FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended January 31, 1997
Commission File Number 0-19404
AMERICAN UNITED GLOBAL, INC.
----------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-4359228
-------- ----------
(State or other jurisdiction of (I.R.S. Employer I.D. Number)
incorporation or organization)
11130 N.E. 33rd Pl., Suite 250
Bellevue, Washington 98004
------------------------------ -----
(Address of principal executive offices) Zip Code
Registrant's telephone no.: 206-803-5400
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.
YES |X| NO |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Title of Class Number of Shares
Common Stock Outstanding
(par value $.01 per share) 7,841,128
<PAGE>
AMERICAN UNITED GLOBAL, INC.
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Consolidated Balance Sheets
January 31, 1997 (Unaudited) and July 31, 1996............... 1-2
Consolidated Statements of Operations
Three months ended January 31, 1997
and January 31, 1996 (Unaudited)............................. 3
Consolidated Statements of Operations
Six months ended January 31, 1997
and January 31, 1996 (Unaudited)............................. 4
Consolidated Statement of Shareholders'
Equity (Unaudited)........................................... 5
Consolidated Statements of Cash Flows
Six months ended January 31, 1997
and January 31, 1996 (Unaudited)............................. 6
Notes to Consolidated Financial Statements..................... 7-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 15-20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................... N/A
Item 2. Changes In Securities.................................. N/A
Item 3. Defaults Upon Senior Securities........................ N/A
Item 4. Submission Of Matters To A Vote Of Security
Holders................................................ N/A
Item 5. Other Information...................................... N/A
Item 6. Exhibits and Reports on Form 8-K....................... 20
<PAGE>
ITEM 1. AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
January 31, July 31,
1997 1996
----------- --------
[Unaudited]
Current Assets:
Cash and cash equivalents $ 15,187,000 $ 17,086,000
Marketable securities 6,637,000 6,268,000
Trade accounts receivable (less allowance
for doubtful accounts of $680,000 and
$652,000 respectively) 10,790,000 6,628,000
Note receivable from shareholder 1,200,000 838,000
Inventories 62,372,000 65,697,000
Prepaid expenses and other receivables 709,000 476,000
Deferred tax asset 1,215,000 1,528,000
------------ ------------
Total Current Assets 98,110,000 98,521,000
Note receivable 3,351,000 3,198,000
Property and equipment, net 9,274,000 8,878,000
Intangibles and other assets 13,973,000 6,628,000
Deferred tax asset 1,830,000 1,830,000
------------ ------------
Total Assets $126,538,000 $119,055,000
============ ============
- 1 -
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 31, July 31,
1997 1996
----------- --------
[Unaudited]
<S> <C> <C>
Current liabilities:
Borrowings under floor financing lines $ 44,853,000 $ 54,364,000
Short-term borrowings 7,933,000 4,660,000
Current portion of capital lease obligations 1,166,000 1,119,000
Accounts payable 5,598,000 4,252,000
Accrued liabilities 5,753,000 5,387,000
Income taxes payable 3,040,000 5,253,000
------------ ------------
Total Current Liabilities 68,343,000 75,035,000
Long term borrowings 3,568,000 2,968,000
Capital lease obligations, net of current portion 2,241,000 2,083,000
Purchased business obligations 452,000 6,929,000
Minority Interest 9,828,000 9,459,000
------------ ------------
Total Liabilities 84,432,000 96,474,000
------------ ------------
Commitments and contingencies (Note 5)
Shareholders' equity:
Series A preferred stock, 12.5% cumulative, $1.00
per share liquidation value, $.01 par value,
1,200,000 shares authorized; none issued and
outstanding - -
Series B preferred stock, 1,500,000
shares authorized; 976,539 shares of Series B-1
convertible preferred stock, convertible to common,
$3.50 per share liquidation value, $.01 par value,
issued and outstanding 10,000 -
Preferred stock, Series B-2, 7% convertible preferred
stock, convertible into common, $25.00 per share
liquidation value, $.01 par value, 400,000 shares
authorized, issued and outstanding 4,000 -
Common stock, $.01 par value; 20,000,000 shares
authorized; 7,841,128 and 6,266,382 issued and
outstanding, respectively 78,000 63,000
Additional contributed capital 44,109,000 20,654,000
Deferred compensation (684,000) (793,000)
Retained earnings (deficit) (1,411,000) 2,657,000
------------ ------------
Total shareholders' equity $ 42,106,000 22,581,000
------------ ------------
Total Liabilities & Shareholders' Equity $126,538,000 $119,055,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
- 2 -
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 36,254,000 $ 25,772,000
Cost of goods sold 31,750,000 23,044,000
------------ ------------
Gross profit 4,504,000 2,728,000
Selling, general and administrative expenses 5,333,000 1,803,000
Research and development expenses 622,000 --
Impairment of intangible assets 930,000 --
------------ ------------
Operating (loss) income (2,381,000) 925,000
Other income (Expense)
Other income 160,000 77,000
Interest expense (net) (982,000) (501,000)
------------ ------------
(Loss) income from continuing operations before
income taxes and minority interest (3,203,000) 501,000
Provision (benefit) for income taxes (1,106,000) 183,000
Minority interest in earnings of consolidated subsidiary 146,000 140,000
------------ ------------
(Loss) income from continuing operations (2,243,000) 178,000
Discontinued Operations - Gain on Sale of wholly owned
subsidiaries (less applicable income taxes of
$5,025,000) -- 7,539,000
Discontinued Operations - Loss from operations of
subsidiaries sold (less applicable income taxes
of $146,000) -- (175,000)
------------ ------------
Net (loss) income (2,243,000) 7,542,000
Dividends on preferred stock (634,000) --
------------ ------------
Net (loss) income available for common shareholders ($ 2,877,000) $ 7,542,000
============ ============
(Loss) Earnings per common and common equivalent share:
Continuing operations ($ .38) $ .03
Discontinued operations -- 1.29
------------ ------------
Net (loss) income ($ .38) $ 1.32
============ ============
