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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ________________
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
incorporation or organization) Identification No.)
11108 NE 106th Place
Kirkland, Washington 98033
(Address of principal executive offices) (Zip Code)
(425) 869-7410 (Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Exchange Act
Title of each class Name of exchange on which registered
None None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Check 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, and (2) has been subject to such filing requirements for
the past 90 days. Yes |X| No |_|
Transitional Small Business Disclosure Format Yes |_| No |X|
Check if there is no disclosure of delinquent filers in response to item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |_|
The aggregate market value of the voting stock held by non-affiliates of
the issuer as of November 1, 2001 was approximately $860,000.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS
Check whether the issuer has 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 REGISTRANTS
The number of shares outstanding of the registrant's Common Stock, $.01 Par
Value, on November 1, 2001 was 12,439,305 shares.
Documents incorporated by reference: None
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Summary
American United Global, Inc., a Delaware corporation ("AUGI" or the
"Company"), is a holding company which owns minority equity positions in five
companies. The AUGI's primary holding is its 36% ownership of Western Power &
Equipment Corp. ("Western"). Prior to November 1, 2000, Western was a 59.6%
majority owned operating subsidiary, engaged primarily in the distribution,
rental and servicing of construction equipment. On November 1, 2000, 777,414
shares of Western common stock owned by the AUGI were distributed pursuant to
the final court approved settlement of the shareholder class action. Due to the
distribution of the Western shares, Western is no longer a majority owned
subsidiary of AUGI and AUGI does not have significant control over management
decisions or the operations of Western. AUGI therefore no longer consolidates
the results of Western with its operations and effective as of August 1, 2000
accounts for its investment in Western using the equity method. All other equity
positions held by AUGI are each less than 5% and are recorded in the financial
statements under the captions Investment in marketable securities and Other
assets.
STRATEGIC GOALS
AUGI intends to focus its strategy on acquisitions of or investments in
businesses in various sectors. In order to do so AUGI will have to obtain
financing. AUGI has not yet identified any definitive acquisition candidates or
investment opportunities and although the Board of Directors is actively
pursuing various forms of financing no such arrangement has yet been finalized.
HISTORY
AUGI was initially organized as a New York corporation on June 22, 1988
under the name Alrom Corp., and completed an initial public offering of
securities in August 1990. AUGI effected a statutory merger in December 1991,
pursuant to which the Company was reincorporated in the State of Delaware under
the name American United Global, Inc.
Western
Western commenced operations in November 1992 with the acquisition from
Case of seven retail distribution facilities located in Oregon and Washington.
Western became a subsidiary of AUGI simultaneous with such acquisition. AUGI
held approximately 59.6% of the outstanding shares of Western common stock as of
July 31, 2000. Pursuant to the final settlement of a shareholder class action,
777,414 shares of Western common stock owned by AUGI were transferred to the
class on November 1, 2000 and since that date AUGI has continued to own
approximately 36% of Western's outstanding common stock.
National O-Ring and Stillman Seal
In January 1996, AUGI sold all of the assets of its National O-Ring and
Stillman Seal businesses, comprising the manufacturing business of AUGI, to
Hutchinson Corporation ("Hutchinson") for $24,500,000 (the "Hutchinson
Transaction"), of which $20,825,000 was paid in cash and the aggregate
$3,675,000 balance was paid by delivery of two 24-month non-interest bearing
promissory notes due and paid in January 1998.
The Technology Companies
Connectsoft
Effective as of July 31, 1996, AUGI acquired, through a merger with an
acquisition subsidiary of AUGI consummated in August 1996 (the "Connectsoft
Merger"), all of the outstanding capital stock of Connectsoft, Inc. a
closely-held company located in Bellevue, Washington ("Old Connectsoft") which
provided a variety of computer products and services. In connection with the
Connectsoft Merger, Old Connectsoft stockholders received, on a pro rata basis,
an aggregate of 976,539 shares of AUGI's Series B-1 Preferred Stock (the
"Preferred Stock"). Such Preferred Stock does not pay a dividend, is not subject
to redemption, has a liquidation preference of $3.50 per share over AUGI's
Common Stock and votes together with AUGI's Common Stock as a single class on a
one vote for one share basis. Each share of Preferred Stock was convertible into
either one, two or three shares of Common Stock of AUGI if certain benchmarks
for pre-tax income of Old Connectsoft and its consolidated subsidiaries, and
Exodus Technologies, Inc., a direct subsidiary of the Company, were achieved. As
such benchmarks were not achieved, the Preferred Stock has been and is only
convertible into Common Stock on a one-for-one basis. To date, 568,696 shares of
Preferred Stock have been converted into an equal number of shares of Common
Stock, and 407,843 shares of Preferred Stock remain outstanding.
