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 March 31, 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)
(978) 363-5349
(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 June 8, 2000,
Class Outstanding at June 8, 2000
----- ---------------------------
Common stock, $.01 par value per share 15,178,007
<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 December 31, 1999
and March 31, 2000
Results of operations for the three months ended
March 31, 2000 and 1999
Statements of cash flows for the three months ended
March 31, 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>
March 31, December 31,
2000 1999
(unaudited) (Audited)
--------- -------
Assets
Current assets:
<S> <C> <C>
Cash (Note 2) $ 34,420 $ 74,420
- ---------- ----------
Total current assets $ 34,420 $ 74,420
========== ==========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 54,942 $ 54,942
Accrued expenses 220,000 195,000
Bridge financing 1,395,701 1,395,701
Convertible promissory notes 6,432 6,432
Current portion of obligations under
capital leases 46,760 46,760
---------- ----------
Total current liabilities 1,723,835 1,698,835
----------- ----------
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;
11,898,951 shares issued and outstanding at
March 31,2000 and December 31, 1999 118,989 118,989
Additional paid-in capital 21,750,866 21,750,866
Deficit (23,559,270) ( 23,494,270)
----------- -----------
Total stockholders' deficit (1,689,415) ( 1,624,415)
----------- -----------
Total liabilities and stockholders' deficit $ 34,420 $ 74,420
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Augment Systems, Inc.
Statements of Operations
<TABLE>
Three Months Ended
March 31, March 31,
2000 1999
--------- --------
<S> <C> <C>
Net sales $ -- $ --
Cost of sales -- --
------- --------
Gross margin -- --
------- --------
Operating expenses:
General and administrative expenses 70,000 199,469
-------- --------
Total operating expenses 70,000 199,469
-------- --------
Loss from Operations ( 70,000) ( 199,469)
-------- --------
Other income (expense):
Net income (expense) -- 192,498
-------- --------
Total other expense, net -- 192,498
--------- --------
Net Income (loss) $ ( 70,000) ( 6,971)
========= ========
Number of shares
Net (loss) per share of common stock:
Basic and diluted $ (0.01) $(0.0006)
==== =======
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Augment Systems, Inc.
Statements of Cash Flows
<TABLE>
Three Months Ended
March 31, March 31,
2000 1999
--------- --------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ ( 70,000) $ (6,971)
Adjustments to reconcile net loss to net
cash used for operating activities:
Changes in operating assets and liabilities:
Prepaid expenses -- 91,436
Accounts payable -- (155,810)
Accrued expenses 30,000 ( 91,761)
-------- ---------
Net cash used for operating activities (40,000) (163,106)
Cash flows from investing activities:
Capital expenditures -- --
--------- ----------
Net cash used for investing activities -- --
--------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- --
Proceeds from bridge financing -- --
Payments on bridge financing -- --
--------- ----------
Net cash provided by financing activities -- --
--------- ----------
Net increase (decrease) in cash
Cash, beginning of period (40,000) (163,106)
74,420 187,815
--------- ---------
Cash, end of period $ 34,420 $ 24,709
========= =========
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.
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.
The 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.
<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 to 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
March 31, 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.
<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 March 31, 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 March 31, 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.
<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 March
31,2000.
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 March 31, 2000 accrued expenses consist of the following:
<TABLE>
1999
----
<S> <C>
Severance 45,000
Interest 195,000
--------
Total accrued expenses $ 240,000
========
</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. All but $25,000 of notes have been converted.
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. It 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.
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.
<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
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.
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 three month periods ended March 31, 2000 and March 31, 1999, the
Company recognized no revenues. The Company does not anticipate shipping any
product 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 $70,000 for the three
month period ending March 31, 2000 as compared to a loss of $6,970 for the three
month period ending March 31, 1999. The recognition of income in the first
quarter of 1999 is the result of settling debts with creditors below the amount
recognized at the time of indebtedness.
Research and development cost for the three month periods ended March 31,
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 three month period ended March 31,
2000 were a $70,000 as compared to $164,469 for the three month period ended
March 31, 1999. The decrease is a result of a reduction of head count during
1999. The Company currently has one employee. Expenses for the first quarter of
2000 were primarily professional fees.
Selling and marketing costs for the three month period ended March 31, 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.
<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,
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 8, 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'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.
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.
<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
but $25,000 of the notes were converted by June 8, 2000.
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
---------------------------------
There were no Form 8-Ks filed during the quarter ended
March 31,2000
<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:
June 9, 2000 By:/s/Duane A. Mayo
------------- --------------------
Duane A. Mayo
Chief Financial Officer
Treasurer and Director
(Principal Financial and Accounting Officer)