Weighted average number of shares 7,599,000 5,690,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
January 31,
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 68,133,000 $ 48,925,000
Cost of goods sold 59,387,000 43,493,000
------------ ------------
Gross profit 8,746,000 5,432,000
Selling, general and administrative expenses 9,560,000 3,522,000
Research and development expenses 1,567,000 --
Impairment of intangible assets 930,000 --
------------ ------------
Operating (loss) income (3,311,000) 1,910,000
Other income (expense)
Other income (expense) 340,000 175,000
Interest expense (net) (1,575,000) (741,000)
------------ ------------
(Loss) income from continuing operations before
income taxes and minority interest (4,546,000) 1,344,000
Provision (benefit) for income taxes (1,482,000) 503,000
Minority interest in earnings of consolidated subsidiary 370,000 366,000
------------ ------------
(Loss) income from continuing operations (3,434,000) 475,000
Discontinued Operations - Gain on Sale of wholly owned
subsidiaries (less applicable income taxes of
$5,025,000) -- 7,539,000
Discontinued Operations - Income from operations
of subsidiaries sold (less applicable income
taxes of $169,000) -- 254,000
------------ ------------
Net (loss) income (3,434,000) 8,268,000
Dividends on preferred stock (634,000) --
------------ ------------
Net (loss) income available for common shareholders ($ 4,068,000) $ 8,268,000
============ ============
(Loss) Earnings per common and common equivalent share:
Continuing operations ($ .57) $ .08
Discontinued operations -- 1.37
------------ ------------
Net (loss) income ($ .57) $ 1.45
============ ============
Weighted average number of shares 7,172,000 5,689,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ------------ Additional Total
Number of Number of Contributed Deferred Retained Shareholders'
Shares Amount Shares Amount Capital Compensation Earnings Equity
--------- ------- --------- ------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
July 31, 1996 -- $ -- 6,267,000 $63,000 $20,654,000 ($793,000) $ 2,657,000 $ 22,581,000
Net loss -- -- -- -- -- -- (3,434,000) (3,434,000)
Dividend on
preferred stock -- -- -- -- 590,000 -- (634,000) (44,000)
Issuance of
common shares -- -- 1,453,000 14,000 6,997,000 -- -- 7,011,000
Issuance of
preferred stock 1,377,000 14,000 -- -- 15,113,000 -- -- 15,127,000
Amortization
of deferred
compensation -- -- -- -- -- 109,000 -- 109,000
Exercise of
stock options -- -- 121,000 1,000 423,000 -- -- 424,000
Stock options
issued for
services -- -- -- -- 190,000 -- -- 190,000
Warrants issued
in connection
with acquisition -- -- -- -- 142,000 -- -- 142,000
--------- ------- --------- ------- ----------- --------- ----------- ------------
Balance at
January 31, 1997 1,377,000 $14,000 7,841,000 $78,000 $44,109,000 ($684,000) ($ 1,411,000) $ 42,106,000
========= ======= ========= ======= =========== ========= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
January 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net (loss) income ($ 3,695,000) $ 8,268,000
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 1,210,000 373,000
Amortization 542,000 32,000
Income applicable to minority interest 370,000 366,000
Impairment of intangible asset 930,000 --
Amortization of deferred compensation 109,000 --
Discontinued operations -- (7,793,000)
Loss on sale of fixed assets -- (1,000)
Stock options issued for services and compensation 190,000 15,000
Changes in assets and liabilities, net of effects
of acquisitions dispositions:
Accounts receivable (2,752,000) 2,318,000
Note receivable from shareholder (362,000) --
Inventories 3,325,000 (3,790,000)
Inventory floor plan financing (9,511,000) 3,583,000
Prepaid expenses (226,000) (60,000)
Notes receivable (153,000) --
Accounts payable 941,000 (1,257,000)
Other accrued liabilities 19,000) 43,000
Income taxes payable (2,213,000) (324,000)
Increase in intangibles and other assets (598,000) 5,000
------------ ------------
Net Cash (Used) Provided by Operating Activities (11,874,000) 1,778,000
------------ ------------
Cash Flows From Investing Activities:
Purchases of property and equipment (1,449,000) (316,000)
Acquisition of businesses, net of cash acquired (1,171,000) --
Proceeds from sale of fixed assets -- 2,078,000
Proceeds from sale of wholly owned subsidiaries -- 19,493,000
Purchase of marketable securities (369,000) (3,994,000)
------------ ------------
Net Cash (Used) Provided by Investing Activities (2,989,000) 17,261,000
------------ ------------
Cash Flows From Financing Activities:
Long-term borrowings, net 515,000 --
Capital lease obligations, net 179,000 (34,000)
Short-term borrowings, net 2,623,000 (4,599,000)
Issuance of common stock 224,000 --
Exercise of stock options 423,000 90,000
Proceeds from private placement 9,000,000 --
------------ ------------
Net Cash Provided (Used) by Financing Activities 12,964,000 (4,543,000)
------------ ------------
Net (decrease) increase in cash and cash equivalents (1,899,000) 14,496,000
Cash and cash equivalents at beginning of period 17,086,000 4,488,000
------------ ------------
Cash and cash equivalents at end of period $ 15,187,000 $ 18,984,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
- 6 -
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial information included in this report has been prepared
in conformity with the accounting principles and practices reflected in the
consolidated financial statements for the preceding year included in the annual
report on Form 10-K for the year ended July 31, 1996 filed with the Securities
and Exchange Commission. All adjustments are of a normal recurring nature and
are, in the opinion of management, necessary for a fair statement of the
consolidated results for the interim periods. This report should be read in
conjunction with the Company's financial statements included in the annual
report on Form 10-K for the year ended July 31, 1996.
The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. Minority
interest represents the minority shareholders' proportionate share of the equity
of Western Power and Equipment Corp. ("Western") which was 43% at January 31,
1997. There is also a 20% minority interest held in eXodus Technologies, Inc.
("eXodus") but no minority interest is presented due to accumulated losses.
