 shares of             $1,630,000             Section 4(6)
                           (18 persons)     common stock and
                                            warrants to purchase
                                            489,000 shares of
                                            common stock

April 26, 1996             Consultant       warrants to purchase             services           Section 4(2)
                           (1 person)       150,000 shares of
                                            common stock
</TABLE>

All of the  securities  issued on April 26, 1996,  together  with certain  other
unregistered  securities  issued  in  1995,  were  registered  for  resale  by a
registration  statement  on  Form  SB-2  which  was  declared  effective  by the
Securities and Exchange Commission on September 20, 1996.


Item 6.  Management's Discussion and Analysis and Plan of Operations.


This  section  contains  forward-looking   statements  regarding  the  Company's
business and financial condition.  No assurance can be given that actual results
of operations  will not differ  materially from the  forward-looking  statements
contained herein. See "Business-Risk Factors."


Overview

The Company has a limited history of operations. It was incorporated on December
28, 1993,  acquired SuperCard together with its customer  franchise,  from Aldus
Corporation  ("Aldus")  on  February 4, 1994,  and  released  its first  product
upgrade in June 1994. The Company has incurred substantial start up, development
and other  expenses in excess of revenues  which has resulted in cumulative  net
losses to December 31, 1996 of $4,438,653  The  Company's  revenues to date have
been  substantially  derived  from the sale of  SuperCard  and to a much  lesser
extent the sale of Marionet,  both for the Macintosh  platform.  There can be no
assurance  that  product  sales will  either  continue  at  historical  rates or
increase or that the Company's  products under  development  will achieve market
acceptance.

The Company  expects that its  revenues in the ensuing year will  continue to be
dependent upon  SuperCard and that  competition  for SuperCard  will  intensify.
Total net  revenues  for 1996  decreased by $869,617 or 39% from 1995. A further
decline in the sales of  SuperCard,  as a result of  competition,  technological
change or other factors,  would have a material  adverse effect on the Company's
results of  operation.  Currently,  SuperCard  is only fully  functional  on the
Macintosh computer. Although the Company plans to release a version of SuperCard
for the  Windows  operating  system,  a further  decline  in the sales rate of a
multimedia-capable  Macintosh  computers could have a material adverse effect on
the Company's  results of  operations.  Until the Company  releases a version of
SuperCard  for the Windows  operating  system,  the future of SuperCard  and its
economic  viability  will be  tied  to the  perception  of  software  developers
regarding  the utility of  developing  software  for  Macintosh  and other Apple
computers.

The results of  operation  for the current year were  significantly  impacted by
three factors: (1) the Company was unable to secure adequate financing to expand
product development and marketing efforts, (2) the Company was unable to deliver
a version of SuperCard  for the Windows  operating  system in 1996,  and (3) the
decline in the sales of Macintosh computers.  The Company's failure to deliver a
Windows  product  was  the  result  of  inadequate   financial  and  engineering
resources.

On January 17, 1997,  the Company  announced  that it had entered into an agency
agreement  whereby  the  placement  agent  would use its best  efforts to secure
additional  capital for the Company in the amount of $750,000 by way of a bridge
loan which is to be repaid out of proceeds  from the  subsequent  sale of equity
securities.  As of March 31,  1997,  the Company had only  received  $100,000 in
proceeds from the bridge loan. Though Management  believes that the Company will
secure  the  additional  capital  necessary  for the  Company  to  continue  its
operation as a going concern,  there are no assurances  that the Company will be
able to secure the required  capital on terms favorable to the Company or on any
terms and as a result there exists a substantial risk that the Company will have
to reorganize or discontinue its operations in the future.

See  Notes  to the  Financial  Statements  for a  description  of the  Company's
significant accounting policies.



<PAGE>


Results of Operations

     The  following  table  sets  forth,  for  the  periods  indicated,  certain

operating data as a percentage of net revenue.
<TABLE>
<CAPTION>
                                                                                    1994            1995           1996
                                                                             -------------------------------------------
                                                                                     <S>             <C>           <C>

     Revenue:

        Net product sales                                                             99%             89%            93%
        Service fees and royalty income                                                1              11              7
                                                                            -------------------------------------------
                                                                                     100             100            100
     Net revenue
     Cost of revenue                                                                  21              29             22
                                                                            -------------------------------------------
                                                                                      79              71             78
     Gross profit

     Expenses:
        Sales and marketing                                                           54              47            108
        Research and development                                                      35              27             77
        General and administrative                                                    56              39             84
        Amortization of purchased intangibles                                         11               6             10
                                                                            -------------------------------------------

     Total operating expenses                                                        156             119            279
                                                                            -------------------------------------------

     Loss from operations                                                            (77)            (48)          (201)

     Interest income (expense), net                                                    0               1             (2)
                                                                            --------------------------------------------

     Net loss                                                                        (77)%           (47)%         (203)%
                                                                            =============================================


</TABLE>

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Net revenue includes revenues from sales of software products and services, less
reserves for  anticipated  product  returns and future vendor support  services.
Total net revenues  decreased by 39% from $2,227,582 for the year ended December
31, 1995 to $1,357,965 for the year ended December 31, 1996. The decrease is due
to the  following  factors:  (1) the  Company's  failure to deliver a version of
SuperCard for the Windows  operating  system and the announced  changes at Apple
Computer adversely affected purchasing  decisions because the Company's products
are currently  dependent on the Macintosh  operating  platform,  (2) net product
sales during 1995 were from the sale of SuperCard version 2.0 and 2.5 which were
at the  beginning  of a  product  upgrade  cycles  whereas  sales  for 1996 were
substantially  from the sale of version  2.5 which was at the end of its product
upgrade  cycle ( SuperCard  version  3.0 was not  released  until  mid-December,
1996), and (3) revenues for 1995 include a non recurring  non-refundable advance
royalty of $100,000.

Cost of revenue includes the cost of manuals,  diskettes and their  duplication,
packaging materials,  assembly,  paper goods, bundled products,  and shipping as
well as  royalties  and  reserves for  inventory  obsolescence.  Cost of revenue
decreased  from  $646,547 to $303,715  (29% of net  revenues to 22%) for 1996 as
compared  to  1995.  The  decrease  is  primarily  due to the  change  in  costs
associated with other vendor products that were bundled with SuperCard from time
to time.

Sales and marketing expenses include the costs of advertising,  promotion, trade
shows and printed  collateral  materials,  salaries and the costs of  contracted
services.   Total  sales  and  marketing  costs  increased  from  $1,045,383  to
$1,466,254  (47% of net  revenues  to 108%) for 1996 as  compared  to 1995.  The
increase  is  due  to the  following  factors:  (1)  the  Company  substantially
increased  its  presence at the  MacWorld  conferences  and other trade shows to
properly  position the Company  within the industry;  (2) it increased its staff
levels from 19 employees in 1995 to 29 employees  (it has  subsequently  reduced
the number of  employees  to 23);  (3) it  commenced  a roll out program for its
first Windows product which was delayed as a result of financing  delays and the
failure to successfully implement, on schedule, certain product functionality on
to the Windows platform;  (4) it incurred approximately $150,000 in introductory
marketing costs associated with the introduction of Marionet, and it implemented
additional  marketing  programs in an attempt to off set the negative  publicity
caused by the public's  perception of Apple  Computer.  The Company is reviewing
its marketing plans and infrastructure  costs in relation to its current product
development plans and its available working capital.

