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 September 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) 270-0900
(Registrant's telephone number, including area code)
None
(Former name or former address, if changed since last report)
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
requirements for the past 90 days. 1. Yes_X_ NO ___ 2. Yes_X_ NO ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
Filed by section 12, 13 or 15(d) of the exchange act after the distribution of
Securities under a plan confirmed by a court.__{yes} ___{no}
APPLICABLE ONLY TO CORPORATE USERS
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date: As of October 30, 2000.
Class Outstanding at October 30,2000
----- ------------------------------
Common stock, $.01 par value per share 15,778,406
Transitional small Business Disclosure Format: ___Yes ___No
<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 September 30, 2000
Results of operations for the nine months ended
September 30, 2000 and 1999
Results of operations for the three month period ended
September 30, 2000 and September 30, 1999
Statements of cash flows for the nine months ended
September 30, 2000 and 1999
Statements of cash flows for the three months ended
September 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
<TABLE>
September 30,
2000
---------
Assets
Current assets:
<S> <C>
Cash $ 82,201
--------
Total current assets $ 82,201
========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 54,942
Accrued expenses 298,631
Bridge financing 1,395,701
Convertible promissory notes 6,432
Current portion of obligations under
capital leases 46,760
----------
Total current liabilities 1,802,466
-----------
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;
15,778,406 shares issued and outstanding at
September 30,2000 124,989
Additional paid-in capital 21,804,866
Deficit (23,650,120)
-----------
Total stockholders' deficit ( 1,720,265)
-----------
Total liabilities and stockholders' deficit $ 82,201
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Augment Systems, Inc.
Statements of Operations
For the Nine Months Ended
<TABLE>
September 30, September 30,
2000 1999
--------- ---------
<S> <C> <C>
Net sales $ -- $ 175,000
Cost of sales -- --
--------- --------
Gross margin -- 175,000
--------- --------
Operating expenses:
General and administrative expenses 85,783 239,469
Refund of prior year's expenses ( 19,934) --
-------- --------
Total operating expenses 65,849 239,469
-------- --------
Gain (loss) from Operations ( 65,849) ( 64,469)
-------- --------
Other income (expense):
Interest income (expense) ( 90,000) 186,616
---------- --------
Total other income (expense) ( 90,000) 186,616
--------- --------
Net Income (loss) $ ( 155,849) $ 122,147
========= ========
Earnings per share
Net (loss) per share of common stock:
Basic and diluted $ (0.01) $ .01
===== =====
Weighted average number of shares outstanding 15,788,406 11,898,952
========== ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Augment Systems, Inc.
Statements of Operations
For the Three Months Ended
<TABLE>
Sept. 30, 2000 Sept. 30, 1999
-------------- --------------
<S> <C> <C>
Net sales $ -- $ --
Cost of sales -- --
------- -------
Gross margin -- --
------- -------
Operating expenses:
General and administrative expenses 17,683 203,969
-------- --------
Total operating expenses 17,683 203,969
-------- --------
Other income (expense):
Interest income (expense) ( 30,000) 164,004
---------- --------
Total other expense ( 30,000) 164,004
--------- --------
Net Income (loss) $ ( 47,683) $( 39,965)
======== ========
Earnings per share
Net (loss) per share of common stock:
Basic and diluted ( .01) ( .01)
==== ====
Weighted average number of shares outstanding 15,778,406 11,898,952
========== ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Augment Systems, Inc.
Statements of Cash Flows
For the Nine Months Ended
<TABLE>
Sept. 30, Sept. 30,
2000 1999
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ ( 155,849) $ 122,147
Adjustments to reconcile net loss to net
cash used for operating activities:
Changes in operating assets and liabilities:
Prepaid expenses -- --
Other assets -- 98,611
Accounts payable -- ( 318,467)
Accrued expenses 103,630 ( 2,746)
-------- --------
Net cash used for operating activities ( 52,219) ( 100,455)
-------- --------
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 7,781 ( 100,455)
Cash, beginning of period 74,420 187,815
--------- ---------
Cash, end of period $ 82,201 $ 87,360
========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Augment Systems, Inc.
Statements of Cash Flows
For the Three Months Ended
<TABLE>
Sept. 30, Sept. 30,
2000 1999
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (47,683) $ (39,965)
Adjustments to reconcile net loss to net
cash used for operating activities:
Changes in operating assets and liabilities:
Prepaid expenses -- 20
Other assets -- ( 345)
Accounts payable -- ( 6,033)
Accrued expenses 24,288 30,000
------- -------
Net cash used for operating activities (23,395) (16,323)
------- -------
Cash flows from investing activities:
Capital expenditures -- --
------ ------
Net cash used for investing activities -- --
------ ------
Cash flows from financing activities:
Proceeds from issuance of common stock -- --
Additional Paid-in-Capital -- --
Proceeds from bridge financing -- --
Payments on bridge financing -- --
------ ------
Net cash provided by financing activities -- --
------ ------
Net increase (decrease) in cash ( 23,395) ( 16,323)
Cash, beginning of period 105,596 103,683
-------- -------
Cash, end of period $ 82,201 $ 87,360
======== =======
The accompanying notes are an integral part of the financial statements.