NOTE 2 - STATEMENT OF CASH FLOWS
Supplemental disclosure of cash paid during the periods:
Six Months Ended
January 31,
1997 1996
---------- ----------
Interest paid $2,243,000 $ 997,000
Income taxes paid $ 703,000 $1,327,000
NOTE 3 - INVENTORIES
Inventories consist of the following:
January 31, July 31,
1997 1996
----------- -----------
Parts $ 7,037,000 $ 6,320,000
Equipment new and used 55,335,000 59,377,000
----------- -----------
$62,372,000 $65,697,000
=========== ===========
NOTE 4 - ACQUISITIONS
Effective September 20, 1996, the Company acquired all of the outstanding stock
of InterGlobe Networks, Inc. ("InterGlobe"), a private company providing
engineering, design and consulting services for users and providers of
telecommunications facilities on the Internet and other media. The shareholders
of InterGlobe exchanged their shares for $400,000 and 800,000 unregistered
shares of the Company's common stock. The acquisition was accounted for by the
purchase method. Accordingly, the results of operations of InterGlobe have been
included
- 7 -
<PAGE>
with the results of operations of the Company for periods subsequent to the date
of acquisition.
A summary of assets acquired, liabilities assumed and purchase price paid is as
follows:
Cash paid $ 400,000
Value of common stock 3,445,000
Costs of acquisition 40,000
Liabilities assumed 134,000
----------
COST OF ASSETS ACQUIRED $4,019,000
==========
The preliminary allocation of the cost of the assets acquired to each of
InterGlobe's assets and liabilities at the date of the acquisition, as
determined in accordance with the purchase method of accounting, is presented in
the table below:
Cash $ 277,000
Accounts receivable 242,000
Prepaid and other current assets 7,000
Intangible assets 3,413,000
Property and equipment 80,000
Accounts payable and accrued liabilities (134,000)
-----------
NET ASSETS ACQUIRED $ 3,885,000
===========
The intangible assets acquired are being amortized using the straight-line
method over 10 years.
Additionally, options were granted to certain employees to purchase up to an
additional 800,000 shares of the Company's common stock upon the achievement of
certain Pre-tax Income Goals (as defined) as part of their employment
agreements. Pro forma financial information has not been provided relating to
the acquisition of InterGlobe because the effect is immaterial.
On November 8, 1996, a newly formed, wholly owned subsidiary of the Company,
Seattle OnLine Acquisition Corp. ("SOL") acquired the assets of Seattle OnLine,
Inc. (the "Seller"), a privately held company engaged in providing a local
internet service in the Pacific Northwest. The purchase agreement states that
SOL was to provide $300,000 cash and up to 25,000 shares of the Company's common
stock for the settlement of the liabilities of the Seller. The Seller was unable
to deliver to SOL the payoff, release and settlement letters pertaining to its
debts at the date of the closing, therefore SOL was not required to deliver the
shares and the cash at closing.
The assets of the Seller were exchanged for $147,000 in cash, 16,000 shares of
the Company's common stock, warrants for the purchase of 28,333 shares of stock
at an exercise price of $6.00 per share effective November 5, 1999, and the
assumption of certain liabilities. The acquisition was accounted for by the
purchase method. Accordingly, the results of operations of SOL have been
included with the results of operations of the Company for periods subsequent to
the date of acquisition.
- 8 -
<PAGE>
A summary of assets acquired, liabilities assumed and purchase price paid is as
follows:
Cash paid $147,000
Value of common stock 101,000
Value of warrants issued 142,000
Liabilities assumed 368,000
--------
COST OF NET ASSETS ACQUIRED $758,000
========
The preliminary allocation of the purchase price of each of SOL's assets and
liabilities at the date of the acquisition, as determined in accordance with the
purchase method of accounting, is presented in the table below:
Accounts receivable $ 18,000
Property and equipment 27,000
Other assets 19,000
Intangible assets 694,000
Accounts payable and accrued liabilities (318,000)
Note payable (50,000)
---------
NET ASSETS ACQUIRED $ 390,000
=========
Intangible assets are being amortized using the straight-line method over 10
years.
Additionally, warrants were granted to the principal stockholder of Seattle
OnLine, Inc. to purchase up to an additional 305,000 shares of the Company's
common stock in connection with employment agreements. The options vest and
become exercisable upon the achievement of certain Pre-Tax Income Goals (as
defined) pursuant to an employment agreement. Pro forma financial information
has not been provided relating to the acquisition of SOL because the effect is
immaterial.
Effective December 11, 1996 the Company acquired all of the outstanding stock of
Broadcast Tower Sites, Inc. ("BTS"), a private company providing site
acquisition, zoning, architectural, engineering and consulting services to the
wireless communications industry. The shareholders of BTS exchanged their shares
for $780,000 in cash, 507,246 unregistered shares of the Company's common stock
and three promissory notes aggregating $600,000, bearing interest at the
Citibank, N.A. prime rate (currently 8.25%) and payable in installments of
$100,000, $200,000 and $300,000 on each of November 30, 1997, 1998 and 1999,
respectively.
The acquisition was accounted for by the purchase method. Accordingly, the
results of operations of BTS have been included with the results of operations
of the Company for periods subsequent to the date of acquisition.
Subsequent to acquisition, the Company changed the name of BTS to TechStar
Communications, Inc. ("TechStar").
A summary of assets acquired, liabilities assumed and price paid is as follows:
Cash Paid $ 780,000
Value of Common Stock 2,891,000
Promissory Notes Given 600,000
Costs of Acquisition 155,000
Liabilities Assumed 941,000
----------
COST OF ASSETS ACQUIRED $5,367,000
==========
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<PAGE>
The preliminary allocation of purchase price to each of TechStar's assets and
liabilities at the date of acquisition, as determined in accordance with the
purchase method of accounting is presented in the table below:
Cash $ 74,000
Accounts Receivable 1,150,000
Intangible Assets 4,079,000
Property and equipment 50,000
Other Assets 14,000
Accounts Payable and Accrued liabilities (941,000)
-----------
NET ASSETS ACQUIRED $ 4,426,000
===========
The intangible assets acquired are being amortized using the straight-line
method over 10 years.