Research and development  expenditures consisted of personnel expenses, costs of
independent   contractors  and  supplies   required  to  conduct  the  Company's
development  efforts.  Research  and  development  expenditures  increased  from
$607,012 to $1,045,712 (from 27% of net revenues to 77%) for 1996 as compared to
1995. The increase in research and development costs is directly attributable to
the increase in engineering  staff  necessary to complete the Company's  current
product  development  plan.  The percentage change is primarily the result of a
decrease in net revenues.

General  and  administrative  expenses  consist  primarily  of the  costs of the
Company's finance and  administrative  personnel,  including the chief executive
officer.   General  and  administrative  expenses  increased  from  $863,535  to
$1,141,990  (39% of net  revenues  to 84%) for  1996 as  compared  to 1995.  The
increase in general and  administrative  expenses is  attributable  primarily to
increased  staffing and occupying larger premises in 1996. The percentage
change is primarily the result of a decrease in net revenues.

Liquidity and Capital Resources

The Company has sustained  substantial operating losses and has used substantial
amounts of  working  capital in its  operations  to  December  31,  1996.  As of
December  31, 1996 the Company had cash  equivalents  of $116,610  and a working
capital deficit of $848,326 which includes unsecured  convertible  debentures in
the aggregate amount of $500,000 due in December, 1997. The Company's ability to
satisfy projected working capital and capital expenditure  requirements  through
December 31, 1997 is  dependent  upon its ability to secure  additional  funding
through public or private sales of securities,  including  equity  securities of
the Company, and the success of its future operations.

The  Company's  primary  future  needs  for  capital  are for  expanded  product
development,  marketing and selling expenses and working capital.  The Company's
working capital  requirements may vary depending upon numerous factors including
the progress of the Company's product development, competitive and technological
advances, marketing acceptance of the Company's products and other factors.

The Company is in need of  approximately  $1,500,000  in capital  during 1997 to
satisfy projected working capital  requirements and to pay out debentures in the
amount of $500,000 due on December 18, 1997. The Company is currently seeking to
raise $750,000 on or before April 30, 1997.

Though Management  believes that the Company will secure the additional  capital
necessary  for the Company to continue its operation as a going  concern,  there
are no assurances  that the Company will be able to secure the required  capital
on terms favorable to the Company or on any terms and as a result there exists a
substantial  risk that the Company will have to  reorganize or  discontinue  its
operations in the future.

Item 7.  Financial Statements.

The  Financial  Statements  of the Company  identified in the Index to Financial
Statements  appearing under "Item 13." Exhibits and Reports on Form 8-K" of this
report are incorporated by reference to Item 13.


Item 8.  Changes In and Disagreements With Accountants on Accounting and
         Financial Disclosure.

There were no changes in or  disagreements  with  accountants  on accounting and
financial disclosure matters during the year ended December 31, 1996.




<PAGE>


                                    PART III


Item 9.  Directors,  Executive  Officers,  Promoters  and Control  Persons;
         Compliance  With Section 16(a) of the Exchange Act.


The  following  individuals  are the  Directors  and  executive  officers of the
Company. Pertinent information relating to these individuals is set forth below.
There are no family relationships between any of the Directors and officers.

The following  table sets forth  certain  information  concerning  the executive
officers and directors of the Company.

<TABLE>
<CAPTION>
    Name                                        Age                       Position
<S>                                              <C>     <C>
Joel B. Staadecker (1).......................... 50      President, Chief Executive Officer and Director
William D. McCartney............................ 41      Secretary, Chief Financial Officer and Director
Stuart F. Henigson.............................. 45      Vice President, Marketing
David Baron..................................... 36      Vice President, Engineering
Leonard Petersen (1)............................ 42      Director
William C. Appleton............................. 34      Director

--------------------

(1)  Member of the Audit Committee
</TABLE>

Mr.  Staadecker has been President,  Director and Chief Executive Officer of the
Company  since  January,  1994.  Mr.  Staadecker  was the President of Allegiant
Financial Group Inc., of Seattle,  Washington  ("AFG"),  a financial  consulting
firm,  from 1991 to 1994. AFG was  responsible for organizing the acquisition of
SuperCard by the Company from Aldus.  From 1989 to 1991, Mr.  Staadecker was the
President  and Chief  Operating  Officer of the Pacific  Institute,  a worldwide
education and training organization, in Seattle, Washington.

Mr.  McCartney  has been Chief  Financial  Officer and a director of the Company
since  January,  1994.  From 1990 to the present,  he has been the  President of
Pemcorp Management Inc., which provides corporate finance services to public and
private  companies.  Mr. McCartney is a chartered  accountant in the Province of
British  Columbia,  Canada and has a  bachelors  degree in  business  from Simon
Fraser University.

Mr. Henigson has been the Vice President Marketing of the Company since January,
1994.  Prior to this, Mr.  Henigson was a Strategic  Marketing  Manager at Aldus
Corporation  and its  predecessor,  Silicon Beach  Software,  from 1988 to 1992,
during  which time he was  responsible  for the  marketing  of several  software
products  including  SuperCard.  From 1992 to 1994,  he acted as an  independent
consultant.  Mr. Henigson has eleven years of software industry experience.  Mr.
Henigson has a bachelors  degree in economics  from Whitman  College,  a masters
degree in economics  from Yale  University  and an M.B.A.  in marketing from the
University of California at Los Angeles.

Mr.  Baron  has been the Vice  President  of  Engineering  of the  Company  on a
full-time  basis since May,  1995.  Previously,  he was the  Director of Product
Design  at  Blyth  Software  from  1991 to 1995.  Mr.  Baron  is a  graduate  of
Rensselaer Polytechnic Institute.

Mr. Petersen has been a director of the Company since February,  1994. From 1990
to the present,  he has been a senior officer of Pemcorp  Management Inc., which
provides  corporate  finance  services  to public  and  private  companies.  Mr.
Petersen has been a director of CVD Financial  Corporation since May 1995 and of
Logan  International  Corp.  since  January  1994.  Mr.  Petersen is a chartered
accountant in the Province of British Columbia, Canada.

Mr. Appleton is the original creator of SuperCard. He has been a director of the
Company since February,  1994. Mr. Appleton has been  self-employed or has acted
as  the  President  of  CyberFlix  Incorporated,   a  developer  of  interactive
multimedia games since 1989.

Beneficial Ownership Reporting Compliance

Not applicable.

Item 10.  Executive Compensation.