1
On July 10, 1998, AUGI entered into an agreement to sell substantially all
of the assets of its Connectsoft Communications Corporation subsidiary,
including the network operations center ("NOC"), to eGlobe, Inc. (eGlobe) As
consideration, eGlobe issued approximately $2,000,000 (as valued) of its
convertible preferred stock to AUGI and assumed approximately $5,182,000 of
Connectsoft liabilities and leases, of which about $2,900,000 are lease
obligations guaranteed by the Company. Although eGlobe is responsible for
payment of the assumed liabilities, the assumption of such liabilities will not
relieve the Company from its guarantees until such liabilities have been paid.
The sale to eGlobe was consummated in June 1999. Thereafter, in August 1999, the
agreement with eGlobe was amended to reduce the conversion price of their
preferred in return for AUGI's agreement to cancel the redemption feature of the
preferred. This increased the number of eGlobe common shares into which the
preferred could be converted from 1,000,000 to 1,923,000.
Interglobe
In September 1996, AUGI acquired InterGlobe for a purchase price of
$400,000, and 800,000 shares of the Company's Common Stock. The former
stockholders of Interglobe also received four-year employment agreements with
Interglobe and AUGI, pursuant to which they received seven-year options to
purchase an additional 800,000 shares of the Company's Common Stock at an
exercise price of $6.00 per share. All such options have since been canceled. In
August 1998, the Company discontinued the operations of InterGlobe.
Exodus
AUGI, through its Exodus subsidiary, had designed and developed a
proprietary software program, marketed as NTERPRISE, which allows users to run
WindowsTM application server software programs designed for the Microsoft TM
Windows NT TM operating system developed by Microsoft on (i) users' existing
Unix TM workstations, X-terminals and other X-windows devices, Macintosh
terminals and Java-enabled network computers, which would otherwise not be
Windows compatible, and (ii) on older versions of Windows compatible
workstations which are otherwise incapable of running the then newer versions of
Microsoft compatible software, such as Office95 TM or Lotus Notes TM. AUGI
discontinued its Exodus operations in January 1998 following Microsoft's
decision not to renew its license with Exodus.
Seattle OnLine
In November 1996, AUGI acquired the assets of Seattle OnLine, Inc.
("Seattle OnLine"), a company engaged in providing a regional Internet/Intranet
telecommunication service in the form of high bandwidth Internet connectivity
and hosting for businesses in the Pacific Northwest. AUGI purchased the Seattle
OnLine assets for the sum of $147,000 and 16,000 shares of AUGI's Common Stock
which were used to settle certain creditor claims. AUGI also issued to the
former stockholders of such corporation warrants to purchase an aggregate of
333,333 shares of AUGI's Common Stock. Seattle OnLine ceased operations in
August 1997 and its remaining assets were sold to a privately held company for
$25,000 and shares of preferred stock of the acquiring company valued at
approximately $50,000 on the closing date.
Other Acquisitions
TechStar and IDF
Effective December 11, 1996, AUGI acquired TechStar Communications Corp.
("TechStar"). In connection therewith AUGI issued to the former TechStar
stockholders an aggregate of 507,246 shares of AUGI Common Stock, paid $780,000
in cash and delivered three year promissory notes aggregating $600,000. In a
related transaction, in April 1997 AUGI also acquired Arcadia Consulting, Inc.,
a company formed by Solon L. Kandel for the purpose of providing consulting
services to clients in the wireless telecommunications industry. AUGI paid
$220,000 and issued 192,754 shares of Common Stock to Mr. Kandel.
In August 1997, AUGI sold TechStar to IDF, pursuant to an agreement and
plan of merger, dated July 31, 1997 (the "IDF Merger Agreement"), among AUGI,
TechStar, IDF and an acquisition subsidiary of IDF. Upon consummation of the
transaction, AUGI received 6,171,553 shares of IDF common stock, representing
approximately 58% of the fully diluted outstanding IDF common stock, and as a
result, for accounting purposes, AUGI was deemed to have acquired IDF.
Robert M. Rubin, the Chief Executive Officer and Chairman of the Board of
AUGI, was also a principal stockholder and a member of the board of directors of
IDF. Prior to consummation of the transactions contemplated by the IDF Merger
Agreement, Mr. Rubin converted an $800,000 loan previously made to IDF into
preferred stock convertible into 400,000 shares of IDF common stock.
During Fiscal 1998, additional IDF preferred shares were issued pursuant to
a private placement and subsequently, the holders of all IDF prefeerred shares
converted to IDF common shares. As a result, AUGI's ownership of IDF common
stock was reduced to approximately 39%. Therefore, effective August 1, 1998, the
results of operations of IDF were accounted for using the equity method.
2
During Fiscal 2000 and 1999, AUGI advanced IDF a total of $364,000 and
$992,000, respectively. However, IDF throughout all of Fiscal 2000 experienced a
significant decrease in revenue and was unable to obtain further financing. Due
to these circumstances and the uncertainty of recovery, AUGI recorded a full
reserve in July 2000 against all advances to and investments in IDF.