The former stockholders of BTS received four-year employment agreements with
TechStar, pursuant to which such persons shall receive, in addition to their
base salaries and annual bonuses based upon performance of TechStar, options
exercisable over a five year period entitling the holder to purchase up to an
additional 520,000 shares of Company Common Stock in the aggregate (the "BTS
Options"). The BTS Options vest and become exercisable in the event that
TechStar achieves Pre-Tax Income Goals (as defined) in the each of the four 12
month periods ending November 30, 2000. Alternatively, all 520,000 BTS Options
shall vest if, at any time during the period commencing upon closing and
terminating on November 30, 2000, the accumulated Pre-Tax Income of TechStar has
equaled or exceeded $11,000,000. In the event that a change in control of the
Company occurs, or the Company effects a sale of all or substantially all of the
assets of TechStar prior to November 30, 2000, all of the BTS Options shall
immediately vest upon such occurrence. In addition, the BTS acquisition
agreement provides that if the Company effects a public offering of TechStar or
a sale of TechStar prior to November 30, 2000, the former BTS stockholders may
elect (but shall not be required) to exchange all Company securities received by
them in the BTS acquisition (the "Exchange Option") for an aggregate of 25% of
the common stock of TechStar then owned by the Company prior to such
transaction.
In addition to the 520,000 BTS Options issued to the former BTS stockholders,
the Company also agreed to issue an additional 120,000 Company common stock
options, on identical terms as the BTS Options, to certain other key employees
of BTS designated by the former BTS stockholders. Pro forma financial
information has not been provided relating to the acquisition of BTS because the
effect is immaterial.
On January 17, 1997, Western acquired the operating assets of Sahlberg
Equipment, Inc. a four-store Pacific Northwest distributor of construction
equipment, for $5,289,616. The purchase price consisted of $3,844,152 in
equipment inventory, $796,914 in parts inventory, $625,326 in fixed assets, and
$23,224 in work-in-process. The majority of the purchase was financed by the
proceeds of two term loans from Case Credit Corporation carrying interest rates
of prime plus one percent. The acquisition has been accounted for as a purchase.
Pro forma financial information has not been provided relating to the
acquisition of Sahlberg because the effect is immaterial.
The Company assessed the carrying value of the non-compete agreement and
capitalized software assets for ConnectSoft retail products recorded in
connection with the acquisition of ConnectSoft, Inc. for permanent impairment by
evaluating the future undiscounted cash flows of these assets. Based on changes
in the operational focus of ConnectSoft and losses incurred by ConnectSoft to
date, it was determined that the sum of the expected future cash flows was less
than book value. Accordingly, the Company recorded an impairment write down of
$430,000 and $500,000 relating to capitalized software and the non-compete
agreement, respectively, in the three months ended January 31, 1997.
Intangible and other assets consist of the following at January 31, 1997:
Goodwill $11,000,000
Capitalized Software 1,918,000
Prologue license agreement 484,000
Non-compete agreement 192,000
Other assets 379,000
-----------
$13,973,000
===========
Goodwill is amortized over lives ranging from 10 to 40 years, capitalized
software is amortized at the greater of the amount computed using (a) the ratio
of current revenues for a product to the total of current and anticipated future
revenues or (b) the straight-line method over 5 years, and the non-compete
agreement is amortized over two years.
NOTE 6 - CONTINGENCIES
Except for ordinary, routine proceedings incidental to its business, there are
no pending legal proceedings to which the Company or any of its property is
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<PAGE>
subject. In the opinion of management, the outcome of these legal proceedings
will not have a material adverse effect on the financial condition or results of
operations and cash flows of the Company and its subsidiaries.
NOTE 7 - SERIES B-1 CONVERTIBLE PREFERRED STOCK
976,539 shares of the Registrants Series B-1 convertible preferred stock were
issued in September 1996 in connection with the fiscal 1996 acquisition of
ConnectSoft, Inc. Such shares have a $3.50 per share liquidation value and are
convertible into a minimum of 976,539 and a maximum of 2,929,617 shares of the
Company's common stock pursuant to achieving certain performance goals and other
criteria described in the merger agreement.
NOTE 8 - SERIES B-2 CONVERTIBLE PREFERRED STOCK
In January 1997 the registrant consummated a Private Placement pursuant to which
400,000 shares of Series B-2 convertible preferred stock were issued.
The Private Placement Preferred Shares are convertible into an aggregate of
1,165,501 shares of common stock, subject to adjustment, 34% on March 8, 1997;
33% on April 8, 1997 and 33% on May 8, 1997. The conversion period continues
through January 8, 2000 and the conversion prices is equal to the LESSER of (i)
the Closing Date Average Price of $8.58 per share, (ii) 105% of the Anniversary
Average Price (which Anniversary Average Price shall be the Average Price
(defined below) on the date immediately preceding the first anniversary of the
Closing Date), but only if the Anniversary Average Price is less than the
Closing Date Average Price, or (iii) 82.5% of the Conversion Date Average Price.
For purposes of determining the Private Placement Preferred Shares conversion
rate, the Average Price equals the average daily closing bid price of the
Company's Common Stock as reported on Nasdaq or other national securities
exchange for the ten (10) trading days immediately preceding the date of sale of
such Private Placement Preferred Shares, the anniversary of such sale, or the
conversion date, as the case may be. The Company has the right to limit the
holders' right of conversion in certain circumstances prior to January 8, 2000
after which all of the Private Placement Preferred Shares not previously
converted will be converted into Common Shares at the above formula price then
in effect. The 1,165,501 Common Shares are based on approximately 105% of the
Average Price at January 8, 1997, the closing date of the 1997 Private
Placement, and are subject to increase to an indeterminable number of additional
Commmon Shares based on the above formula. The discount conversion feature is
accounted for as a dividend to the preferred shareholders on a pro-rata basis
over the period beginning with the issuance of the preferred stock through May
1997, the date that all the Series B-2 preferred shares become convertible. As
of March 20, 1997 no Private Placement Shares have been converted.
In addition, the Private Placement investors acquired warrants to purchase up to
350,000 shares of the Company's common stock at $8.58 per share and warrants to
purchase up to 350,000 shares of eXodus common stock in the event of an initial
public offering ("IPO") of eXodus at the IPO price.
NOTE 9 - SUBSIDIARY PREFERRED STOCK
Western has been authorized to issue 10,000,000 shares of "blank check"
preferred stock, with respect to which all the conditions and privileges thereof
can be determined solely by action of such subsidiary's Board of Directors
without further action of its stockholders. As at January 31, 1997 none were
issued and outstanding.
