SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, For Use Of The Commission Only
(as permitted by Rule 14c-5(d)(2))
[X] Definitive Information Statement
AUGMENT SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act
Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
AUGMENT SYSTEMS, INC.
P.O. BOX 222
WEST NEWBURY, MASSACHUSETTS 01985
(781) 270-9178
Information Statement Relating To Action By
Written Consent Of Majority Stockholders
------------------------
Dear Stockholder:
On or about September 12, 2000, a majority of the stockholders of
Augment Systems, Inc. (the "Company") consented to several corporate actions.
Your consent is not required and is not being solicited in connection with these
actions. Pursuant to Section 228 of the Delaware General Corporation Law, you
are hereby being provided with notice of the approval by less than the unanimous
written consent of the eligible voting stockholders of the Company. Pursuant to
the Securities Exchange Act of 1934, you are hereby being furnished with an
Information Statement relating to the Company's actions.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. THE ATTACHED INFORMATION STATEMENT IS BEING SENT TO YOU FOR INFORMATION
PURPOSES ONLY.
Sincerely,
/S/Duane Mayo
Duane A. Mayo, Chief Financial Officer
<PAGE>
AUGMENT SYSTEMS, INC.
P.O. BOX 222
WEST NEWBURY, MASSACHUSETTS 01985
(781) 270-9178
------------------------
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. THE ATTACHED INFORMATION STATEMENT IS BEING SENT TO YOU FOR
INFORMATION PURPOSES ONLY.
The Approximate Date of Mailing of this Information Statement is December
11, 2000.
This Information Statement is being furnished by Augment Systems, Inc. (the
"Company" or "Augment") in connection with actions taken by consent of a
majority of the stockholders (the "Written Consent"), a copy of which is annexed
hereto as Exhibit "A", which was mailed on or about July 18, 2000. On September
11, 2000, a majority of the Company's stockholders had returned consents
approving the transactions described below:
1. The election of Jeffrey Leventhal, Duane A. Mayo, and Milton Barbarosh, as
directors of the Company, to hold office until the next annual meeting and
until their successor is duly elected and qualified.
2. Approving the appointment of the accounting firm of Bloom & Company as the
Company's new outside auditors.
3. Ratifying, adopting, and approving the Stock Purchase Agreement, dated as
of March, 2000, by and between Right2Web.com, Inc. ("RTW" or "Right2web")
and the Company.
4. Declare a reverse stock split of the Company's outstanding Common Stock, to
be accounted for as a reverse stock dividend and to increase the authorized
capitalization of the Company.
5. Approve Amendment No. 1 to the Loan Agreement.
6. Approving such other actions as the directors of the Company deem necessary
and appropriate to carry out the intent and purposes of the foregoing
resolutions.
The actions taken by the Written Consent will be effective twenty-one (21) days
(approximately January 1, 2001) after this Notice and attached Information
Statement are mailed to all stockholders of Augment.
All necessary corporate approvals in connection with the matters referred
to herein have been obtained. The accompanying Information Statement is
furnished to all stockholders of record of Augment pursuant to Section 14 (c) of
the Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder solely for the purpose of informing the stockholders of these
corporate actions before they take effect.
Pursuant to Section 228 of the Delaware General Company Law, stockholders
of record of Augment as of September 11, 2000, the date on or about which the
Written Consent was signed by the holders of not less than a majority of the
issued and outstanding shares of Augment Common Stock, are entitled to receive
this Information Statement and Notice of Taking of Corporate Action Without a
Meeting by Written Consent.
The Company has asked brokers and other custodians and fiduciaries to
forward this Information Statement to the beneficial owners of the Shares held
of record by such persons and will reimburse such persons for out-of-pocket
expenses incurred in forwarding such materials.
The executive offices of the Company may be contacted at P.O. Box 222, West
Newbury, Massachusetts 01985. All holders of record of the shares at the close
of business on December 1, 2000, will receive this Information Statement.
<PAGE>
SUMMARY
This summary highlights information that may be found in greater detail
elsewhere in this Information Statement. In this summary, the Company has
attempted to describe those matters which the Company believes will be of the
greatest importance to you in understanding the various transactions. This
summary may not, however, contain all information that is important to you. For
that reason, the Company urges you to read this document carefully in its
entirety, including the Annexes at the bottom of this document and the
additional documents we refer you to under "WHERE YOU CAN FIND MORE INFORMATION"
on Page 22.
QUESTIONS AND ANSWERS ABOUT THIS INFORMATION STATEMENT
WHY AM I RECEIVING THIS INFORMATION STATEMENT?
This information statement provides notice to all stockholders of Augment
Systems, Inc (hereinafter "Augment"), of action taken by written consent by the
owners of a majority of the issued and outstanding shares of Augment common
stock.
WHAT ACTION DID THE MAJORITY STOCKHOLDERS OF AUGMENT APPROVE?
Augment stockholders approved the issuance of shares of convertible
preferred stock to the stockholders of Right2web.com, Inc. (hereinafter
"Right2web" or "R2W"), in accordance with the Stock Purchase Agreement, agreed
to in March 2000, between Augment and Right2web and as amended on September 12,
2000 (the "First Amendment"), (collectively, the "Stock Purchase Agreement") a
copy of which is annexed hereto as Exhibit C. The stockholders of Augment also
approved a reverse stock split. Additionally, Augment stockholders elected
Jeffrey Leventhal, Duane A. Mayo, and Milton Barbarosh as directors of Augment,
to hold office until the next stockholder meeting and until any successors are
duly elected and qualified. Augment stockholders approved Bloom & Company as
their new outside auditors. Also, Amendment No. 1 to the Loan Agreement
providing the holders of One Million Five Hundred Thousand Dollars
($1,500,000.00) of secured convertible debt conversion into an aggregate of five
percent (5%) of the equity of Augment, upon completion of the transaction with
Right2web, was ratified. Any other action required by Augment's directors to
facilitate the intent and purpose of these resolutions was approved.
WHAT PERCENTAGE OF AUGMENT STOCK DOES RIGHT2WEB OWN?
The stockholders of Right2web currently own shares of convertible preferred
stock in Augment. Upon expiration of twenty-one (21) days from the mailing of
this Information Statement, all of these shares of convertible preferred stock
may be immediately convertible (from time to time) into ninety two percent (92%)
of the total outstanding Shares. Following said expiration, Augment will file a
Certificate of Amendment to its Certificate of Incorporation evidencing its
conversion. (See Exhibit "B" annexed hereto). Also, Jeffrey Leventhal and Milton
Barbarosh have joined Duane A. Mayo as members of the Augment Board of Directors
(hereinafter "Election of Directors"). There is currently one (1) director.
<PAGE>
WHAT DO I NEED TO DO?
No stockholder action need be taken. This Information Statement provides
notice to all stockholders of the actions taken. No vote or proxy is required,
and Augment is not requesting stockholders send proxies.
WHAT WILL AUGMENT DO GOING FORWARD?
New management will seek to revitalize the Augment fibre channel storage
technology business while seeking to make acquisitions. Augment will need to
raise additional funds to accomplish these objectives of which there can be no
assurance. See "Business of the Company".
ELECTION OF DIRECTORS
The By-Laws of the Company provide that the Board shall consist of not less
than one director, as shall be fixed from time to time by the Board. The
directors hold office until the next annual meeting of stockholders and until
their successors have been duly elected and qualified. The number of directors
may be decreased at any time and from time to time either by the stockholders or
by a majority of the directors then in office, but only to eliminate vacancies
existing by reason of the death, resignation, removal or expiration of the term
of one or more directors. The number of directors may be increased at any time
and from time to time by the stockholders or a majority of the directors then in
office.
By Written Consent of the Majority Stockholders, dated July 18, 2000,
Jeffrey Leventhal, Duane A. Mayo, and Milton Barbarosh, a designee of Jeffrey
Leventhal, were elected as directors of the Company. (See Exhibit "A" annexed
hereto). Each director will serve as a director of the Company until the next
annual meeting and until a successor has been duly elected and qualified.
For each of the above directors, there follows a brief listing of his
experience as of the date of this information statement.
BACKGROUND OF DIRECTORS
JEFFREY LEVENTHAL is the former President and principal shareholder of
Remote Lojix/PCSI, Inc. of New York City, a national computer integration,
staffing and service vendor. After completing two acquisitions Remote Lojix/PCSI
was sold to a publicly traded firm. Prior to founding that company, Mr.
Leventhal was Vice President of Sales and Marketing at LANSafe Network Services,
Inc. of New York City, a network integration and management firm. Prior to that,
he managed the MIS department for Network Management Services Associates of New
York City, a database software company. Mr. Leventhal is the principal
stockholder of Right2Web, which is in the process of acquiring a majority
interest in the Company. Mr. Leventhal is a principal member of Hosted Systems,
LLC, which is engaged in the business of web site hosting and related services.
Mr. Leventhal has published three articles through Auerbach Publications and
majored in Economics and Computer Science at State University of New York -
Binghamton. Mr. Leventhal served as a director of the Company from January 1998
to March 1999.
<PAGE>
DUANE A. MAYO has served as Vice President of Finance and Administration of
the Company since March 1995 and as Director, Chief Financial Officer,
Secretary, and Treasurer since May 1995. From April 1993 through February 1995,
he served as Chief Financial Officer for Xerographic Laser Images Company, a
publicly-held company involved in the development of resolution enhancement
technology. From April 1988 to April 1993, Mr. Mayo was Corporate Controller for
Howtek, Inc., a publicly-held company and supplier of desktop scanners for the
color prepress marketplace.
MILTON BARBAROSH is a Principal and Managing Director of Maine Venture
Capital, and President of the Stenton Leigh Group Inc. ("Stenton Leigh"), a full
service merchant bank located in Boca Raton, Florida, and President of EAI
Partners, Inc. Prior to forming Stenton Leigh in 1989, Mr. Barbarosh was CEO of
JW Charles Group, Inc., a 400 person securities brokerage, real estate
brokerage, mortgage insurance, and residential development company. Prior to
1989, Mr. Barbarosh was Manager of the Mergers and Acquisitions Department at
the Royal Bank of Canada, responsible for M&A, divestitures, valuations,
financing, leveraged buyouts, and strategic planning. Mr. Barbarosh received his
training at Ernest & Young and at KPMG Peat Marwick in Canada. Mr. Barbarosh
received his Bachelor of Commerce from Concordia University, a Graduate Diploma
in Public Accounting (DPA), a Canadian Chartered Accountant (CA) from McGill
University, and an MBA from York University. He is a member of the Young
President's Organization, the American Society of Appraisers (ASA), the Florida
Business Brokers Association, the National Association of Real Estate
Appraisers, Certified Real Estate Appraisers (CTRS), and the Institute of
Business Appraisers, Inc. (IBA). He is the author of The Acquisition Decision,
published by the National Association of Accountants (United States) and the
Society of Management Accountants of Canada.
<PAGE>
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Company has appointed the accounting firm of Bloom & Company ("Bloom &
Company") as the Company's new outside auditors. This appointment was approved
by consent of majority stockholders pursuant to the Written Consent. As
described in Augment's Form 8-K, filed April 14, 2000, which is incorporated
herein by reference, Bloom & Company replaces BDO Seidman LLP who resigned as
the Company's accountants and will serve as the Company's accountants until the
next annual meeting of stockholders or as may be determined by the Company's
Board of Directors.
BUSINESS OF THE COMPANY
Augment Systems was a developer of Fibre Channel technology for the fast
growing data storage/fibre channel market. Going forward the Company intends to
update the proprietary fibre channel technology originally developed by
Augment's previous research and development team and to build an integration and
professional services firm and sales channel via acquisitions of strategic
businesses.
The Company ceased operation in January 1999. Thereafter, Duane Mayo, the
lone officer and director of the Company sought to pay off debts and/or resolve
all claims and seek an acquisition candidate. After several proposed
transactions were not consummated, Jeffrey Leventhal a former director of the
Company and an entrepreneur sought to acquire a controlling interest in the
Company.
THE FUTURE OPERATIONS OF AUGMENT
Management of Right2web, namely Jeffrey Leventhal and Milton Barbarosh,
believe that Augment's fibre channel storage technology business is still a
viable business. Augment may seek to revitalize and update the previous Augment
fibre channel technology. Augment would seek to accomplish this through the
establishment of a relationship with a university technology program, additional
financings and/or joint ventures. Management will simultaneously seek to acquire
one or more integration and professional services firms and develop and expand a
sales channel via acquisitions of strategic businesses. In addition, new
management will seek to acquire other complimentary companies in the information
technology business. Management of Right2web has also advised that it intends to
make strategic acquisitions in businesses, which may provide related services to
small to mid-sized businesses such as advertising, marketing and consulting
firms.
There is no assurance that Augment's new management will be successful in
its research and development of the fibre channel storage technology or that
Augment will be successful in selling such products or that Augment will have
sufficient capital resources to accomplish its business objectives. In essence,
Augment is a re-start-up operation with a new management team. Augment will need
to raise additional capital through the sale of equity or convertible debt which
could have a dilutive effect on current stockholders. At this time, however, new
management believes that Augment needs to explore all possible means to
revitalize its now ceased operations.
The original Right2web business model was to build a business-to-business
internet destination portal where small to medium sized companies could host
their web sites and direct employees to procure information, productivity tools
and products. In addition, Right2web intended on assisting companies in
developing and hosting enabled web sites. However, due to the changes in the
marketplace acceptance of business-to-business internet companies, Right2web
management has determined that Augment's new business model should focus on the
fibre channel storage technology business.
Augment will, among other things, be subject to intense competition (i.e.
Brocade(R), Gadzooks(R), JNI Fibre(R)), the need for substantial financing,
unforeseen technological changes, the risks inherent in any technology business
such as security concerns, technological difficulties, development of new
technology, the need to attract qualified personnel, as well as reliance on
Jeffrey Leventhal and Milton Barbarosh and the continuance of favorable market
conditions for internet companies, etc.
<PAGE>
INFORMATION ABOUT RIGHT2WEB.COM
Right2Web.com (hereinafter "Right2web") is a holding company with no
operations. There is no active public trading market for Right2web common stock,
and it is traded infrequently in private transactions. Right2web has no class of
securities registered under Section 12 of the Securities and Exchange Act of
1934, as amended, (hereinafter, the "1934 Act") and is not subject to the
reporting requirements of Sections 13(a) or 15(d) of the 1934 Act. Right2web has
never declared a cash dividend on the Right2web common stock. The shares of
Augment Preferred Stock issued in connection with the Stock Purchase Agreement
were issued in a transaction exempt from registration under the Securities and
Exchange Act of 1933, as amended, (hereinafter the "1933 Act"). Right2web's
principal executive office is located at 621 N.W. 53rd St., Suite 240, Boca
Raton, FL 33496.
FINANCIAL AND OTHER INFORMATION
-------------------------------
SEE EXHIBIT - E
QUARTERLY REPORT ON FORM 10-QSB UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED JUNE 30, 2000,
F1-F13
SEE EXHIBIT - F
ANNUAL REPORT ON FORM 10-KSB PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999,
F1A-F35A
<PAGE>
PROFORMA BALANCE SHEET AND STATEMENT OF OPERATIONS
The following pro forma balance sheet and statement of operations has been
derived from the unaudited balance sheet and unaudited statement of operations
of the Company at June 30, 2000 and the six months then ended and adjusts such
information to give effect to the purchase of Right2web.com as if the
acquisition had occurred at June 30, 2000. The pro forma balance sheet and
statement of operations are presented for informational purposes only and do not
purport to be indicative of financial conditions that actually would have
resulted if the purchase had been consummated at June 30, 2000. The pro forma
balance sheet should be read in conjunction with the notes thereto and the
Company's consolidated financial statements and related notes.
BALANCE SHEET
ACTUAL AND PRO FORMA
JUNE 30, 2000
<TABLE>
Assets
Current assets Actual Pro Forma
(Unaudited) Adjustments Pro Forma
<S> <C> <C> <C>
Cash $ 105,596 -- $ 105,596
------- -------
Total current assets 105,596 -- 105,596
Goodwill 40,480 (1)
-- (40,480) (2) --
------- ------ -------
Total assets $ 105,596 $ -- $ 105,596
======= ====== =======
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 54,942 -- 54,942
Accrued expenses 274,342 ( 210,000) (3) 64,342
Bridge financing 1,395,701 (1,395,701) (3) --
Convertible promissory notes 6,432 -- 6,432
Current portion of obligation under
capital leases 46,760 -- 46,760
----------- ------------ -------
Total current liabilities $ 1,778,177 $ (1,605,701) $ 172,476
See Notes to Pro Forma Financial Statements
</TABLE>
<PAGE>
BALANCE SHEETS
ACTUAL AND PRO FORMA
JUNE 30, 2000
(Continued)
<TABLE>
Actual Pro Forma
(Unaudited) Adjustments Pro Forma
<S> <C> <C> <C>
Common Stock
Common stock, $.01 par value; 50,000,000
authorized prior to filing of an amended
certificate to increase authorized shares
of common stock to of 150,000,000, $.0001 par value.
12,498,953 shares issued and outstanding at
June 30, 2000. On a pro forma basis 131,489,715 shares
issued and outstanding at June 30, 2000. 124,989 13,149
Cancellation of 15,778,406 shares issued,
3,279,453 issued after June 30, 2000 (124,989) (4)
Issuance of 3,947,600 post reverse split
shares at $.0001 par value per share
to prior shareholders. 394 (4)
Issuance of 6,574,336 post reverse split shares
at .0001 par value per share to bridge
financing note holders. 658 (3)
Issuance of 120,967,779 post reverse split shares at $.0001 par value per share
in exchange for preferred shares held by
Right2Web.com, Inc. shareholders. 12,097 (1)
Preferred Stock
Preferred stock, $.01 Par value; 2,000,000
shares authorized, none issued
Issuance of 1,416,666 shares to Right2web.com,
Inc. Shareholders in exchange for
Right2web.com common shares 14,167 (1)
See Notes to Pro Forma Financial Statements
</TABLE>
<PAGE>
BALANCE SHEETS
ACTUAL AND PRO FORMA
JUNE 30, 2000
(Continued)
<TABLE>
Actual Pro Forma
(Unaudited) Adjustments Pro Forma
Preferred Stock (Continued)
<S> <C> <C> <C>
1,416,666 preferred shares cancelled and
converted to common stock (14,167) (1)
Additional Paid-in capital
Additional Paid-in capital 21,804,866 21,959,687
Additional Paid-in capital from
reduction in par value from $.01 to
$.0001 and the number of outstanding
shares from 15,778,408 to 3,944,602 124,595 (4)
Additional Paid-in capital from
conversion of preferred stock 28,383 (1)
Additional Paid-in capital from
conversion of notes 1,542 (3)
Deficit
Deficit (23,602,436) -- (22,039,716)
Gain from conversion of notes -- 1,603,501 (3) --
Write off excess purchase price
of Right2Web.com -- ( 40,480) (2) --
----------- ---------- ------------
Total stockholders' equity ( 1,672,581) 1,605,701 ( 66,880)
------------ ---------- -------------
Total liabilities and
stockholders' equity $ 105,596 $ -- $ 105,596
=========== ========== ============
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
AUGMENT SYSTEMS, INC.
STATEMENTS OF OPERATIONS
ACTUAL AND PRO FORMA
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
Actual Pro Forma
<TABLE>
(Unaudited) Adjustments Pro Forma
<S> <C> <C> <C>
Sales $ -- $ -- $ --
Operating expenses:
General and administrative expenses 68,100 -- 68,100
Refund of prior year's expenses ( 19,934) -- (19,934)
Excess Acquisition cost -- 40,480 (2) 40,480
------------ ------ ------
Total operating expenses 48,166 40,480 (88,464)
Other income (expense):
Interest income (expense) (60,000) -- (60,000)
------ ---------- ------
Net loss before extraordinary item (108,166) ( 40,480) (148,646)
Extraordinary income
Gain from conversion of debt -- 1,603,501 (3) 1,603,501
------------ --------- ---------
Net income (loss) (108,166) 1,563,021 1,454,855
======= ========= =========
Net (loss) per share of common stock:
Basic and diluted
Net loss before extraordinary item ( .04) --
========== =========
Extraordinary item .01
Net income (loss) ( .04) .01
========== =========
Weighted average number of shares
outstanding 3,049,738 (a) 131,489,715
========= -----------
(a) Post split 1 for 4
</TABLE>
<PAGE>
AUGMENT SYSTEMS, INC.
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
Note 1. Issuance and Cancellation of Preferred Stock
Issuance of Series A Convertible Preferred Shares
Twenty-one days (21) after the mailing of an Information Statement to
the stockholders of Augment Systems, Inc. "Augment" or the "Company"
will close the exchange of 1,416,666 shares of Series A Convertible
Preferred Stock, par value $.01, and acquire the outstanding shares of
Right2web.com, Inc. ("Right2web"). The purpose of the acquisition was
to purchase the goodwill of Right2web.com, Inc. valued at $40,480 (See
Note 5). The acquisition of goodwill increased the Company's Preferred
Stock and Paid-in Capital by $12,097 and $28,383, respectively.
Conversion of Preferred Shares to Common Shares
The stockholders of Right2web may convert their Series A Preferred
Shares to 120,967,779 post reverse-split shares of common stock of the
Company, representing 92% of all outstanding shares of the common stock
of the Company as of the Effective Date (the "RTW Transaction"). The
Company cancelled the Preferred Shares ($14,167), upon the issuance of
the common shares.
Note 2. Excess acquisition cost
Augment has taken the position that the purchase of the Right2web
shares of the recently formed non-operating Right2web is not a business
combination under APB option 16. Accordingly, the excess acquisition
cost of $40,480 (see note 4) over the fair market value of the net
assets acquired is to be treated as an expense item of the Company.
Note 3. Conversion of Notes to Common Stock
On or about April 7, 2000, the Company's note holders agreed to
convert their notes and warrants to five percent (5%) of the common
stock of the Company after the reverse stock split of the Company,
subject to the closing of the RTW Transaction. The conversion of
bridge-loan notes will result in the issuance of 6,574,336 post
reverse-split shares to note holders. The fair value of the shares of
common stock given in exchange for $1,395,701 (face amount $1,500,000)
of notes and $210,000 of accrued interest on the notes, was $2,200
(See Note 4.) The difference between the fair value of the equity
interest granted and the carrying amount of the notes is recognized as
a gain of $1,603,501 on restructuring of the notes payable.
Note 4. Number of Shares and Par Value of Common Stock
Reverse Stock-Split
On September 12, 2000, a majority of the stockholders of Augment
approved a reverse stock-split where Augment will receive one share for
each four shares Augment own of the Company's common stock, par value
$0.01 per share (the "Common Stock"). Under the plan, the stockholders
of Augment will surrender their existing shares and receive one newly
issued share of common stock for every four shares of common stock they
hold.
At June 30, 2000, on a pro forma basis, the number of outstanding
common shares of the Company was 15,778,408 shares. These outstanding
shares will be cancelled and 3,944,602 shares of common stock will be
issued.
<PAGE>
AUGMENT SYSTEMS, INC.
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
Number of Authorized Shares
The Company's stockholders agreed to increase the number of authorized
shares from fifty million shares to one hundred fifty million shares
(consisting of 148,000,000 shares of common stock and two million
shares of preferred stock) and to decrease the par value from $.01 per
share to $.0001 per share.
Change in Par Value of Existing Shares
As a result of the reverse stock-split and a reduction in par value,
the balance of $124,989 in Common Stock on June 30, 2000 had to be
adjusted on a pro forma basis. The amount of Common Stock was recorded
at $394 and the $124,595 balance was transferred to additional paid-in
capital.
Note 5. Independent Appraisal
In order to facilitate the transaction which the Company considers a
reverse takeover, the Company ordered an estimation of the fair market
value of the Company's shares of common stock being exchanged with
Right2web. The estimated fair value of the common equity of Augment on
September 12, 2000, as determined by an independent valuation, was
$44,000. Based on this estimation, the shares purchased by Augment of
Right2web, which represents 100% of the outstanding shares of
Right2web, were assigned a value of $40,480. The shares to be issued to
the bridge noteholders was assigned a value of 5% of $44,000 or $2,200.
The remaining stockholders, value received was 3% or $1,320.
Note 6. Costs of transactions
The pro forma statement of operation excludes the following
non-recurring expenses which will be incurred in connection with, or
due to, the proposed transaction:
(a) Estimated professional fees of $35,000 related to the transaction for
legal and accounting.
(b) Estimated appraisal fee of $6,000 to value the Augment shares being
exchanged for the Right2web shares.
Note 7. Financial information of Right2Web.com Inc.