In April 1999, IDF discontinued the operations of TechStar and in September
2000 also discontinued the operations of Hayden/Wegman, Inc., its other wholly
owned operating subsidiary, which was based in New York City.
Forward Looking Statements and Associated Risks.
This annual report on Form 10-K contains certain forward-looking
statements, including among others (i) anticipated trends in AUGI's financial
condition and results of operations, and (ii) AUGI's business strategy. These
forward-looking statements are based largely on the Company's current
expectations and are subject to a number of risks and uncertainties. Actual
results could differ materially from these forward-looking statements. In
addition to other risks described elsewhere in this "Risk Factors" discussion,
important factors to consider in evaluating such forward-looking statements
include (a) changes in external competitive market factors or in AUGI's internal
budgeting process which might impact trends in AUGI's results of operations;
(b)unanticipated working capital or other cash requirements; (c) changes in
AUGI's business strategy or an inability to execute its strategy due to
unanticipated changes in the industries in which it operates; and (d) various
competitive factors that may prevent AUGI from competing successfully in the
marketplace. In light of these risks and uncertainties, there can be no
assurance that the events predicted in forward-looking statements will, in fact,
transpire.
ITEM 2. PROPERTIES
AUGI maintains an executive office at 11108 NE 106th Place, Kirkland,
Washington 98033.
ITEM 3. LEGAL PROCEEDINGS
There are no pending material legal proceedings in which AUGI or any of its
subsidiaries is a defendant, or to which any of their respective properties are
subject, which either individually or in the aggregate may have a material
adverse effect on the results of operations or financial position of AUGI.
See "Transactions with ERD" as regards the 1998 shareholder litigation and
settlement thereof.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 28, 2001 AUGI held the Fiscal Year 2000 Annual Meeting of
Stockholders for which votes were solicited by proxy. The following is a brief
description of the matters voted upon at the meeting and a statement of the
number of votes cast for and against, and the number of abstentions as to each
matter.
1. Election of Directors of AUGI.
For Against Abstain
Robert M. Rubin 10,968,228 27,450 974,160
C. Dean McLain 10,968,428 27,250 974,160
David M. Barnes 10,968,428 27,250 974,160
Howard Katz 10,968,428 27,250 974,160
Seymour Kessler 10,968,328 27,350 974,160
Allen Perres 10,968,328 27,350 974,160
2. Authorization and ratification of the adoption of AUGI's 2001 Stock
Option Plan.
For Against Abstain
6,430,653 1,362,848 47,200
3
3. Authorization and ratification of the sale in January 1996 of all of the
assets of American United Products, Inc. and American United Seal, Inc., engaged
as AUGI's manufacturing business, to subsidiaries of Hutchinson Corporation.
For Against Abstain
6,964,418 789,468 86,815
4. Authorization and ratification of the issuance of 976,539 shares of
AUGI's Series B-1 Convertible Preferred Stock issued in connection with the
acquisition of all the capital stock of ConnectSoft, Inc., a Washington
corporation, effective July 31, 1996.
For Against Abstain
6,849,892 886,009 104,800
5. Authorization and ratification of the issuance of 400,000 shares of
AUGI's Series B-2 Convertible Preferred Stock issued in connection with a
$10,000,000 private placement completed in January 1997.
For Against Abstain
6,875,718 909,733 55,250
6. Authorization and ratification of an amendment to AUGI's Certificate of
Incorporation reducing authorized capital stock from 67,700,000 to 42,700,000
shares, reducing the authorized Common Stock from 65,000,000 to 40,000,000
shares and removing all classifications of the Common Stock.
For Against Abstain
6,892,033 914,568 34,100
7. Authorization and ratification of the selection of
PricewaterhouseCoopers as auditors of AUGI for the fiscal years ending July 31,
1999, July 31, 2000 and July 31, 2001.
For Against Abstain
11,835,580 111,158 23,100
8. Authorization and ratification of an amendment to AUGI's Certificate of
Incorporation effecting a reverse split of the Common Stock to be effected prior
to December 31, 2001, if at all, at the discretion of the Board of Directors, in
one of the following ratios: every 15 issued and outstanding shares to be
exchanged for one share, every 20 issued and outstanding shares to be exchanged
for one share, or every 25 issued and outstanding shares to be exchanged for one
share.