</TABLE>
<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 through March 1997, the Company operated as a development
stage company and was engaged principally in research and development,
recruitment of personnel and financing activities. During that 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, which
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 representing 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. Complete the contract with Right2Web in which the Company will have
new management and Right2web will receive Series A preferred shares
that are convertible to 92% of the Company's common stock.
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
1. Organization, Business and Basis of Presentation: (continued)
Operating Plan
1. 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.
2. The Company intends to investigate going back into designing, manufacturing
and selling of fibre channel based network file server systems which are
designed to increase data transfer and file storage on computer networks.
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
this cancellation.
3. The Company returned to the supplier certain equipment that was obtained
under capital lease agreement. In exchange for the cancellation of the
lease, the Company paid $6,800 in cash and transferred certain accounts
receivables 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 is in the final stages of an arrangement that will exchange
shares of a new start-up company for 92% of the Company's common stock and
revamp the fibre channel storage business and make strategic acquisitions.
Also, a proposal was made to the note holders, and accepted by them to
convert their notes to 5% of the Company's common stock after the exchange.
The conversion will take place simultaneously with the exchange of shares
transferring a 92% interest in the Company to Right2web.
The Company has incurred substantial losses since inception and has been
engaged primarily in product development. The Company had funded its losses
primarily from a combination of debt and equity financings. In addition, at
September 30, 2000, the Company had a working capital deficiency and a
stockholders' deficit. Also, 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.
<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 September 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 September 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 was recognized on sales to end users when products were accepted.
Research and Development
When research and development costs were incurred, they were expensed, as
incurred.
<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 September
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.
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
3. Accrued Expenses
As of September 30, 2000, accrued expenses consist of the following:
<TABLE>
1999
----
<S> <C>
Severance 45,000
Professional Fees 13,631
Interest 240,000
--------
Total accrued expenses $ 298,631
========
</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 agreed 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. On September 12, 2000 an amended agreement was entered into which
changed the terms of the agreement such that the outstanding shares of Right2web
would be exchanged for 92% of the Company.
Right2web is a start-up venture with no assets or liabilities. At the
closing of the transaction, the stockholders of Right2web will exchange their
shares of Right2Web for 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, Right2Web will own 92% of the Company. 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 successfully 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 stockholders
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
148,000,000 of common stock, and 2,000,000 shares of preferred
stock as the Board of Directors deems appropriate; and
6. Omnibus authority to take all actions in the furtherance of the
foregoing.
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
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. His most previous venture was sold to a
public company, Netlojix Communications, Inc. (NASDAQ:NETX). 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-size businesses such as advertising, marketing and consulting
firms.
Since Right2web is a start-up 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.
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
5. PRO FORMA UNAUDITED STATEMENTS - SUBSEQUENT EVENT
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>
<S> <C> <C> <C>
Assets
Current assets Actual Pro Forma
(Unaudited) Adjustments Pro Forma
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
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
BALANCE SHEETS
ACTUAL AND PRO FORMA
JUNE 30, 2000
(Continued)
<TABLE>
Actual Pro Forma
(Unaudited) Adjustments Pro Forma
<S> <C> <C> <C>
Commitments
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 stockholders. 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. stockholders. 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. Stockholders in exchange for
Right2web.com common shares 14,167 (1)
</TABLE>
See Notes to Pro Forma Financial Statements
<PAGE>
BALANCE SHEETS
ACTUAL AND PRO FORMA
JUNE 30, 2000
(Continued)
<TABLE>
Actual Pro Forma
(Unaudited) Adjustments Pro Forma
<S> <C> <C> <C>
Preferred Stock (Continued)
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)
<TABLE>
Actual Pro Forma
(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
See Notes to Pro Forma Financial Statements
</TABLE>
<PAGE>
AUGMENT SYSTEMS, INC.
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
Issuance and Cancellation of Preferred Stock
Issuance of Series A Convertible Preferred Shares
(1) Twenty-one days after the mailing of an Information Statement to the
Company's stockholders' ("Effective Date"), 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 valued at $40,480
(See Note 5). The acquisition of goodwill increased the Company's Preferred
Stock and Paid-in Capital by $14,167 and $28,383, respectively.
Conversion of Preferred Shares to Common Shares
The stockholders of Right2web have agreed that they will convert their
Series A Preferred Shares to 120,967,779 post reverse-split shares, representing
92% of all outstanding shares of the Company as of the Effective Date. The
Company will cancel the Preferred Shares ($14,167), upon the issuance of the
common shares.
Excess acquisition cost
(2) Augment has taken the position that the purchase of the shares of the
recently formed non-operating Right2web is not a business combination under APB
opinion 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.
Conversion of Notes to Common Stock
(3) On April 7, 2000, the Company's bridge-loan note holders agreed to
convert their notes and warrants to five percent (5%) of the common stock of the
Company subject to the closing of the stock acquisition agreement with
Right2Web. 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 bridge-loan 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.