Right2Web.com, Inc. (RTW) was formed on March 2, 2000 as a New York
corporation with 20,000,000 shares authorized, par value $.001. As of
June 30, 2000, RTW had 10,416,666 shares issued and outstanding and had
no financial transactions other than:
1. Forming the Company.
2. Shareholders subscribing to shares.
3. Entering into an agreement with Augment Systems, Inc.
4. Development costs of the business model which have been
contributed by its chairman Mr. Jeffrey Leventhal without
remuneration to him.
<PAGE>
AUGMENT SYSTEMS, INC.
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
RTW condensed balance sheet is as follows as of June 30, 2000.
<TABLE>
<S> <C>
Assets
Current Assets --
======
Liabilities
Current Liabilities --
======
Shareholders' Equity
Capital stock 20,000,000 authorized par value
$.001,10,416,666 issued and outstanding $ 10,417
Subscriptions receivable ( 10,417)
----------
--
==========
</TABLE>
APPROVAL OF THE STOCK PURCHASE AGREEMENT
In March 2000, the Company entered into a Stock Purchase Agreement, by
which the Company agreed to sell to Right2web.com, Inc., ("Right2web"), a
venture principally owned by Jeffrey Leventhal, a former director of the
Company, such number of shares of the Series A Convertible Preferred Stock (the
"Preferred Stock") of the Company which, assuming conversion thereof at the
Closing, shall represent ninety two percent (92%) of all issued and outstanding
common stock, par value $.01 (the "Common Stock") in the Company, computed on a
fully diluted basis, assuming the exercise of presently outstanding warrants,
options and convertible notes of the Company and that current common
stockholders of the Company would receive three percent (3%) of the Company
(after the Company declares a reverse stock split of its Common Stock and the
Convertible Noteholders would receive five percent (5%) of the Company. The
Stock Purchase Agreement was approved by the Board of Directors on March 11,
2000 and a majority of the Company's stockholders approved the Stock Purchase
Agreement by September 11, 2000. The Stock Purchase Agreement along with the
related closing documents were executed on September 18, 2000 subject to the
mailing of this Information Statement.
<PAGE>
The Company entered into a First Amendment, dated September 12, 2000 to the
Stock Purchase Agreement, dated as of March, 2000 (collectively, the "Stock
Purchase Agreement") (a copy of which is annexed hereto as Exhibit "C" and
incorporated herein by reference as if fully set forth herein), pursuant to
which the Company will exchange with the Right2web stockholders, the RTW shares
of common stock for such number of shares of the Series A Convertible Preferred
Stock (the "Preferred Stock") of the Company which, assuming conversion thereof
and assuming all conditions of closing are met or waived, shall represent ninety
two percent (92%) of all issued and outstanding common stock, par value $.01
(the "Common Stock") in the Company, computed on a fully diluted basis, assuming
the exercise of presently outstanding warrants, options and convertible notes of
the Company and that current stockholders of the Company shall receive three
percent (3%) of the Company upon reverse split of its Common Stock, and the
Convertible Noteholders shall receive five percent (5%) of the Company.
Representations. The Stock Purchase Agreement contained representations of
Augment for the benefit of RTW, which include representations regarding the
following: (i) organization, corporate power and licenses, (ii) absence of
undisclosed liabilities, (iii) intellectual property rights, (iv) tax matters,
(v) assets, (vi) real property, (vii) subsidiaries, (viii) contracts and
commitments, (ix) employee benefit plans, (x) compliance with laws, (xi)
insurance, (xii) employees, and (xiii) general disclosure matters. Such
representations were made by Augment at contract signing in March of 2000 and at
the conditional Closing on September 18, 2000. Augment agreed to indemnify RTW
and its stockholders from the breach of any of Augment's representations.
Terms of Preferred Stock
The following is a summary of the preferences, powers and rights of the
2000 Series A Convertible Preferred Stock (hereinafter "Series A Convertible
Preferred Stock") set forth in the Certificate of Designations, Preferences and
Rights of the Series A Convertible Preferred Stock (hereinafter "Certificate of
Designation"), which will be filed with the Secretary of State of the State of
Delaware twenty one (21) days after the mailing of this Information Statement to
stockholders. The summary is qualified in its entirety by reference to the full
text of the Certificate of Designation, a copy of which is attached as an
exhibit hereto.
The number of authorized shares of Series A Convertible Preferred Stock is
Two Million (2,000,000).
With respect to dividends and distributions upon liquidation, dissolution
and winding up of Augment, Series A Convertible Preferred Stock is senior to all
other classes of securities of Augment.
The liquidation value of each share of Series A Convertible Preferred Stock
is One Thousand Dollars ($1,000.00) per share (hereinafter "Liquidation Value").
Upon any liquidation, dissolution, or winding up of Augment (either voluntary or
involuntary), each holder of Series A Convertible Preferred Stock shall be
entitled to be paid, before any distribution or payment is made upon any equity
securities (hereinafter "Junior Securities") of Augment, other than Series A
Convertible Preferred Stock, an amount in cash equal to the aggregate
liquidation value of all shares held by such holder (plus all accrued and unpaid
dividends thereon), and the holders of Series A Convertible Preferred Stock
shall not be entitled to any further payment. If upon any such liquidation,
dissolution or winding up of Augment, Augment's assets to be distributed among
the holders of the Series A Convertible Preferred Stock are insufficient to
permit payment to such holders of the aggregate amount which they are entitled
to be paid, then the entire assets available to be distributed to Augment's
shareholders shall be distributed pro rata among such holders based upon the
aggregate liquidation value (plus all accrued and unpaid dividends) of the
Series A Convertible Preferred Stock held by each such holder.
<PAGE>
As long as shares of Series A Convertible Preferred Stock remain
outstanding, without the prior written consent of the holders of a majority of
such outstanding shares, Augment shall not directly or indirectly pay or declare
any dividend or make any distribution to the Common Stockholders.
Except as otherwise required by applicable law, the Series A Convertible
Preferred Stock shall have no voting rights; provided that each holder of Series
A Convertible Preferred Stock shall be entitled to notice of all stockholders'
meetings at the same time and in the same manner as notice is given to all
stockholders entitled to vote at such meetings.
Registration Rights Agreement
In accordance with the Stock Purchase Agreement between Augment and
Right2web, Augment entered into a Registration Rights Agreement with the
Right2web stockholders on September 18, 2000 (hereinafter "Registration Rights
Agreement"), a copy of which is attached as Exhibit "D" hereto and incorporated
herein by reference as if fully set forth herein. For purposes of the
Registration Rights Agreement, the term "Registrable Securities" is defined as
any Common Stock issued or issuable upon conversion of Preferred Stock. Subject
to any restrictions set forth in the Registration Rights Agreement, the holders
of a majority of the Registrable Securities may request registration at anytime
from September 1, 2000 through August 31, 2010 under the Securities Act of all
or any portion of their Registrable Securities on Form S-3 or any similar
short-form registration (hereinafter "Short Form Registrations"), if available.
All such registrations are referred to as "Demand Registrations." Each request
for a Demand Registration shall specify the approximate number of Registrable
Securities requested to be registered and the anticipated per share price range
for such offering. Within ten (10) days after receipt of any such request,
Augment shall give written notice of such requested registration to all other
holders of Registrable Securities and shall include in such registration all
Registrable Securities with respect to which Augment has received written
requests for inclusion therein within fifteen (15) days after the receipt of
Augment's notice. In the case of an underwritten offering, Augment shall have
the right to select the investment banker(s) and manager(s) to administer the
offering, subject to the approval of the holders of a majority of the
Registrable Securities included in such Demand Registration, which approval
shall not be unreasonably withheld.
A condition to the closing of the Stock Purchase Agreement was obtaining
the consent of secured noteholders (the "Noteholders") of the Company converting
their debt in the aggregate principal amount of $1,500,000 into equity of the
Company as of the Closing Date equal to five percent (5%) of the Company. The
Company received the consent of all of the Noteholders by April 30, 2000. See
"Amendment No. 1 to Loan Agreement" below.
INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
The Certificate of Incorporation will be amended to increase the authorized
shares of common stock from 50,000,000 of common stock, par value $.01 per share
and two million shares of preferred stock, par value $.01 to 148,000,000 shares
of common stock, par value $.0001 per share ("Authorized Common Stock Increase")
and two million shares of preferred stock par value $.01 per share. A copy of
the Certificate of Amendment of the Certificate of Incorporation of Augment,
along with the Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock is annexed hereto as Exhibit B and incorporated
herein by reference as if fully set forth herein.
<PAGE>
GENERAL
As set forth above, the Board of Directors authorized the Authorized Common
Stock Increase which was also approved pursuant to the Written Consent of a
majority of the outstanding shares of Common Stock. The Authorized Common Stock
Increase will be effective upon filing an amendment to the Certificate of
Incorporation with the Delaware Secretary of State (the "Effective Date"). Upon
the Effective Date, each share of Augment will automatically convert into
one-fourth (1/4) of one share of Augment.
REVERSE STOCK SPLIT
DECLARATION OF REVERSE STOCK SPLIT
The Company has declared a reverse stock split, to be accounted for as a
reverse stock dividend, of the Company's outstanding Common Stock. As a result,
the current common stockholders of the Company shall own Three Percent (3%) of
the Common Stock of the Company, the Convertible Noteholders shall own an
aggregate of Five Percent (5%) of the Common Stock of the Company, and
Right2web.com shall own Ninety Two Percent (92%) of the Common Stock of the
Company upon conversion of the Preferred Stock, it being understood that the
reverse stock split may occur from time to time. The reverse stock split will be
FOUR (4) shares of issued and outstanding shares of Common Stock for one (1)
share of Common Stock. The stockholders of Augment approved a reverse stock
split of four (4) shares for each one (1) share of Common Stock pursuant to the
Written Consent annexed hereto.
The Certificate of Incorporation will be amended to effect a 1:4 reverse
stock split ("Reverse Stock Split") of the issued and outstanding shares of
Augment Common Stock.
As set forth above, the Board of Directors authorized the Reverse Stock
Split, and stockholders holding the requisite percentage of the outstanding
shares have consented thereto. Upon the Effective Date, the Reverse Stock Split
will be deemed effective, and each certificate representing shares of Augment
common stock, will be deemed automatically, without any action by the
stockholders, to represent one fourth (1/4) of the number of shares of common
stock after the Reverse Stock Split; provided that no fractional new shares will
be issued as a result of the Reverse Stock Split. In lieu of fractional
interests, a stockholder will receive cash equal to the average closing prices
of Augment common stock for the three (3) trading days following the Effective
Date multiplied by that fractional interest. After the Reverse Stock Split
becomes effective, stockholders will be asked to surrender stock certificates
representing the old shares in accordance with the procedures set forth in a
letter of transmittal to be sent by Augment. Upon such surrender, a certificate
representing the new shares will be issued, along with cash representing any
fractional interest, and forwarded to stockholders. However, each certificate
representing old shares will continue to be valid, and represent new shares
equal to one fourth (1/4) of the number of shares of common stock prior to the
Reverse Stock Split.
<PAGE>
PURPOSES OF THE PROPOSED REVERSE SPLIT
The Reverse Stock Split is to be effected for several reasons. The Reverse
Stock Split should enhance the acceptability of Augment common stock by the
financial community and investing public. The reduction in the number of issued
and outstanding shares of Augment common stock which is publicly traded caused
by the Reverse Stock Split is expected to increase the market price of Augment
common stock. The Board of Directors believes the proposed Reverse Stock Split
will result in a broader market for Augment common stock than the currently
existing market. Many brokerage house policies and practices act to discourage
individual brokers within those firms from dealing in lower priced securities.
Such policies may effect the payment of broker commissions, or other time
consuming procedures that make lower priced securities economically unattractive
to brokers. Additionally, trading commission structures tend to adversely impact
holders of lower priced securities because that commission represents a higher
percentage of the sales price than the commission on a relatively higher priced
issue. The Reverse Stock Split may result in a Common Stock price level that
could somewhat reduce the effect of the above-mentioned brokerage house policies
and practices and diminish the adverse impact on trading commissions in the
market for Augment common stock. An increased price level could encourage
interest and trading in Augment common stock and possibly promote greater
liquidity for Augment stockholders.
Presently, Augment common stock is traded on the NASD Electronic Bulletin
Board. The Board of Directors believes the Reverse Stock Split can assist
Augment's efforts to meet the initial listing application requirements
maintained by NASDAQ for its small capitalization market.
However, there are no assurances that any or all of these effects will
occur; including, without limitation, that the market price for new shares of
Augment common stock will be four times the market value of shares prior the
Reverse Stock Split, or that such price will either exceed or remain in excess
of current market prices. There is no assurance that the market for Augment
common stock will improve. Stockholders must note that the Board of Directors
can in no way predict what actual effect the Reverse Stock Split will have on
the market price of Augment common stock.
IMPLEMENTATION OF REVERSE STOCK SPLIT
The Reverse Stock Split will be effected by filing the Amendment to the
Certificate of Incorporation with the Delaware Secretary of State and will
become effective as of the Effective Date. Without any further action by
Augment, or its stockholders, after the Effective Date, the certificates
representing the old shares will be deemed to represent 1/4 of the number of new
shares, exclusive of all fractional interests.
As soon as practicable after the Effective Date, Augment will send a letter
of transmittal to each stockholder of record of old shares of Augment Common
Stock outstanding on the Effective Date. This letter will contain instructions
for surrendering certificates representing old shares to Continental Stock
Transfer & Trust Company, Augment's exchange agent (the "Exchange Agent"). Upon
proper completion and execution of the letter of transmittal and return thereof
to the Exchange Agent, together with certificates representing old shares,
stockholders will be entitled to receive a certificate representing the number
of new shares of Augment common stock into which those old shares have been
reclassified and changed as a result of the Reverse Stock Split, and cash for
any applicable fractional shares.
<PAGE>
Stockholders are not to submit any certificates until requested to do so.
New certificates will not be issued to any stockholder until they have
surrendered any and all outstanding certificate(s) together with a properly
completed and executed letter of transmittal to the Exchange Agent.
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT
Augment has not, and will not, seek an opinion of counsel or an Internal
Revenue Service ruling regarding federal income tax consequences of the Reverse
Stock Split. However, Augment is of the belief that the Reverse Stock Split is
not part of a plan to periodically increase any stockholder's proportionate
interest in the assets or earnings and profits of Augment, the Reverse Stock
Split will have the following federal income tax effects:
1. Only to the extent of the cash received from Augment's repurchase of
fractional shares, stockholders will not realize a gain or loss on the
Reverse Stock Split. In the aggregate, the stockholder's basis in the
new shares will equal his/her basis in the old shares.
2. A stockholder's holding period for the new shares will be the same as
the holding period for the old shares exchanged therefor.
3. The Reverse Stock Split constitutes a reorganization within the
meaning of Section 368(a)(1)(E) of the Internal Revenue Code of 1986,
as amended, and Augment will realize no gain or loss as a result of
the Reverse Stock Split.
AMENDMENT NO. 1 TO THE LOAN AGREEMENT
The Company has obtained the consent of all of its secured convertible
noteholders (the "Noteholders") to Amendment No. 1 to the Loan Agreement which
provided that the holders of $1,500,000 of secured convertible debt (the
"Convertible Noteholders"), which was obtained in September 1998, to convert
their loans into an aggregate of five percent (5%) of the equity of the Company
(the "Convertible Noteholder Conversion Transaction") after completion of the
Right2web transaction.
The Convertible Noteholders waived all rights to unpaid interest on the
convertible debt or to any registration rights they might otherwise have been
entitled to.
The Convertible Noteholder transaction changes the Company's balance sheet
by converting the $1,500,000 debt into equity of the Company. However, it is
dilutive to current shareholders. Pursuant to the Consent of Majority
Stockholders, the Convertible Noteholder Transaction was approved by a majority
of the stockholders of Augment.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of November 1, 2000,
with respect to the beneficial ownership of the capital stock of the Company for
(i) each person who is known by the Company to own beneficially 5% or more of
the outstanding shares of its Common Stock; (ii) each of the directors and
executive officers of the Company; and (iii) all directors and officers as a
group. Except as otherwise indicated, the stockholders listed in the table have
sole voting and investment powers with respect to the shares indicated. As of
November 1, 2000, the Company had approximately 1,000 stockholders of record.
Unless otherwise indicated, the address for directors, executive officers and
five percent (5%) stockholders is c/o Augment Systems, Inc., P.O. Box 222, West
Newbury, Massachusetts 01985.
<TABLE>
Name and Address *Number of Shares Percentage of Number of Shares Percentage
-------------- Beneficially Owned(1) Class Beneficially Owned After Closing
-------------------- -------------- After Conversion ----------------
Of Preferred (2)
-------------------
<S> <C> <C> <C>
Jeffrey Leventhal(3) 0 0% 58,766,147 44.70%
Milton H. Barbarosh(4) 0 0% 46,451,627 35.33%
Duane A. Mayo(5) 253,026 1.6% 63,257 .05%
Trussel & Co.
c/o Westfield Capital Mgmt 1,000,000 6.3% 250,000 .19%
One Financial Center
Boston, MA 02110
All directors and officers
As a group (3 Persons) 253,026 1.6% 105,531,031 80.27%
</TABLE>
*Does not reflect the effects of the 1) proposed reverse stock split of the
Company's Common Stock; 2) the conversion of the Preferred Stock into 92% of
Common of the Corporation; and 3) the issuance of Stock 5% of the Common Stock
to the Noteholders.
(1) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or group has a right to acquire within 60 days
pursuant to the exercise of options or warrants are deemed to be outstanding for
the purpose of computing the percentage ownership of such individual or group,
but are not deemed to be beneficially owned and outstanding for the purpose of
computing the percentage ownership of any other person shown in the table.
(2) Reflects the conversion of the Preferred Stock into 92% of Common of the
Corporation and the issuance of Stock 5% of the Common Stock to the Noteholders
(3) Mr. Leventhal, a director of the Company, is President and a principal of
Right2web.com, Inc., and received Preferred Stock under the Right2web Agreement.
(See "Right2web Transaction" and "Transactions with Management and Significant
Stockholders").
(4) Mr. Barbarosh, a director of the Company, is President and a principal of
EAI Partners, Inc., a merchant bank located in Boca Raton, Florida and received
Preferred Stock under the Right2web Agreement. (See "Right2web Transaction" and
"Transactions with Management and Significant Stockholders").
(5) Duane A. Mayo - was the only officer and director of the Company prior to
the Right2web transaction.
EXECUTIVE COMPENSATION
None of the Company's executive officers received cash compensation in
excess of $100,000 for the past 2 years.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has no employment agreements. Duane Mayo, the Company's Chief
Financial Officer has not taken any salary since 1999. Jeffrey Leventhal and
Milton Barbarosh, directors of the Company do not currently have employment
agreements but it is anticipated that they will seek to enter into employment
agreements upon commencement of operations.
DIRECTOR COMPENSATION
The Company's directors do not receive compensation for serving on the
Board of Directors, however, the Company reimburses directors for travel
expenses incurred to attend Board meetings.
INFORMATION CONCERNING BOARD MEETINGS AND COMMITTEES
The Board of Directors held three (3) meetings during fiscal 1999. Duane
Mayo, as sole director attended all meetings and received no compensation. The
Corporation has no current standing audit, nominating or compensation
committees.
<PAGE>
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is currently traded on the Bulletin Board
Over-the-Counter under the symbol "AUGS". The Company's Common Stock Purchase
Warrants are no longer traded. In February 1998, the NASD changed the listing
requirements for companies whose securities are listed on NASDAQ SmallCap
Market. In light of those changes, on February 26, 1998, NASDAQ informed the
Company it was to have net tangible assets of $5,000,000 by June 30, 1998, and
granted the Company a temporary listing exception until that time. Since, at
June 30, 1998, the Company did not meet the net tangible assets requirement, on
July 7, 1998 NASDAQ informed the Company that securities were no longer eligible
for listing on the NASDAQ SmallCap Market.
Augment Common Stock is currently traded on the NASDAQ over-the-counter
exchange (the "Market"), under the symbol "AUGS". The following table sets
forth, for the periods indicated, the highest and lowest sales prices for
Augment's Common Stock reported through the Market. These prices do not include
retail mark-ups, mark-downs or commissions, and do not necessarily represent
actual transactions:
The following table sets forth the range of high and low prices quoted for
the Common Stock for the periods indicated. Such quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and do not necessarily
represent actual transactions. Period High ($) Low ($)
<TABLE>
<S> <C> <C>
Period High ($) Low ($)
Year Ended December 31, 1998
First Quarter 1.50 1.00
Second Quarter 1.4575 .50
Third Quarter .50 .21875
Fourth Quarter .375 .01
Year Ended December 31, 1999
First Quarter .25 .005
Second Quarter .09 .05
Third Quarter .09 .05
Forth Quarter .04 .005
Year 2000
First Quarter .65 .015
Second Quarter .25 .001
Third Quarter .3125 .10
Dividend Policy
</TABLE>
<PAGE>
Dividend Policy
The Company has never paid any cash dividends and does not anticipate
payment of cash dividends on the Company's Common Stock in the foreseeable
future. Under Delaware General Corporation Law, dividends may be paid only out
of legally available funds as prescribed by statute, subject to the discretion
of the Company's Board of Directors.
Recent Sales of Unregistered Securities
The Company did not have any securities sold by the Company during the
period covered by this reporting period that were not registered under the
Securities Act of 1933 or otherwise reported on the Company's Form 10-QSBs filed
during this reporting period.
1. In December 1998, the Board of Directors authorized the issuance of an
additional 3,592,816 shares of Common Stock to 66 accredited investors who
participated in private placements of the Company's Common Stock during January
and May 1998. The issuance of the shares was pursuant to specific terms of the
private placement relating to missing certain revenue milestones. In July of
2000, the Company issued those shares.
2. In December 1998, the Board of Directors authorized the issuance of
warrants to purchase 359,282 shares of Common Stock to the underwriter involved
in private placements of the Company's Common Stock during January 1998 and May
1998. The issuance of the warrants was pursuant to specific terms of the private
placement relating to missing certain revenue milestones. As of October 2000,
the Company had not issued those warrants.
3. In June 2000, the Company sold Six Hundred Thousand (600,000) shares of
the Company's Common Stock (the "Monarch Shares") to Monarch Financial Company
of America, a registered broker-dealer for the sum of $.10 per Share (for a
total of $60,000) (the "Purchase Price"). Monarch agreed to act as a "market
maker" for the Company and Monarch filed a Form 15c-211 and the Addendum to Form
15c-211 and such other forms and information as were reasonably requested by the
NASDAQ and the NASD to cause the Company's Common Stock to resume trading on the
NASDAQ over-the-counter market. The Company also entered into a Registration
Rights Agreement with Monarch in connection with the sale of the Monarch Shares.
Whenever Augment proposes to register any of its securities under the Securities
Act (other than (i) pursuant to a Demand Registration, or (ii) in connection
with registrations on Form S-4, S-8 or any successor or similar forms) and the
registration form to be used may be used for the registration of Registrable
Securities (a "Piggy-back Registration"), Augment shall give prompt written
notice to the Monarch holders of Registrable Securities of its intention to
effect such a registration and shall include in such registration all
Registrable Securities with respect to which Augment has received written
requests for inclusion therein within twenty (20) days after the receipt of
Augment's notice. The Registration Expenses of the holders of Registrable
Securities shall be paid by Augment in all Piggy-back Registrations. If a
Piggy-back Registration is an underwritten primary registration on behalf of
Augment, and the managing underwriters advise Augment in writing that, in their
opinion, the number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner in such offering
within a price range acceptable to Augment, then Augment shall include in such
registration (i) first, the securities Augment proposes to sell, and (ii)
<PAGE>
second, all other securities (including the Registrable Securities) requested to
be included in such registration, pro rata among the holders of such securities
on the basis of the number of shares owned by each such holder. If a Piggy-back
Registration is an underwritten secondary registration on behalf of holders of
Augment's securities other than holders of Registrable Securities, and the
managing underwriters advise Augment in writing that, in their opinion, the
number of securities requested to be included in such registration exceeds the
number which can be sold in an orderly manner in such offering within a price
range acceptable to the holders of a majority of the Registrable Securities to
be included in such registration, then Augment shall include in such
registration (i) first, the securities requested to be included therein by the
holders requesting such registration and (ii) second, all other securities
(including Registrable Securities) requested to be included in such
registration, pro rata among the holders of such securities on the basis of the
number of shares owned by each such holder.