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<PAGE>
NOTE 10 - SUBSEQUENT EVENTS
Prologue
On February 14, 1997 the Company loaned $250,000 to Prologue Software. The loan
bears interest at prime plus 1 and is due on April 30, 1997 or earlier under
certain circumstances. Prologue is a French entity that provides the Company and
its eXodus subsidiary with an OEM license which permits the Company and eXodus
to offer NTERPRISE(TM) application remoting software with Prologue's Win-Times
multi-user software in Microsoft Windows NT 3.51 version. Prologue's license
with Microsoft expires March 31, 1997 and Prologue is currently negotiating with
Microsoft to obtain both an extension of the 3.51 license as well as a new
license for Microsoft Windows NT 4.0.
In addition, on March 18, 1997 the Company issued a warrant to Prologue allowing
for the purchase of up to 20,000 shares of the Company's common stock at a
purchase price of $3.20 per share. The warrant expires on March 18, 2002.
Registration Statement
On February 14, 1997 the Company filed a registration statement on Form S-1
covering 5,677,334 shares of common stock. Of the shares being registered,
1,180,000 are shares underlying the publicly traded warrants and certain
underwriters warrants; 1,500,000 are shares previously issued in connection with
recent acquisitions and 1,515,000 are shares underlying the convertible
preferred stock and attached warrants issued pursuant to the January 1997
convertible preferred stock Private Placement.
Arcadia Acquisition
The Company has entered into an agreement to acquire 100% of the capital stock
of Arcadia Consulting Services, Inc. ("Arcadia"), a company recently formed for
the purpose of providing consulting services to clients in the wireless
telecommunications industry. The Company paid $220,000 on January 10, 1997 as a
deposit on execution of the Arcadia Agreement, and agreed to issue on closing of
such acquisition an aggregate of 192,754 shares of Company Common Stock. The
closing of the Arcadia acquisition is subject to certain conditions including
the effectiveness of the Registration Statement mentioned above. Following the
Arcadia acquisition, Arcadia will be merged with and into the Company.
NOTE 11 - OTHER INFORMATION
Pursuant to an Agreement, dated May 30, 1996 (the "ERD Agreement") between the
Company and ERD Waste Corp. ("ERD"), the Company agreed to provide certain
financial accommodation to ERD by making available a $4.4 million standby letter
of credit expiring May 31, 1997 issued by Citibank, N.A. in favor of Chemical
Bank (the "Letter of Credit") on behalf of ERD. Chemical Bank is the principal
lender to ERD and its subsidiaries, and upon issuance of the Letter of Credit
Chemical Bank made available $4.4 million of additional funding to ERD under
ERD's existing lending facility. The funding was used to refinance certain
outstanding indebtedness of Environmental Services of America, Inc. ("ENSA"), a
wholly-owned subsidiary of ERD. Robert M. Rubin, the Chairman and Chief
Executive Officer, and a principal stockholder of the Company is also the
Chairman, Chief Executive Officer, a director and a principal stockholder of
ERD, owning approximately 25.1% of the outstanding ERD Common Stock.
In consideration for making the Letter of Credit available, in addition to
- 12 -
<PAGE>
repayment by ERD of all amounts drawn under the Letter of Credit and the grant
of a security interest in certain machinery and equipment of ENSA to secure such
repayment, ERD agreed (i) to pay to the Company all of the Company's fees, costs
and expenses payable to Citibank and others in connection with making the Letter
of Credit available, as well as the amount of all interest paid by the Company
on drawings under the Letter of Credit prior to their repayment by ERD.
In September 1996, a subsidiary of ERD which operated a waste facility in Nassau
County, New York was cited by the New York Sate Department of Environmental
Conservation ("DEC") for violating certain DEC regulations. Such waste facility
had accounted for approximately 13% of ERD's consolidated revenues. The Company
has been advised by ERD that under the terms of a Settlement Agreement reached
with the State of New York in November 1996, all violations alleged by the DEC
have been resolved in consideration for, among other things, ERD's agreement to
voluntarily cease incineration operations at the waste facility on or before
March 31, 1997. Such incineration operations ceased on April 15, 1997.
On November 8, 1996, the Company and ERD amended and restated their agreements
to provide that if and to the extent that the Letter of Credit provided by the
Company is called for payment, ERD will issue to the Company its convertible
note bearing interest at 12% per annum, payable monthly, and payable as to
principal on the earliest to occur of: (i) May 30, 1999, (ii) ERD's receipt of
the initial proceeds from any public or private placement of debt or equity
securities of ERD, or (iii) completion of any bank refinancing by ERD, to the
extent of all proceeds available after payment of other secured indebtedness. In
addition, the ERD notes, if issued, will be convertible, at any time at the
option of the Company, into ERD Common Stock at a conversion price equal to
$4.40 per share, or a maximum of 1,000,000 ERD shares if the entire $4.4 million
note is issued and converted into ERD Common Stock. In addition to the
collateral provided under the May 30, 1996 agreement, ERD also provided the
Company with a junior mortgage on the waste facility owned by ERD's subsidiary,
subordinated to existing indebtedness encumbering such facility.
Under the terms of an indemnity agreement, dated May 30, 1996, Robert M. Rubin
agreed to indemnify the Company for all losses, if any, incurred by the Company
as a result of issuance of the Letter of Credit for the benefit of ERD. In
consideration of his negotiating the modification of the ERD agreement, on
November 8, 1996, the Company's Board of Directors (Mr. Rubin abstaining) agreed
to amend the indemnity agreement with Mr. Rubin to limit his contingent
liability thereunder to the extent of 23% (Mr. Rubin's approximate percentage
beneficial ownership in the outstanding Company Common Stock as of May 30, 1996)
of all losses that the Company may incur in connection with its having provided
the Letter of Credit financial accommodation on behalf of ERD. Mr. Rubin's
reimbursement obligations are also subject to pro rata reduction to the extent
of any repayments made directly by ERD or from proceeds received by the Company
from the sale of ERD capital stock described above. To date, ERD has made all
required bank payments on a timely basis.
- 13 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
LIQUIDITY AND CAPITAL RESOURCES
General
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Form 10-Q.