The following table sets forth all  compensation  awarded to, earned by, or paid
for  services to the  Company in all  capacities  during the fiscal  years ended
December 31, 1995 and 1996 to the Company's chief executive officer. No director
or executive officer received total  compensation in respect of the 1995 or 1996
fiscal year exceeding $100,000.

                           Summary Compensation Table
<TABLE>
<CAPTION>
                                                      Annual Compensation
                                                    Year              Salary          Other(2)           Total
<S>                                                <C>              <C>              <C>               <C>
Joel B. Staadecker                                 1995               $ 60,000       $22,800           $  82,800
President, C.E.O., Director.................
                                                    1996              $100,000(1)    $22,800           $122,800

(1)  Mr. Staadecker was paid $60,000 in 1996. The remaining $40,000 is payable.

(2)  At the request of the  Company,  Mr.  Staadecker  relocated  from  Seattle
     to San Diego.  The Company  pays the certain costs for Mr. Staadecker to
     maintain his home in Seattle.

</TABLE>

Directors' Compensation

The Company  does not  currently  compensate  its  directors  under any standard
arrangement,  but are reimbursed for their out-of-pocket  expenses in serving on
the Board of Directors.  Directors were granted  incentive  stock options during
fiscal 1995.

Pemcorp  Management Inc., a management  advisory services company  controlled by
Mr.  McCartney  and Mr.  Petersen,  was paid $30,000 and is owed $30,000 for the
year ended December 31, 1996 pursuant to a management services contract.

The  Company  has  entered  into  indemnification  agreements  with  each of its
directors which provide for  indemnification  of the directors by the Company to
the fullest extent permitted by Washington law.

Grants of Stock Options

The following tables set forth information concerning the award of stock options
to Mr.  Staadecker  during the year ended  December 31, 1996 and options held by
him at the end of such year.

                      Option Grants in the Last Fiscal Year
<TABLE>
<CAPTION>
            Name              Number of             Securities
                              Underlying          % of Total Options
                              Options                Granted to         Exercise or Base
                              Granted                 Employee            Price ($/Sh)        Expiration
                                                   in Fiscal Year                               Date
<S>                           <C>                      <C>                  <C>              <C>

Joel B. Staadecker.........   100,000                   12%                 $0.75            10/17/2001

</TABLE>

                          Fiscal Year End Option Table

 <TABLE>
<CAPTION>
                                                           Number of Unexercised
                        Shares Acquired                   Securities Underlying           Value of Unexercised In-The-Money
                        on Exercise         Value        Options/SARs at FY-End (#)          Options/SARs at FY-End ($)
                            (#)          Realized ($)    Exercisable/Unexercisab            Exercisable/Unexercisable
         Name
<S>                           <C>            <C>                 <C>                                <C>
Joel B. Staadecker....         0              N/A                190,000/75,000                     $0.00/0


</TABLE>


<PAGE>


Item 11.  Security Ownership of Certain Beneficial Owners and Management.


The following  table sets forth certain  information  with respect to beneficial
ownership of Common  Stock as of March 7, 1997,  by (i) each person who is known
by the Company to  beneficially  own more than 5% of the  outstanding  shares of
Common Stock, (ii) each of the Company's directors,  (iii) each of the executive
officers named in the Summary  Compensation Table and (iv) all current directors
and executive officers as a group.  Unless otherwise  indicated in the footnotes
to the table,  each person or entity has sole voting and  investment  power with
respect to all shares of Common Stock shown as beneficially owned by such person
or entity.

<TABLE>
<CAPTION>
Name of Stockholder                                                  Number of Shares                 Percentage of
                                                                    Beneficially Owned            Outstanding Shares(1)
<S>                                                                 <C>                                    <C>
Joel B. Staadecker
President and Director
9740 Scranton Road                                                   1,335,000(2)                           16.0%
San Diego, CA 92121......................................

William D. McCartney
Chief Financial Officer and Director
1270 - 609 Granville Street
Vancouver, BC
Canada, V7Y 1G6..........................................              787,500(3)                             9.6%

Stuart F. Henigson
Vice-President, Marketing
9740 Scranton Road
San Diego, CA 92121......................................              412,500(4)                            5.0%

David Baron
Vice President, Engineering
9740 Scranton Road
San Diego, CA 92121......................................              150,000(5)                            1.8%

Leonard Petersen
Director
1270 - 609 Granville Street
Vancouver, BC
Canada, V7Y 1G6..........................................               787,500(6)                           9.6%

William C. Appleton
Director and Product Strategist
4 Market Square
Knoxville, TN
U.S.A 37902..............................................               125,000(7)                           1.5%

Geller & Friend Partnership I
3333 Michelson Drive, Suite 650
Irvine, CA
U.S.A.  92715-1686.......................................               508,674(8)                           5.9%

All directors and executive officers as a group (7
persons)(9)..............................................             3,597,500                             40.3%

-------------------------

(1) The  percentages  reflected in this column are based on the assumption  that
    the  respective  owner  exercises  any  rights  he or  it  has  to  purchase
    additional shares of Common Stock within sixty days from the date hereof and
    excludes  all other  shares of  Common  Stock  reserved  for  issuance  upon
    exercise  of  outstanding   options  and  warrants  or  upon  conversion  of
    outstanding convertible debt of the Company.

(2) Includes  350,000  Escrowed  Common  Shares and 190,000  employee
    incentive options.

(3) Includes  350,000  Escrowed  Common  Shares and 137,500  employee  incentive
    options.  All  of  the  issued  shares  are  held  indirectly  by  companies
    controlled by William D. McCartney.

(4) Includes  300,000  Escrowed  Common  Shares and 112,500  employee  incentive
    options.

(5) Includes 150,000 employee incentive options.

(6) Leonard Petersen holds 137,500 employee incentive options directly and
    650,000 shares, including 350,000 Escrowed Common Shares, indirectly by a
    company controlled by Mr. Petersen.

(7) Includes  100,000  Escrowed  Common  Shares and 25,000  employee  incentive
    options.

(8) Includes a maximum of 216,837  shares to be issued upon the  conversion of a
    debenture  in the  amount of  $425,000  and a maximum  291,837  shares to be
    issued upon the  exercise of warrants of which 75,000 are issued and 216,837
    are to be issued upon the conversion of the debenture.

(9) Includes an aggregate of 1,625,000  Escrowed  Common Shares and an aggregate
    of 777,500 employee incentive options.

</TABLE>

Item 12.  Certain Relationships and Related Transactions.


On January 24, 1995,  the Company and Mr. William  Appleton  agreed to terminate
Mr.  Appleton's  royalty on sales of SuperCard  effective  January 31, 1995, for
consideration  of $100,000  which  continues  to be paid over two years in equal
monthly installments of $4,568, inclusive of interest calculated at nine percent
per annum, to March 1, 1997.

Pemcorp  Management Inc., a management  advisory services company  controlled by
Mr.  McCartney  and Mr.  Petersen,  was paid $30,000 and is owed $30,000 for the
year ended December 31, 1996 pursuant to a management services contract.


<PAGE>


                                     PART IV


Item 13.  Exhibits and Reports on Form 8-K.