The offerings described in Numbers 1 through 3, inclusive, were exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933 and the
Securities and Exchange Commission Rule 506.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1998, Leventhal Paget, LLC of which Jeffrey Leventhal is a
member, purchased 200,000 shares of Common Stock for $200,000 in a private
placement of the Company's Common Stock. Mr. Leventhal was a director of the
Company from January 1998 until March of 1999. Pursuant to the written Consent
of Majority Stockholder, Mr. Leventhal was elected as a director of the Company
and subsequently sold such stock in a private transaction.
The Company has adopted a policy, by resolution of the Board of Directors,
whereby all transactions between the Company and its officers, directors,
principal stockholders or affiliates are to be approved by a committee of the
Board of Directors, a majority of the members of which shall be independent
directors, or, if required by law, a majority of disinterested directors, and
will be on terms no less favorable to the Company than could be obtained in
arm's length transactions from unaffiliated third parties.
Distribution of Information Statement
The expenses relating to the distribution of this Information Statement
will be borne by Augment. The distribution will be made by mail.
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and special reports, proxy statements
and other information with the SEC. You can read and copy any materials that the
Company files with the SEC at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549; the SEC's regional offices located at
Seven World Trade Center, New York, New York 10048, and at 500 West Madison
Street, Chicago, Illinois 60661. You can obtain information about the operation
of the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
also maintains a Web site that contains information we file electronically with
the SEC, which you can access over the internet at http://www.sec.gov. Copies of
these materials may also be obtained by mail from the Public Reference Section
of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company has included Augment's 1999 Annual Report on Form 10-KSB
(Exhibit "F") and Quarterly Report on Form 10-QSB for the quarter ended June 30,
2000 (Exhibit "E").
The Company may "incorporate by reference" the information it files with
the SEC, which means that the Company can disclose important information without
re-printing the information in this Information Statement by referring to prior
and future filings with the SEC. The information the Company incorporates by
reference is an important part of this Information Statement, and later
information that the Company files with the SEC will automatically update and
supersede this information. The Company incorporates by reference the following
documents filed by Augment pursuant to the Securities Exchange Act of 1934: (i)
Augment's Annual Report on Form 10-K for the fiscal year ended December 31,
1999; (ii) Augment's Current Report on Form 8-K filed on April 14, 2000; (iii)
Augment Form 10-QSB for the quarter ended March 31, 2000; (iv) Augment's
Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000; and (v) any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act.
<PAGE>
You may request a copy of these filings (other than an exhibit to any of
these filings unless the Company has specifically incorporated that exhibit by
reference into the filing), at a cost of $.25 per page, by writing or
telephoning the Company at the following address:
Augment Systems, Inc.
c/o Rosen & Tetelman, LLP
501 Fifth Avenue, Suite 1404
New York, New York 10017
(212) 986-7171
You should rely only on the information the Company has provided or
incorporated by reference in this Information Statement or any supplement. We
have not authorized any person to provide information other than that provided
here. We have not authorized anyone to provide you with different information.
You should not assume that the information in this Information Statement or any
supplement is accurate as of any date other than the date on the front of the
document.
FORWARD-LOOKING STATEMENTS AND INFORMATION
This Information Statement, including the information we incorporate by
reference, includes forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Securities Exchange Act. You can
identify our forward-looking statements by the words "expects," "projects,"
"believes," "anticipates," "intends," "plans," "budgets," "predicts,"
"estimates" and similar expressions.
The Company has based the forward-looking statements relating to our
operations on our current expectations, estimates and projections about the
Company. We caution you that these statements are not guarantees of future
performance and involve risks, uncertainties and assumptions that we cannot
predict. In addition, we have based many of these forward-looking statements on
assumptions about future events that may prove to be inaccurate. Accordingly,
our actual outcomes and results may differ materially form what we have
expressed or forecast in the forward-looking statements.
By Order of the Board of Directors,
-----------------------------------
Duane Mayo, Chief Financial Officer
Dated: December 8, 2000
Exhibits
-Exhibit A-Consent of Majority Stockholders, dated as of July 18, 2000
-Exhibit B-Certificate of Amendment of the Certificate of Incorporation with
Certificate of Designations, Preferences and Rights of Series A convertible
Preferred Stock
-Exhibit C-Stock Purchase Agreement and First Amendment, dated, September 12,
2000 to Stock Purchase Agreement -Exhibit D-Registration Rights Agreement
-Exhibit E-Quarterly Report on Form 10-QSB for the six months ended June 30,
2000
-Exhibit F-Annual Report on Form 10-KSB for the year ended December 31,
1999
<PAGE>
EXHIBIT A
CONSENT OF MAJORITY STOCKHOLDERS
OF
AUGMENT SYSTEMS, INC.
Pursuant to the provisions of the Delaware General Corporation Law, Section
228, the undersigned, being the holders of a majority of the issued and
outstanding shares of the capital stock of Augment Systems, Inc., a Delaware
corporation (the "Corporation"), do hereby consent to and adopt the actions set
forth in the following resolutions:
RESOLVED, that the Stock Purchase Agreement, dated as of March, 2000
(the "Stock Purchase Agreement") (a copy of which is annexed to the
Corporation's Form 8-K, as filed on April 11, 2000, with the United
States Securities and Exchange Commission and is incorporated herein by
reference), pursuant to which the Corporation will sell to
Right2web.com, Inc., ("Right2web.com"), a business-to-business internet
venture principally owned by Jeffrey Leventhal, such number of shares
of the Series A Convertible Preferred Stock (the "Preferred Stock") of
the Corporation which, assuming conversion thereof at the closing
(assuming all conditions of closing are met or waived), shall represent
ninety two percent (92%) of all issued and outstanding common stock,
par value $.01 (the "Common Stock") in the Corporation, computed on a
fully diluted basis, assuming the exercise of presently outstanding
warrants, options and convertible notes of the Corporation and that
current common stockholders of the Corporation would receive three
percent (3%) of the Corporation (after the Corporation declares a
reverse stock split of its Common Stock and the Convertible Note
holders would receive five percent (5%) of the Corporation, be and it
hereby is ratified, adopted and approved in all respects; and be it
further
RESOLVED, that the Corporation execute and deliver all other documents
required by the Stock Purchase Agreement, including, but not limited to
the Registration Rights Agreement, (in the form annexed hereto),
certificates and other closing documents and to take any and all action
necessary and appropriate to facilitate the consummation of the
transactions contemplated by the Stock Purchase Agreement; and be it
further
RESOLVED, that in furtherance of the above resolution, the Officer of
the Corporation be, and he hereby is, authorized and directed to do and
perform all such acts and to execute and deliver all such further
agreements, instruments and documents, pay all fees and expenses in the
name and on behalf of the Corporation and under its corporate seal or
otherwise, register the common stock issuable to Right2web.com upon
conversion of the Preferred Stock, from time to time, including a
Registration Statement on Form S-3 or other like form, and to take or
cause to be taken all other actions as such Officers may deem
necessary, desirable or appropriate, as evidenced by his taking such
action or the execution and delivery of such instrument or document, to
carry out and consummate the transactions authorized by the foregoing
resolution; and be it further
<PAGE>
RESOLVED, that Amendment No. 1 to the Loan Agreement requesting that
the holders of $1,500,000 of secured convertible debt (the "Convertible
Note holders") obtained in September 1998, convert their loans into an
aggregate of five percent (5%) of the equity of the Corporation (the
"Convertible Note holder Conversion Transaction") after completion of
the Right2web transaction (a copy of Amendment No. 1 to Loan Agreement,
is annexed to the Form 8-K referred to above and is incorporated herein
by reference), be and it hereby is, ratified, adopted and approved; and
be it further
RESOLVED, that there be declared a reverse stock split, to be accounted
for as a reverse stock dividend, of the Corporation's outstanding
Common Stock, effective immediately prior to the date of the closing of
the Stock Purchase Agreement and the Convertible Note holder
Transaction (subject to the Board of Directors final determination to
take such action), such that the current common stockholders of the
Corporation shall own Three Percent (3%) of the Common Stock of the
Corporation, the Convertible Note holders shall own an aggregate of
Five Percent (5%) of the Common Stock of the Corporation and
Right2web.com shall own Ninety Two Percent (92%) of the Common Stock of
the Corporation upon conversion of the Preferred Stock, it being
understood that the reverse stock split may occur from time to time and
that initially the reverse stock split will be four (4) shares of
issued and outstanding shares of Common Stock for one (1) share of
Common Stock; and that in connection with said reverse stock split, no
changes shall be made to the capital or surplus accounts of the
Corporation or in the par value of said Common Stock; and be it further
RESOLVED, that the number of shares of Common Stock, par value, $.01,
which the Corporation shall have authority to issue be increased from
Fifty Million (50,000,000) shares to One Hundred Fifty Million
(150,000,000) (there shall be no change to the terms of the
Corporation's Preferred Stock) and that Officer(s) and Director(s) of
the Corporation are hereby authorized to take such action as they deem
necessary and appropriate, if at all, to amend the Certificate of
Incorporation be amended to reflect such change; and be it further
RESOLVED, that the officers of the Corporation are hereby authorized
and directed to issue and deliver (or cause its transfer agent to issue
and deliver) stock certificates representing shares of the
Corporation's Preferred Stock and Common Stock, $.01 par value,
therefore as set forth in the foregoing resolutions and to take such
further actions and execute such other necessary documents and
certificates as the officers and directors of the Corporation deem
necessary and appropriate to further the foregoing; and be it further
RESOLVED, that all action previously taken by Duane Mayo, as sole
officer and director of the Corporation to sell assets of the
Corporation, settle the Corporation's debts, attempts to sell the
Corporation's Common Stock or Preferred Stock, convert noteholders, be
and they hereby are, ratified, adopted and approved; and be it further
RESOLVED, that the appointment of the accounting firm of Bloom &
Company ("Bloom & Company"), as the Company's new outside auditors, be
and they hereby are ratified and approved unless and until the next
annual meeting of stockholders or as may be determined by the
Corporation's Board of Directors; and be it further
<PAGE>
RESOLVED, that the following persons be, and they hereby are, elected
as directors of the Corporation:
Jeffrey Leventhal/a designee of Jeffrey Leventhal/Duane Mayo to serve
until the next annual meeting of stockholders or until their
successor(s) shall be duly elected and shall qualify; and be it further
RESOLVED, that in furtherance of the above resolution, the Director(s)
and Officer(s) of the Corporation, or any of them, be, and hereby are,
authorized and directed to do and perform all such acts and to execute
and deliver all such further agreements, instruments and documents, pay
all fees and expenses in the name and on behalf of the Corporation and
under its corporate seal or otherwise, and to take or cause to be taken
all other actions as such Officers may deem necessary, desirable or
appropriate, as evidenced by his taking such action or the execution
and delivery of such instrument or document, to carry out and
consummate the transactions authorized by the foregoing resolutions.
IN WITNESS WHEREOF, the undersigned have executed this Written Consent of the
Majority Stockholders of Augment Systems, Inc. as of the 18th day of July, 2000.
Print Name of Stockholder:
Signature:
-----------------------------------
Print Title:
Number of Shares:
--------------------
<PAGE>
EXHIBIT B
CERTIFICATE OF AMENDMENT
OF THE RESTATED CERTIFICATE OF INCORPORATION
OF
AUGMENT SYSTEMS, INC.
It is hereby certified that:
FIRST: The name of the corporation is Augment Systems, Inc. -----
SECOND: That there be declared a four for one reverse split of the
Corporation's shares of Common Stock, par value, $.01, issued and outstanding
immediately prior to the filing of this Amendment with the Secretary of State of
the State of Delaware; and further provided that the par value of said Common
Stock shall be as $.0001 per share.
THIRD: The Certificate of Incorporation is hereby amended by striking out
Article 4 thereof and by substituting in lieu of ----- said Article the
following new Article:
FOURTH: The total number of all classes of shares of stock which the
Corporation shall have authority to issue is one hundred fifty million
(150,000,000) shares, consisting of one hundred forty-eight million
(148,000,000) shares of Common Stock, par value $.0001 per share, and two
million (2,000,000) shares of Preferred Stock, par value of $.01 per share.
"The designations and powers, the rights and preferences and the
qualifications, limitations or restrictions with respect to each class of stock
of the Corporation shall be determined by the Board of Directors from time to
time."
FIFTH: That pursuant to Section 228(d) of the General Corporation Law of
the State of Delaware, written notice of the adoption of said resolutions by
written consent of a majority of the outstanding shares of capital stock of the
Corporation was mailed to all stockholders who did not consent in writing
thereto.
SIXTH: The amendments of the certificate of incorporation herein certified
have been duly adopted in accordance with the provisions of Sections
242 and 228 of the General Corporation Law of the State of Delaware.
The effective time of the amendments herein certified shall be January 1,
2001.
Signed on January 1, 2001
----------------------------------
Duane Mayo, Chief Financial Officer
---------------------
Martin Daub, Secretary
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
AUGMENT SYSTEMS, INC.
(Pursuant to Section 151 of the Delaware General Corporation Law)
Augment Systems, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (hereinafter "Augment"), hereby
certifies that the following resolutions were adopted by the Board of Directors
(hereinafter the "Board") of Augment pursuant to authority of the Board of
Augment as required by Section 151 of the Delaware General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the Board of
Augment in accordance with the provisions of its Certificate of Incorporation,
as amended, the Board hereby authorizes a series of Augment's previously
authorized Preferred Stock, par value One Cent ($0.01) per share (hereinafter
"Preferred Stock"), and hereby states the designation and number of shares, and
fixes the relative rights, preferences, privileges, powers and restrictions
thereof as follows:
2000- Series A Convertible Preferred Stock:
I. Designation and Amount
The designation of this series, which consists of Two Million (2,000,000)
shares of preferred stock, is 2000- Series A Convertible Preferred Stock
(hereinafter the "Series A Preferred Stock") and the stated value shall be One
Cent ($0.01) per share (hereinafter the "Stated Value").
II. Rank
All Series A Preferred Stock shall rank junior to Augment Common Stock
(hereinafter "Common Stock") in its voting rights and privileges, but senior to
Augment Common Stock in all other material and non-material respects.
III. Liquidation
If Augment shall commence a voluntary case under Federal bankruptcy laws or
any other applicable Federal or State bankruptcy, insolvency or similar law, or
consent to the entry of an order for relief in an involuntary case under any law
or to the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of Augment or of any substantial part
of its property, or make an assignment for the benefit of its creditors, or
admit in writing its inability to pay its debts generally as they become due, or
if a decree or order for relief with respect to Augment shall be entered by a
court having jurisdiction in the premises is an involuntary case under the
Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law resulting in the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of Augment or any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and any such decree or order shall be
unstayed and in effect for a period of Ninety (90) consecutive days and, on
<PAGE>
account of any such event (a "Liquidation Event"), Augment shall liquidate,
dissolve or wind up, or if Augment shall otherwise liquidate, dissolve or wind
up, no distribution shall be made to the holders of any shares of Capital Stock
of Augment upon liquidation, dissolution or winding up unless prior thereto, the
holders of shares of Series A Preferred Stock shall have received the One
Thousand Dollars ($1,000.00) with respect to each share (hereinafter the
"Liquidation Value"). If upon occurrence of a Liquidation Event, the assets and
funds available for distribution among the holders of Series A Preferred Stock
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of Augment legally
available for distribution to holders of Series A Preferred Stock shall be
distributed ratably among such shares in proportion to the ratio that the Stated
Value of each such share bears to the aggregate Stated Value of such shares.
IV. Conversion at the Option of the Holder
Each holder of shares of Series A Preferred Stock may, at its option, covert
its shares of Series A Preferred Stock into Common Stock in the following
amounts and at the following times (hereinafter "Optional Conversion").
Conversion may be done freely, from time to time, and at the option of the
holder of shares of Series A Preferred Stock in an aggregate amount not to
exceed Ninety Two percent (92%) of all issued and outstanding Augment Common
Stock, computed on a fully diluted basis, assuming the exercise of presently
outstanding warrants, options, and convertible notes of Augment. There are no
time specific requirements, or window periods during which conversion is
permitted. Value of the shares upon conversion will be pursuant to the Stock
Purchase Agreement between Augment and Right2Web.com, dated March, 2000.
In order to convert Series A Preferred Stock into full shares of Common Stock,
a holder shall: (i) fax a copy of the fully executed notice of conversion in the
form attached hereto (hereinafter "Notice of Conversion"), to Augment, care of
Rosen & Tetelman, LLP, 501 Fifth Avenue, Suite 1404, New York, NY 10017 (fax
number 212-972-3555), or such other number as Augment shall specify in a notice
to the shareholder, for the Series A Preferred Stock that the holder elects to
convert the same, which notice shall specify the number of shares of Series A
Preferred Stock to be converted, the applicable conversion price and a
calculation of the number of shares of Common Stock issuable upon such
conversion (together with a copy of the first page of each certificate to be
converted prior to 6:00 p.m. Eastern Standard Time (hereinafter the "Conversion
Notice Deadline") on the date of conversion specified on the Notice of
Conversion; and (ii) surrender the original certificates representing Series A
Preferred Stock being converted, duly endorsed, along with a copy of the Notice
of Conversion within Two (2) business days thereafter to Augment's principal
offices.
<PAGE>
If any conversion of Series A Preferred Stock results in a fractional share of
Common Stock or the right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded, and the number of shares of Common Stock
issuable upon conversion of the Series A Preferred Stock shall be the next
higher number of shares.
V. Voting Rights
The holders of Series A Preferred Stock have no voting power whatsoever,
except as otherwise provided by the Delaware General Corporation Law
(hereinafter "DGCL"), and in this Article VI, and in Article VII below. However,
each holder of Series A Preferred Stock shall be entitled to notice of all
stockholders meetings at the same time and in the same manner as notice is given
to all stockholders entitled to vote at such meetings.
To the extent that under the DGCL the vote of the holders of the Series A
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of Augment, the affirmative vote or consent
of the holders of at least a majority of the shares of the Series A Preferred
Stock represented at a duly held meeting at which a quorum is present or by
written consent of a majority of the shares of Series A Preferred Stock (except
as otherwise may be required under the DGCL) shall constitute the approval of
such action by the class. To the extent that under the DGCL holders of the
Series A Preferred Stock are entitled to vote on a matter with holders of Common
Stock, voting together as one class, each share of Series A Preferred Stock
shall be entitled to a number of votes equal to the number of shares of Common
Stock into which it is then convertible according to the conversion terms stated
herein. Holders of Series A Preferred Stock shall be entitled to notice of (and
copies of proxy materials and other information sent to stockholders) all
stockholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to Augment's by-laws
and the DGCL.
To the extent that under the DGCL the vote of the holders of the Series A
Preferred Stock voting separately as a class or series as applicable, is
required to authorize a given action of Augment, the affirmative vote or consent
of the holders of at least a majority of the shares of the Series A Preferred
Stock represented at a duly held meeting at which a quorum is present or by
written consent of a majority of the Board of Augment is required.
<PAGE>
VI. Protective Provision
So long as shares of Series A Preferred Stock are outstanding, Augment shall
not, without first obtaining the approval (by vote or written consent, as
provided by the DGCL) of the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock:
(A) alter or change the rights, preferences, or privileges of the Series A
Preferred Stock;
(B) increase the authorized number of shares of Series A Preferred Stock; or
(C) create any new class or series of Capital Stock having a preference, or
ranking pari passu, over the Series A Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of Augment;
In the event holders of at least a majority of the then outstanding shares of
Series A Preferred Stock (voting together as a single class) agree to allow
Augment to alter or change the rights, preferences or privileges of the shares
of Series A Preferred Stock, pursuant to subsection (A) above, so as to affect
the Series A Preferred Stock, then Augment will deliver notice of such approved
change to the holders of the Series A Preferred Stock that did not agree to such
alteration or change (hereinafter the "Dissenting Holders") and Dissenting
Holders shall have the right for a period of Thirty (30) days to convert
pursuant to the terms of this Certificate of Designation as they exist prior to
such alteration or change or continue to hold their shares of Series A Preferred
Stock as altered or changed.
VII. Dividends
Direct or indirect dividends will not be paid to holders of Augment Series A
Preferred Stock, or any other Augment Capital Stock, without the prior written
consent of the holders of the majority of outstanding shares.
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of
Augment this ____ day of _________, 2000.
AUGMENT SYSTEMS, INC.
By:__________________________
Duane Mayo,
Chief Financial Officer
<PAGE>
Exhibit C
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
This First Amendment, dated September 12, 2000 to the Stock Purchase
Agreement, dated as of March 11, 2000 (the "Agreement"), by and between Augment
Systems, Inc., a Delaware corporation ("Seller" or the "Company"), and
Right2Web.com, Inc., a New York corporation ("Purchaser" or "RTW"). (Capitalized
terms not otherwise defined herein are used herein as set forth in the
Agreement).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller and Purchaser have entered into a Stock Purchase Agreement
pursuant to which Purchaser or its assigns will purchase such number of shares
of the Series A Convertible Preferred Stock of the Seller (the "Shares") which,
assuming conversion thereof at the Closing (as hereinafter defined), shall
represent 92% of all issued and outstanding common stock par value $.01 (the
"Common Stock") in the Company;
WHEREAS, the Purchaser has requested that the Agreement be amended to
reflect that this will be a stock for stock transaction.
NOW, THEREFORE, in consideration of the premises and the respective mutual
covenants, representations and warranties herein contained, the parties hereto
hereby agree as follows:
1. Article 2.1 and Article 2.2 shall be replaced in their entirety as
follows:
2.1 Shares to be Exchanged. Subject to the terms and conditions set forth
herein, on the Closing Date, the Seller shall sell to the stockholders of RTW as
set forth on Exhibit "A" annexed hereto (the "RTW Stockholders"), and the RTW
Stockholders shall purchase from the Seller, all of such Seller's right, title
and interest in and to the Shares. At the Closing, Seller shall deliver to the
RTW Stockholders in the same proportion of RTW Shares owned by a RTW
Stockholder, certificates representing the Shares divided in the same proportion
owned by each RTW Stockholder (as set forth on Schedule 2.1) represents to the
total number of RTW Shares (the RTW Shares being defined as 10,400,000 shares of
the Common Stock, par value $.001 of RTW), together with stock powers separate
from the certificates duly executed by the Seller in blank and sufficient to
convey to Purchaser good and marketable title to the Shares free and clear of
any and all claims, liens, charges, security interests, pledges or encumbrances
of any nature whatsoever and together with all accrued benefits and rights
attaching thereto. The RTW Stockholders agree to promptly convert their
proportionate Preferred Stock interest into their proportionate interest in the
Common Stock of Seller, as the majority of the RTW Stockholders shall determine.
2.2 In consideration for the Shares, the RTW Stockholders will deliver
their RTW Shares together with stock powers separate from the certificates duly
executed by each RTW Stockholder in blank and sufficient to convey to Seller
good and marketable title to the Shares free and clear of any and all claims,
liens, charges, security interests, pledges or encumbrances of any nature
whatsoever and together with all accrued benefits and rights attaching thereto.
2.3 All references to Purchaser shall be amended to include the RTW
Stockholders, except for Paragraphs 3.4 and 3.6 and as otherwise applicable. For
further clarification certain sections have been revised as set forth below.
2. Article III shall be amended to provide the following:
"3.5 Securities Laws. The RTW Stockholders understand that the Company
Shares are not being registered under the Securities Act, on the basis that the
offer and sale of the Company Shares under this Agreement are exempt from the
registration provisions of Section 5 of the Securities Act pursuant to Section
4(2) thereof, as transactions by an issuer not involving any public offering,
and/or may be deemed not to involve an offer or sale within the meaning of
Section 5 of the Securities Act pursuant to Regulation D promulgated thereunder,
and that the Company Shares may not be resold in any transaction subject to
Section 5 of the Securities Act unless registered or any exemption from
registration is available for such sale, and that the certificates representing
the Company Shares will bear a legend to that effect, substantially in the form
set forth on Schedule 3.4 attached hereto. Each RTW Stockholder is acquiring the
Company Shares for investment purposes only and not with a view to distribution
or resale thereof."
<PAGE>
"3.7. The RTW Shares being exchanged are fully paid and non-assessable, and
free and clear of any liens, claims, charges, options, trusts and encumbrances
of any kind whatsoever."
3. Article 5.1 shall be replaced in its entirety as follows:
"5.1 The covenants, representations and warranties of Purchaser and the RTW
Stockholders and the Seller set forth in this Agreement shall survive the
Closing Date and thereafter for a period of two (2) years (except for tax
obligations which shall have no limitation) and further subject to Paragraph
5.3, et. seq."