This management discussion and analysis of financial conditions and results of
operations contains certain "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Such statements relating to
future events and financial performance are forward-looking statements that
involve risks and uncertainties, detailed from time to time in the Company's
various Securities and Exchange Commission filings.
Management of the Company carefully considered, both prior and immediately
subsequent to consummation of the January 1996 sale of the Company's
manufacturing divisions to Hutchinson Corporation ("Hutchinson"), the best
utilization of the cash resources that would result therefrom. It was determined
that stockholder value would best be enhanced by directing the Company's future
into the computing and telecommunications industries, by acquiring proprietary
technologies, unique niche software products and selective expertise that could
be marketed on a national scale.
Effective as of July 31, 1996, the Company acquired, through merger of an
acquisition subsidiary of the Company in August 1996 (the "ConnectSoft Merger"),
all of the outstanding capital stock of ConnectSoft, a private company located
in Bellevue, Washington.
ConnectSoft historically focused on providing EMail and internet software
products. ConnectSoft is now also engaged in developing a new intelligent
integrated communications system which will be a modular, customizable solution
for telecommunications companies, internet access providers and corporate
intranets.
eXodus Technologies, Inc. ("eXodus"), previously a division of ConnectSoft, is
now a separate company, 80% owned by the Company. eXodus provides a remote
access connectivity software protocol (NTERPRISE(TM)) which allows users to run
Microsoft Windows(TM) applications such as Word(TM), Excel(TM), and Power
Point(TM) on existing UNIX workstations, X-Terminals and other X-Compatible
devices. eXodus's Application Remoting Software is sold as a multi-user
operating system in conjunction with Multi-user Software. eXodus is targeting
users of UNIX workstations and X-Terminals as the primary market for its
NTERPRISE(TM) product. Although its current version only supports the WINDOWS NT
3.51 operating system, the Company anticipates that a Microsoft authorized
NTERPRISE(TM) version which will support WINDOWS NT 4.0 will be available in the
near future. However, there is no assurance that this will be the case.
Effective September 20, 1996, the Company acquired InterGlobe Networks, Inc.
InterGlobe provides engineering design and consulting services for users and
providers of telecommunications facilities on the Internet and other media.
Effective November 8, 1996, the Company acquired the assets of Seattle OnLine,
Inc. which provides a local Internet service in the Pacific
Northwest.
- 14 -
<PAGE>
Effective December 11, 1996, the Company acquired Broadcast Tower Sites, Inc.
("BTS") pursuant to a merger transaction. BTS is engaged in providing site
acquisition, zoning, architectural and engineering services, as well as
consulting services to the wireless telecommunications industry.
As a result of the acquisitions of ConnectSoft, eXodus, InterGlobe, Seattle
OnLine and BTS, the Company is now able to provide:
a. a remote access connectivity software protocol which allows users to
run Microsoft Windows(TM) applications, such as Word(TM), Excel(TM)
and Power Point(TM), on existing UNIX workstations, X-Terminals and
other X-Compatible devices;
b. an electronic mail communications management software product,
marketed as EMail Connection(R), and an e-mail product and Internet
browser designed for children, marketed as E Mail for Kids(TM) and
Kids Web(TM);
c. engineering, design and consultation services to users and providers
of telecommunications facilities on the Internet and other media;
d. local Internet telecommunication service in the Pacific Northwest;
and
e. site acquisition, zoning, architectural and engineering services to
the wireless communications industry.
Results of Operations
The Three Months and Six Months ended January 31, 1997 compared to the Three
Months and Six Months ended January 31, 1996.
Western's revenues for the three month period ended January 31, 1997 increased
$9,216,000 or approximately 36% over the three month period ended January 31,
1996, due mainly to the contribution of the stores acquired or opened in the
last year in Sacramento, Stockton and Redding, California and Elko, Nevada which
accounted for $6,850,000 (74%) of this increase in sales. Same store revenues
increased $2,032,000 or 8% for the three month period ended January 31, 1997, as
compared to the prior year period. The increase in same store revenues resulted
from higher sales across all departments. In the three month period ended
January 31, 1997, Western's new equipment revenues increased $5,542,000, used
equipment revenues increased $1,147,000, and parts revenues increased $1,893,000
over the quarter ended January 31, 1996. ConnectSoft, InterGlobe Networks, Inc.,
eXodus Technologies, Seattle OnLine Acquisition Corp. and TechStar
Communications, Inc. (The "Technology Group") reported revenues of $1,266,000
during the three months ended January 31, 1997. Product sales by the technology
business companies are expected to experience long sales cycles. It is
anticipated that customers for the Exodus NTERPRISE(TM) product will perform
extensive evaluation of the product prior to purchase and that the sales cycle
for the NTERPRISE(TM) product could average six to nine months.
Western's revenues for the six month period ended January 31, 1997 increased
$17,277,000 or approximately 35% over the six month period ended January 31,
1996. The increase was due primarily to the contribution of the stores acquired
or opened in the last year, accounting for $12,858,000 (74%) of the increase in
sales. Western's same store revenues increased $4,084,000 or 8% for the six
month period ended January 31, 1997, as compared to the six month period ended
- 15 -
<PAGE>
January 31, 1996. For the six month period ended January 31, 1997, Western's
sales in all departments were up at least 30% compared to the same period in the
prior year. The Technology Group reported revenue of $1,932,000 for the six
month period ended January 31, 1997.
Western's gross profit margin of 10.3% for the three month period ended January
31, 1997 was down slightly from the prior year comparative period margin of
10.6%. The decrease in gross profit margins was the result of a slight decrease
in higher margin service revenue as a percentage of sales and also the effect of
absorbing the full costs of recent acquisitions while Western works to increase
sales from the acquired facilities. For the six month period ended January 31,
1997, Western's gross margin was unchanged from the six month period ended
January 31, 1996, at 11.1%. The Technology Group revenue yields a higher gross
margin than Western although the impact for the three and six months ended
January 31, 1997 was not material.