(a)    Index to  Financial Statements.                                   Page

       Report of Independent Accountants

       Balance Sheet at December 31, 1995 and 1996

       Statements of Operations For the Period From Inception
       (December 28, 1993) Through December 31, 1994 and For the
       Years Ended December 31, 1995 and 1996

       Statement of Shareholders' Equity For the Period from
       Inception (December 28, 1993) Through December 31, 1996

       Statements of Cash Flows For the Period From Inception
       (December 28, 1993) Through December 31, 1994 and For the
       Years Ended December 31, 1995 and 1996

       Notes to Financial Statements

       All schedules are omitted because the required information is not
       present in amounts sufficient to require submission of the schedules
       or because the information is included in the financial statements and
       notes thereto.

(b)    Exhibits.

         3.1*     Articles of Incorporation of
                  Allegiant Technologies, Inc.
         3.2*     Bylaws of Allegiant Technologies, Inc.
         4.1(a)*  Form of Share Purchase Warrant
         4.1(b)*  Form of Share Purchase Warrant
         4.2*     Convertible Debenture dated December 18, 1995
         4.3*     Form of Registration Rights Agreement
         10.1*    Employment Agreement with Stuart Henigson, as amended
         10.2*    Employment Agreement with Joel Staadecker
         10.3*    Employment Agreement with David Baron
         10.4*    Management Agreement among Allegiant Technologies Inc.,
                  Pemcorp Management Inc., William McCartney, and
                  Leonard Petersen
         10.5*    Incentive Stock Option Plan
         10.6*    Royalty Termination Agreement with William C. Appleton
         10.7*    Escrow Agreement with Montreal Trust Company of Canada
         10.8*    Form of Indemnity Agreement
         10.9     Publishing Agreement between Micromat Corporation and
                  Allegiant Technologies Inc.
         11       Statement re Computation of Per Share Earnings
         27       Financial Data Schedule

* Incorporated by reference to Registration Statement on Form SB-2,
  Registration No. 333-07727

(c)    Reports on Form 8-K.

       None

<PAGE>
                              FINANCIAL STATEMENTS


                           ALLEGIANT TECHNOLOGIES INC.


                  Years Ended December 31, 1996, 1995 and 1994
                      with Report of Independent Auditors'


<PAGE>





                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


The Board of Directors
Allegiant Technologies, Inc.

We have  audited  the  balance  sheets of  Allegiant  Technologies,  Inc.  as of
December  31,  1995  and  1996  and  the  related   statements  of   operations,
shareholders'  equity  (deficit) and cash flows for the years ended December 31,
1995  and  1996.  These  financial  statements  are  the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial  statements based on our audits. The financial statements of Allegiant
Technologies,  Inc. at December 31, 1994, and for the period from  incorporation
on December 28, 1993 to December 31, 1994,  were audited by other auditors whose
report,  dated  January 27,  1995,  expressed  an  unqualified  opinion on those
statements.

We conducted our audits in accordance with generally accepted auditing standards
in the United States. The results of the audit would not be materially different
had the audit been  conducted in accordance  with  generally  accepted  auditing
standards in Canada.  However,  in the United  States,  reporting  standards for
auditors  require the addition of an  explanatory  paragraph  when the financial
statements are affected by conditions and events that cast substantial  doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1 to these financial  statements.  Those standards require that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as  evaluating  the
overall financial  presentation.  We believe that our audits provide a
reasonable  basis for our opinion.

In our opinion,  these financial statements referred to above present fairly, in
all material respects,  the financial position of Allegiant Technologies Inc. at
December 31, 1995 and 1996 and the results of its  operations and its cash flows
for the years ended  December  31, 1995 and 1996 in  conformity  with  generally
accepted accounting principles.

The accompanying financial statements have been prepared assuming that Allegiant
Technologies  Inc. will continue as a going  concern.  As discussed in Note 1 to
the financial statements, the Company has sustained substantial operating losses
since inception and has a working capital  deficiency of approximately  $850,000
at December 31, 1996.  These conditions have raise  substantial  doubt about the
Company's ability to continue as a going concern.  The 1996 financial statements
do not include any  adjustments  to reflect the possible  future  effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.



                                        /s/ Ernst & Young LLP


San Diego, United States
March 4, 1997

<PAGE>

                                AUDITORS' REPORT


To the Directors of
Allegiant Technologies Inc.

We have audited the balance sheet of Allegiant  Technologies Inc. as at December
31, 1994 and the  statements of earnings and deficit,  changes in  shareholders'
equity and changes in financial  position for the period from  incorporation  on
December 28, 1993 to December  31,  1994.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian  generally  accepted auditing
standards.  Those standards  require that we plan and perform an audit to obtain
reasonable  assurance  whether  the  financial  statements  are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management, as well as, evaluating the overall financial statement presentation.

In our opinion,  these  financial  statements  present  fairly,  in all material
respects,  the financial position of the Company as at December 31, 1994 and the
results of its operations,  changes in  shareholders'  equity and the changes in
its financial position for the period from incorporation on December 28, 1993 to
December 31, 1994 then ended in  accordance  with  Canadian  generally  accepted
accounting principles.


                                        /s/ Baker & Company
West Vancouver, Canada                 Chartered Accountants

January 27, 1995

<PAGE>

ALLEGIANT TECHNOLOGIES INC.

BALANCE SHEETS
(Expressed in United States Dollars)
AS OF DECEMBER 31

<TABLE>
<CAPTION>
                                                                                             1995              1996

<S>                                                                                        <C>             <C>
ASSETS

Current assets:
     Cash and cash equivalents                                                             $     616,868   $    116,610
     Accounts receivable, net of allowance for doubtful accounts
        of $15,000 in 1995 and $32,892 in 1996                                                   134,276         37,084
     Inventories                                                                                  99,367        200,203
     Prepaid expenses and deposits                                                                58,106         48,121
                                                                                           -------------   ------------

     Total current assets                                                                        908,617        402,018

Deposits                                                                                          15,709         17,708
Property and equipment at cost, net (Note 2)                                                     253,628        200,041
Intangible assets, net (Note 3)                                                                  384,187        259,591
Deferred offering costs                                                                           76,250         15,000
                                                                                           -------------   ------------

     Total assets                                                                          $   1,638,391   $    894,358
                                                                                           =============   ============


LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
     Debentures payable (Note 5)                                                           $        -      $    495,775
     Notes payable (Note 4)                                                                       51,460          9,034
     Accounts payable                                                                            212,380        401,968
     Accrued liabilities                                                                          33,559        309,004
     Deferred revenues                                                                            53,798         34,563
                                                                                           -------------   ------------
     Total current liabilities                                                                   351,197      1,250,344

Deferred rent                                                                                     26,403         36,502
Notes payable, net of current portion (Note 4)                                                     9,034           -
Debentures payable (Note 5)                                                                      461,000           -
                                                                                           -------------   ------------

     Total liabilities                                                                           847,634      1,286,846
                                                                                           -------------   ------------