For Against Abstain
8,047,395 3,905,258 17,185
4
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On February 4, 1998, The Nasdaq Stock Market, Inc. ("Nasdaq") delisted
AUGI's common stock and warrants (the "Public Warrants") from Nasdaq. Since such
date, the principal market for trading AUGI's securities is the National
Association of Securities Dealers Over-the-Counter Bulletin Board ("OTCBB"). The
following is a table that lists the high and low selling prices for shares of
AUGI's Common Stock on the OTCBB during the periods identified:
Common Stock
------------
High Low
---- ---
Fiscal 2000
- -----------
First Quarter 0.31 0.25
Second Quarter 0.75 0.19
Third Quarter 1.50 0.41
Fourth Quarter 1.00 0.44
Fiscal 2001
- ----------
First Quarter 0.75 0.25
Second Quarter 0.625 0.125
Third Quarter 0.21 0.13
Fourth Quarter 0.18 0.09
Since the Public Warrants were delisted from the Nasdaq National Market on
February 4, 1998, they have been thinly traded on the Over-The-Counter Bulletin
Board. It is AUGI's opinion that since February 4, 1998 price information for
the Public Warrants is either unreliable or unavailable, and that trading
activity since such date has been extremely sporadic, and that for such reasons
any such price information may either be misleading, inaccurate, or not
indicative of the true market price of the Public Warrants since such date.
However, according to the most recent price information provided to AUGI, the
Public Warrants had a bid/ask price on November 1, 2001 of $0.02 and $0.68
respectively.
In July 2001, AUGI extended the exercise period of the Public Warrants from
July 31, 2001 to July 31, 2003 and reduced the exercise price to $1.00. As of
November 1, 2001 the last sale price of the Common Stock was $0.08 per share. As
of November 1, 2001, AUGI had approximately 114 record holders of its Common
Stock and 6 record holders of its Public Warrants.
Dividend Policy
In the foreseeable future, AUGI intends to retain earnings, if any, to
assist in financing the expansion of its business. In the future, the payment of
dividends by AUGI on its Common Stock will also depend on its financial
condition, results of operations and such other factors as the Board of
Directors of AUGI may consider relevant. AUGI does not currently intend to pay
dividends on its Common Stock.
5
ITEM 6. SELECTED FINANCIAL DATA
The following summary financial information for the fiscal years 2001,
2000, 1999, 1998, and 1997 have been derived from the financial statements of
AUGI which have been audited by PricewaterhouseCoopers LLP, independent
accountants.
Income Statement Data (all figures in thousands):
Year ended July 31,
-------------------
2001(3) 2000 1999(1,2) 1998(1) 1997
---- ---- ----- ---- ----
Net sales $ - $155,637 $163,650 $163,478 $152,021
Loss from
continuing operations (6,400) (7,030) (5,054) (5,121) (7,944)
Net loss (6,400) (7,030) (3,065) (9,615) (27,257)
Basic and Diluted Loss
Per Share:
Loss from
continuing operations (0.52) (0.59) (0.43) (0.43) (1.05)
Net loss (0.52) (0.59) (0.26) (0.85) (2.75)
Balance Sheet Data (all figures in thousands):
Year ended July 31,
-------------------
2001 2000 1999 1998 1997
---- ---- ----- ---- ----
Total assets $1,724 $128,549 $142,409 $146,904 $144,723
Total liabilities $2,909 $115,413 $121,700 $121,914 $110,742
Working capital (deficit) (2,137) (17,579) (18,751) (5,972) 2,467
Stockholders'(deficiency)equity (1,185) 7,373 12,797 15,862 24,101
(1) Includes loss from discontinued operations of the Technology Companies.
(2) Includes a gain on disposal of $1,989.
(3) For 2001, Western has been accounted for under the equity method whereas
in 1997 through 2000 Western was included in the consolidated financial
statements of the Company.
6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion together with the financial
statements and related notes included elsewhere and incorporated by reference.
The results discussed below are not necessarily indicative of the results to be
expected in any future periods. To the extent that the information presented in
this discussion addresses financial projections, information or expectations
about AUGI or otherwise makes statements about future events, such statements
are forward-looking and are subject to a number of risks and uncertainties that
could cause actual results to differ materially from the statements made. See
"Special Note Regarding Forward-Looking Statements" for further information
about forward-looking statements.
General Overview
AUGI is a holding company with equity interests in 5 operating entities.
The most significant holding is its 36% interest in Western Power & Equipment
Corp. which engages in the sale, rental and servicing of light, medium- sized
and heavy construction, agricultural and industrial equipment, parts and related
products. The major supplier to Western is Case Corporation and the items sold,
rented and serviced include backhoes, excavators, crawler dozers, compactors,
log loaders, street sweepers and forklifts. Western operates 18 facilities in
Nevada, Oregon, Washington, California and Alaska and sells to contractors,
governmental agencies and other customers primarily for use in the construction
of residential and commercial buildings, roads, levees, dams, underground power
projects and municipal construction.
Prior to November 1, 2000, AUGI was the majority shareholder of Western
with a 59.6% ownership. The results of operations of Western were therefore
consolidated with those of AUGI in all prior fiscal years. On November 1, 2000
AUGI distributed 777,414 shares of Western common stock owned by AUGI pursuant
to the final court approved settlement of the shareholder class action. As a
result, AUGI's ownership in Western became 36% and it's investment in Western
has been accounted for under the equity method effective August 1, 2000.