<PAGE>
AUGMENT SYSTEMS, INC.
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
Number of Shares and Par Value of Common Stock
Reverse Stock-Split
(4) On September 12, 2000, a majority of the stockholders of Augment
System's, Inc. ("Augment" or the "Company") approved a reverse stock-split where
they will receive one share for each four shares they own of the Company's
common stock, par value $0.01 per share (the "Common Stock"). Under the plan,
the stockholders will surrender their existing shares and receive one newly
issued share for every four shares 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 new post reverse-split shares will be issued.
Number of Authorized Shares
The Company's stockholders agreed to increase the number of authorized
common shares from fifty million shares to one hundred fifty million shares 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.
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.
<PAGE>
AUGMENT SYSTEMS, INC.
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
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 fee 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.
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. Stockholders 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.
RTW condensed balance sheet is as follows as of June 30, 2000.
<TABLE>
<S> <C>
Assets
Current Assets --
Liabilities
Current Liabilities --
Stockholders' Equity
Capital stock 20,000,000 authorized par value
$.001,10,416,666 issued and outstanding $ 10,417
Subscriptions receivable (10,417)
</TABLE>
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
ITEM 6. Management's Discussion and Analysis or Plan of Operation
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1999
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 which provided the
bridge financing, that they would be unable to secure the additional funding
required to repay the outstanding bridge loan, and could not 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 necessary funds 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 nine month periods ended September 30, 2000, the Company
recognized no revenues. During the nine month period ended September 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 next few months and is concentrating its efforts on a new
business plan, settlement of outstanding debts and exploration of potential
mergers.
The Company realized a net loss of approximately $155,849 for the nine
month period ending September 30, 2000 as compared to a gain of $122,147 for the
nine month period ending September 30, 1999. The recognition of income in the
nine month period ending September 30, 1999 is the result of the sale of the
Company's licensing rights.
Research and development cost for the nine month periods ended September
30, 2000 and 1999 was $0. The Company is not currently conducting any research
and development activities but does not preclude this activity after the
arrangement with Right 2 Web is completed.
General and administrative costs for the nine months ended September 30,
2000 were $65,849 as compared to $239,469 for the nine month period ended
September 30, 1999. These costs for the first nine months in 2000 include a
refund of prior year's expenses of $19,934, which was netted against actual
general and administrative expenses of $$85,783. The Company currently has one
non-salaried employee. Expenses for the period ended September 30, 2000 were
primarily professional fees and interest expense.
Selling and marketing costs for the nine months ended September 30, 2000
and 1999 were $0. The Company is not currently conducting any sales and
marketing activities but intends to do so in the future.
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 concluding the Right2web transaction.
<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, which 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 necessary funds. 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. This will undoubtedly result in substantial
dilution to existing stockholders. Although the Company has effectively ceased
operations, there are numerous secured and unsecured creditors who could
commence litigation against the Company - see Part II, Item 1 - 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 Business - Potential for Bankruptcy - Need for
Additional Financing.
In the event of the closing of the transaction with Right2web, the Company
will need to obtain additional financing in order for the Company to commence
operations. There is no assurance that the Company will be able to obtain such
additional financing or that the terms of such financing will be acceptable.
The Company is now authorized to issue up to 148,000,000 shares of its
Common Stock and up to 2,000,000 shares of Preferred Stock. As of September 30,
2000, there were 15,778,406 shares of the Company's Common Stock issued and
outstanding and no Preferred Stock issued and outstanding. Prior to September
30, 2000 the Company had issued an additional 600,000 shares of common stock to
Monarch Financial Corp. (Monarch) in exchange for cash in the amount of $60,000.
The shares issued to Monarch contain "piggy-back" registration rights.
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.
In the fourth quarter of 2000 the Company will close the transaction with
Right 2 Web. Upon that event the Company will have 131,489,961 shares
outstanding.
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.
<PAGE>
Augment Systems, Inc.
Notes to Financial Statements
(Continued)
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Results of Operations
During the three month periods ended September 30, 2000 and 1999, the
Company recognized no revenues.
The Company realized a net loss of approximately $47,683 for the three
month period ending September 30, 2000 as compared to a loss of $39,965 for the
same period in 1999.
Research and development cost for the three month periods ended September
30, 2000 and 1999 was $0. The Company is not currently conducting any research
and development activities but does not preclude this activity after the
arrangement with Right2web is completed.
General and administrative costs for the three months ended September 30,
2000 were $17,683 as compared to $203,969 for the three month period ended
September 30, 1999. The Company currently has one non-salaried employee.
Expenses for the period ended September 30, 2000 were primarily professional
fees and interest expense.
Selling and marketing costs for the three months ended September 30, 2000
and 1999 were $0. The Company is not currently conducting any sales and
marketing activities but intends to do so in the future.
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 concluding the Right2web transaction.
<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
---------------------------------
None
<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:
November 13, 2000 By:/s/Duane A. Mayo
----------------- --------------------
Duane A. Mayo
Chief Financial Officer
Treasurer and Director
(Principal Financial and Accounting Officer)