4. Paragraph 5.3 (a) , (b) and (d) shall be amended in their entirety as
follows:
"5.3 Indemnification
(a) By Seller. Subject to Paragraph 5.3(d), Seller agrees, to indemnify and
hold harmless Purchaser and its directors, shareholders, officers, employees and
agents, and its Affiliates from, against and in respect of, the full amount of
any and all liabilities, damages, claims, deficiencies, fines, assessments,
losses, taxes, penalties, interest, costs and expenses, including, without
limitation, reasonable fees and disbursements of counsel (all of the foregoing
being collectively referred to herein as the "Losses"), arising from, in
connection with, or incident to (i) any breach or violation of any of the
representations, warranties, covenants or agreements of the Seller contained in
this Agreement or in any document or certificate delivered by Seller to
Purchaser pursuant hereto or in connection with the Closing to the extent such
breach exceeds $5,000 for any one item or $5,000 in the aggregate; (ii) any and
all liabilities relating to Seller not specifically disclosed in the Financial
Statements; (iii) any claims against Purchaser by a third party (i.e.,
stockholder lawsuits) under the Securities Act, the Exchange Act or other state
laws, rules or regulations (collectively, the "Applicable Laws"), (iv) any
claims of Related Parties or Affiliates (v) any and all actions, suits, claims,
proceedings, demands, assessments or judgments, costs and expenses incidental to
any of the foregoing.
(b) By Purchaser. Subject to the limitations set forth in Section 5.3(d),
Purchaser and each RTW Stockholder (to the extent of their pro rata equity
interest in RTW and to the extent they are responsible for a breach of a
representation, warranty or covenant) agrees to indemnify and hold harmless the
Seller from, against and in respect of, the full amount of any and all Losses
arising from, in connection with, or incident to any breach or violation of any
of the representations, warranties, covenants or agreements of Purchaser
contained in this Agreement or in any document or certificate delivered by
Purchaser at or in connection with the Closing.
(d) Limitations. Indemnification of Seller by Purchaser and or the RTW
Stockholder(s) shall not be more than the number of Shares of Common Stock
ultimately received upon conversion of such RTW Stockholders Preferred Stock.
The number of Shares of Common Stock a breaching RTW Stockholder would be
required to return or pay back to Seller under Paragraph 5.3 (b) would be
calculated as the amount owed multiplied by the quoted Closing Price of the
Seller's Common Stock on the date of the breach.
<PAGE>
(1) Notwithstanding the foregoing, Seller shall defend,
indemnify and hold Purchaser, its affiliates and the RTW Stockholders harmless
from all stockholder lawsuits or other claims arising prior to or as a result of
this transaction. In the event that Seller's and or its officers and directors
actions are judicially determined to be ultra vires or are unenforceable under
law or equity and Purchaser and/or the RTW Stockholders is required to return
the Shares in Seller to Seller or its stockholder, then, Seller shall pay a
break-up fee equal to $500,000. Seller acknowledges that the foregoing is fair
and reasonable under the circumstances.
6. Paragraph 5.4 is deleted in its entirety.
7. Paragraph 5.5 is replaced in its entirety as follows:
"5.5 Registration Rights Agreement. The Seller and
the RTW Stockholders shall enter into at Closing, a fully executed
Registration Rights Agreement in the form attached as Exhibit 5.5."
8. Paragraph 6.1 (B) shall be amended specifically as follows:
(B) At Closing, Purchaser and the RTW Stockholders shall
deliver to Seller the following documents from Purchaser:
(i) the RTW Shares certificates and stock powers indorsed in blank;
(ii) a counterpart of the Registration Rights Agreement;
(iii) such other documents and instruments as the Seller may reasonably
request.
9. Article 8.1 shall be replaced in its entirety as follows:
"8.1 Notices. Any notice, demand, claim or other
communication under this Agreement shall be in writing and shall be deemed to
have been given upon the delivery, mailing or transmission thereof, as the case
may be, if delivered personally or sent by certified mail, return receipt
requested, postage prepaid, or sent by facsimile or prepaid overnight courier to
the parties at the addresses set forth below their names on the signature pages
of this Agreement (or at such other addresses as shall be specified by the
parties by like notice). A copy of any notices shall be sent as follows:
Copies of all notices shall be delivered to:
Rosen & Tetelman, LLP
501 Fifth Avenue, Suite 1404
New York, New York 10017
Attention: Ted D. Rosen, Esq.
---------
Fax No. (212) 972-3555
Copies of all notices delivered to the Purchaser and RTW
Stockholders shall be sent c/o Jeffrey Leventhal, 1619 Third Avenue, Apt. 8CE,
New York, NY 10021.
<PAGE>
10. Paragraph 8.19 shall be revised in its entirety as follows:
"8.19 Representation by Counsel. Seller, Purchaser and
certain RTW stockholders have been and will continue to be represented by Rosen
& Tetelman, LLP in connection with this Stock Purchase Agreement. Seller and
Purchaser acknowledge that Rosen & Tetelman, LLP has previously acted as special
counsel to Seller and that Rosen & Tetelman, LLP shall have no duty and shall in
fact be permitted to disclose any confidential information (if any), regarding
the Seller to Purchaser. Seller also expressly consents to permit Rosen &
Tetelman, LLP to act as counsel to Purchaser and certain RTW Stockholders.
Purchaser, the RTW Stockholders and Seller acknowledge that Rosen & Tetelman,
LLP, was responsible for the introduction of Purchaser to Seller and that
Purchaser will be compensating Rosen & Tetelman, LLP for such introduction and
for other services rendered to Purchaser. Rosen & Tetelman, LLP has advised both
Seller, Purchaser and the RTW Stockholders that they should seek independent
counsel in this transaction and that by their respective signatures below, they
are expressly consenting to the terms of this transaction and to Rosen &
Tetelman, LLP's capacities as aforesaid."
11. No Other Modification. Except as specifically amended
hereby, the Stock Purchase Agreement shall continue unchanged and in full force
and effect.
<PAGE>
[THE BALANCE OF THIS PAGE IS INTENTIONALLY DELETED]
IN WITNESS WHEREOF, the parties hereto have each executed and delivered this
First Amendment to the Stock Purchase Agreement as of the day and year first
above written.
Purchaser:Right2Web.com, Inc.
By:
----------------------------
Name: JEFFREY LEVENTHAL
Title: PRESIDENT
RTW Stockholders:
Jeffrey Leventhal
Victoria Starr
Jordan Lee Leventhal, U.G.M.A.
Leventhal Paget, LLC
Apollo Financial Network, LLC
EAI Partners, Inc.
Ted D. Rosen
Larry Tetelman
Seller: Augment Systems, Inc.
By:
---------------------------
Name: Duane Mayo
-------------------------
Title: Chief Financial Officer
------------------------
<PAGE>
<TABLE>
EXHIBIT "A"
Closing Stock Ledger of Right2web.com, Inc.
Name of Shareholder Number of Shares Certificate No. % Ownership
------------------- ---------------- -------------- -----------
<S> <C> <C> <C>
Jeffrey Leventhal 7,000,000 1*replaced by certificates Nos.
8 and 9
Victoria Starr 490,000 2 4.70
Jordan Lee Leventhal,
U.G.M.A. 100,000 3 .96
Leventhal Paget, LLC 2,060,000 4 19.76
5 and 6 blank
Apollo Financial
Partners, LLC 350,000 7 3.36
EAI Partners, Inc. 4,000,000 8* 38.40
Jeffrey Leventhal 3,000,000 9* 28.80
Ted D. Rosen 208,333 10 2.0
Larry Tetelman 208,333 11 2.0
---------- -----
Total: 10,416,666 100%
</TABLE>
<PAGE>
Exhibit D-Registration Rights Agreement
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as of
September , 2000, by and among Augment Systems, Inc., a Delaware corporation
(the "Company"), and each of the stockholders of Right2web.com, Inc. listed on
Schedule A hereto (each a "Holder" and collectively the "Holders").
----------
WHEREAS, pursuant to a Stock Purchase Agreement dated as of March 11, 2000
(the "Purchase Agreement"), by and between the Company and Right2Web.com, Inc.,
a New York corporation ("RTW"), as amended on September 12, 2000 (the "First
Amendment"), preferred Stock of the Company to be issued to R2W Stockholders (as
defined in the First Amendment") will be converted into shares (the "Shares") of
the Company's Common Stock, par value $.01 per share (the "Common Stock"),
issued without registration under the Securities Act of 1933 (the "Securities
Act"); and
WHEREAS, the Company has agreed to file a registration statement
registering the resale of the Shares at the Holders' request, subject to the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1 REGISTRATION.
(a) The Company shall notify in writing (a "Registration Notice") all
of the Holders of Shares then outstanding that it intends to file a registration
statement under the Securities Act for the resale of their Shares. Each Holder
that desires the inclusion of some or all of such Holder's Shares in such
proposed registration shall give the Company written notice thereof within
twenty (20) days after the date of such Registration Notice. The Company shall
use reasonable efforts to file a registration statement on Form S-3 or other
applicable form (a "Registration Statement") under the Securities Act on or
after September 1, 2000 through August 31, 2010, covering the resale by the
Holders of all Shares requested to be included in such Registration Statement
pursuant to Rule 415 under the Securities Act from time to time in transactions
not involving any underwritten public offering. The Company shall use
commercially reasonable efforts (i) to cause such Registration Statement to be
declared effective by the Commission for such Shares as soon as practicable
thereafter (but not prior to the date on which the Company shall have publicly
released a report including the combined financial results of the Company and
R2W for a period of at least thirty (30) days of combined operations of the
Company and R2W after the Closing Date (as defined in the Purchase Agreement) of
the Purchase (as defined in the Purchase Agreement)) and (ii) to keep the
Registration Statement continuously effective until the earlier of (x) the date
on which all Shares included in such Registration Statement have been sold
thereunder, (y) the date that is sixty (60) days after the date on which such
Registration Statement has become effective under the Securities Act or (z) the
first anniversary of the date on which the Shares were issued. The Company may
postpone the filing of any Registration Statement required hereunder for a
reasonable period of time, not to exceed 45 days, if the Company has reasonably
determined in good faith after consultation with outside legal counsel that such
filing would require the disclosure of a material transaction or other matter
and the Company determines reasonably and in good faith that such disclosure
would have a material adverse effect on the Company; provided, however, that the
Company shall use reasonable efforts to disclose such material transaction or
other matter as soon as in its good faith judgment it is prudent to do so.
<PAGE>
(b) The Company shall have no obligation under Section 1(a) unless the
Holders satisfy and perform all conditions and obligations to be performed by
them under this Agreement, including but not limited to the covenants contained
in Section 6 hereof.
SECTION 2 REGISTRATION PROCEDURES.
(a) The Company shall notify each Holder of the effectiveness of the
Registration Statement and shall furnish to each Holder such number of copies of
the Registration Statement (including any amendments, supplements and exhibits),
the prospectus contained therein (including each preliminary prospectus), any
documents incorporated by reference in the Registration Statement and such other
documents as any Holder may reasonably request in order to facilitate its sale
of the Shares in the manner described in the Registration Statement.
(b) The Company shall prepare and file with the SEC from time to time
such amendments and supplements to the Registration Statement and prospectus
used in connection therewith as may be necessary to keep the Registration
Statement effective and to comply with the provisions of the Securities Act with
respect to the disposition of all the Shares until the earliest of the dates
provided in Section 1. Upon ten (10) business days' notice, the Company shall
file any supplement or post-effective amendment to the Registration Statement
with respect to any Holder's interests in or plan of distribution of Shares that
is reasonably necessary to permit the sale of such Holder's Shares pursuant to
the Registration Statement and the Company shall file any necessary listing
applications or amendments to the existing applications to cause the shares to
be then quoted on any quotation system on which the Company's Common Stock is
then quoted.
(c) The Company shall promptly notify each Holder of, and confirm in
writing, any request by the SEC for amendments or supplements to the
Registration Statement or the prospectus related thereto or for additional
information. In addition, the Company shall promptly notify each Holder of, and
confirm in writing, the filing of the Registration Statement, any prospectus
supplement related thereto or any post-effective amendment to the Registration
Statement and the effectiveness of any post-effective amendment.
(d) The Company shall promptly notify each Holder, at any time when a
prospectus relating to the Registration Statement is required to be delivered
under the Securities Act, of the happening of any event as a result of which the
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. In such
event and subject to Section 7 of this Agreement, the Company shall prepare and
furnish to each Holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of Shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.
SECTION 3 STATE SECURITIES LAWS.
Subject to the conditions set forth in this Agreement, the Company shall,
promptly after the filing of the Registration Statement, file such documents as
may be necessary to register or qualify the Shares under the securities or "Blue
Sky" laws of such states as any Holder may reasonably request, and the Company
shall use reasonable efforts to cause such filings to become qualified;
provided, however, that the Company shall not be obligated to qualify as a
foreign corporation to do business under the laws of any such state in which it
is not then qualified or to file any general consent to service of process in
any such state. Once qualified, the Company shall use reasonable efforts to keep
such filings qualified until the earlier of (a) such time as all of the Shares
have been disposed of in accordance with the intended methods of disposition by
the Holder as set forth in the Registration Statement, (b) in the case of a
particular state, a Holder has notified the Company that it no longer requires
qualified filing in such state in accordance with its original request for
filing, or (c) the date on which the Registration Statement ceases to be
effective with the SEC. The Company shall promptly notify each Holder of, and
confirm in writing, the receipt by the Company of any notification with respect
to the suspension of the qualification of the Shares for sale under the
securities or "Blue Sky" laws of any jurisdiction or the initiation or threat of
any proceeding for such purpose.
<PAGE>
SECTION 4 EXPENSES.
The Company shall bear all expenses incurred by it in connection with the
registration of the Shares pursuant to Section 1, except that the Holders shall
be responsible for any brokerage or underwriting commissions and taxes of any
kind (including, without limitation, transfer taxes) with respect to any
disposition, sale or transfer of Shares and for all legal, accounting and other
expenses incurred by them in connection with the Registration Statement.
SECTION 5 INDEMNIFICATION BY THE COMPANY.
The Company agrees to indemnify each of the Holders and their respective
officers, directors, employees, agents, representatives and affiliates, and each
person or entity, if any, that controls a Holder within the meaning of the
Securities Act, and each other person or entity, if any, subject to liability
because of his, her or its connection with a Holder, and any underwriter and any
person who controls the underwriter within the meaning of the Securities Act (an
"Indemnitee") against any and all losses, claims, damages, actions, liabilities,
costs and expenses (including without limitation reasonable attorneys' fees,
expenses and disbursements documented in writing), joint or several, arising out
of or based upon any untrue or alleged untrue statement of material fact
contained in the Registration Statement or any prospectus contained therein, or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except insofar as and
to the extent that such statement or omission arose out of or was based upon
information regarding the Indemnitee or its plan of distribution which was
furnished to the Company by the Indemnitee for use therein, provided, further
that the Company shall not be liable to any person who participates as an
underwriter in the offering or sale of Shares or any other person, if any, who
controls such underwriter within the meaning of the Securities Act, in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon (i) an
untrue statement or alleged untrue statement or omission or alleged omission
made in such Registration Statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with information furnished to the Company for use in connection with
the Registration Statement or the prospectus contained therein by such
Indemnitee or (ii) such Indemnitee's failure to send or give a copy of the final
prospectus furnished to it by the Company at or prior to the time such action is
required by the Securities Act to the person claiming an untrue statement or
alleged untrue statement or omission or alleged omission if such statement or
omission was corrected in such final prospectus. The obligations of the Company
under this Section 5 shall survive the completion of any offering of Shares
pursuant to a Registration Statement under this Agreement or otherwise and shall
survive the termination of this Agreement.
<PAGE>
SECTION 6 COVENANTS OF THE HOLDERS.
Each of the Holders hereby agrees:
(a) to cooperate with the Company and to furnish to the Company all
such information in connection with the preparation of the Registration
Statement and any filings with any state securities commissions as the Company
may reasonably request;
(b) to the extent required by the Securities Act, to deliver or cause
delivery of the prospectus contained in the Registration Statement to any
purchaser of the shares covered by the Registration Statement from such Holder;
(c) to notify the Company of any sale of Shares by such Holder; and
(d) to indemnify the Company, its officers, directors, employees,
agents, representatives and affiliates, and each person, if any, who controls
the Company within the meaning of the Securities Act, and each other person, if
any, subject to liability because of his or her connection with the Company,
against any and all losses, claims, damages, actions, liabilities, costs and
expenses arising out of or based upon (i) any untrue statement or alleged untrue
statement of material fact contained in either the Registration Statement or the
prospectus contained therein, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, if and to the extent that such statement or omission arose out
of or was based upon information regarding such Holder or its plan of
distribution which was furnished to the Company by such Holder for use therein,
or (ii) the failure by such Holder to deliver or cause to be delivered the
prospectus contained in the Registration Statement (as amended or supplemented,
if applicable) furnished by the Company to such Holder to any purchaser of the
shares covered by the Registration Statement from such Holder.
Notwithstanding the foregoing, (i) in no event will any Holder have any
obligation under this Section 6 for amounts the Company pays in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of such Holder (which consent shall not be unreasonably
withheld) and (ii) the total amount for which any Holder shall be liable under
this Section 6 shall not in any event exceed the aggregate proceeds received by
him, her or it from the sale of such Holder's Shares in such registration. The
obligations of the Holders under this Section 6 shall survive the completion of
any offering of Shares pursuant to a Registration Statement under this Agreement
or otherwise and shall survive the termination of this Agreement.
SECTION 7 SUSPENSION OF THE REGISTRATION STATEMENT.
(a) The Company shall promptly notify each Holder of, and confirm in
writing, the issuance by the SEC of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceedings for that
purpose. The Company shall use reasonable efforts to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement as soon as
practicable.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, the Company's obligation under this Agreement to use reasonable
efforts to cause the Registration Statement and any filings with any state
securities commission to be made or to become effective or to amend or
supplement the Registration Statement shall be suspended in the event and during
such period pending negotiations relating to, or consummation of, a transaction
or the occurrence of an event that would require additional disclosure of
material information by the Company in the Registration Statement or such filing
(such circumstances being hereinafter referred to as a "Suspension Event") that
would make it impractical or unadvisable to cause the Registration Statement or
such filings to be made or to become effective or to amend or supplement the
Registration Statement, but such suspension shall continue only for so long as
such event or its effect is continuing but in no event will that suspension
exceed ninety (90) days. In the event any Holder requests registration during a
Suspension Event, the Company shall notify the Holder of the existence of such
Suspension Event.
<PAGE>
(c) Each holder of Shares whose Shares are covered by the Registration
Statement filed pursuant to Section 1 hereof agrees, if requested by the Company
in the case of a non-underwritten offering (a "Non-underwritten Offering") or if
requested by the managing underwriter or underwriters in an underwritten
offering (an "Underwritten Offering," collectively with Non-underwritten
Offering, the "Offering"), not to effect any public sale or distribution of any
of the securities of the Company of any class included in such Offering,
including a sale pursuant to Rule 144 or Rule 144A under the Securities Act
(except as part of such Offering), during the 15-day period prior to, and during
the 90-day period (or such longer period as may be required by the managing
underwriter or underwriters) beginning on, the date of pricing of each Offering,
to the extent timely notified in writing by the Company or the managing
underwriters. Furthermore, notwithstanding anything to the contrary set forth in
this Agreement, the Company's obligation under this Agreement to use reasonable
efforts to cause the Registration Statement and any filings with any state
securities commission to be made or to become effective or to amend or
supplement the Registration Statement shall be suspended in the event and during
such period as the Company is proceeding with an Underwritten Offering if the
Company is advised by the underwriters that the sale of Shares under a
Registration Statement would have a material adverse effect on the Underwritten
Offering.
SECTION 8 BLACK-OUT PERIOD.
Following the effectiveness of the Registration Statement and the filings
with any state securities commissions, the Holders agree that they will not
effect any sales of the Shares pursuant to the Registration Statement or any
such filings at any time after they have received notice from the Company to
suspend sales (i) as a result of the occurrence or existence of any Suspension
Event, (ii) during any Offering, or (iii) so that the Company may correct or
update the Registration Statement or such filing pursuant to Section 2(c) or
2(d). The Holders may recommence effecting sales of the Shares pursuant to the
Registration Statement or such filings following further notice to such effect
from the Company, which notice shall be given by the Company not later than five
(5) business days after the conclusion of any such Suspension Event or Offering.
SECTION 9 ADDITIONAL SHARES.
The Company, at its option, may register, under any registration statement
and any filings with any state securities commissions filed pursuant to this
Agreement, any number of unissued shares of its common stock or any shares of
its common stock owned by any other shareholder or shareholders of the Company.
<PAGE>
SECTION 10 CONTRIBUTION.
If the indemnification provided for in Sections 5 and 6 is unavailable to
an indemnified party with respect to any losses, claims, damages, actions,
liabilities, costs or expenses referred to therein or is insufficient to hold
the indemnified party harmless as contemplated therein, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, actions, liabilities, costs or expenses in such proportion as
is appropriate to reflect the relative fault of the Company, on the one hand,
and any Holder or Holders, on the other hand, in connection with the statements
or omissions which resulted in such losses, claims, damages, actions,
liabilities, costs or expenses as well as any other relevant equitable
considerations. The relative fault of the Company, on the one hand, and of the
Holder or Holders, on the other hand, shall be determined by reference to, among
other factors, whether the untrue or alleged untrue statement of a material fact
or omission to state a material fact relates to information supplied by the
Company or by the Holder or Holders and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission; provided, however, that in no event shall the obligation of any
indemnifying party to contribute under this Section 10 exceed the amount that
such indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for under Sections 5 or 6 hereof
had been available under the circumstances.
The Company and the Holders agree that it would not be just and equitable
if contribution pursuant to this Section 10 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No indemnified party guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any indemnifying party who was not guilty of such fraudulent
misrepresentation.
SECTION 11 NO OTHER OBLIGATION TO REGISTER.
Except as otherwise expressly provided in this Agreement, the Company shall
have no obligation to the Holders to register the Shares under the Securities
Act (including, without limitation, under any agreements entered into between
the Holders and R2W).
SECTION 12 AMENDMENTS AND WAIVERS.
The provisions of this Agreement may not be amended, modified or
supplemented without the prior written consent of each of the Company and
Holders holding in excess of 50% of the Shares that are subject to this
Agreement and the Registration Statement at that time.
SECTION 13 NOTICES.
Except as set forth below, all notices and other communications provided
for or permitted hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally or sent by facsimile, registered or certified
mail (return receipt requested), postage prepaid, or courier or overnight
delivery service to the Company at the following addresses and to the Holder at
the address set forth on his or her signature page to this Agreement (or at such
other address for any party as shall be specified by like notice, provided that
notices of a change of address shall be effective only upon receipt thereof),
and further provided that in case of directions to amend the Registration
Statement pursuant to Section 2(b) or Section 6, a Holder must confirm such
notice in writing by overnight express delivery with confirmation of receipt:
<PAGE>
IF TO THE COMPANY: Augment Systems, Inc.
P.O. Box 222
West Newbury, MA 01985
Attn: Duane Mayo
Chief Financial Officer
Tel: (781) 270-9678
With a copy to: Rosen & Tetelman, LLP
501 Fifth Avenue, Suite 140
New York, NY 10017
Attn: Ted D. Rosen, Esq.
Tel: (212) 986-7171
Fax: (212) 972-3555
In addition to the manner of notice permitted above, notices given pursuant to
Sections 1, 7 and 8 hereof may be effected telephonically and confirmed in
writing thereafter in the manner described above.
SECTION 14 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Company. This Agreement may not be assigned by any
Holder and any attempted assignment hereof by any Holder will be void and of no
effect and shall terminate all obligations of the Company hereunder with respect
to such Holder.
SECTION 15 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
SECTION 16 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware applicable to contracts made and to be performed
wholly within said State.
SECTION 17 SEVERABILITY.
In the event that any one or more of the provisions contained herein, or
the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
SECTION 18 ENTIRE AGREEMENT.
This Agreement is intended by the parties as a final expression of their
agreement and intended to be the complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein, with respect to
such subject matter. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
COMPANY:
AUGMENT SYSTEMS, INC.
By:
-----------------------------
Name: Duane Mayo
Title: Chief Financial Officer
HOLDERS:
SEE SIGNATURE PAGES ATTACHED HERETO
<PAGE>
AUGMENT SYSTEMS, INC.
REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT
HOLDER SIGNATURE PAGEHOLDER SIGNATURE PAGE
The undersigned hereby becomes a party to this Registration Rights
Agreement by and among the Company and the Holders as of the date set forth
above. The undersigned hereby agrees to all of the provisions of said
Registration Rights Agreement, and agrees that this signature page may be
attached to any counterpart copy of said Registration Rights Agreement.