AUGI's ownership in each of the other four entities is less than five
percent and is not material to the financial statements.
In previous years AUGI was engaged in other additional businesses such as
the Technology Business and the Telecommunications and Construction Businesses,
which have all since been discontinued. AUGI was formerly a stockholder of the
majority of the outstanding common stock of IDF International, Inc. through
which it engaged in the Telecommunication and Construction Businesses, however,
since early fiscal 1998 has been only a minority stockholder. TechStar and
Hayden-Wegman, IDF's two operating subsidiaries, ceased operations in June 1999
and September 2000 respectively. During Fiscal 1998 and 1999, AUGI either
divested itself of all assets of, or otherwise discontinued all operations of,
the Technology Business. Consequently, AUGI's operations during Fiscal 2000
consisted entirely of the Distribution Business which the Company engaged in
through Western. Accordingly, the following discussion relative to fiscal 2000
and 1999 consists primarily of a discussion of Western.
Results of Operations
Fiscal Year 2001, as compared to fiscal 2000
AUGI's share of Western's fiscal 2001 loss was $2,823,000 while in fiscal
2000, AUGI's share of Western's loss was $4,294,000. Western recorded a loss of
$7,842,000 in fiscal 2001 and a loss of $7,198,000 in Fiscal 2000, however, the
decrease in AUGI's proportionate share is due to the lower percentage of
ownership of Western by the AUGI.
Selling, general and administrative expenses in fiscal 2001 were
$1,214,000, an increase of $274,000 over fiscal 2000 which was $940,000 net of
Western. The increase is primarily due to a bad debt reserve of $175,000
recorded in the current year for a note receivable from Ego Magazine.com, Inc.
The note was issued to AUGI in January 2000 pursuant to a loan agreement and the
borrower defaulted upon such note in April 2001. In addition, there were two
additional employees during the first half of fiscal 2001.
Interest expense in Fiscal 2001 was $248,000, slightly higher than the
$238,000, net of Western's interest, recorded in fiscal 2000. Such amounts
consist primarily of interest accrued on short term borrowings.
Other income of $506,000 in 2001 is comprised of gains on settlements of
$415,000 and an adjustment to the valuation of the final shareholder litigation
settlement in the amount of $91,000 which was paid by Mr. Rubin during the third
quarter of fiscal 2001. Other income in prior years consisted of net gains
related to asset dispositions by Western.
7
Fiscal Year 2000, as Compared with Fiscal Year 1999
Western reported net revenue for Fiscal 2000 of $155,637,000 compared with
net revenue of $163,650,000 for Fiscal 1999. Stores opened longer than 12 months
showed an overall revenue decrease of 4.9 percent from prior year revenue
reflecting a general softening in economic conditions in the northwest along
with increased competitive pressures. Western consolidated five of its
facilities during fiscal 2000 into larger facilities in the region in order to
reduce costs and leverage existing, larger facilities in the region to cover the
territories previously served by the closed facilities.
Western had a net loss for Fiscal 2000 of $7,198,000 or $2.18 per share
compared with a net loss of $1,815,000 or $0.55 per share in Fiscal 1999. In
Fiscal 2000, Western recognized a fourth quarter inventory charge of
approximately $2,547,000 to provide allowances to recognize decreasing market
prices on aged equipment in the last half of fiscal 2000. In addition, Western
recorded a valuation allowance of $2,956,000 related to its deferred tax asset.
Other income consists primarily of net gains related to asset dispositions by
Western.
AUGI's share of Western's Fiscal 2000 loss was $ 4,294,000. AUGI also
accrued a loss of $1,434,000 on the transfer of 777,414 common shares of Western
pursuant to the settlement of shareholder litigation (see note 10); recorded a
full reserve of $364,000 in connection with advances to and investment in IDF
and sold a patent having to do with certain technology previously developed by
eXodus for a gain of $240,000. Exclusive of Western, AUGI also incurred $940,000
of selling, general and administrative expenses (primarily salaries, taxes and
professional fees) and $238,000 of net interest expense.
Western's gross margin was 7.4 percent during Fiscal 2000 which is lower
than its 8.9 percent gross margin during Fiscal 1999. Margins decreased in
Fiscal 2000 due mainly to competitive pressures and the fourth quarter equipment
reserve. Management continues to place a high priority on improving overall
gross margins by working to increase higher margin service, parts, and rental
revenues, focusing more sales efforts on specialty and niche product lines, and
by obtaining higher prices for new and used equipment.
Selling, general, and administrative expenses were $ 14,474,000 or 9.3
percent of revenues for Fiscal 2000 compared to $ 15,705,000 or 9.6 percent of
sales for Fiscal 1999. The decrease was primarily due to a decrease of
approximately $938,000 in expenses relative to shareholder litigation and bad
debts in 2000 as well as generally lower expense levels at AUGI compared to the
amount incurred in 1999 somewhat offset by higher expenses at Western which
primarily were due to the costs of closing stores during the year.