Commitments (Note 6)

Shareholders' equity (deficit):
     Capital stock (Note 8)
        Authorized
            50,000,000   preferred shares, par value $0.01 per share
           100,000,000   common shares, par value $0.01 per share
        Issued and outstanding
             8,107,295   common shares (1995 - 7,042,295)                                         70,423         81,073
     Additional paid-in capital                                                                2,404,398      3,965,092
     Accumulated deficit                                                                      (1,684,064)    (4,438,653)
                                                                                           -------------   ------------

        Total shareholders' equity (deficit)                                                     790,757       (392,488)
                                                                                           -------------   ------------

     Total liabilities and shareholders' equity                                            $   1,638,391   $    894,358
                                                                                           =============   ============

                                                  See accompanying notes.
</TABLE>

<PAGE>


ALLEGIANT TECHNOLOGIES INC.
STATEMENTS OF OPERATIONS
(Expressed in United States Dollars)

<TABLE>
<CAPTION>
                                                                            From
                                                                         Incorporation on
                                                                          December 28,
                                                                               1993 to       Year Ended      Year Ended
                                                                          December 31,      December 31,     December 31,
                                                                                  1994         1995             1996

<S>                                                                      <C>             <C>              <C>
NET REVENUE                                                              $     818,153   $    2,227,582   $   1,357,965

COST OF REVENUE                                                                170,192          646,547         303,715
                                                                         -------------   --------------   -------------

GROSS PROFIT                                                                   647,961        1,581,035       1,054,250
                                                                         -------------   --------------   -------------


EXPENSES
     Sales and marketing                                                       441,220        1,045,383       1,466,254
     Research and development                                                  288,563          607,012       1,045,712
     General and administrative                                                454,915          863,535       1,141,990
     Amortization of purchase of intangibles                                    91,300          131,263         130,846
                                                                         -------------   --------------    -------------

     Total operating expenses                                                1,275,998        2,647,193       3,784,802
                                                                         -------------   --------------    -------------


Loss from operations                                                          (628,037)      (1,066,158)     (2,730,552)

     Interest income                                                             1,339           14,966          24,505
     Interest expense                                                             -              (6,174)        (48,542)
                                                                         -------------   --------------    -------------

Net loss                                                                 $    (626,698)  $   (1,057,366)   $  (2,754,589)
                                                                         =============   ==============    =============


Loss per share                                                           $       (0.25)  $         (0.24)  $      (0.47)
                                                                         ==============   ===============  =============


Shares used in computing per share amounts                                   2,535,397        4,372,592       5,803,075
                                                                         =============   ==============    =============

                                                  See accompanying notes.
</TABLE>

<PAGE>


ALLEGIANT TECHNOLOGIES INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(Expressed in United States Dollars)

<TABLE>
<CAPTION>
                                                                                                             Total
                                                                             Additional                    Shareholders'
                                                  Number                      Paid-in        Accumulated     Equity
                                                of Shares      Par Value       Capital        Deficit        (Deficit)

<S>                                               <S>           <C>           <C>          <C>             <C>
Balances at December 28, 1993                            1   $          1   $       -      $        -      $          1


Shares issued - cash                             5,639,999         56,339      1,205,660                      1,261,999

Net loss                                                                                        (626,698)      (626,698)
                                             -------------   ------------   ------------   -------------   ------------


Balances at December 31, 1994                    5,634,000         56,340      1,205,660        (626,698)       635,302


Shares issued - cash                               875,000          8,750        866,250                        875,000
        - corporate finance fee                     64,545            645         63,900                         64,545
        - exercise of warrants                     218,750          2,188        216,562                        218,750
        - conversion of note payable               250,000          2,500        247,500                        250,000
        - issuance of warrants                        -              -            39,000                         39,000

Offering costs                                                                  (234,474)                      (234,474)

Net loss                                                                                      (1,057,366)    (1,057,366)
                                             -------------   ------------   ------------   -------------   ------------


Balances at December 31, 1995                    7,042,295         70,423      2,404,398      (1,684,064)       790,757

Shares issued  - cash                              815,000          8,150      1,621,850                      1,630,000
               - exercise of warrants              250,000          2,500        247,500                        250,000

Offering costs                                                                  (308,656)                      (308,656)

Net loss                                                                                      (2,754,589)    (2,754,589)
                                             -------------   ------------   ------------   -------------   ------------

Balance at December 31, 1996                     8,107,295   $     81,073   $  3,965,092   $  (4,438,653)  $   (392,488)
                                             =============   ============   ============   =============   ============

                                                  See accompanying notes.

</TABLE>
<PAGE>


ALLEGIANT TECHNOLOGIES INC.
STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)

<TABLE>
<CAPTION>
                                                                            From
                                                                         Incorporation on
                                                                          December 28,
                                                                              1993 to       Year Ended     Year Ended
                                                                          December 31,     December 31,    December 31,
                                                                               1994            1995           1996
<S>                                                                      <C>             <C>              <C>
OPERATING ACTIVITIES
     Net loss                                                            $    (626,698)  $   (1,057,366)  $  (2,754,589)
     Adjustments to reconcile net loss to net cash
       used for operating activities
        Amortization and depreciation                                          105,897          168,086         273,346
        Changes in operating assets and liabilities
           Accounts receivable                                                (197,625)          63,349          97,192
           Inventories                                                         (50,950)         (48,417)       (100,836)
           Prepaid expenses and deposits                                       (29,247)         (44,568)          7,986
           Accounts payable and accrued liabilities                            181,717           64,222         465,033
           Deferred revenues                                                    19,800           33,998         (19,235)
                                                                         -------------   --------------   -------------

     Net cash used for operating activities                                   (597,106)        (820,696)     (2,031,103)
                                                                         -------------   --------------   -------------

INVESTING ACTIVITIES
     Purchase of property and equipment                                       (110,781)        (194,268)        (60,388)
     Purchase of intangible assets                                            (498,000)            -               -
                                                                         -------------   --------------   --------------

     Net cash used for investing activities                                   (608,781)        (194,268)        (60,388)
                                                                         -------------   --------------   -------------

FINANCING ACTIVITIES
     Proceeds from issuance of capital stock, net                            1,209,105          891,717       1,632,594
     Proceeds from notes payable                                               250,000             -               -
     Payments on notes payable                                                    -             (39,506)        (51,460)
     Proceeds from debentures payable                                             -             500,000            -
     Deferred rent                                                                -              26,403          10,099
                                                                         -------------   --------------   -------------

     Net cash provided by financing activities                               1,459,105        1,378,614       1,591,233
                                                                         -------------   --------------   -------------

Increase (decrease) in cash and cash equivalents                               253,218          363,650        (500,258)

Cash and cash equivalents, beginning of period                                    -             253,218         616,868
                                                                         -------------   --------------   -------------

Cash and cash equivalents, end of period                                 $     253,218   $      616,868   $     116,610
                                                                         =============   ==============   =============


Supplemental Disclosures of Non-Cash
  Investing and Financing Activities
     Note payable issued for royalty buy-out                             $        -      $      100,000   $        -
     Common shares issued for conversion of note payable                          -             250,000            -
     Common shares issued for corporate finance fee                               -              64,545            -

                                                  See accompanying notes.