Selling, general and administrative ("SG&A") expenses were $5,333,000 (14.7% of
sales) and $9,560,000 (14.0% of sales) for the three and six month period ended
January 31, 1997, respectively, compared to $1,803,000 (7% of sales) and
$3,522,000 (7.2% of sales) for the comparative prior year periods. The increase
in SG&A expenses of $3,530,000 for the three months ended January 31, 1997 were
attributable to an increase at Western of $581,000, an increase of $767,000 of
corporate SG&A and included Technology Group SG&A expenses of $2,182,000 which
had no comparable expense in 1996. The increase in SG&A expenses of $6,038,000
for the six months ended January 31, 1997 were attributable to an increase at
Western of $1,113,000, and an increase of $1,556,000 of corporate SG&A and
included Technology Group SG&A expenses of $3,369,000 which had no comparable
expense in 1996.
During the three month and six month periods ended January 31, 1997, the
Technology Group continued development activities related to its NTERPRISE(TM)
software product and to a lesser extent its e-mail software products for retail
and OEM markets, as well as a new ConnectSoft product involving intelligent
integrated communications for telecommunication companies, Internet access
providers and corporate intranets. Research and development expense for the
three and six month periods ended January 31, 1997 were $622,000 and $1,567,000
respectively. During the three (3) and six (6) months ended January 31, 1997,
only minimal revenues were generated by ConnectSoft's Email Connection (EMC)
product and subsequent to quarter end such revenues declined further. These
revenue decreases were attributable to more intense competition and lower sales
prices in the market place and the inclusion of such products in bundled
software packages distributed by the larger companies in the industry. In
addition, EMC is based on the older 16 bit technology, while most competitive
products are built upon the newer, more efficient and enhanced 32 bit
technology. Due to insignificant sales and the fact that it is not economically
feasible to upgrade the EMC product to the 32 bit technology, the Company
determined that the technology had no material remaining value and has therefore
written off the balance of $430,0000.
In addition, there was a non-compete agreement with the prior Chief Executive
Officer of ConnectSoft. Due to the lack of sales mentioned above and the high
cost of market entry, management has determined that likewise there is no
material remaining value to the non-compete agreement and the balance of
$500,000 has been written off.
The remaining intangible assets acquired as a result of the purchase of
ConnectSoft and Exodus relate to the NTERPRISE(TM) product. Management has
determined that no additional impairment exists to those assets as of January
31, 1997.
Interest expense for the three months ended January 31, 1997 of $982,000 was up
significantly from the $501,000 in the prior year comparative period. This
increase is the result of Western's build up in inventory levels to support the
higher equipment sales level, including a significant investment in equipment
dedicated to the rental fleet. Although higher than anticipated equipment sales
in December and January resulted in an inventory reduction from the prior
quarter, the effect of such reduction on interest expense will not be realized
until the quarter ending April 30, 1997. Also contributing to this increase were
borrowings to fund the operations of certain of the technology companies.
Interest expense for the six month period ended January 31, 1997 was $1,575,000
compared to $741,000 for the six month period ended January 31, 1996, due to the
increased inventory carried by Western and required funding of the operations of
certain of the technology companies.
- 16 -
<PAGE>
The effective tax rate for the three and six months ended January 31, 1997 was
approximately 35% and 33% respectively, which is slightly lower than the 37%
effective tax rate for the prior year comparative periods. This decrease is a
result of the absence of state income taxes due to the sale of the California
operations in January 1996. The Company anticipates the effective tax rate to
remain at statutory rates for the foreseeable future.
Although Western's sales increased, the increase in Western's operating and
interest expenses offset the increase such that Westerns' net income for the
three and six month periods ended January 31, 1997 was approximately the same as
the prior year.
Liquidity and Capital Resources
As a result of the Hutchinson Transaction the Company significantly increased
its liquidity and capital resources. The Company has used, and intends to use in
the future, the proceeds of the Hutchinson Transaction, to acquire and fund the
working capital needs of additional businesses. The Company has been granted a
$14,000,000 secured demand line of credit from its commercial bank. This line is
uncommitted and secured by the Company's portfolio of cash and marketable
securities held by the bank. On January 31, 1997 approximately $1,435,000 was
outstanding under such line of credit, the principal of which bears interest at
the bank's 90 day LIBOR rate (currently 5.25%) plus 1%.
Western's primary source of internal liquidity has been its profitable
operations since its inception in November 1992. As more fully described below,
Western's primary sources of external liquidity were contributions to Western by
the Company, and equipment inventory floor plan financing arrangements provided
to Western by the manufacturers of the products Western sells and Seattle-First
National Bank ("SeaFirst Bank"). In addition, in fiscal 1995, Western completed
an initial public offering of 1,495,000 shares of common stock at $6.50 per
share, generating net proceeds of $7,801,000. The net proceeds of the offering
were utilized to repay amounts due to the Company and to Case, the acquisition
and opening of additional outlets, as well as to reduce floor plan debt.
Under Western's inventory floor plan finance arrangements, the manufacturers of
products sold by Western provide interest free credit terms on new equipment
purchases for periods ranging from one to twelve months, after which interest
commences to accrue monthly at rates ranging from two to three percent over the
prime rate of interest. Principal payments are typically made under these
agreements at scheduled intervals and/or as the equipment is rented, with the
balance due at the earlier of a specified date or sale of the equipment. At
January 31, 1997, Western was indebted under manufacturer provided floor
planning arrangements in the aggregate amount of $30,050,000.
In order to take advantage of a 4% cash discount offered by Case, and to provide
financing beyond the term of applicable manufacturer provided floor plan
financing or as alternatives to manufacturer provided floor plan financing
arrangements, Western has entered into a separate secured floor planning line of
credit with Seafirst Bank. The Seafirst line of credit was entered into in June
1994 and provides a $17,500,000 line of credit which can be used to finance new
and used equipment, or equipment to be held for rental purposes. On January 31,
1997, approximately $14,803,000 was outstanding under such line of credit, the
principal of which bears interest at .25 percent over Seafirst Bank's prime rate
(currently 8 1/4%) and is subject to annual review and renewal on June 1, 1997.
- 17 -
<PAGE>
Amounts owing under Western's floor plan financing agreements are secured by
inventory purchases financed by these lenders, as well as all proceeds from the
sale or rental of such inventory, including accounts receivable thereto.