Net interest expense for Fiscal 2000 was $ 6,307,000, up from $ 5,329,000
in Fiscal 1999 primarily due to an increase in interest rates at Western and a
decrease in interest income due to lesser principle amounts having been invested
during fiscal 2000. In June 1997, Western obtained a $75 million inventory
flooring and operating line of credit facility through Deutsche Financial
Services ("DFS"). The facility is a three year, floating rate facility at rates
as low as 50 basis points under the prime rate. Prime interest rates have
increased from those in Fiscal 1999. Management has used this facility to allow
Western to take advantage of more purchase discounts and to lower overall
interest expense.
8
Liquidity and Capital Resources
General
During Fiscal 2001 AUGI's cash, cash equivalents and marketable securities
decreased by $3,341,000, from $4,086,000 to $745,000 net of the decrease
attributable to no longer consolidating Western. This decrease was primarily due
to sales of marketable securities, most of which were at a loss, in order to
provide working capital and a significant decrease in the market value of the
remaining marketable securities held by the Company.
AUGI's cash, cash equivalents and marketable securities of $745,000 as of
July 31 2001 are not sufficient to fund current levels of operation for the next
twelve months. In order to continue to operate through the end of fiscal 2002
and on into fiscal 2003, AUGI would have to obtain financing or sell some or all
of its share ownership in Western. AUGI is actively pursuing various financing
sources but has not obtained a commitment or agreement for any financing
In prior years, AUGI had invested substantially all cash and cash
equivalents in money market funds, United States Treasury securities and similar
instruments. AUGI had sought 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 its investment portfolio included investments
that include United States Treasury securities, United States government agency
obligations, deposit-type obligations of United States banking institutions,
repurchase agreements, United States denominated A1 grade commercial paper,
United States money market funds and interests in mutual funds that invest in
the above listed instruments. Concentration of the portfolio was limited to not
more than 20% of the investment portfolio in the securities of any one bank,
corporation or non-government issuer.
ITEM 7A. QUANTITATIVE AND QUALITATIVE MARKET RISK
Not Applicable
9
ITEM 8. FINANCIAL STATEMENTS
AMERICAN UNITED GLOBAL, INC.
FINANCIAL STATEMENTS
INDEX
Page
Report of Independent Accountants ....................... F-2
Consolidated Balance Sheets ............................. F-3
Consolidated Statements of Operations and
Comprehensive Income (Loss)............................. F-4
Consolidated Statements of Shareholders' (Deficit)Equity. F-5
Consolidated Statements of Cash Flows ................... F-6
Notes to Consolidated Financial Statements .............. F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of American United Global, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive income (loss), of
shareholders' equity (deficit) and of cash flows present fairly, in all material
respects, the financial position of American United Global, Inc. and its
subsidiaries at July 31, 2001 and 2000, and the results of their operations and
their cash flows for each of the three years in the period ended July 31, 2001,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred losses from
operations and has had a working capital deficit for each of the years ending
July 31, 1999, 2000 and 2001. Further, as discussed in Note 1 to the financial
statements, the Company requires additional funds to continue its operations.
Such factors raise doubt about the Company's ability to continue as a going
concern. Management's plans in regards to these matters are discussed in Note 1.
The financial statements do not reflect any adjustments that might result from
the outcome of this uncertainty.