</TABLE>
<PAGE>


ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1996




1.      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


        Nature of Operations

        Allegiant Technologies Inc. was incorporated in Washington State,
        U.S.A. on December 28, 1993 and was registered to carry on business in
        the State of California on March 23, 1994.

        The Company's  principal line of business is  developing,  marketing and
        supporting interactive multimedia development software.

        Basis of Presentation

        The accompanying  financial  statements have been prepared in conformity
        with generally accepted  accounting  principles,  which contemplates the
        continuation of the Company as a going concern. However, the Company has
        sustained substantial operating losses in recent years. In addition, the
        Company  has  used  substantial   amounts  of  working  capital  in  its
        operations.  Further,  at December 31, 1996, current  liabilities exceed
        current assets by $848,326, and total liabilities exceed total assets by
        $392,488.

        In view of these conditions,  additional working capital will need to be
        raised through other debt and/or equity financings;  however,  there can
        be no  assurances  that this can be  accomplished,  which may impact the
        Company's  ability  to  continue  as  a  going  concern.  The  financial
        statements  do not include any  adjustments  that might  result from the
        outcome of this uncertainty.

        Use of Estimates

        The  preparation  of financial  statements in conformity  with generally
        accepted accounting principles requires management to make estimates and
        assumptions  that  affect  the  amount of  assets  and  liabilities  and
        disclosure  of  contingent  assets  and  liabilities  at the date of the
        financial  statements  and the reported  amount of revenues and expenses
        recorded during the reporting  period.  Actual results could differ from
        those estimates.

        Inventories

        Inventories  consist  primarily of software  media,  manuals and related
        packing  materials.  Inventories  are  valued at  standard  cost,  which
        approximates  the lower of cost,  determined  on a  first-in,  first-out
        basis, or market.

        Capital Assets

        Capital assets are recorded at cost.  Depreciation  is provided over the
        estimated  useful  lives  ranging  from three to seven  years  using the
        straight-line method.

        Intangible Assets

        Intangible  assets are recorded at cost.  Amortization  is provided over
        the estimated useful lives of five years using the straight-line method.
        Management   evaluates  the  future  realization  of  intangible  assets
        quarterly and writes down any amounts that management  deems unlikely to
        be recovered  through future product sales.  To date no write downs have
        been recorded to intangible assets acquired from Aldus Corporation.

        Deferred Costs

        Deferred costs will be offset  against the proceeds of equity  financing
        or amortized over the period of debt financing.


<PAGE>


ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1996




1.      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (cont'd.....)


        Capitalized Software Costs

        Financial  accounting  standards  provide for  capitalization of certain
        software  development costs after technical  feasibility of the software
        is  attained.  No such  costs  were  capitalized  in 1994,  1995 or 1996
        because the impact on the financial statements would not be material.

        Advertising Costs

        Advertising  costs  are  expensed  as  incurred.  Included  in sales and
        marketing  expense  are  advertising  costs of  $135,453,  $376,860  and
        $447,115 in 1994, 1995 and 1996, respectively.

        Revenue Recognition

        Revenue  is  derived  from  product  sales  and  licenses,   maintenance
        contracts and  consulting,  training and other  services.  Revenues from
        product sales and licenses are recognized upon shipment of the products.
        Revenue  from  software   maintenance   contracts  is  recognized  on  a
        straight-line  basis over the term of the contract,  generally one year.
        Revenue from  consulting,  training and other services are recognized in
        the period in which services are performed and earned in accordance with
        the respective agreements. To the extent that an engagement is projected
        to be completed  at a loss, a provision  for the full amount of the loss
        is provided at that time.

        The Company may enter into  agreements  whereby it licenses  products or
        provides  customers  the  right  to  multiple  copies.  Such  agreements
        generally provide for non-refundable  fixed fees which are recognized at
        delivery of the product  master or the first copy. Per copy royalties in
        excess of the fixed  minimum  amounts and  refundable  license  fees are
        recognized  as revenue when such amounts are reported to the Company and
        no longer refundable.

        The Company will sell its products  throughout the world,  however,  the
        most  significant  geographical  area is the United States.  The Company
        performs ongoing credit  evaluations of its customers and generally does
        not require  collateral  on domestic  sales.  The Company  maintains  an
        allowance  for  potential  credit  losses.  Additionally,   the  Company
        maintains  an  allowance  for  anticipated  returns on products  sold to
        distributors.

        Revenues  from  sales  to two  customers  accounted  for  11%  and  10%,
        respectively,  of the  Company's  revenue  in  1996,  and 13%  and  11%,
        respectively, of the Company's revenue in 1995.

        Foreign Currency Translation

        The Company translates foreign currency  transactions and balances using
        the temporal method. Under this method,  monetary assets and liabilities
        are  translated at  period-end  rates  whereas  non-monetary  assets and
        liabilities are recorded at rates  prevailing at the transaction  dates.
        Revenue  and  expenses  are  translated  at  the  average  monthly  rate
        throughout  the period.  Currency  gains and losses are reflected in the
        results of operations for the periods and were not significant.

        Accounting for Long Lived Assets

        On  January  1,  1996,  the  Company  adopted   Statement  of  Financial
        Accounting   Standards  No.  121,   Accounting  for  the  Impairment  of
        Long-Lived  Assets and For  Long-Lived  Assets to be  Disposed  of (SFAS
        121). The adoption of SFAS 121 did not impact the financial  position or
        the results of operations of the Company in 1996.


<PAGE>


ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1996




1.      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (cont'd.....)

        Stock Options

        The Company has elected to follow  Accounting  Principles  Board Opinion
        No. 25,  "Accounting for Stock Issued to Employees" (APB 25) and related
        Interpretations  in accounting for its employee stock options because as
        discussed in Note 8, alternative  fair value  accounting  provided under
        FASB  Statement  No.  123,  "Accounting  for Stock  Based  Compensation"
        (Statement  123),  requires the use of option value models that were not
        developed  for use in  valuing  employee  stock  options.  Under APB 25,
        because the  exercise  price of the  Company's  employee  stock  options
        equals the market price of the underlying stock on the date of grant, no
        compensation expense is recognized.

        United States Generally Accepted Accounting Principles

        Accounting   under  United  States  and  Canadian   generally   accepted
        accounting  principles  is  substantially  the same with  respect to the
        accounting  principles  used by the Company in the  preparation of these
        financial statements.