------------------------------------------
SIGNATURE OF HOLDERS WHICH ARE INDIVIDUALS: /s/
---------------------------------------
SIGNATURE OF HOLDERS WHICH ARE ENTITIES:
By:
-----------------------------------
Name:
Title:
ADDRESS:
TELEPHONE:
FACSIMILE:
[HOLDER SIGNATURE PAGE]
<PAGE>
EXHIBIT E
=========
10QSB 06/30/2000
================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2000
( ) Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from -------- to --------
Commission file number 0-22341
AUGMENT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3089539
-------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) identification No.)
P.O. Box 1111, West Newbury, MA, 01985
(Address of principal executive
offices)(Zip Code)
(781) 270-9678
(Registrant's telephone number, including area code)
Transitional small Business Disclosure Format:
Yes No X
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
(1) Yes NO X (2) Yes X NO
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable dare: As of August 09, 2000.
Class Outstanding at August 9,2000
----- ----------------------------
Common stock, $.01 par value per share 15,778,406
<PAGE>
Augment Systems, Inc.
Index to financial Statements
Report of Independent Certified Public Accountants
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Balance sheet as of and June 30, 2000
Results of operations for the six months ended
June 30, 2000 and 1999
Results of operations for the three month period ended
June 30, 2000 and June 30, 1999
Statements of cash flows for the six months ended
June 30, 2000 and 1999
Notes to financial statements
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
ITEM 2 Changes in Securities
ITEM 3 Defaults Upon Senior Securities
ITEM 4 Submission of Matters to a vote of Security-Holders
ITEM 5 Other Information
ITEM 6 Exhibits and Reports on Form 8-K
<PAGE>
Augment Systems, Inc.
Balance Sheet
(Note 1)
<TABLE>
June 30,
2000
---------
Assets
Current assets:
<S> <C>
Cash $ 105,596
----------
Total current assets $ 105,596
==========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 54,942
Accrued expenses 274,342
Bridge financing 1,395,701
Convertible promissory notes 6,432
Current portion of obligations under
capital leases 46,760
----------
Total current liabilities 1,778,177
-----------
Commitments
Stockholders' deficit:
Preferred stock, $.01 par value; 2,000,000 shares
authorized, none issued --
Common stock, $.01 par value; 50,000,000 shares authorized;
12,498,951 shares issued and outstanding at
June 30,2000 124,989
Additional paid-in capital 21,804,866
Deficit (23,602,436)
-----------
Total stockholders' deficit ( 1,672,581)
-----------
Total liabilities and stockholders' deficit $ 105,596
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-1
<PAGE>
Augment Systems, Inc.
Statements of Operations
<TABLE>
June 30, June 30,
2000 1999
--------- ---------
<S> <C> <C>
Net sales $ -- $ 175,000
Cost of sales -- --
--------- ---------
Gross margin -- 175,000
--------- ---------
Operating expenses:
General and administrative expenses 68,100 35,500
Refund of prior years expenses ( 19,934) --
-------- ---------
Total operating expenses 48,166 35,500
-------- ---------
Gain (loss) from Operations ( 48,166) 139,500
-------- ---------
Other income (expense):
Interest income (expense) ( 60,000) 22,612
---------- ---------
Total other income (expense) ( 60,000) 22,612
--------- ---------
Net Income (loss) $ ( 108,166) $ 162,112
========= =========
Earnings per share
Net (loss) per share of common stock:
Basic and diluted $ (0.01) $ .01
==== =====
Weighted average number of shares outstanding 12,198,951 11,898,951
========== ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-2
<PAGE>
Augment Systems, Inc.
Statements of Operations
<TABLE>
April 1,2000 April 1,1999
through through
June 30, 2000 June 30, 1999
-------------- --------------
<S> <C> <C>
Net sales $ -- $ 175,000
Cost of sales -- --
------- --------
Gross margin -- 175,000
------- --------
Operating expenses:
General and administrative expenses ( 1,900) ( 163,969)
Refund of prior years expenses ( 19,934) --
-------- ---------
Total operating expenses ( 21,834) ( 163,969)
-------- ---------
Gain (loss)from Operations ( 21,834) 338,969
-------- ---------
Other income (expense):
Interest income (expense) ( 60,000) ( 169,886)
---------- ---------
Total other expense ( 60,000) ( 169,886)
--------- ---------
Net Income (loss) $ ( 38,166) $ 169,083
========= =========
Number of shares
Net (loss) per share of common stock:
Basic and diluted $ (0.01) N/A
==== ===
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-3
<PAGE>
Augment Systems, Inc.
Statements of Cash Flows
<TABLE>
June 30, June 30,
2000 1999
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ ( 108,166) $ 162,112
Adjustments to reconcile net loss to net
cash used for operating activities:
Changes in operating assets and liabilities:
Prepaid expenses -- --
Other assets -- 98,936
Accounts payable -- ( 312,435)
Accrued expenses 79,342 ( 32,745)
-------- ----------
Net cash used for operating activities ( 28,824) ( 84,132)
Cash flows from investing activities:
Capital expenditures -- --
--------- ---------
Net cash used for investing activities -- --
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 6,000 --
Additional Paid-in-Capital 54,000 --
Proceeds from bridge financing -- --
Payments on bridge financing -- --
--------- ---------
Net cash provided by financing activities 60,000 --
--------- ---------
Net increase (decrease) in cash 31,176 ( 84,132)
Cash, beginning of period 74,420 187,815
--------- ----------
Cash, end of period $ 105,596 $ 103,683
========= ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-4
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
1. Organization, Business and Basis of Presentation:
The Company was incorporated in 1990 to develop and distribute fiber optic
printed circuit boards in the publishing and printing markets. The fiber optic
products had limited success and in fiscal 1994 the Company began phasing out
the fiber optic operations and began the transition into a systems integration
and engineering consulting business. In 1995, the Company made a strategic shift
in its business operation into the server market.
From October 1995 and through March 1997, the Company had operated as a
development stage company and had been engaged principally in research and
development, recruitment of personnel and financing activities. During this
time, the Company had engaged in limited marketing activities and had not
commenced the selling of its initial products, which are high-end file
management network systems. During the second quarter ended June 30, 1997, the
Company commenced commercial shipment of its server product and recognized
initial revenue in April 1997.
The Company's initial target market was the electronic publishing
industry, which requires the rapid and efficient movement of large image and
data files over networks. In September 1997, the Company introduced a windows
NT-based client server for its file management network systems.
Although the Company commenced shipment of its products in fiscal 1997,
the revenues recognized were less than originally anticipated by Company
management. The shortfall in 1997 revenues was attributed to product development
delays and problems with the Company's initial products sold. Such shortfalls in
revenues continued throughout the course of fiscal 1998.
In November 1998, the Company was informed by the investment bank that
provided the September 1998 bridge financing, that they would be unable to
secure the additional funding required to repay the outstanding bridge loan and
provide the Company with the necessary working capital to support its business
plan and ongoing operations. The Company began to seek alternative financing,
but was unable to secure the necessary funds.
In January 1999, the Board of Directors decided to accomplish the
following:
1. Seek buyers, strategic partners, and merger opportunities to make the
Company economically viable.
2. Suspend ongoing operations, layoff all but one of its employees, dispose
of all assets, attempt to settle any outstanding short and long term debts, seek
buyers or strategic partners for the further development of its existing
technology as well as explore merger opportunities.
The secured creditors formed a representative committee of two people who
initiated a plan to auction off all remaining inventory and substantially all
remaining fixed assets (retaining only those assets necessary to effectively
shut down operations, valued at approximately $10,000). On January 28, 1999 with
the aid of the committee-appointed auctioneer, the Company held the auction,
with proceeds amounting to approximately $65,000, indicating that the carrying
value of such assets exceeded their fair values. Accordingly, a loss of $184,975
was recorded in operations in 1998 which represents the excess of the carrying
value over the fair value of $75,000. Also included in operations is the
write-off of capitalized software costs of $265,000 to reduce their carrying
value to $0. The Company also recorded charges to cost of sales of approximately
$542,000 related to the write-down of unique inventory associated with the
Company's products.
The Company's strategic financial and operating plans are as follows:
Financial Plan
1. Sell the license rights to the Company's technology that is no longer
needed.
2. Settle the accounts payable related to the previous operations.
3. Provide incentive to the short-term note holders to exchange their notes
and warrants for 5% of the Company's common stock.
4. Negotiate the termination of operating and capital lease agreements.
5. Maintain the status of the corporation as a public Company through
required SEC filings and compliance with other governmental regulations.
6. Seek and acquiring entity through the issuance of Series A preferred
shares that are convertible to 92% of the Company's common stock.
F-5
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
1. Organization, Business and Basis of Presentation: (continued)
Operating Plan
1. Build a business-to-business Internet destination portal where small to
medium sized companies can host their web sites and direct employees to
procure information, productivity tools and products.
2. Assist businesses in developing and hosting enabled web sites. The Company
will seek to establish services that will complement the small business
marketplace.
3. Acquire businesses, which may provide related services to small to
mid-sized businesses such as advertising, marketing and consulting firms,
as well as other Internet ventures.
In 1999, the Company began implementing its financial and operating
strategies.
1. The Company sold the license rights to its technology for $175,000.
2. The Company entered an agreement with the landlord and cancelled the
operating lease for its offices located at 2 Robbins Road, Westford,
Massachusetts. No additional obligations were incurred as a result of
cancellation.
3. The Company returned to the supplier certain equipment that was obtained
under capital lease agreement. In exchange for the cancellation of lease,
the Company paid $6,800 in cash and transferred certain accounts receivable
to settle an additional $6,800 payable to the supplier.
4. The Company entered a release agreement regarding payment of any future
royalties.
5. Management began negotiations with a third party who proposed to exchange
shares of a new start up company for 92% of the Company stock and develop
its internet business. Also, a proposal was made to the note holders to
convert their notes to 5% of the Company's common stock after the exchange.
As of July, 2000 the Company has sucessfully received consents from all the
noteholder to convert their notes to 5% of the Company's common stock. The
conversion will not take place until the exchange of shares transfering a
92% interest in the Company to Right2web.com.
The Company has incurred substantial losses since inception and has been
engaged primarily in product development. The Company has funded its losses
primarily from a combination of debt and equity financings. In addition, at
June 30, 2000, the Company had a working capital deficiency and a stockholders'
deficit. Also, as a start-up business-to-business e-commerce venture, the
Company's new business, assuming the Right2web transaction closes, is subject to
various risks including intense competition, need for substantial funds and
qualified personnel, internet security concerns, potential technological
difficulties, development of new technology, reliance on key personnel, and the
continuance of favorable market conditions for internet companies.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities and commitments in the normal course of
business. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
F-6
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
2. Summary of Significant Accounting Policies
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less, when purchased, to be cash equivalents. There were no cash
equivalents at June 30, 2000.
Inventories
The Company had no inventories for the fiscal year ended December 31,
1999. Inventories were recorded at $0 at December 31, 1998, which reflected in
charges to cost of sales of $542,000 for the write-down to market. Inventories
were stated at the lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment were recorded at cost. Depreciation was computed
using the straight-line method over the estimated useful lives of the related
assets ranging from three to five years. Property held under capital leases are
amortized over the lesser of the lease term or their estimated useful lives. In
1999, the Company sold most of its equipment for $65,000 and wrote off the
balance. As of June 30, 2000, the Company had no fixed assets.
Long-Lived Assets
The Company follows the provisions of the Statement of Financial Accounting
Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of". SFAS 121 establishes accounting
standards for the impairment of long-lived assets and certain identifiable
intangibles to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of.
The Company reviews the carrying values of its long-lived and identifiable
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. Due to the change in circumstances related to the operations of the
Company in fiscal 1998, impairment charges were recorded to reduce the carrying
value of long-lived assets in December 1998.
Revenue Recognition
Revenue is recognized on sales to end users when product is accepted.
Research and Development
When research and development costs are incurred, they are expensed as
incurred.
F-7
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
2. Summary of Significant Accounting Policies (continued)
Income Taxes
Income taxes are calculated using the liability method specified by
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
Financial Instruments
The estimated fair value of the Company's financial instruments, which
include accounts payable, related party accounts, debt instruments and
convertible promissory notes, approximate their carrying value.
Concentrations of Credit Risk and Major Customers
The Company had no credit risk because it had no receivables on June
30,2000.
Stock Options
The Company follows the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. The Company has elected to continue to account for
stock options at their intrinsic value with disclosure of the effects of fair
value accounting on net earnings (loss) and earnings (loss) per share on a pro
forma basis.
Net Loss Per Share of Common Stock
The Company follows the Statement of Financial Accounting Standards No.
128, Earnings Per Share ("SFAS No. 128"). SFAS No. 128 requires the presentation
of both basic and diluted earnings per share.
F-8
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
3. Accrued Expenses
As of March 31, 2000 accrued expenses consist of the following:
<TABLE>
1999
----
<S> <C>
Severance 45,000
Professional Fees 19,342
Interest 210,000
--------
Total accrued expenses $ 274,342
========
</TABLE>
Included in accrued expenses is an accrual of $45,000 related to a
severance agreement with a former President and Chief Executive Officer of the
Company. In April 2000, note holders were requested to convert their notes,
warrants and accrued interest into an aggregate of 5% of the common shares of
the Company.
4. Sale of Securities/Proposed Business
On March 11, 2000, the Company entered into a Stock Purchase Agreement
pursuant to which the Company will sell to Right2web.Com, Inc ("Right2web")
Company preferred shares for $10,000 in cash and a 7% note due in one year for
$40,000. Right2web is a start-up business-to-business internet venture with no
assets or liabilities. At the closing of the transaction the shareholders of
Right2web will deposit sufficient funds to close the transaction. Right2web will
receive shares of the Company's Series A Convertible Preferred Stock subject to
various conditions of closing, including conversion of all outstanding warrants,
options and convertible notes into equity, of which all of the convertible notes
payable have agreed to convert as of this date. Upon exchange of the Preferred
Stock, for cash and notes, Right2Web.Com will own 92% of the Company on a fully
diluted basis. After dilution, current stockholders would hold 3% of the
Company's common stock and the convertible note holders would hold 5%.
As of July 18, 2000, Augment has sucessfully received permission to convert
$1,500,000 in secured convertible debt into 5% of the common stock from the
noteholders ("noteholder conversion"). Right2web has indicated that it is ready
to close the Stock Purchase Transaction. A request of Augment shareholders was
made to execute a consent to the following actions:
1. The Right2web transaction
2. The Noteholder conversion
3. Election of three directors, namely Jeffrey Leventhal, Duane Mayo
and a designee of Jeffrey Leventhal, to be named;
4. Ratify the appointment of Bloom and Company as new auditors
replacing BDO Seidman;
5. Adopt a reverse stock split and increase the authorized
capitalization from 50,000,000 shares of common stock to
150,000,000 of common stock, as the Board of Directors deems
appropriate; and
6. Omnibus authority to take all actions in furtherance of the
foregoing.
Right2Web.Com, is owned principally by Jeffrey Leventhal, a former director
of the Company who resigned in March 1999. Mr. Leventhal has previously owned
three information technology companies, with his most previous venture having
been sold to a public company, Netlojix Communications, Inc. (NASDAQ:NETX).
Right2web's business model is to build a business-to-business internet
destination portal where small to medium sized companies can host their web
sites and direct employees to procure information, productivity tools and
products. In addition, Right2web intends to assist companies in developing and
hosting enabled web sites. Right2web will seek to establish services that will
complement the small business marketplace. Right2web has also advised that it
intends to make strategic acquisitions in businesses which may provide related
services to small to mid-sized businesses such as advertising, marketing and
consulting firms, as well as other internet ventures.
Since Right2web is a start-up business-to-business e-commerce venture, it
will, among other things, be subject to intense competition, the need for
substantial financing, unforeseen technological changes, the risks inherent in
any internet business such as security concerns, technological difficulties,
development of new technology, the need to attract qualified personnel, reliance
on Jeffrey Leventhal, and the continuance of favorable market conditions for
internet companies, etc.
F-9
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
ITEM 6. Management's Discussion and Analysis or Plan of Operation
The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. Except for historical
information contained herein, the matters discussed in the Liquidity and Capital
Resources section below contain potential risks and uncertainties, including,
without limitation, risks related to the Company's ability to successfully
identify potential merger partners, retain key employees and settle any
outstanding debts. The Company will need to attract partners in order to execute
its revised business strategy, and there can be no assurance that the Company
will be successful in attracting such partners.
General
Prior to January 15, 1999, Augment Systems, Inc. designed, developed and
sold fibre channel based network file server systems designed to increase data
transfer and file storage on computer networks. In September 1998, the Company
obtained $1,500,000 in bridge financing of secured convertible promissory notes
and common stock purchase warrants. The Company used a portion of the proceeds
of the bridge financing to repay in full its indebtedness to a major bank. In
November 1998, the Company was informed by an investment bank, that provided the
bridge financing, that they would be unable to secure the additional funding
required to repay the outstanding bridge loan, provide the Company with the
necessary working capital to support the execution of its business plan and
ongoing operations. The Company began to seek alternative financing, but was
unable to secure the funds necessary to maintain ongoing operations.
Plan of Operation
In January 1999, the Board of Directors elected to suspend ongoing
operations, layoff all but one of its employees, dispose of all assets, attempt
to settle any outstanding short and long term debts, seek buyers for its
technology, and explore merger opportunities.
Results of Operations
During the six month periods ended June 30, 2000 the Company recognized no
revenues. During the six month period ended June 30, 1999 the Company recognized
revenues from the sale of its licensing rights of its technology for $175,000.
The Company does not anticipate sales of any products or service for the
foreseeable future and is concentrating its efforts on the disposition of
assets, settlement of outstanding debts, sale of the Company's technology, and
exploration of potential mergers.
The Company realized a net loss of approximately $108,166 for the six month
period ending June 30, 2000 as compared to a gain of $162,112 for the six month
period ending June 30, 1999. The recognition of income in the first half of 1999
is the result of the sale of the Company's licensing rights.
Research and development cost for the six month periods ended June 30, 2000
and 1999 was $0. The Company is currently not conducting any research and
development activities and does not anticipate any such efforts in the
foreseeable future.
General and administrative costs for the six months ended June 30, 2000
were $48,166 as compared to $35,500 for the six month ended June 30, 1999.
General and administrative costs for the six months ended of June 30, 2000
includes a refund of prior years expenses of $19,934, which was netted against
actual general and administrative expenses of $$68,100. The Company currently
has one non-salaried employee. Expenses for the first half of 2000 were
primarily professional fees and interest expense.
Selling and marketing costs for the six months ended June 30, 2000 and 1999
was $0. The Company is currently not conducting any sales and marketing
activities.
The Company currently has one full-time employee engaged in the disposition
of assets, settlement of outstanding debts, sale of the Company's technology,
and exploration of potential mergers.
F-10
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
ITEM 6. Management's Discussion and Analysis or Plan of Operation (continued)
In September 1998, the Company obtained $1,500,000 in bridge financing of
secured convertible promissory notes and common stock purchase warrants from
certain investors (the "Convertible Note holders"). The Company used a portion
of the proceeds of the bridge financing to repay, in full, its indebtedness to
Fleet National Bank. The convertible promissory notes were due and payable upon
the earlier of the closing of a financing of a minimum of $4,000,000 or in
September 1999. In November 1998, the Company was informed by the investment
bank, that provided the bridge financing, that they would be unable to secure
the additional funding required to repay the outstanding bridge loan and provide
the Company with the necessary working capital to support its business plan and
ongoing operations. The Company began to seek alternative financing, but was
unable to secure the funds necessary. On January 15, 1999, the Board of
Directors decided to shut down operations, lay-off all but one of its employees,
liquidate assets, seek buyers for the Company's technology and look for merger
partners. On April 7, 2000, the Company requested that the Convertible Note
holders convert their interest into the aggregate of five percent (5%) of the
equity of the Company after completion of the Right2web transaction. To date,
all convertible note holders have agreed to convert their rights into equity in
the Company as previously described.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company is dependent on its ability to settle
all debts with creditors, attract purchasers of the Company's technology and
attract potential merger partners, which will undoubtedly result in substantial
dilution to existing shareholders. Although the Company has effectively ceased
operations, there are numerous secured and unsecured creditors who could
commence litigation against the Company - see Item 3 - Legal Proceedings. In the
event that the Company has insufficient funds to settle or defend these matters,
the Company or its creditors could cause the filing of a bankruptcy proceeding.
See Item 1 - Business - Potential for Bankruptcy - Need for Additional
Financing.
The Company is authorized to issue up to 50,000,000 shares of its Common
Stock and up to 2,000,000 shares of Preferred Stock. As of August 9, 2000, there
were 15,778,406 shares of the Company's Common Stock issued and outstanding and
no Preferred Stock issued and outstanding. The Company has issued an additional
600,000 shares of common stock to Monarch Financial Corp. in exchange for cash
in the amount of $60,000.
The Company has issued an additional 3,279,455 shares of Common Stock to
certain investors who participated in a private placement of the Company's
Common Stock during January 1998 and May 1998. The shares had been authorized
for issuance by the Board of Directors during 1998. In addition, the Company has
7,413,111 Common Stock Purchase Warrants issued and outstanding, of which all
7,413,111 have exercise prices substantially above the existing market price.
Pursuant to the Right2web transaction, the Company will issue Preferred Stock
after a reverse split of the Company's Common Stock such that Right2web will
own, through its convertible preferred shares, 92% of the Common Stock of the
Company on a fully diluted basis.
Capital Expenditures
The Company does not have any material commitments for capital
expenditures at this time.
Effects of Inflation
The Company believes that the relatively moderate rate of inflation
over the past few years has not had a significant impact on the Company's sales
or operating results.
Income Taxes
The Company adopted Statement No. 109 "Accounting for Income Taxes" in 1993
and its implementation has had no effect on the Company's financial position and
results of operation.
F-11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
------------------
None
ITEM 2. CHANGES IN SECURITIES
---------------------
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
In September 1999, the Company defaulted on its
convertible notes. In April 2000, the note holders
were requested to convert their notes to equity. All
of the noteholders have agreed to convert.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
ITEM 5. OTHER INFORMATION
-----------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
---------------------------------
The Company filed form 8-K on April 10, 2000 for a
change of accountants and the Company has entered into a
Stock Purchase Agreement with Right2web.com.
F-12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
AUGMENT SYSTEMS, INC.
DATE:
August 9, 2000 By:/s/Duane A. Mayo
------------- --------------------
Duane A. Mayo
Chief Financial Officer
Treasurer and Director
(Principal Financial and Accounting Officer)
F-13
<PAGE>
EXHIBIT F
=========
10KSB 12/31/1999
================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
(X) Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required) For the fiscal year ended December 31, 1999
( ) Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission file number 0-22341
AUGMENT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3089539
-------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) identification No.)
P.O. Box 1111, West Newbury, MA, 01985
(Address of principal executive
offices)(Zip Code)
978-363-5349
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Exchange Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the
Exchange Act:
Common Stock, $.01 par value
Common Stock Purchase Warrants
Check whether the Issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirement for the past
90 days.
(1) Yes ___ NO X (2) Yes X NO___
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of the 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. Yes X NO___
The issuer's revenues for the fiscal year ended December 31, 1999 was
$185,489. As of June 08, 2000, there were 15,178,007 shares of the Issuer's
Common Stock, $.01 par value, issued and outstanding. The aggregate market value
of the Issuer's voting stock held by non-affiliates was approximately $118,990
based upon the average of the bid and asking prices of such stock on that date.
<PAGE>
Item 1. Description of Business
General/ Proposed Business
Prior to January 15, 1999, Augment Systems, Inc., (the "Company") designed,
developed and sold fibre channel based network file server systems designed to
increase data transfer and file storage on computer networks. While the Company
experienced initial success with the introduction of its products to customers,
long-term viability was dependent, in part, on migrating its technology to
standard hardware and software. However, without additional capital, the Company
was unable to complete research and development, maintain a sales force and
requisite administrative support.
On January 15, 1999, the Board of Directors elected to discontinue all
ongoing operations, layoff all but one of its employees, seek buyers for its
technology and inventory and look for a merger partner. The Company has ceased
sales, marketing and distribution of its products. On March 31, 1999, two of the
remaining three members of the Board of Directors resigned to pursue other
interests. As of June 08, 2000, the Company's Chief Financial Officer, and only
board member, was engaged in the disposition of assets, settlement of
outstanding debts, sale of the Company's technology, and exploration of
potential mergers. There are substantial risks that the Company will not be able
to settle its debts or find a suitable merger transaction. The Company may be
compelled to voluntarily file for bankruptcy or be forced by its creditors into
an involuntary bankruptcy. See Item 1 - Potential for Bankruptcy - Need for
Financing and Item 6 - Management's Discussion and Analysis or Plan of
Operation.