PricewaterhouseCoopers LLP
Portland, Oregon
November 5, 2001
F-2
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31,
--------
2001 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 519,000 $ 1,281,000
Investment in marketable securities.................................................. 226,000 3,629,000
Trade accounts receivable, less allowance for doubtful accounts of $724,000.......... - 17,347,000
Inventories (Note 4)................................................................. - 58,297,000
Prepaid expenses and other receivables............................................... 27,000 478,000
Deferred tax asset (Note 7).......................................................... - 2,273,000
Receivable from Chairman (Note 10)................................................... - 299,000
Notes receivable (Note 10)........................................................... - 1,161,000
--------- ---------
Total current assets............................................................. 772,000 84,765,000
Property and equipment, net (Note 5)................................................. - 9,450,000
Rental equipment fleet, net (Note 5)................................................. - 26,076,000
Leased equipment fleet, net (Note 5)................................................. - 4,975,000
Intangibles and other assets, net of accumulated amortization of $683,000............ - 2,858,000
Other assets......................................................................... 250,000 425,000
Investment in Western Power & Equipment Co........................................... 702,000 -
-------------- -------------
$ 1,724,000 $ 128,549,000
============== =============
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Borrowings under floor financing lines (Note 6)...................................... $ - $ 14,768,000
Short-term borrowings (Note 6)....................................................... 1,500,000 69,171,000
Current portion of capital lease obligations (Note 10)............................... - 17,000
Accounts payable..................................................................... 39,000 10,810,000
Accrued liabilities.................................................................. 1,370,000 5,097,000
Income taxes payable (Note 7)........................................................ - 581,000
Due to shareholders (Note 10)........................................................ - 1,900,000
----------- -----------
Total current liabilities........................................................ 2,909,000 102,344,000
Long-term borrowings (Note 6)........................................................... - 28,000
Capital lease obligations, net of current portion (Note 10)............................. - 4,786,000
Deferred taxes (Note 7)................................................................. - 2,273,000
Deferred gain........................................................................... - -
Deferred lease income................................................................... - 5,982,000
--------- ---------
Total liabilities 2,909,000 115,413,000
Minority interest....................................................................... - 5,763,000
Commitments and contingencies (Note 10)
Shareholders' (deficit) equity (Notes 8 and 11):
Series B-1 preferred stock, convertible to common, $3.50 per share
liquidation value, $.01 par value; 1,000,000 shares authorized; 407,843 and
416,263 shares issued and outstanding, respectively................................ 4,000 4,000
Common stock, $.01 par value; 40,000,000 shares authorized; 12,439,305 and 12,143,385
shares issued and outstanding, respectively........................................ 124,000 121,000
Common stock, Class B, non-voting, .01 par value, 25,000,000
shares authorized, no shares issued and outstanding ............................... - -
Additional contributed capital....................................................... 50,271,000 50,274,000
Accumulated deficit.................................................................. (50,710,000) (44,310,000)
Accumulated other comprehensive (loss) income........................................ (874,000) 1,284,000
-------------- ------------
Total shareholders's (deficit) equity........................................... (1,185,000) 7,373,000
-------------- ------------
$ 1,724,000 $128,549,000
============== ============
The accompanying notes are an integral part of this statement.
F-3
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JULY 31,
-------------------
2001 2000 1999
---- ---- ----
Net sales................................................................ $ - $ 155,637,000 $ 163,650,000
Cost of goods sold....................................................... - 144,099,000 149,056,000
----------- ----------- -----------
Gross profit...................................................... - 11,538,000 14,594,000
Selling, general and administrative expenses............................. 1,214,000 14,474,000 15,705,000
---------- ---------- ----------
Operating loss.................................................... (1,214,000) (2,936,000) (1,111,000)
Gain on sale of patent................................................... - 240,000 -
Loss on transfer of Western shares....................................... - (1,434,000) -
Impairment of Investment of Western Power & Equipment Co................. (1,771,000) - -
Loss on sale of marketable securities.................................... (1,395,000) - -
Other income............................................................. 506,000 1,646,000 530,000
Interest expense, net.................................................... (248,000) (6,307,000) (5,329,000)
--------- --------- ---------
Loss from continuing operations before income taxes, equity
in loss of unconsolidated subsidiary and minority interest........ (4,122,000) (8,791,000) (5,910,000)
(Provision) benefit for income taxes (Note 7)............................ 545,000 (779,000) 1,101,000
Equity in loss of unconsolidated subsidiary (Note 3)..................... (2,823,000) (364,000) (961,000)
Minority interest in loss of consolidated subsidiaries................... - 2,904,000 716,000
------- -------- --------
Loss from continuing operations .................................. (6,400,000) (7,030,000) (5,054,000)
Discontinued operations, net of taxes (Note 9):
Gain on disposal...................................................... - - 1,989,000
------------- -------------- --------------
Net loss ................................................................ (6,400,000) (7,030,000) (3,065,000)
============= ============== ==============
Basic and diluted loss per share:
Loss from continuing operations....................................... $ (0.52) $ (0.59) $ (0.43)
Gain from discontinued operations..................................... - - 0.17
------------- ------------- -------------
Basic and diluted loss per share......................................... $ (0.52) $ (0.59) $ (0.26)
============= ============= ============
Weighted average number of shares........................................ 12,285,330 11,948,368 11,748,210
========== ========== ==========
Comprehensive loss:
Net loss............................................................ $ (6,400,000) $ (7,030,000) $ (3,065,000)
Unrealized (loss) gain on marketable securities..................... (874,000) 1,284,000 -
----------- ------------- --------------
Comprehensive loss.................................................. $ (7,274,000) $ (5,746,000) $ (3,065,000)
============= ============== ==============
The accompanying notes are an integral part of this statement.
F-4
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
PREFERRED STOCK COMMON STOCK
--------------- ------------
NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
Balance at July 31, 1998................................. 724,000 $ 7,000 11,617,000 $116,000
Net loss ................................................
Conversion of preferred stock to common.................. (298,000) (3,000) 304,000 3,000
-------- ------ ---------- --------
Balance at July 31, 1999................................. 426,000 4,000 11,921,000 119,000
Net loss ................................................