2.      PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
                                                                                                    1995         1996

        <S>                                                                                <C>             <C>
        Property and Equipment consists of:
           Furniture and fixtures                                                          $     114,933   $    154,240
           Office equipment                                                                       17,416         23,723
           Computer equipment                                                                    172,699        187,473
                                                                                           -------------   ------------

                                                                                                 305,048        365,436
        Accumulated depreciation                                                                 (51,420)      (165,395)
                                                                                           -------------   ------------

                                                                                           $     253,628   $    200,041
                                                                                           =============   ============
</TABLE>

3.      INTANGIBLE ASSETS

<TABLE>
<CAPTION>
                                                                                                    1995         1996
        <S>                                                                                <C>             <C>
        Intangible assets consist of:
           Acquisition costs of SuperCard                                                  $     498,000   $    498,000
           Royalty buyout                                                                        100,000        100,000
                                                                                           -------------   ------------

                                                                                                 598,000        598,000
           Accumulated amortization                                                             (213,813)      (338,409)
                                                                                           -------------   ------------

                                                                                           $     384,187   $    259,591
                                                                                           =============   ============
</TABLE>

        Acquisition  costs  include  goodwill,  product  technology  and related
        acquisition  costs.  On February 4, 1994 the  Company  purchased  from a
        non-related  party,  the  rights  to  a  product  sold  under  the  name
        "SuperCard"  and the underlying  software  technology for cash and other
        consideration.

        Royalty buyout represents a fixed sum payment for the termination of the
        royalty interest on SuperCard sales. The buyout option was negotiated as
        part of the original acquisition of SuperCard.


<PAGE>


ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1996




4.      NOTES PAYABLE

<TABLE>
<CAPTION>
                                                                                                 1995           1996

        <S>                                                                                <C>             <C>
        Note payable on buyout of royalty on SuperCard  sales,  payable over two
           years in equal monthly installments commencing March 1, 1995
           with interest at 9% per annum.                                                  $      60,494   $      9,034

        Less: current portion                                                                     51,460          9,034
                                                                                           -------------   ------------

        Notes payable net of current portion                                               $       9,034   $       -
                                                                                           =============   ============

</TABLE>
        Cash  paid for  interest  was  $6,174  and  $3,356  for  1995 and  1996,
respectively.


 5.     DEBENTURES PAYABLE

<TABLE>
<CAPTION>
                                                                                           1995            1996
         <S>                                                                         <C>              <C>

       The Company issued  debentures in the aggregate  amount of $500,000 which
           which may be  converted  into  Units of the  Issuer at a price  $1.96
           until  December  18,  1997,  at the option of the  holder.  Each Unit
           consists of one common share and one share purchase warrant entitling
           the holder to  purchase  an  additional  common  share at $1.96 until
           December 18, 1997. The debentures,  if not converted into Units,  are
           due on December 18, 1997.

        The debentures are no longer secured by a general charge over the assets
           of the Company and no longer bears interest effective
           September 20, 1996.                                                             $     500,000   $    500,000

        Less: discount                                                                            39,000          4,225
                                                                                           -------------   ------------

                                                                                                 461,000        495,775
        Less: current portion                                                                       -           495,775
                                                                                           -------------   ------------

        Debentures net of current portion                                                  $     461,000   $       -
                                                                                           =============   ============
</TABLE>

6.      COMMITMENTS

        Lease

        The Company  leases office space.  Future  minimum  lease  payments,  at
December 31, 1996, are as follows:

                           1997                           $     147,630
                           1998                                 123,377

        Rent expense for the years ending 1994,  1995 and 1996 totalled
$27,306, $82,549 and $166,473, respectively.


<PAGE>


ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1996




7.      INCOME TAXES

        Significant  components  of the  Company's  deferred  tax  assets  as of
        December 31, 1996 and 1995,  respectively,  are shown below. A valuation
        allowance  has been  recognized  to offset  the  deferred  tax assets as
        realization of such assets is uncertain.

<TABLE>
<CAPTION>
                                                                                                    1995        1996
        <S>                                                                                <C>             <C>
        Deferred tax assets:
           Net operating loss carry forwards                                               $     600,000   $  1,666,000
           Research and development credits                                                       80,000        157,000
           Other - net                                                                            52,000         66,000
                                                                                           -------------   ------------

           Total deferred tax assets                                                             732,000      1,889,000
           Valuation allowance for deferred tax assets                                          (732,000)    (1,889,000)
                                                                                           -------------   ------------

           Net deferred tax assets                                                         $        -      $       -
                                                                                           =============   ============

</TABLE>

        At December 31,  1996,  the Company has federal and  California  tax net
        operating loss carryforwards of approximately $4,203,000 and $3,953,001,
        respectively.  The  Company  also has federal  and  California  research
        credit carryforwards of approximately $93,000 and $64,000, respectively.
        The federal tax loss carryforward and the research credit  carryforwards
        will begin expiring in 2009 unless previously  utilized.  The California
        tax loss  carryforward  will begin  expiring in 2002  unless  previously
        utilized.

        In accordance  with certain  provisions of the Internal  Revenue Code, a
        change in ownership of a corporation of greater than 50 percent within a
        three-year  period will place an annual  limitation on the corporation's
        ability to utilize its existing tax loss and tax credit carryforwards.


8.      CAPITAL STOCK

        Authorized

            50,000,000   preferred  stock,  par value $0.01 per share. The Board
                         of  Directors  has the  authority  to divide the shares
                         into  one  or  more  series  and  to  determine   their
                         attributes at the time of issuance.
           100,000,000   common stock, par value $0.01 per share

        Performance shares

        Included  in  issued  and   outstanding   common  shares  are  2,000,000
        performance  shares to be  released  from escrow on the basis of 1 share
        for  every  $0.52  Cdn  of  pre-tax  cash  earned  by the  Company  on a
        cumulative basis. Of the performance shares, 675,000 shares have further
        vesting  provisions  attached  to  them  in  addition  to  the  earn-out
        provisions.  The value of these  performance  shares  will be charged to
        expense at the time of their  release from escrow.  These shares are not
        included  in  the  determination  of  loss  per  share  until  there  is
        reasonable certainty that they will be released from escrow.

        Stock options

        The  Company  established  a stock  option  plan  ("the  Plan") to grant
        options to purchase  common stock to employees,  officers,  non-employee
        directors  of the  Company  and  certain  other  individuals.  The  Plan
        authorizes the Company to issue or grant and incentive  stock options to
        purchase up to  2,187,688  shares of its common stock as of December 31,
        1996.  There are 260,188  options  available  that may be granted in the
        future under the stock option plan.


<PAGE>


ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1996




8.      CAPITAL STOCK (cont'd.....)

        Under  the  terms of the  Plan,  incentive  options  may be  granted  to
        employees,  officers,  directors and consultants at prices not less than
        the fair market  value on the date of grant.  Options  vest over various
        terms not  exceeding  four years and expire  five years from the date of
        grant.

        In September,  1996 the Board of Directors  approved a plan to amend the
        exercise  price of vested and  unvested  options to  purchase  1,250,000
        common  shares of the Company at prices,  ranging  from Cdn $1.40 to Cdn
        $3.66, to $0.75 per share.  The amended  exercise price was greater than
        the market price of the shares at the time of amendment. All other terms
        of the options,  including  vesting  provisions,  remained the same. The
        number of options  granted  and  cancelled,  in 1996,  as set out in the
        table below includes these amended options.