Prior Operations
Prior to January 15, 1999, Augment Systems, Inc. designed, developed
and sold fibre channel-based network file server systems designed to increase
data transfer and file storage on computer networks. The Company's initial
target market was the electronic printing and publishing industry which is
rapidly converting to digital technology, but suffered from critical workflow
bottlenecks due to the very large file sizes of color images which cannot be
efficiently transported over conventional networks. The Company sold fibre
channel-based network file server systems which included (i) one or more
end-to-end high speed fibre channel arbitrated loop ("FC-AL") interfaces; (ii) a
file server, the AFX 410, that performs a central file management function, high
speed large capacity storage, and high speed interconnects to the FC-AL
interfaces; and (iii) PCI cards and software for each client workstation to be
connected to the file server.
Sale of Securities/Proposed Business
On March 11, 2000, the Company entered into a Stock Purchase Agreement
pursuant to which the Company will sell to Right2web.Com, Inc ("Right2web")
Company preferred shares for $10,000 in cash and a 7% note due in one year for
$40,000. Right2web is a start-up business- -to- business internet venture, will
receive shares of the Company's Series A Convertible Preferred Stock subject to
various conditions of closing, including conversion of all outstanding warrants,
options and convertible notes into equity, of which all but $25,000 of the
convertible notes payable have been converted as of this date. Upon conversion
of the Preferred Stock, Right2Web.Com will own 92% of the Company on a fully
diluted basis. After dilution, current stockholders would hold 3% of the
Company's common stock and the convertible note holders would hold 5%. This
transaction should close in the near future.
F-1A
<PAGE>
Right2Web.Com, is owned principally by Jeffrey Leventhal, a former director
of the Company who resigned in March 1999. Mr. Leventhal has previously owned
three information technology companies, with his most previous venture having
been sold to a public company, Netlogics Communications, Inc. (NASDAQ:NETL).
Right2web's business model is to build a business-to-business internet
destination portal where small to medium sized companies can host their web
sites and direct employees to procure information, productivity tools and
products. In addition, Right2web intends to assist companies in developing and
hosting enabled web sites. Right2web will seek to establish services that will
complement the small business marketplace. Right2web has also advised that it
intends to make strategic acquisitions in businesses, which may provide related
services to small to mid-sized businesses such as advertising, marketing and
consulting firms, as well as other internet ventures.
Since Right2web is a start-up business-to-business e-commerce venture, it
will, among other things, be subject to intense competition, the need for
substantial financing, unforeseen technological changes, the risks inherent in
any internet business such as security concerns, technological difficulties,
development of new technology, the need to attract qualified personnel, reliance
on Jeffrey Leventhal, and the continuance of favorable market conditions for
internet companies, etc.
Employees
As of April 12, 2000, the Company employed Duane Mayo, on a part-time
basis, to dispose of all assets, settle any outstanding debts and explore
potential mergers. Mr. Mayo is the sole remaining officer and director of the
Company.
Potential for Bankruptcy - Need for Additional Financing
The Company's continued viability depends, in part, on its ability to
negotiate or litigate substantial reductions in the amounts owed by the Company
to its creditors and successfully settle or defend any creditor's claims or
actions. In the event the Company is unable to achieve this objective, it would
not have adequate cash resources to meet its obligations and would, in most
likelihood, be forced into a petition in bankruptcy. In addition, the creditors
of the Company could place the Company in bankruptcy. Either of the foregoing
events would have a material adverse effect on the value of the Company to its
current shareholders, secured and unsecured creditors. In the event of
bankruptcy, current equity and warrant-holders could be substantially diluted.
In addition, the Company may also need to raise capital from other
financings to pay its debts. There can be no assurances that the Company will be
able to obtain such additional financings on terms acceptable to the Company or
in a time frame required by the Company, if at all. In such event, the Company
may be required to materially alter its plans. Any such additional financing may
result in significant dilution to existing stockholders or the issuance of
securities with rights superior to those of the existing shareholders. In the
event that the Company is unable to raise or borrow additional funds, the
Company may be forced into bankruptcy.
There can be no assurances that the Company will be able to consummate the
Right2web transaction within an acceptable time frame required by the Company,
if at all. If the Right2web transaction does close, the Company will still need
to raise substantial additional capital, the amount of which cannot be
determined at this time. Any such transaction will result in significant
dilution to existing stockholders or the issuance of securities with rights
superior to those of the existing stockholders. (See Item 1. General/Proposed
Business). In the event that the Company is unable to consummate the Right2web
transaction, the Company may be forced to file for bankruptcy or may cease all
activities.
F-2A
<PAGE>
ITEM 2. Description of Property
Facilities
The Company operates the day-to-day operation from the Chief Financial
Officer's residence. The Company believes that its facilities are adequate to
meet its current business requirements. Assuming completion of the Right2web
transaction, the Company's principal office will be moved to Right2web's
corporate headquarters in Florida.
Item 3. Legal Proceedings
In March 1998, the Company's former President and CEO, Lorrin Gale,
left the Company at the request of the Board of Directors. On May 29, 1998, Mr.
Gale filed a complaint against the Company in the Superior Court of the
Commonwealth of Massachusetts seeking relief for breach of an employment
contract. In September 1998, the Company reached a settlement with Mr. Gale,
which required that the Company pay $150,000 in severance pay and an additional
$45,000 in increments of $15,000 over the next three years commencing in July
1999. In the event the Company does not make payments under the terms of the
settlement agreement or is unable to work out an arrangement for payment, Mr.
Gale could obtain a judgement against the Company, which would have a material
adverse affect on the prospects of the Company.
The Company is not involved in any other material legal proceedings.
Although the Company has effectively ceased operations, there are numerous
secured and unsecured creditors who could commence litigation against the
Company. In the event that the Company has insufficient funds to settle or
defend these matters, the Company or its creditors could cause the filing of a
bankruptcy proceeding. See Item 1 - Business - Potential for Bankruptcy - Need
for Additional Financing and Item 6 - Management's Discussion and Analysis or
Plan of Operation. Mr. Gale died in March 2000, and the Company is negotiating
with his estate to convert the balance due Mr. Gale to equity.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the year
ending December 31, 1999.
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Stock was traded on the Bulletin Board
Over-the-Counter ("OTC-BB) under the symbol "AUGS" and the Company's Common
Stock Purchase Warrants were traded on the Bulletin Board Over-the-Counter under
the symbol of "AUGSW". Until on or about June 1, 2000 (the Company was de-listed
due to its failure to timely file its latest annual and quarterly reports). The
Company intends to immediately seek to re-list its securities on the OTC-BB.
F-3A
<PAGE>
In February 1998, the NASD changed the listing requirements for companies
whose securities are listed on NASDAQ SmallCap Market. In light of those
changes, on February 26, 1998, NASDAQ informed the Company it was to have net
tangible assets of $5,000,000 by June 30, 1998, and granted the Company a
temporary listing exception until that time. Since, at June 30, 1998, the
Company did not meet the net tangible assets requirement, on July 7, 1998 NASDAQ
informed the Company that it's securities were no longer eligible for listing on
the NASDAQ SmallCap Market.
The following table sets forth the range of high and low prices quoted
for the Common Stock for the periods indicated. Such quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and do not
necessarily represent actual transactions.
Common Stock
<TABLE>
High Bid Low Bid
Price Price
<S> <C> <C>
1998
First Quarter......Privately held until May 1997.. $1.50 $1.00
Second Quarter.................................... $1.4375 $ .50
Third Quarter.................................... $ .5625 $ .21875
Fourth Quarter.................................... $ .375 $ .01
1999
First Quarter....................................... $ .01 $ .01
Second Quarter.................................... $ .01 $ .01
Third Quarter.................................. $ .01 $ .01
Fourth Quarter....................................... $ .01 $ .01
</TABLE>
F-4A
<PAGE>
Dividend Policy
The Company has never paid any cash dividends and does not anticipate
payment of cash dividends on the Company's Common Stock in the foreseeable
future. Under Delaware Corporation Law, dividends may be paid only out of
legally available funds as prescribed by statute, subject to the discretion of
the Company's Board of Directors.
Recent Sales of Unregistered Securities
The Company did not have any securities sold by the Company during the
period covered by this reporting period that were not registered under the
Securities Act of 1933 or otherwise reported on the Company's Form 10-QSBs filed
during this reporting period.
1. In December 1998, the Board of Directors authorized the issuance of an
additional 3,592,816 shares of Common Stock to 66 accredited investors who
participated in private placements of the Company's Common Stock during January
and May 1998. The issuance of the shares was pursuant to specific terms of the
private placement relating to missing certain revenue milestones. As of June 8,
2000, the Company had not authorized the issuing of 3,279,455 shares.
2. In December 1998, the Board of Directors authorized the issuance of
warrants to purchase 359,282 shares of Common Stock to the underwriter involved
in private placements of the Company's Common Stock during January 1998 and May
1998. The issuance of the warrants was pursuant to specific terms of the private
placement relating to missing certain revenue milestones. As of April 2000, the
Company had not issued those warrants.
The offerings described in Numbers 1 through 2, inclusive, were exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933 and the
Securities and Exchange Commission Rule 506.
ITEM 6. Management's Discussion and Analysis or Plan of Operation
The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. Except for historical
information contained herein, the matters discussed in the Liquidity and Capital
Resources section below contain potential risks and uncertainties, including,
without limitation, risks related to the Company's ability to successfully
identify potential merger partners, retain key employees and settle any
outstanding debts. The Company will need to attract partners in order to execute
its revised business strategy, and there can be no assurance that the Company
will be successful in attracting such partners.
General
In January 1999, the Board of Directors elected to suspend ongoing
operations, layoff all but one of its employees, dispose of all assets, attempt
to settle any outstanding short and long term debts, seek buyers for its
technology, and explore merger opportunities.
Prior to January 15, 1999, Augment Systems, Inc. designed, developed
and sold fibre channel based network file server systems designed to increase
data transfer and file storage on computer networks. In September 1998, the
Company obtained $1,500,000 in bridge financing of secured convertible
promissory notes and common stock purchase warrants. The Company used a portion
of the proceeds of the bridge financing to repay in full its indebtedness to a
major bank. In November 1998, the Company was informed by an investment bank,
that provided the bridge financing, that they would be unable to secure the
additional funding required to repay the outstanding bridge loan, provide the
Company with the necessary working capital to support the execution of its
business plan and ongoing operations. The Company began to seek alternative
financing, but, was unable to secure the funds necessary to maintain ongoing
operations.
F-5A
<PAGE>
From October 1995 through March 1997, the Company operated as a development
stage company and engaged principally in research and development, recruitment
of personnel and financing activities. The Company conducted limited marketing
activities and did not commence beta shipments of its initial products until
February 1997. During the second quarter ended June 30, 1997, the Company
commenced commercial shipment of its server product and recognized initial
revenue in April 1997. The Company's initial target market was the electronic
publishing industry, which required the rapid and efficient movement of large
image and data files over networks.
Plan of Operation
In January 1999, the Board of Directors elected to suspend ongoing
operations, layoff all but one of its employees, dispose of all assets, attempt
to settle any outstanding short and long term debts, seek buyers for its
technology, and explore merger opportunities.
Revenue for the fiscal year ended December 31, 1999 were $185,489 as
compared to $1,062,203 in revenues for the fiscal year ended December 31, 1998.
Revenues in 1999 resulted from the sale of software and licenses versus revenues
in 1998 which were from products sales. During 1999 and 1998, product revenue
were primarily generated through domestic end-user sales.
The Company incurred no research and development costs for the fiscal year
ended December 31, 1999 as compared to $2,338,222 for the fiscal year ended
December 31, 1998. The $2,338,222 decrease was primarily attributable to
discontinued operations which resulted in a reduction in engineering personnel
and consultants associated with the development of the Company's server product
and a lack of capital. The Company does not anticipate spending any additional
funds on research and development in the foreseeable future.
General and administrative costs for the fiscal year ended December 31,
1999 were $177,757 as compared to $2,102,945 for the fiscal year ended December
31, 1998. The $1,925,188 decrease is attributable to decreased spending on
employees, and legal fees. The Company anticipates that spending for general and
administrative costs for the next six months at less than $150,000.
The Company incurred no sales and marketing costs for the fiscal year ended
December 31, 1999 as compared to $1,886,850 for the fiscal year ended December
31, 1998. The $1,886,850 decrease is attributable to a decrease in marketing
support and sales personnel. The Company does not plan on spending any funds on
selling and marketing expenses in the foreseeable future.
The Company recognized a net profit for the fiscal year ended December 31,
1999 of $184,527 as compared to a net loss of $7,239,529 for the fiscal year
ended December 31, 1998.
The Company currently has one part-time employee to dispose of all physical
assets, attempt to settle any outstanding short and long-term debts, seek buyers
for its technology, and explore merger opportunities.
F-6A
<PAGE>
Liquidity and Capital Resources
The Company has funded its operations since October 1995 principally from a
combination of debt and equity financings totaling approximately $22,975,000.
Prior to May 1997, the Company issued convertible promissory notes in the
aggregate principal amount of approximately $864,000. Approximately $802,000 of
the principal balance of these notes plus accrued interest was converted into
shares of Common Stock in November 1996 at a conversion price of $4.00 per
share. In December 1996 and February 1997, the Company raised gross proceeds of
$3,585,000 in a private placement of promissory notes and common stock purchase
warrants. The promissory notes, bearing interest at 12% per annum, were repaid
from the proceeds of its initial public offering. In addition, from September
1995 through August 1996, the Company issued 1,653,623 shares of its Common
Stock for approximately $3,372,000 in gross proceeds.
On May 16, 1997, the Company completed its initial public offering of
1,800,000 shares of its Common Stock at a price of $5.50 per share and 2,070,000
Redeemable Common Stock Purchase Warrants at $.15 per warrant. Each Redeemable
Common Stock Purchase Warrant entitles the holder to purchase one share of
Common Stock for $6.60 during the four-year period commencing May 12, 1998. The
net proceeds from the Company's initial public offering, after deducting
underwriting discounts and commissions and estimated expenses payable by the
Company, were approximately $8,220,000.
In October 1997, the Company obtained a $750,000 loan from Fleet National
Bank. The loan was secured by all of the Company's assets, bore interest at
Fleet National Bank's prime rate plus 2% and was originally payable by December
31, 1997 or upon completion of a financing resulting in net proceeds to the
Company of at least $5,000,000. Pursuant to the terms of the loan, the Company
issued detachable warrants to purchase 100,000 shares of Common Stock at an
exercise price of $1.00 per share exercisable over five years. This loan was
extended through and until July 31, 1998. On July 31, 1998, the Company made a
payment in the amount of $300,000 to Fleet National Bank and the final $450,000
balance was retired on August 31, 1998.
During December 1997 and January 1998, the Company secured $1,000,000 in
bridge financing from institutional and private investors in anticipation of the
private placement of the Company's Common Stock. The bridge financing promissory
notes accrued interest at 8% per annum with interest and principal payable at
maturity on the initial closing of the private placement. In addition, the
Company issued to bridge investors five year warrants to purchase up to 750,000
shares in the aggregate of the Company's Common Stock at $1.00 per share. In
February 1998, the Company repaid $200,000 of these promissory notes plus
interest and the holders of $800,000 of these promissory notes converted their
notes into shares of the Company's Common Stock at $1.00 per share. In January
1998, the Company closed on an initial amount of $6,180,000 of a private
placement initiated in December 1997. In early May 1998, the Company closed on
an additional $575,000 and terminated the offering started in December 1997. The
aforementioned funds were used to repay outstanding accounts payable debts,
incurred during 1997, of approximately $1,400,000, repay bridge financing of
approximately $200,000 and bank debt of approximately $300,000, support research
and development expenses of approximately $2,000,000, sales and marketing
expenses of approximately $1,700,000, and $675,000 in administrative and other
expenses.
F-7A
<PAGE>
In September 1998, the Company obtained $1,500,000 in bridge financing of
secured convertible promissory notes and common stock purchase warrants from
certain investors (the "Convertible Note holders"). The Company used a portion
of the proceeds of the bridge financing to repay, in full, its indebtedness to
Fleet National Bank. The convertible promissory notes were due and payable upon
the earlier of the closing of a financing of a minimum of $4,000,000 or in
September 1999. In November 1998, the Company was informed by the investment
bank, that provided the bridge financing, that they would be unable to secure
the additional funding required to repay the outstanding bridge loan and provide
the Company with the necessary working capital to support its business plan and
ongoing operations. The Company began to seek alternative financing, but, was
unable to secure the funds necessary. On January 15, 1999, the Board of
Directors decided to shut down operations, lay-off all but one of its employees,
liquidate assets, seek buyers for the Company's technology and look for merger
partners. On April 7, 2000, the Company requested that the Convertible Note
holders convert their interest into the aggregate of five percent (5%) of the
equity of the Company after completion of the Right2web transaction. To date
1,475,000 convertible note holders have agreed to convert their rights into
equity in the Company as previously described.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company is dependent on its ability to settle
all debts with creditors, attract purchasers of the Company's technology and
attract potential merger partners, which will undoubtedly result in substantial
dilution to existing shareholders. Although the Company has effectively ceased
operations, there are numerous secured and unsecured creditors who could
commence litigation against the Company - see Item 3 - Legal Proceedings. In the
event that the Company has insufficient funds to settle or defend these matters,
the Company or its creditors could cause the filing of a bankruptcy proceeding.
See Item 1 - Business - Potential for Bankruptcy - Need for Additional
Financing.
The Company is authorized to issue up to 50,000,000 shares of its Common
Stock and up to 2,000,000 shares of Preferred Stock. As of June 08, 2000, there
were 11,898,951 shares of the Company's Common Stock issued and outstanding and
no Preferred Stock issued and outstanding. The Company has issued an additional
3,279,455 shares of Common Stock to certain investors who participated in
private placements of the Company's Common Stock during January 1998 and May
1998. The shares had been authorized for issuance by the Board of Directors
during 1998. In addition, the Company has 7,413,111 Common Stock Purchase
Warrants issued and outstanding, of which all 7,413,111 are substantially above
the existing market price. Pursuant to the Right2web transaction, the Company
will issue Preferred Stock after a reverse split of the Company Common Stock
such that Right2web will own, through its convertible preferred shares, 92% of
the Common Stock of the Company on a fully diluted basis.
Capital Expenditures
The Company does not have any material commitments for capital
expenditures at this time.
F-8A
<PAGE>
Effects of Inflation
The Company believes that the relatively moderate rate of inflation
over the past few years has not had a significant impact on the Company's sales
or operating results.
Income Taxes
The Company adopted Statement No. 109 "Accounting for Income Taxes" in 1993
and its implementation has had no effect on the Company's financial position and
results of operation.
Year 2000 Disclosure
The Company believes that its products are year 2000 compliant and does
not anticipate any claims relating thereto. As the Company effectively has no
operations, the year 2000 problem is not an issue at this point.
ITEM 7. Financial Statements
See Pages F-2 through F-19.
ITEM 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On April 10, 2000, the Company's Board of Directors of the Company,
dismissed its independent accountants BDO Seidman, LLP ("BDO Seidman") and
appointed the accounting firm of Bloom & Company ("Bloom & Company"), as the
Company's new outside auditors, subject to shareholder ratification of such
appointment at the Company's next annual or, if called prior thereto, special
shareholders' meeting. Due to the reduction in the Company's manufacturing and
distribution activities, as well as the Company's expected future operations,
the Board had determined that it did not need outside auditors with the
resources and breadth of operations of BDO Seidman and, based on a review of
several accounting firms, selected Bloom & Company which has public company and
auditing experience.
BDO Seidman had included a "going concern" paragraph in its auditor's
reports on the financial statements for the Company's two fiscal years ended
December 31, 1998 and December 31, 1997, which also indicated that the Company
had suspended operations and liquidated its assets. As a result of this
uncertainty, BDO Seidman was not able to express, and did not express, an
opinion on the 1998 and 1997 financial statements. During the two most recent
fiscal years and any subsequent interim period preceding BDO Seidman's
dismissal, there were no disagreements between the Company and the former
auditors on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
the satisfaction of the former auditors, would have caused BDO Seidman to make a
reference to the subject matter of the disagreement in connection with its
auditors' reports in such financial statements other than their refusal to issue
an unqualifying opinion on the Company's operations for 1998.
F-9A
<PAGE>
Prior to engaging Bloom & Company, the Company consulted with several
of its clients as to its qualifications, experiences and ability to audit the
Company's financial statements. The Company and Bloom & Company did not have
substantive discussions regarding the application of accounting principles to a
specified transaction, either complete or proposed, or the type of audit opinion
that might be rendered on the registrant's financial statements and there are no
reports nor written or oral advice provided by the new accountants' experience,
provided in deciding to retain Bloom & Company. Further, as noted, there was no
matter that was the subject of a disagreement as described in Item 304(a)(1)(iv)
of Regulation S-K, promulgated by the Securities and Exchange Commission.
Prior to BDO Seidman's termination, BDO Seidman did not express a
difference of opinion regarding any events listed in Item 304(a)(2)(v)(A)
through (D) of Regulation S-K.
ITEM 9. Director's Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the
Exchange Act
The current directors, executive officers and key employees of the
Company, their ages and their positions held in the Company are as follows:
NAME AGE POSITION
---- --- --------
Duane A. Mayo 46 Chief Executive Officer
Vice President of Finance
and Administration, Chief Financial
Officer, Treasurer, Secretary and
Director
All directors hold office until the next annual meeting of stockholders
of the Company and until their successors have been duly elected and qualified.
The executive officers are appointed annually by, and serve at the discretion
of, the Board of Directors. In January 1999, Mr. Laurence Liebson, the former
President and CEO, resigned as an officer and member of the Board of Directors
and as of March 31, 1999, Mr. Fred Chanowski and Mr. Jeffrey Leventhal resigned
from the Board of Directors.
DUANE A. MAYO has served as Vice President of Finance and
Administration since March 1995 and as a director, Chief Financial Officer,
Secretary and Treasurer since May 1995. From April 1993 through February 1995,
he served as Chief Financial Officer for Xerographic Laser Images Corporation, a
publicly-held company involved in development of resolution enhancement
technology. From April 1988 to April 1993, Mr. Mayo was Corporate Controller for
Howtek, Inc., a publicly-held company and supplier of desktop scanners for the
color prepress marketplace.
F-10A
<PAGE>
COMMITTEES
The Board of Directors currently does not have any committees.
DIRECTOR COMPENSATION
The Company's directors do not receive compensation for serving on the
Board of Directors, however, the Company reimburses directors for travel
expenses incurred to attend Board meetings.
ITEM 10. Executive Compensation
The following table sets forth actual compensation, for the fiscal
years ended December 31, 1997, 1998 and 1999, including salary, bonuses and
certain other compensation, paid by the Company to its Chief Executive Officer.
None of the Company's executive officers received cash compensation in excess of
$100,000 in 1999.
<TABLE>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Awards Payouts
Other Restricted
Annual Compensation Annual Stock LTIP All Other
Name and Position Year Salary($) Bonus($) Compensation Awards($) Options(#) Payouts($)Compensation Principal
(a) (b) (C) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Duane Mayo (3) 1999 8,333 - - - - - - -
Chief Executive Officer
Lorrin G. Gale
Chairman, President and 1999 - - - - - - - -
Chief 1998 73,253 - - - - - 195,000 -
Executive Officer * 1997 120,000 - - - 75,000 (2) - (1) -
-
Laurence Liebson
Chairman, President and
Chief
Executive Officer **
1999 12,500 - - - - - - - -
1998 97,956 - - - - 1,763,955(3) - - -
</TABLE>
F-11A
<PAGE>
(1) In March 1998, Mr. Gale left the Company at the request of the Board of
Directors. Pursuant to an employment agreement with the Company, he received
$150,000 in severance and is obligated to receive an additional $45,000 to be
paid in equal installments of $15,000 per year beginning July 1999.
(2) In January 1997, pursuant to an employment contract, the Company issued
incentive stock options to purchase up to 75,000 shares of Common Stock. Options
to purchase 15,000 shares of Common Stock vested upon the execution of the
agreement and options to purchase 30,000 shares of Common Stock vested on each
of the first and second anniversaries of the agreement. All options have an
exercise price of $4.00 per share.
(3) In May 1998, Laurence Liebson joined the Company as Chairman, President and
Chief Executive Officer. Pursuant to an employment contract, Mr. Liebson was
issued incentive stock options to purchase up to 1.763,955 shares of Common
Stock. Options to purchase 563,881 shares of Common Stock vested upon execution
of the agreement and options to purchase 300,019 shares vest on each of the
first, second, third and fourth anniversaries of the agreement. All options had
an exercise price of $.40 per share.