On October 19, 1995, Western entered into a purchase and sale agreement with an
unrelated party for the Auburn, Washington facility, subject to the execution of
a lease. Under the terms of this agreement, which closed on December 1, 1995,
Western sold the property and is leasing it back from the purchaser. In
accordance with Statement of Financial Accounting Standards No. 13 (SFAS 13),
the building portion of the lease is being accounted for as a capital lease
while the land portion of the lease qualifies for treatment as an operating
lease.
Effective February 17, 1996, Western acquired substantially all of the operating
assets used by Case in connection with its business of servicing and
distributing Case construction equipment at a facility located in Sacramento,
California (the "Sacramento Operation"). The acquisition was consummated for
approximately $630,000 in cash, $3,090,900 in installment notes payable to Case
and the assumption of $3,965,000 in inventory floor plan debt with Case and its
affiliates. The acquisition is being accounted for as a purchase.
The real property and improvements used in connection with the Sacramento
Operation, and upon which the Sacramento Operation is located, were sold by Case
for $1,500,000 to the McLain-Rubin Realty Company, LLC ("MRR"). MRR is a
Delaware limited liability company, the owners of which are Messrs. C. Dean
McLain, a director of the Company and the President and a director of Western,
and Robert M. Rubin, the Chairman and a director of the Company and Western.
Simultaneous with its acquisition of the Sacramento Operation real property and
improvements, MRR leased such real property and improvements to Western under
the terms of a 20 year Commercial Lease Agreement dated as of March 1, 1996. In
accordance with SFAS 13, the building portion of the lease is being accounted
for as a capital lease while the land portion of the lease qualifies for
treatment as an operating lease.
On October 10, 1995, using proceeds from its initial public offering, Western
retired the $2,175,000 real estate note given to Case for the purchase of the
Sparks, Nevada real estate in September 1994. In March 1996, Western consummated
an agreement with an institutional lender for a conventional mortgage on the
property in the amount of $1,330,000, secured by the Sparks, Nevada real estate.
The agreement calls for principal and interest payments over a seven year term
using a fifteen year amortization period. The note cannot be prepaid during the
first two years of its term.
During the six months ended January 31, 1997, cash and cash equivalents
decreased by $1,899,000 primarily due to an increase in Western's accounts
receivable from increased sales and payments made to reduce floor plan
financing. The decrease was partially offset by a decrease in inventories and an
increase in other short-term borrowing. Western had negative cash flow from
operating activities of $5,671,000 during the quarter ended January 31, 1997,
chiefly as a result of the transfer of floor plan financing to other short-term
borrowing. Purchases of fixed assets during the quarter were related mainly to
the opening of new distribution outlets, the Sahlberg acquisition and the
purchase of computer equipment by the technology group.
Effective July 31, 1996 the Company acquired ConnectSoft, Inc., a business
involved with providing software products and services. ConnectSoft had three
products for e-mail users in production for the retail and OEM marketplace. In
- 18 -
<PAGE>
late August 1996 eXodus began marketing its connectivity software protocol known
as NTERPRISE(TM) Version 1.1 to businesses using UNIX workstations, X-Terminals
and other X-Compatible devices. Fiscal 1997 revenues from the retail products
are less than expected. Sales of NTERPRISE(TM) to businesses typically involve
extensive evaluation by customers. The Company is in the process of
demonstrating its NTERPRISE(TM) solution to a number of potential end-users and
distributors, including Motorola, IBM and AT&T. Although eXodus has received
initial evaluation and pilot orders from several customers, no significant firm
orders have been obtained. However, management believes that larger commercial
orders will be received during calendar 1997.
Under the terms of the Company's acquisition of InterGlobe, the InterGlobe
shareholders received the aggregate sum of $400,000 plus an aggregate of 800,000
shares of the Company's Common Stock. Following consummation of the InterGlobe
acquisition, the Company became obligated to fund InterGlobe's operations and
working capital needs in the form of intercompany loans and advances based upon
annual budgets and forecasts provided to and approved by the Company. Since its
acquisition, InterGlobe has been cash flow positive and self funding.
Similar funding arrangements were included in the acquisition agreements for BTS
(now Tech-Star) and Seattle OnLine Acquisition Corp. To date, TechStar has been
cash flow positive and self funding, whereas Seattle OnLine has been advanced
approximately $500,000.
In January 1997, the Company consummated a private placement of 400,000 shares
of Series B-2 preferred convertible stock for an aggregate purchase price of
$10,000,000. Substantially all net proceeds were used to reduce short term bank
indebtedness. Such indebtedness had been incurred to fund the cash portion of
the acquisition price of certain of the technology companies as well as to fund
the working capital needs of the Technology Group as a whole and include working
capital advances to ConnectSoft and Exodus as of January 31, 1997 of
approximately $5,250,000 and $3,750,000 respectively.
The Company's cash, cash equivalents and marketable securities of $21,824,000 as
of January 31, 1997 and available credit facilities are considered sufficient to
support current or higher levels of operations for at least the next twelve
months. The Company seeks to provide a high current return on its investments of
cash and cash equivalents while preserving both liquidity and capital. The
established policy guidelines for the investment portfolio include investments
that include U.S. Treasury Securities, U.S. Government agency obligations,
Deposit-type obligations of U.S. banking institutions, Repurchase agreements,
Grade A1 U.S. Corporate Commercial Paper, Money Market and mutual funds
investing in the above listed instruments. Concentration of the portfolio is
limited to not more than 20% of the Investment portfolio in any one bank,
corporation or non-government issuer.
The investments chosen reflect this policy by investing substantially all cash
and cash equivalents in money market funds, a United States Treasury Reserve
Fund and U.S. denominated A1 grade commercial paper.
The Company is currently in negotiations with other financing institutions to
expand the credit available to the Company. There can be no assurance that these
negotiations will result in additional availability to the Company.
- 19 -
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K
1. Report on Form 8-K dated January 22, 1997
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN UNITED GLOBAL, INC.
May 6, 1997
By: /s/Robert M. Rubin
---------------------
Robert M. Rubin
Chairman
By: /s/David M. Barnes
---------------------
David M. Barnes
Chief Financial Officer
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