        A  summary  of  the  Company's  stock  option   activity,   and  related
        information  for the  years  ended  December  31,  1995  and 1996 are as
        follows:
<TABLE>
<CAPTION>
                                                                           1995                            1996
                                                               --------------------------   ------------------------------
      <S>                                                      <C>           <C>             <C>            <C>

                                                                              Weighted                       Weighted
                                                                               Average                        Average
                                                                              Exercise                       Exercise
                                                                Options        Price          Options        Price

        Outstanding at beginning of year                             -      $       -          1,530,000   $          1.14
           Granted                                              1,530,000          1. 14       2,087,500              0.93
           Cancelled                                                 -              -         (1,690,000)             1.20
                                                             ------------   ------------   -------------   ---------------

        Outstanding at end of year                              1,530,000              1.14    1,927,500              0.75
        Exercisable at end of year                              1,015,833              1.14    1,203,541              0.75
        Weighted-average fair value of options
           granted during the year                                                     0.71                           0.94

</TABLE>

        Pro forma  information  regarding  net loss is  required to be
        disclosed in accordance  with Statement 123, and has been  determined as
        if the Company has  accounted  for its employee  stock options under the
        fair value method prescribed in that Statement.  The fair value of these
        options  was  estimated  at the date of grant  using  the  Black-Scholes
        option pricing model with the following weighted average assumptions for
        1995 and 1996;  risk free interest rate of 5% to 6%,  dividend  yield of
        0%, and a weighted-average expected life of the options of 5 years.

        The Black-Scholes  option valuation  model  was developed for use in
        estimating  the fair  value of  traded  options  which  have no  vesting
        restrictions and are fully transferrable.  In addition, option valuation
        models require the input of highly subjective assumptions including the
        expected stock price  volatility.  Because the Company's  employee stock
        options  have  characteristics  significantly  different  from  those of
        traded options,  and because changes in the subjective input assumptions
        can materially affect the fair value estimate,  in management's opinion,
        the existing models do not necessarily provide a reliable single measure
        of the fair value of its employee stock options.

        For purposes of pro forma  disclosures,  the estimated fair value of the
        options is amortized  to expense over the vesting  period of the related
        options. The Company's pro forma information follows:

<TABLE>
<CAPTION>
                                                                            1995                    1996
                                                                            ----                    ----
           <S>                                                              <C>                     <C>
           Pro forma net loss                                               $1,638,177              $2,823,194
           Pro forma loss per share                                         $0.375                  $0.550
</TABLE>

ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1996



8.      CAPITAL STOCK (cont'd.....)

        The exercise price for options outstanding as of December 31, 1996
        is $0.75.  The weighted-average remaining contractual life of those
        options is 3.9 years.

        Warrants

        During  the 1996  year,  the  Company  issued a total of  639,000  share
        purchase warrants in connection with an offering of equity securities as
        described below.

        In March,  1996,  the  Company  sold,  pursuant  to a private  placement
        memorandum,  407,500 Units at $4.00 per Unit. Each Unit consisted of two
        shares (815,000 shares in total) and one share purchase warrant (407,500
        warrants  in total)  entitling  the holder to  purchase  one  additional
        common share at $2.30 per share. In addition, the Agent, for the sale of
        securities,  and an arms-length consultant to the Company received share
        purchase warrants,  entitling them to purchase 81,500 and 150,000 common
        shares  of the  Company  at $2.30  per  share  and Cdn  $3.15  per share
        respectively, as part of a compensation arrangement.

        As of December  31, 1996,  the Company has  outstanding  share  purchase
        warrants  entitling  the holders to  purchase a total of 727,235  common
        shares of the Company as follows:


<TABLE>
<CAPTION>
                           Number                   Exercise
                        of Shares                   Price                                Expiry Date
                       --------------------------------------------------------------------------------
                          <S>               <C>          <C>                          <C>
                             88,235         $            1.96                         December 18, 1997
                            150,000         Cdn          3.15 to April 25, 1997
                                            Cdn          3.62 from April 26, 1997
                                                                 to April 25, 1998    April 25, 1998
                            489,000                      2.30                         April 26, 1998
                      -------------
                            727,235
</TABLE>

 9.     RELATED PARTY TRANSACTIONS


        During 1994,  1995 and 1996, the Company paid or accrued  $90,000,  $Nil
        and $Nil,  respectively,  in  consulting  fees and $32,500,  $30,000 and
        $60,000,  respectively,  in management  fees to companies  controlled by
        certain  directors  of the  Company.  The  consulting  fees were paid in
        connection  with and were  contingent  upon the acquisition of SuperCard
        and have been included in the acquisition  costs  capitalized  (refer to
        Note 3).











<PAGE>

ALLEGIANT TECHNOLOGIES INC.
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1996



10.     GEOGRAPHIC INFORMATION

        Substantially  all the  Company's  operations,  employees and assets are
located in the United States.

        A significant portion of the Company's sales are to customers in foreign
countries:
<TABLE>
<CAPTION>
                                                                                    1994         1995           1996
        <S>                                                                 <C>            <C>             <C>
        Sales by geographical region:
           Japan                                                            $     46,100   $     260,506   $    139,960
           Europe                                                                 48,990         246,231        223,799
           Other                                                                  16,907         131,856         99,966
                                                                            ------------   -------------   ------------

           Total export sales                                                    111,997         638,593        463,725
           United States                                                         706,156       1,588,989        894,240
                                                                            ------------   -------------   ------------

           Net sales                                                        $    818,153   $   2,227,582   $  1,357,965
                                                                            ============   =============   ============

</TABLE>

11.     SUBSEQUENT EVENT

On  February  13,  1997  the  Company  issued a note  payable  (the  "Note")  in
connection with a proposed private placement of debt securities in the amount of
$750,000.  To date,  the Company has been advanced the sum of $100,000 under the
Note. The Note is secured by a general charge over the assets of the Company and
bears  interest at the First National Bank & Trust Company of Chicago prime rate
of interest plus 2% per annum, which is payable quarterly commencing on July 15,
1997. Amounts advance under the Note, together with accrued interest, are due on
the earlier of, the date on which the Company  completes  any offering of equity
securities for an amount of not less than $1,500,000, and February 13, 1999.

<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                        ALLEGIANT TECHNOLOGIES INC.



Date: March 31, 1997              By:   /s/ Joel B. Staadecker
                                        --------------------------
                                        Joel B. Staadecker
                                        President and C.E.O.


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.


/s/ Joel B. Staadecker                                  March 31, 1997
----------------------
Joel B. Staadecker
President and Director
(Chief Executive Officer)


/s/ William D. McCartney                                March 31, 1997
------------------------
William D. McCartney
Chief Financial Officer and Director
(Principal Financial and Accounting Officer)


/s/ Leonard Petersen                                    March 31, 1997
------------------------
Leonard Petersen
Director


------------------------
William C. Appleton
Director