4) In January 1999, the former chairman, President and CEO resigned. Before
he resigned Laurence Liebson appointed Duane Mayo CEO and Mr. Mayo was left to
discontinue operations of the Company.
* In March 1998, Mr. Gale left the Company as President and Chief Executive
Officer
** In January 1999, Mr. Liebson left the Company as President and Chief
Executive Officer.
EMPLOYMENT CONTRACTS
As of June 8, 2000, the Company had no employment contracts with its
employee.
Prior to 1999, the Company had entered into a two-year employment
agreement with Mr. Lorrin Gale. Pursuant to such contract, Mr. Gale would be
paid a base salary of $125,000 and had been granted incentive stock options to
purchase up to 75,000 shares of Common Stock. Options to purchase 15,000 shares
of Common Stock vested upon the execution of the agreement and options to
purchase 30,000 shares of Common Stock vesting on each of the first and second
anniversaries of the agreement. All options had an exercise price of $4.00 per
share. Pursuant to his employment agreement, Mr. Gale agreed not to compete with
the Company during the term of his employment and for one year thereafter. Mr.
Gale left the Company as President and Chief Executive Officer in March 1998.
Effective as of May 1998, the Company entered into a two-year employment
agreement with Mr. Laurence Liebson. Pursuant to such agreement, Mr. Liebson
would be paid a base salary of $150,000 and receive $75,000 in relocation
expenses, which the Company was unable to pay. In addition, Mr. Liebson was
granted incentive stock options to purchase up to 1,763,955 at $.40 per share.
Mr. Liebson left the Company as President and Chief Executive Officer in January
1999.
(This page left intentionally blank.)
F-12A
<PAGE>
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets, as of April 12, 2000, certain information
with respect to the beneficial ownership of the capital stock of the Company for
(i) each person who is known by the Company to own beneficially 5% or more of
the outstanding shares of its Common Stock; (ii) each of the directors and
executive officers of the Company; and (iii) all directors and officers as a
group. Except as otherwise indicated, the stockholders listed in the table have
sole voting and investment powers with respect to the shares indicated. As of
April 12, 2000, the Company had 172 Stockholders of record. Unless otherwise
indicated, the address for directors, executive officers and 5% stockholders is
P.O. Box 1111, West Newbury, Massachusetts 01985.
<TABLE>
---------------------------------------------------------- ---------------------------------- ------------
Name and Address of Beneficial Owner Number of Shares of Percentage Class
Common Stock
Beneficially Owned(1)
-------------------------------------------------- ---------------------------------- --------------------
<S> <C> <C>
Duane A. Mayo 105,176 .9%
Nathan Low 972,942(2) 7.9%
Trussel & Co. 1,000,000 8.4%
-------------------------------------------------- ---------------------------------- --------------------
All directors and executive officers as a group 105,176 .9%
(1 person)
-------------------------------------------------- ---------------------------------- --------------------
</TABLE>
1. Pursuant to the rules of the Securities and Exchange Commission,
shares of Common Stock which an individual or group has a right to
acquire within 60 days pursuant to the exercise of options or warrants
are deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not deemed
to be beneficially owned and outstanding for the purpose of computing
the percentage ownership of any other person shown in the table.
2. Includes 210,440 shares of Common Stock held in Nathan A. Low and Ruth
I. Low JTWROS, and 95,000 shares held in Sunrise Foundation Trust.
Also includes 325,775 shares of Common Stock issuable upon exercise of
warrants held in Nathan A. Low and Ruth I. Low JTWROS, 50,000 shares
of Common Stock issuable upon exercise of warrants held in Sunrise
Foundation Trust, and 34,007 shares of Common Stock issuable upon
exercise of warrants held by Nathan Low.
Item 12. Certain Relationships and Related Transactions
In July 1995, the Company issued 105,176 shares of Common Stock valued
at $.021 per share to Duane Mayo for services rendered.
On March 11, 2000, the Company entered into a Stock Purchase Agreement
pursuant to which the Company will sell to Right2web for $50,000, a start-up
business-to-business internet venture, shares of the Company's Series A
Convertible Preferred Stock subject to various conditions of closing, including
conversion of all outstanding warrants, options and convertible notes into
equity, of which there can be no assurance. Upon conversion of the Preferred
Stock, Right2web will own 92% of the Company on a fully diluted basis. After
dilution, current stockholders would receive 3% of the Company's Common Stock
and the Convertible Note holders would receive 5%. This transaction should close
within the near future. In order for Right2web to hold 92% of the issued common
stock of the Company, the Company will have to authorize the reverse split of
its common stock which is subject to shareholder approval.
Right2Web, is owned principally by Jeffrey Leventhal, a former director
of the Company who resigned in March 1999. Mr. Leventhal has previously owned
three information technology companies, with his most previous venture having
been sold to a public company, Netlogics Communications, Inc. (NASDAQ:NETL).
Right2web's business model is to build a business-to-business internet
destination portal where small to medium sized companies can host their web
sites and direct employees to procure information, productivity tools and
products. In addition, Right2web intends on assisting companies in developing
and hosting enabled web sites. Right2web will seek to establish services that
will complement the small business marketplace. Right2web has also advised that
it intends to make strategic acquisitions in businesses, which may provide
related services to small to mid-sized businesses such as advertising, marketing
and consulting firms, as well as other internet ventures.
Since Right2web is a start-up business to business e-commerce venture. It
will, among other things, be subject to intense competition, the need for
financing, unforeseen technological changes, the risks inherent in any internet
businesses such as security concerns, technological difficulties, development of
new technology, the need to attract qualified personnel, reliance on Jeffrey
Leventhal, and the continuance of favorable market conditions for internet
companies, etc.
F-13A
<PAGE>
Item 13. Exhibits and Reports on Form 8-K (a) Exhibits.
27 - Financial Data Schedule.
(b) Reports of Form 8-K.
The Company filed a Form 8-K on April 14, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
AUGMENT SYSTEMS, INC.
By:/s/Duane A. Mayo
-------------------
Duane A. Mayo
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
/s/Duane A. Mayo Chief Financial Officer, Treasurer and Secretary
-------------------- Principal Financial & Accounting Officer)
June 9, 2000 Member of the Board of Directors
--------------------
F-14A
<PAGE>
Augment Systems, Inc.
Index to financial Statements
Financial statements:
Balance sheet as of December 31, 1999
Statements of operations for the years ended
December 31, 1999 and 1998
Statements of stockholders' deficit for the years ended
December 31, 1999, and 1998
Statements of cash flows for the years ended December 31, 1999 and 1998
Notes to financial statements
Report of Independent Certified Public Accountants
<PAGE>
Augment Systems, Inc.
Balance Sheet
(Note 1)
<TABLE>
December 31,
1999
----
Assets
Current assets:
<S> <C>
Cash (Note 2) $ 74,420
- -----------
Total current assets $ 74,420
===========
Liabilities and Stockholders' Deficit
Current liabilities:
Bridge financing (Note 4) $ 1,395,701
Accounts payable 54,942
Accrued expenses (Note 3) 195,000
Convertible promissory notes (Note 4) 6,432
Current portion of obligations under
capital leases (Note 5) 46,760
-----------
Total current liabilities 1,698,835
-----------
Commitments (Note 5)
Stockholders' deficit (Notes 4, 6, 8, 9 and 11):
Preferred stock, $.01 par value; 2,000,000 shares
authorized; none issued --
Common stock, $.01 par value; 50,000,000 shares authorized;
11,898,951 shares issued and outstanding 118,989
Additional paid-in capital 21,750,866
Deficit ( 23,494,270)
-----------
Total stockholders' deficit ( 1,624,415)
-----------
Total liabilities and stockholders' deficit $ 74,420
===========
</TABLE>
See accompanying notes to financial statements.
F-15A
<PAGE>
Augment Systems, Inc.
Statements of Operations
(Note 1)
<TABLE>
December 31,
-------------------------
1999 1998
<S> <C> <C>
Net sales $ 10,489 $1,062,203
Cost of sales -- 1,311,031
-------- ---------
Gross margin (loss) 10,489 ( 248,828)
-------- ---------
Operating expenses:
Research and development expenses -- 2,338,222
General and administrative expenses 177,757 2,102,945
Selling and marketing expenses -- 1,886,850
Loss on impairment of long-lived assets 10,000 449,975
---------- --------------
Total operating expenses 187,757 6,777,992
----------- -------------
Operating loss ( 177,268) ( 7,026,820)
---------- -----------
Other income (expense):
Interest income, net -- 56,847
Interest expense (Notes 4 and 6) ( 165,850) ( 269,556)
Sale of license rights 175,000 --
--------- -------------
Total other expense, net 9,150 ( 212,709)
---------- ------------
Net loss before extraordinary items ( 168,118) ( 7,239,529)
Gain from extinguishments of debt 352,645 --
---------- ------------
Income (loss) 184,527 ( 7,239,529)
Tax expense 55,358 --
Tax benefit ( 55,358) --
--------- ------------
Net (loss) income $ 184,527 $( 7,239,529)
--------- -----------
Number of shares
Net (loss) per share of common stock (Note 10):
Basic and diluted $ 0.02 $(0.65)
==== ====
See accompanying notes to financial statements.
</TABLE>
F-16A
<PAGE>
<TABLE>
Augment Systems, Inc.
Statements of Stockholders' Deficit
(Notes 2, 4, 6, 8, 9 and 11)
Additional
Common Stock Paid-in
Shares Amount Capital
<S> <C> <C> <C>
Balance, December 31, 1997 4,713,319 $ 47,132 15,286,410
Issuance of warrants associated with bridge financing - - 211,588
Issuance of common stock in connection with
private placement of common stock at $1.00 per share,
including 378,910 shares issued in lieu of fees to
placement agent, net of placement fees of $453,881 5,758,910 57,589 4,868,530
Issuance of common stock upon conversion of
bridge financing 300,000 3,000 297,000
Issuance of common stock upon conversion of
notes payable 500,000 5,000 495,000
Issuance of common stock in connection with a
Private placement of common stock at $1.00 per share,
Including 51,722 shares issued in lieu of fees to
placement agent, net of placement fees of $28,200 626,722 6,268 540,532
Issuance of warrants in consideration for consulting -- -- 17,138
Issuance of warrants as financing fees for bridge financing -- -- 34,668
Net loss -- -- -
----------- -------- ----------
Balance December 31, 1998 11,898,951 118,989 21,750,866
Net income -- -- --
----------- -------- ----------
Balance, December 31, 1999 11,898,951 $ 118,989 $ 21,750,866
=========== ======== ==========
(concluded below)
</TABLE>
See accompanying notes to financial statements.
F-17A
<PAGE>
<TABLE>
Total
Stockholders'
Deficit Deficit
<S> <C> <C>
Balance, December 31, 1997 (16,439,268) (1,105,726)
Issuance of warrants associated with bridge financing - 211,588
Issuance of common stock in connection with
private placement of common stock at $1.00 per share,
including 378,910 shares issued in lieu of fees to
placement agent, net of placement fees of $453,881 - 4,926,119
Issuance of common stock upon conversion of
bridge financing - 300,000
Issuance of common stock upon conversion of
notes payable - 500,000
Issuance of common stock in connection with a
Private placement of common stock at $1.00 per share,
Including 51,722 shares issued in lieu of fees to
placement agent, net of placement fees of $28,200 - 546,800
Issuance of warrants in consideration for consulting - 17,138
Issuance of warrants as financing fees for bridge financing - 34,668
Net loss ( 7,239,529) ( 7,239,529)
----------- ----------
Balance December 31, 1998 ( 23,678,797) ( 1,808,942)
Net income 184,527 184,527
------------ ---------
Balance, December 31, 1999 $( 23,494,270) $( 1,624,415)
============== ==========
See accompanying notes to financial statements.
</TABLE>
F-18A
<PAGE>
Augment Systems, Inc.
Statements of Cash Flows (Notes 2 and 12)
<TABLE>
December 31,
----------------------------
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net income $ 184,527 $(7,239,529)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization -- 193,652
Finance fees paid in warrants -- 34,668
Consulting expense paid in warrants -- 17,138
Loss on impairment of long-lived assets 10,000 449,975
Provision for doubtful accounts -- 204,955
Provision for inventories -- 226,455
Sale of license rights ( 175,000) --
Gain on extinguishments of debt 352,645 --
Interest on warrants associated with debt -- 165,647
Changes in operating assets and liabilities:
Accounts receivable -- 20,014
Inventories -- 936,465
Prepaid expenses 27,936 91,763
Other assets -- 9,145
Accounts payable ( 675,639) ( 993,697)
Accrued expenses 12,988 ( 429,621)
--------- ----------
Net cash used for operating activities ( 262,543) ( 6,312,970)
--------- ----------
Cash flows from investing activities:
Purchase of property and equipment -- ( 43,779)
Sale of license rights 175,000 --
Sale of equipment 65,000 --
--------- ----------
Net cash used for investing activities 240,000 ( 43,779)
--------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 5,472,919
Proceeds from bridge financing -- 1,800,000
Proceeds from issuance (payments) of note payable ( 14,311) ( 750,000)
Payments on capital lease obligations ( 76,541) ( 4,827)
Payments on convertible promissory notes -- ( 20,752)
---------- -----------
Net cash provided by financing activities 90,852 6,497,340
---------- ----------
Net increase (decrease) in cash ( 113,395) 140,591
Cash, beginning of year 187,815 47,224
---------- ----------
Cash, end of year $ 74,420 $ 187,815
========== =========
See accompanying notes to financial statements.
</TABLE>
F-19A
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
1. Organization, Business and Basis of Presentation:
The Company was incorporated in 1990 to develop and distribute fiber optic
printed circuit boards in the publishing and printing markets. The fiber optic
products had limited success and in fiscal 1994 the Company began phasing out
the fiber optic operations and began the transition into a systems integration
and engineering consulting business. In 1995, the Company made a strategic shift
in its business operation into the server market.
Since October 1995 and through March 1997, the Company had been operating
as a development stage company and had been engaged principally in research and
development, recruitment of personnel and financing activities. During this
time, the Company had engaged in limited marketing activities and had not
commenced the selling of its initial products, which are high-end file
management network systems. During the second quarter ended June 30, 1997, the
Company commenced commercial shipment of its server product and recognized
initial revenue in April 1997.
The Company's initial target market was the electronic publishing
industry, which requires the rapid and efficient movement of large image and
data files over networks. In September 1997, the Company introduced a windows
NT-based client server for its file management network systems.
Although the Company commenced shipment of its products in fiscal 1997,
the revenues recognized were less than originally anticipated by Company
management. The shortfall in 1997 revenues was attributed to product development
delays and problems with the Company's initial products sold. Such shortfalls in
revenues continued throughout the course of fiscal 1998.
In November 1998, the Company was informed by the investment bank that
provided the September 1998 bridge financing, that they would be unable to
secure the additional funding required to repay the outstanding bridge loan and
provide the Company with the necessary working capital to support its business
plan and ongoing operations. The Company began to seek alternative financing,
but was unable to secure the necessary funds.
In January 1999, the Board of Directors decided to accomplish the
following:
1. Seek buyers, strategic partners, and merger opportunities to make the
Company economically viable.
2. Suspend ongoing operations, layoff all but one of its employees, dispose
of all assets, attempt to settle any outstanding short and long term debts, seek
buyers or strategic partners for the further development of its existing
technology as well as explore merger opportunities.
The secured creditors formed a representative committee of two people who
initiated a plan to auction off all remaining inventory and substantially all
remaining fixed assets (retaining only those assets necessary to effectively
shut down operations, valued at approximately $10,000). On January 28, 1999 with
the aid of the committee-appointed auctioneer, the Company held the auction,
with proceeds amounting to approximately $65,000, indicating that the carrying
value of such assets exceeded their fair values. Accordingly, a loss of $184,975
was recorded in operations in 1998 which represents the excess of the carrying
value over the fair value of $75,000. Also included in operations is the
write-off of capitalized software costs of $265,000 to reduce their carrying
value to $0. The Company also recorded charges to cost of sales of approximately
$542,000 related to the write-down of unique inventory associated with the
Company's products.
Company's strategic financial and operating plans were as follows:
Financial Plan
1. Sell the license rights to the Company's technology that is no longer
needed.
2. Settle the accounts payable related to the previous operations
3. Provide incentive to the short-term note holders to exchange their notes
and warrants for 5% of the Company's common stock.
4. Negotiate the termination of operating and capital lease agreements.
5. Maintain the status of the corporation as a public Company through
required SEC filings and compliance with other governmental regulations.
6. Seek and acquiring entity through the issuance of Series A preferred
shares that are convertible to 92% of the Company's common stock.
F-20A
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
1. Organization, Business and Basis of Presentation: (continued)
Operating Plan
1. Build a business-to-business Internet destination portal where
small to medium sized companies can host their web sites and direct
employees to procure information, productivity tools and products.
2. Assist businesses in developing and hosting enabled web sites. The
Company will seek to establish services that will complement the small
business marketplace.
3. Acquire businesses, which may provide related services to small to
mid-sized businesses such as advertising, marketing and consulting firms,
as well as other Internet ventures.
In 1999, the Company began implementing its financial and operating
strategies.
1. The Company sold the license rights to its technology for $175,000.
2. The Company entered an agreement with the landlord and cancelled
the operating lease for its offices located at 2 Robbins Road, Westford,
Massachusetts. No additional obligations were incurred as a result of
cancellation.
3. The Company returned to the supplier certain equipment that was
obtained under capital lease agreement. In exchange for the cancellation of
lease, the Company paid $6,800 in cash and transferred certain accounts
receivable to settle additional $6,800 payable to the supplier.
4. The Company entered a release agreement regarding payment of any
future royalties.
5. Management began negotiations with new management who proposed to
purchase 92% of the Company stock and develop its Internet business. Also, a
proposal was made the note holders to convert their notes to 5% of the Company's
common stock.
The Company has incurred substantial losses since inception and has been
engaged primarily in product development. The Company has funded its losses
primarily from a combination of debt and equity financings. In addition, at
December 31, 1999, the Company had a working capital deficiency and a
stockholders' deficit. Also, as a start-up business-to-business e-commerce
venture, the Company's new business, assuming the Right2web transaction closes,
is subject to various risks including intense competition, need for substantial
funds and qualified personnel, internet security concerns, potential
technological difficulties, development of new technology, reliance on key
personnel, and the continuance of favorable market conditions for internet
companies.
These factors raise substantial doubt about the Company's ability to
continue as a going-concern. The accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities and commitments in the normal course of
business. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
F-21A
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
2. Summary of Significant Accounting Policies
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less, when purchased, to be cash equivalents. There were no cash
equivalents at December 31, 1999.
Inventories
The Company had no inventories for the fiscal year ended December 31,
1999. Inventories were recorded at $0 at December 31, 1998, which reflected in
charges to cost of sales of $542,000 for the write-down to market. Inventories
were stated at the lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment were recorded at cost. Depreciation was computed
using the straight-line method over the estimated useful lives of the related
assets ranging from three to five years. Property held under capital leases are
being amortized over the lesser of the lease term or their estimated useful
lives. The Company reduced the cost of property and equipment to its carrying
value of $75,000 in December 1998, resulting in a charge to operations of
$184,975 in fiscal year 1998. In 1999, the Company sold most of its equipment
for $65,000 and wrote off the balance. As of December 31, 1999, the Company had
no fixed assets.
Long-Lived Assets
The Company follows the provisions of the Statement of Financial Accounting
Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of". SFAS 121 establishes accounting
standards for the impairment of long-lived assets and certain identifiable
intangibles to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of.
The Company reviews the carrying values of its long-lived and identifiable
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. Due to the change in circumstances related to the operations of the
Company in fiscal 1998, impairment charges were recorded to reduce the carrying
value of long-lived assets in December 1998(see Note 1).
Revenue Recognition
Revenue was recognized on sales to end users when the product was accepted
by the customer.
Research and Development
When research and development costs were incurred they were expensed as
incurred.
In accordance with Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software To Be Sold, Leased or Otherwise
Marketed, the Company capitalized software development costs incurred after
technological feasibility of the software development projects is established
and the reliability of such capitalized costs through future operations is
expected. The Company wrote-off all capitalized software costs during 1998
resulting in a charge of $265,000 to operations.
F-22A
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
2. Summary of Significant Accounting Policies (continued)
Income Taxes
Income taxes are calculated using the liability method specified by
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
Financial Instruments
The estimated fair value of the Company's financial instruments, which
include accounts payable, related party accounts, debt instruments and
convertible promissory notes, approximate their carrying value.
Concentrations of Credit Risk and Major Customers
A significant portion of the Company's sales in 1998 were to customers in
the electronic publishing industry. The Company extended credit terms on a
customer-by-customer basis based on its evaluation of its collectibility
exposure. The Company's sales in 1999 represented a one time license fee for its
technology to one customer. In fiscal 1998, the Company derived sales from 5
customers which represented 69% of net sales approximately as follows:
<TABLE>
<S> <C> <C>
% Total
Customer Sales Sales
A 182,000 17%
B 180,000 17%
C 116,000 11%
D 142,000 13%
E 113,000 11%
</TABLE>
In 1999, the Company terminated the sale of products and services to all
customers.
Stock Options
The Company follows the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. The Company has elected to continue to account for
stock options at their intrinsic value with disclosure of the effects of fair
value accounting on net earnings (loss) and earnings (loss) per share on a pro
forma basis.
Net Loss Per Share of Common Stock
The Company follows the Statement of Financial Accounting Standards
No. 128, Earnings Per Share ("SFAS No. 128"). SFAS No. 128 requires the
presentation of both basic and diluted earnings per share.
New Accounting Standard Not Yet Adopted
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 requires companies to recognize all derivative contracts as
either assets or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of gain or
loss recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged assets or liability or (ii) the earnings
effect of the hedged forecasted transaction. For a derivative not designated as
a hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999.
F-23A
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
2. Summary of Significant Accounting Policies (continued)
Historically, the Company has not entered into derivative contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard in 1999 to affect its financial
statements.
4. Financing Arrangements
Private Placement
In January 1998, the Company completed a private placement of 6,180,000
shares of the Company's common stock at a price of $1.00 per share. The proceeds
from the private placement less placement fees of $453,881 were approximately
$4,926,000. An additional 378,910 shares were issued as part of the placement
fees.
In May 1998, the Company completed a private placement of 575,000 shares
of the Company's common stock at a price of $1.00 per share. The proceeds from
the private placement less placement fees of $28,200 were approximately
$546,800. An additional 51,722 shares were issued as part of the placement fees.
Bridge Financing
In January 1998, the Company entered into bridge financing made up of 10
units each consisting of (i) a convertible promissory note in the principal
amount of $50,000 bearing interest payable at maturity, at the rate of 8% per
annum, which shall be converted into shares of the Company's common stock at the
rate of one share of common stock per dollar loaned plus accrued interest as of
the date and upon the earlier of (a) the consummation of a financing by the
Company which results in net proceeds to the Company of at least $3,000,000 or
(b) June 30, 1998; and (ii) a warrant to purchase 25,000 shares of common stock
at an exercise price of $1.00 per share. Gross proceeds were $500,000. The
Company allocated proceeds of $47,689 to the detachable warrants and $452,131 to
the promissory notes. Upon the completion of a separate private equity placement
in January 1998, the above 10 units were converted into 500,000 shares of the
Company's common stock. The discount on the debt for the detachable warrants of
$47,689 was charged to interest expense upon conversion.
In September 1998, the Company obtained $1,500,000 in bridge financing
consisting of secured convertible promissory notes and 750,000 common stock
purchase warrants. The promissory notes bear interest at the rate of 8% and are
to be repaid at the earlier of July 31, 1999 or (i) any sale, pledge, assignment
or disposition of any assets of the borrower (ii) any merger or consolidation of
the borrower or "change of control" of the borrower or (iii) proceeds of at
least $4,000,000 from the sale or issuance of any debt or equity securities or
proceeds of any loans. Each warrant shall be exercisable for the number of
shares equal to 50% of the principal amount of the loans. The warrants are
exercisable at $.40 per share and expire five years from the date of issuance.
In October 1997, the Company entered into a note agreement with a bank in
the principal amount of $750,000, with interest at the banks prime rate plus 2%
(9.75% at December 31, 1998). This loan was originally payable upon completion
of financing, resulting in net proceeds of at least $5,000,000. In December
1997, the loan agreement was amended to extend the due date on the loan to
February 28, 1998. In accordance with the original terms of the bridge loan, the
Company issued detachable warrants to purchase 100,000 shares of the Company's
common stock at an exercise price of $3.00 per share exercisable over 5 years.
In consideration of the extension granted in December 1997, the exercise price
of the detachable warrants was reduced from $3.00 per share to $1.00 per share.
Of the $750,000 in gross proceeds, the Company allocated $81,077 to the
detachable warrants and $668,923 to the note. The discount on the debt was
amortized over 5 months, the term of the extended loan. In September 1998, the
Company repaid the principal balance with a portion of the proceeds from the
September 1998 bridge financing. During the year ended December 31, 1998, the
remaining discount of $32,431 was charged to interest expense. Accrued interest
related to this bridge note of approximately $17,000 is included in current
liabilities at December 31, 1998.
F-24A
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
4. Financing Arrangements (continued)
In December 1997, the Company entered into bridge financing which
consisted of the sale of 10 units. Each unit consisted of (i) a promissory note
in the principal amount of $50,000 bearing interest payable at maturity at the
rate of 8% and payable on the earlier of (a) the date of consummation of
financing by the Company resulting in net proceeds of at least $3,000,000 or (b)
January 30, 1998; and (ii) a warrant to purchase 50,000 shares of common stock
at an exercise price of $1.00 per share and having an exercise period of 5
years. Proceeds were $500,000. The Company allocated gross proceeds of $51,852
to the detachable warrants and $448,148 to the promissory notes. The discount on
the debt was amortized over 2 months, the term of the loan. During the year
ended December 31, 1998, the remaining discount of $25,926 was charged to
interest expense. The Company extinguished this debt by paying $200,000 in cash
and converting the remaining balance into 300,000 shares the Company's common
stock in conjunction with the January 1998 private placement of 6,180,000 shares
of the Company's common stock at $1.00 per share.
Convertible Promissory Notes
At June 30, 1996, the Company had outstanding $752,602 of convertible
promissory notes issued to various stockholders of the Company during September
1995 and May 1996 in connection with a private placement, as well as $111,674 of
convertible promissory notes issued (collectively referred to as the "Notes") to
MTDC and First Stage in connection with the conversion of demand promissory
notes issued in 1991. The Notes mature three years from date of issue and bear
interest of 10 percent per annum payable at maturity or upon the earlier of
redemption or conversion. The notes provided that following the public offering,
any portion of the principal and interest of the Notes not so converted may be
converted at the option of the holder at the offering price plus $1.33 per
share. However, if the price of the common stock is at least $4.00 above the
initial public offering price for a period of 10 consecutive trading days, the
Company may convert any of the remaining principal and accrued interest at a
price equal to $1.33 per share above the initial public offering price. On
November 30, 1996, $802,018 of the outstanding convertible promissory notes and
$71,488 of accrued interest, net of financing costs of $133,969, were converted
into 218,374 shares of the Company's common stock at a conversion rate of $4.00
per share. Outstanding balances on these notes amounted to $20,743 at December
31, 1998 and $6,432 at December 31, 1999.
5. Commitments
Leases
The Company was obligated for rental payments under two operating leases
for facilities that expire through August 2001. Rent expense under these
agreements for the year ended December 31, 1999 and 1998 was approximately $-0-
and $522,000, respectively. In addition, the Company is obligated under capital
leases for equipment that continue through July 2000. Future minimum payments,
by year and in the aggregate, under capital leases and operating leases with
initial or remaining terms of one year or more was approximately as follows at
December 31, 1999:
<TABLE>
Year ended December 31, Capital Leases Operating Leases
<S> <C> <C>
2000 $ 0 0
2001 0 0
------- ----------
Total minimum lease payments 0 0
==========
Less amount representing interest 0
-------
Present value of minimum lease payments $ 0
=======
</TABLE>
Subsequent to 1998 year-end, the Company returned all equipment under
capital leases and cancelled the operating leases. No amounts have been accrued
or recorded by the Company as a result of cancelling the operating leases in
1999. The Company has negotiated a settlement for the non-cancellable capital
lease of all equipment and the operating lease for the Company headquarters, at
2 Robbins Road, Westford, Massachusetts, and has been released from any future
obligations. The remaining obligation, under non-cancellable capital lease, is
for the Company's telephone equipment. The amount owed is estimated at $46,700
and is included under current liabilities.
F-25A
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
5. Commitments (continued)
License Agreements
On September 27, 1995, the Company obtained a worldwide license from
Radius, Inc. ("Radius") to use certain of Radius' technology in its products. In
addition, the Company granted to Radius an irrevocable, perpetual,
non-exclusive, worldwide, royalty-free license to any modifications to the
Radius technology made by the Company. During 1998 and 1997, the Company failed
to meet the unit sales requirement. As a result, the Company no longer has the
exclusive right to the Radius technology and it may be licensed to other
parties. Royalty expense under this license amounted to approximately $-0- and
$3,000 in 1999 and 1998, respectively.
The Company entered into a Development and License Agreement dated August
1, 1996 with Polybus Systems Corporation ("Polybus") pursuant to which the
Company obtained an irrevocable, perpetual, worldwide, nonexclusive (except as
to publishing for which the license is exclusive) license to a high-speed file
manager software package in consideration for royalty payments.
In 1999, the Company cancelled its agreement with Polybus and obtained a release
from any obligations.
Employment Contracts
Effective January 1, 1997, the Company entered into a two-year employment
agreement with Mr. Lorrin Gale, the Company's former President and Chief
Executive Officer. Pursuant to such contract, Mr. Gale was paid a base salary of
$125,000 and was granted incentive stock options to purchase up to 75,000 shares
of common stock. Options to purchase 15,000 shares of common stock vested upon
the execution of the agreement and options to purchase 30,000 shares of common
stock vested on each of the first and second anniversaries of the agreement. All
options have an exercise price of $4.00 per share. Pursuant to his employment
agreement, Mr. Gale may not compete with the Company during the term of his
employment and for one year thereafter. Mr. Gale left the Company as President
and Chief Executive Officer in March 1998. In September 1998, the Company
reached a settlement with Mr. Gale which required the Company to pay $150,000 in
severance pay and an additional $45,000 in increments of $15,000 over three
years beginning July 1999.
Effective January 1, 1997, the Company entered into an employment
agreement with Mr. Duane Mayo, the Company's Chief Financial Officer, for a term
equal to the duration of his employment. In consideration of the agreement, Mr.
Mayo's annual salary increased from $85,000 to $100,000. Mr. Mayo may not
compete with the Company throughout the term of his employment and for one year
thereafter.
Effective May 1998, the Company entered into a two-year employment
agreement with Lawrence Liebson, the Company's President and Chief Executive
Officer. Pursuant to the contract, Mr. Liebson was to be paid a base salary of
$150,000 and was granted incentive stock options to purchase up to 1,763,955
shares of common stock. Options to purchase 563,881 shares of common stock
vested upon execution of the agreement and options to purchase 300,019 shares
vested on each of the first, second, third and fourth anniversaries of the
agreement. All options had an exercise price of $1.00 per share.
Mr. Liebson left the Company as President and Chief Executive Officer in
January 1999.
In December 1998, the Company authorized the issuance of an additional
3,592,816 shares of common stock to investors and the issuance of warrants to
purchase 359,282 shares of common stock to the underwriter who participated in
the January and May 1998 private placements. The issuance of the shares and
warrants was pursuant to specific terms of the private placement related to
missing certain revenue milestones.
F-26A
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
6. Related Party Transactions and Subsequent Events
In February 1997, the Stanley A. Young Family Limited Partnership, an
entity affiliated with Stanley A. Young, a company director until June 1997, was
issued, in a private placement, promissory notes in the aggregate principal
amount of $50,000 and warrants to purchase 6,375 shares of common stock at an
exercise price of $2.75 per share and warrants to purchase 6,375 shares of
common stock at an exercise price of $4.125 per share.
In April 1997, the Company issued to Venture Management Consultants, LLC
("Venture Management"), of which Fred L. Chanowski, a director of the Company
until March 1999, is a 20% member, a promissory note in the principal amount of
$200,000 in consideration for a $200,000 loan. The promissory note bears
interest at 18% per annum with interest and principal payable at maturity on May
31, 1998. In May 1997, the Company issued to Venture Management a promissory
note in the principal amount of $200,000 in consideration for a $200,000 loan.
The promissory note bears interest at 17% per annum with interest and principal
payable at maturity on June 30, 1998. In October 1997, the Company issued to
Venture Management, in consideration of a $400,000 loan, a promissory note in
the principal amount of $400,000 plus a warrant to purchase up to 100,000 shares
of Common Stock at $3.00 per share. The promissory note bears interest at 9% per
annum with interest and principal payable at maturity on the earlier of (i)
December 11, 1997; or (ii) the completion of a financing by the Company. The
Company subsequently repaid all three of the promissory notes
Issued to Venture Management. In October 1997, the Company entered into a
Consulting Agreement with Venture Management. In consideration for consulting
services, the Company issued Venture Management a warrant to purchase up to
400,000 shares of common stock at $3.00 per share and agreed to pay consulting
fees of $4,000 per month, plus out-of-pocket expenses up to $1,000 per month. In
October 1998, the Company cancelled the consulting agreement with Venture
Management signed in October 1997 and the warrant to purchase up to 400,000
shares of common stock and entered into a new consulting agreement with Venture
Management. In consideration of consulting services, the Company issued a
warrant to purchase up to 500,000 shares of common stock at $1.00 per share.
Included in consulting expense for 1998 is approximately $17,000 related to
these warrants.
In January 1998, Leventhal Paget LLC, of which Jeffrey Leventhal, a
director of the Company until March 1999, purchased 200,000 shares of Common
Stock for $200,000 in a private placement of the Company's Common Stock.
On March 11, 2000, the Company entered into a Stock Purchase Agreement
pursuant to which the Company will sell to Right2web.Com, Inc ("Right2web"), a
start-up business-to-business internet venture, such number of shares of the
Company's Series A Convertible Preferred Stock of the Company subject to various
conditions of closing, including conversion of all outstanding warrants, options
and convertible notes into equity of which there can be no assurance. Upon
conversion of the Preferred Stock, Right2Web.Com will own 92% of the Company on
a fully diluted basis. After dilution, current stockholders would receive 3% of
the Company's common stock and the convertible note holders would receive 5%.
This transaction should close within the next sixty days.
Right2Web.Com, is owned principally by Jeffrey Leventhal, a former director
of the Company who resigned in March 1999. Mr. Leventhal has previously owned
three information technology companies, with his previous venture having been
sold to a public company, Netlogics Communications, Inc. (NASDAQ:NETL).
Right2web's business model is to build a business-to-business internet
destination portal where small to medium sized companies can host their web
sites and direct employees to procure information, productivity tools and
products. In addition, Right2web intends to assist companies in developing and
hosting enabled web sites. Right2web will seek to establish services that will
complement the small business marketplace. Right2web has also advised that it
intends to make strategic acquisitions in businesses, which may provide related
services to small to mid-sized businesses such as advertising, marketing and
consulting firms as well as other internet ventures.
Since Right2web is a start-up business-to-business e-commerce venture, it
will, among other things, be subject to intense competition, the need for
financing, unforeseen technological changes, the risks inherent in any internet
businesses such as security concerns, technological difficulties, development of
new technology, the need to attract qualified personnel, reliance on Jeffrey
Leventhal, and continuing of favorable market conditions for internet companies,
etc.
F-27A
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
7. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
At December 31, 1999 the Company had a gross deferred tax asset of
$8,457,000 related to a net operating loss carryforward, for which a valuation
allowance of $8,457,000 was recorded. The Company had no deferred tax liability
at December 31, 1998. The current year increase in the deferred tax asset and
the related valuation allowance of $2,957,000 was primarily attributable to the
increase in the deferred asset related to the net operating loss carryforward.
Due to operating losses generated, there is no provision for federal and
state income taxes for the years ended December 31, 1999 and December 31, 1998:
<TABLE>
Rate Amount
------- -------
<S> <C> <C>
Expected federal tax expense at statutory rate 27% $ 50,989
U.S. State income taxes 3 4,369
Tax benefit of loss carryforward (30) (55,358)
--- ------
Provision for income tax -- $ --
=== ======
</TABLE>
The difference between the effective tax rate and the United States
federal rate of 34 percent for the years ended December 31, 1999 and December
31, 1998 relates to the limitations applicable to the recognition of tax
benefits from the net operating losses.
At December 31, 1998, the Company had a net operating loss carryforward
for federal income tax purposes of approximately $20,300,000 which expires in
2012. Net operating loss carryforwards are subject to review and possible
adjustment by the Internal Revenue Service and may be limited in the event of
certain cumulative changes in the ownership interests of significant
stockholders over a three year period in excess of 50 percent. As a result of
the change in ownership of the Company in June 1995, the ultimate utilization of
the Company's net operating losses were substantially eliminated as of June 30,
1995. As a result of the changes in ownership of the Company in June 1996, May
1997, January 1998 and May 1998, the ultimate utilization of the Company's net
operating losses are expected to be limited.
F-28A
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
8. Capital Stock
Preferred Stock
In July 1995, the Board of Directors approved an increase in the number of
authorized shares of preferred stock from 593,602 shares to 2,000,000 shares.
The preferred stock may be issued in one or more series, the terms of which may
be determined at the time of issuance by the Board of Directors, without further
action by stockholders, and may include voting rights, preferences to dividends
and liquidation, conversion and redemption rights and sinking fund provisions.
Common Stock
In June 1998, the Board of Directors approved an increase in the number of
authorized shares of common stock from 30,000,000 shares to 50,000,000 shares.
In March 1997, the Company issued 47,807 shares of common stock in
connection with the exercise of a warrant to purchase common stock for $1.507
per share.
In May 1997, the Company issued 1,800,000 shares of common stock in
connection with an initial public offering.
In April 1997, the Board of Directors declared a three-for-four reverse
stock split of the Company's common stock. All common stock, common stock
options and per share information disclosed in the financial statements and
notes thereto, have been adjusted to give effect for this stock split.
In January 1998, in connection with a $6,180,000 private placement of the
Company's common stock, the Company issued warrants for the purchase of up to
655,891 shares of common stock to the underwriter and 12 of its designees. These
warrants have an exercise price of $1.00 per share; rights to purchase shares
granted by these warrants will expire on January 8, 2003.
In May 1998, in connection with a $575,000 private placement of the
Company's common stock, the Company issued 51,722 shares of common stock, to the
underwriter. The shares of common stock were issued in lieu of cash compensation
payments to the underwriter.
At December 31, 1998, 129,850 shares of common stock were reserved for
issuance under outstanding stock options and 7,501,681 shares were reserved for
issuance under warrants.
F-29A
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
8. Capital Stock (continued)
Warrants
In January 1998, in connection with a $500,000 bridge financing, the
Company issued promissory notes with a stated principal of $500,000 and warrants
to purchase up to 250,000 shares at $1.00 per share. In April and May 2000
$1,475,000 of the convertible note holders agreed to convert their notes and
warrants into an aggregate of 5% of the equity of the Company after the proposed
reverse stock split.
In January 1998, in connection with a $6,180,000 private placement of the
Company's common stock, the Company issued 378,910 shares of common stock, to
the underwriter and 4 of its designees. The shares of common stock were issued
in lieu of cash compensation payments to the underwriter.
In May 1998, in connection with a $575,000 private placement of the
Company's common stock, the Company issued warrants for the purchase of up to
62,673 shares of common stock to the underwriter and 4 of its designees. These
warrants have an exercise price of $1.00 per share; rights to purchase shares
granted by these warrants will expire May 30, 2003.
In September 1998, in connection with a $1,500,000 bridge financing, the
Company issued secured promissory notes with a stated principal of $1,500,000
and warrants to purchase up to 750,000 shares of the Company's common stock at
$.40 per share.
In September 1998, in connection with the execution of a consulting
agreement and securing of $1,500,000 the Company issued warrants to purchase
1,000,000 shares of the Company's common stock to an underwriter and 4 of its
designees. These warrants have an exercise price of $.40 per share; rights to
purchase shares granted by these warrants will expire on September 30, 2003.
In October 1998, the Company cancelled warrants to purchase up to 400,000
in common stock associated with a consulting agreement and entered into a new
consulting agreement by issuing warrants to purchase 500,000 shares of the
Company's common stock at $1.00 per share expiring in October 2003.
In December 1998, the Board of Directors authorized the issuance of an
additional 3,592,816 shares of common stock to 66 accredited investors who
participated in private placements of the Company's common stock during January
and May 1998. The issuance of the shares was pursuant to specific terms of the
private placement relating to missing certain revenue milestones. As of April
1999, the Company had not issued those shares.
In December 1998, the Board of Directors authorized the issuance of
warrants to purchase 359,282 shares of common stock to the underwriter involved
in private placements of the Company's common stock during January 1998 and May
1998. The issuance of the warrants was pursuant to specific terms of the private
placement relating to missing certain revenue milestones. As of April 1999, the
Company has not issued those warrants.
F-30A
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
8. Capital Stock (continued)
From November 1995 to May 1996, the Company issued (i) warrants to
purchase in the aggregate 244,059 shares of common stock at an exercise price of
$1.507, of which 21,514 have an expiration date four years from the date of
issuance and 222,545 have an expiration date five years from the date of
issuance; and (ii) warrants (to a placement agent) to purchase an aggregate of
21,966 shares of common stock at a price of $1.507 per share and expiring
between November 22, 2000 and May 31, 2001. In July 1996, the Company issued a
warrant to purchase 23,904 shares of common stock at an exercise price equal to
one half of the price of the shares of common stock in the Company's initial
public offering and with an expiration date five years from the date of
issuance. In October 1996, the Company issued a warrant to purchase 11,952
shares of common stock at an exercise price of $2.093 per share and with an
expiration date five years from the date of issuance. In December 1996, the
Company issued a warrant to purchase 37,500 shares of the Company's common stock
at an exercise price of $4.00 per share and with an expiration date five years
from the date of issuance. From December 1996 through February 1997, the Company
issued warrants to purchase in the aggregate 914,188 shares of common stock,
457,094 of which have an exercise price of $2.75 per share and 457,094 of which
have an exercise price equal of $4.125 per share. These warrants are exercisable
for a period of three years commencing on December 30, 1997.
In connection with an initial public offering declared effective on May
12, 1997, 2,070,000 redeemable common stock purchase warrants were issued by the
Company. Each warrant entitles the holder to purchase one share of common stock
for $6.60 during the four-year period commencing one year from the date of the
offering.
9. Stock Option Plan
In July 1995, the Company adopted its 1995 Stock Option Plan. Under this
plan, the Board of Directors, at their discretion, can issue either incentive
stock options or nonqualified options to employees and nonqualified options to
consultants, directors or other nonemployees.
Incentive stock options may not be granted at a price less than the fair
market value of the shares at the grant date (or less than 110% of fair market
value in the case of employees or officers holding 10% or more of the voting
stock) while the nonqualified options may be granted at a price determined by
the Board of Directors except that the Company has agreed with the Underwriters
not to grant any nonqualified options at a price lower than 85% of the fair
market value of the shares at the date of the grant. All grants as of December
31, 1998 were at fair market value or greater. The options generally vested 10%
after 30 days from the date of grant and the balance ratably over a period of
four years. Incentive stock options granted under the plan expire not more than
10 years from the date of grant and not more than five years in the case of
incentive stock options granted to an employee or officer holding 10% or more of
the voting stock of the Company. All options not exercised at the end of the
vesting period automatically expire. The aggregate number of shares which may be
granted under this plan may not exceed 4,800,000 shares.
F-31A
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
9. Stock Option Plan (continued)
Changes in options outstanding under the 1995 Stock Option Plan are
summarized as follows:
<TABLE>
Weighted-Average
Shares Exercise Price
<S> <C> <C>
Balance, January 1, 1998 2,265,620 1.04
Granted -- --
Exercised -- --
Cancelled or expired (2,134,770) 1.04
---------- ------
Balance, December 31, 1998 130,850 $1.00
========== =====
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
Options Outstanding
-------------------
Weighted-
Number Average Weighted-
Range of Outstanding at Remaining Average
Exercise December 31, Contractual Exercise
Prices 1999 Life (years) Price
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$1.00 130,850 4.4 $ 1.00
$1.00 130,850 4.4 $ 1.00
====== ======== === =====
</TABLE>
F-32A
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
9. Stock Option Plan (concluded)
<TABLE>
Options Exercisable
Number Weighted-
Range of Exercisable at Average
Exercise December 31, Exercise
Prices 1999 Price
--------------------------------------------------------------------
<S> <C> <C>
$1.00 130,850 $1.00
$1.00 130,850 $1.00
====== ======== =====
</TABLE>
The Company follows the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation". The Company has elected to continue to account for
stock options at intrinsic value with disclosure of the effects of fair value
accounting on net income (loss) and earnings (loss) per share on a pro forma
basis. Had compensation costs for the stock option plans been determined using
the fair value method, the Company's pro forma net loss and loss per share would
have been as follows:
<TABLE>
December 31,
--------------------------
1999 1998
------------- ---------
<S> <C> <C> <C>
Net profit (loss) As reported $ 184,527 $(7,239,529)
Pro forma 184,527 $(7,814,319)
Basic and diluted loss
per share As reported $ (0.02) $ (0.65)
Pro forma $ (0.02) $ (0.70)
</TABLE>
Pro forma compensation cost may not be representative of that to be
expected in future years.
The Company has computed the pro forma disclosures required under SFAS No.
123 using the Black-Scholes option pricing model prescribed by SFAS No. 123. The
level of outstanding options as of December 31, 1999 does support the
calculation. The weighted average assumptions used for the year ended December
31, 1998 are as follows: risk free interest rates range of 5.67%, expected
dividend yield of 0% and expected option life of 60 months; and expected
volatility of 50%. The weighted average fair value of all options granted during
the years ended December 31, 1999 was $0.51.
F-33A
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
10. Net Loss Per Share of Common Stock
The Company follows the Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings per Share, issued by the Financial Accounting Standards Board.
Under SFAS No. 128, the basic and diluted net loss per share of common stock for
the years ended December 31, 1998 and December 31, 1997 is computed by dividing
the net loss by the weighted average number of common shares outstanding during
the period.
The weighted average number of common shares outstanding is summarized as
follows:
<TABLE>
December 31,
-----------------------------
1999 1998
----------- ---------
<S> <C> <C>
Denominator for basic and diluted loss per share:
Weighted average common stock
shares outstanding 11,898,952 11,105,306
</TABLE>
The Company's convertible preferred stock, unissued shares and other
convertible instruments are not considered outstanding for the diluted
calculation since their effect is antidilutive.
11. Initial Public Offering
During fiscal 1997, the Company consummated an initial public offering of
its common stock and common stock purchase warrants under the Securities Act of
1933 with the Securities and Exchange Commission. Pursuant to the offering,
1,800,000 shares of common stock and 2,070,000 redeemable common stock purchase
warrants were issued and sold by the Company. Each warrant entitles the holder
to purchase one share of common stock for $6.60 during the four-year period
commencing one year from the date of the offering. The Registration Statement
was declared effective on May 12, 1997. The Company received net proceeds after
expenses of approximately $8,220,000.
12. Supplemental Cash Flow Information
<TABLE>
December 31,
-------------------------
1999 1998
---------- -------
Supplemental schedule of cash payments:
<S> <C> <C>
Cash paid for interest $ 7,088 $ --
Cash paid for taxes -- --
Supplemental schedule of non-cash financing and
investing activities:
Conversion of bridge financing into common stock -- 300,000
Conversion of notes payable into common stock -- 500,000
Debt discount paid in warrants -- 211,588
Financing fees paid in warrants -- 34,668
Consulting expense paid with warrants -- 17,138
Property and equipment acquired by
capital lease obligations -- --
F-34A
</TABLE>
<PAGE>
BLOOM AND COMPANY
50 CLINTON STREET, SUITE 502
HEMPSTEAD, NY 11550
TEL 516 486-5900
FAX 516 486-5476
Report of Independent Certified Public Accountants
--------------------------------------------------
To the Board of Directors
Augment Systems, Inc.
North Andover, Massachusetts
We have audited the accompanying balance sheet of Augment Systems, Inc. as
of December 31, 1999 and the related statements of operations,
stockholders' deficit, and cash flows for the years ended December 31, 1999
and 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to report on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 statement presentation. We believe that our audit
provides a reasonable basis for our report.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Augment Systems, Inc.
as of December 31, 1999, and the results of its operations and its cash
flows for the years ended December 31, 1999 and 1998, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Augment Systems, Inc. will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company has suffered recurring
losses from operations and has a net working capital deficiency and a
stockholders' deficit. In addition, the Company has suspended operations
and liquidated its assets. These circumstances raise substantial doubt
about the entity's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Bloom and Company
Hempstead, NY
June 8, 2000
F-35A