Issuance of common stock................................. 213,000 2,000
Stock option compensation................................
Accumulated unrealized gains, net........................
Conversion of preferred stock to common.................. (9,000) 9,000
------ -------- ----------- -----------
Balance at July 31, 2000................................. 417,000 4,000 12,143,000 121,000
Net loss ................................................
Accumulated unrealized gains, net........................
Additional shares issued in private placement............ 287,000 3,000
Conversion of preferred stock to common.................. (9,000) 9,000
------ -------- ----------- -----------
Balance at July 31, 2001................................ 408,000 $ 4,000 12,439,000 $ 124,000
======= ===== ========== ===========
ACCUMULATED
ADDITIONAL OTHER TOTAL
CONTRIBUTED COMPREHENSIVE ACCUMULATED SHAREHOLDERS'
CAPITAL OTHER INCOME (LOSS) DEFICIT (DEFICIT) EQUITY
------- ----- ------------- --------- --------------
Balance at July 31, 1998.................. $49,954,000 $ - $ - $(34,215,000) $15,862,000
Net loss ................................. (3,065,000) (3,065,000)
----------- --------- ------------ -- ---------- ----------
Balance at July 31, 1999.................. 49,954,000 - (37,280,000) 12,797,000
Net loss ................................. (7,030,000) (7,030,000)
Issuance of common stock.................. 83,000 85,000
Stock option compensation................. 237,000 237,000
Accumulated unrealized gains, net......... - - 1,284,000 1,284,000
Conversion of preferred stock to common...
----------- ----------- --------- ------------ -------------
Balance at July 31, 2000.................. 50,274,000 $ - 1,284,000 (44,310,000) 7,373,000
Net loss ................................. (6,400,000) (6,400,000)
Accumulated unrealized gains, net......... - - (2,158,000) (2,158,000)
Additional shares issued
in private placement..................... (3,000)
Conversion of preferred stock to common...
----------- ----------- --------- ------------ -------------
Balance at July 31, 2001.................. $ 50,271,000 $ - (874,000) $ (50,710,000) $ (1,185,000)
============= ============= =========== ============= ============
The accompanying notes are an integral part of this statement.
F-5
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JULY 31,
-------------------
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net loss from continuing operations................................... $ (6,400,000) $ (7,030,000) $ (5,054,000)
Net gain (loss) from discontinued operations ......................... - - 1,989,000
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization....................................... - 11,712,000 11,779,000
Loss on settlement.................................................. - - 310,000
Gain on disposal of business........................................ - - (1,989,000)
Gain on sale of fixed assets........................................ - (59,000) (45,000)
(Loss) income applicable to minority interest....................... - (2,904,000) (716,000)
Undistributed loss of affiliate..................................... 2,823,000 364,000 1,553,000
Stock option compensation........................................... - 236,000 -
Gain on sale of patent.............................................. - (240,000) -
(Loss) gain on sale investments..................................... 1,395,000 (52,000) -
Impairment of investments........................................... 1,946,000 - -
Change in assets and liabilities, net of effects of acquisition
and dispositions:
Trade accounts receivable......................................... - (1,847,000) 8,208,000
Inventories....................................................... - 2,903,000 1,299,000
Notes receivable.................................................. - 500,000 (500,000)
Prepaid expenses and other receivable............................. 240,000 (192,000) 1,000
Lease equipment, net.............................................. - 289,000 (2,504,000)
Accounts payable.................................................. 53,000 (2,416,000) (5,295,000)
Accrued liabilities............................................... (1,213,000) 1,051,000 (1,290,000)
Income taxes payable.............................................. - 817,000 (164,000)
Change in deferred revenue........................................ - (339,000) 2,707,000
---------- ------------ ------------
Net cash provided by (used in) operating activities............... (1,156,000) 2,793,000 10,289,000
--------- ---------- -----------
Cash flows from investing activities:
Purchase of property and equipment.................................... - (1,254,000) (2,711,000)
Purchase of rental equipment, ........................................ - (9,531,000) (27,984,000)
Sales of rental equipment............................................. - 10,574,000 14,669,000
Sale of marketable securities......................................... 1,217,000 1,268,000 4,078,000
Purchase of other assets.............................................. - (18,000) -
Purchase of equity and debt investments............................... - (425,000) -
Net effect on cash from distribution of Western shares................ (823,000) - -
Proceeds on sales of fixed assets..................................... - 189,000 2,235,000
------- --------- ----------
Net cash provided by (used in) investing activities............... 394,000 803,000 (9,713,000)
------- ---------- ---------
Cash flows from financing activities
Long term debt repayments............................................. - (20,000) (1,068,000)
Borrowings under term loans........................................... - (2,390,000) (4,286,000)
Inventory floor financing............................................ - (3,192,000) 6,090,000
Principal payments under capitalized lease obligations................ - 32,000 (60,000)
Proceeds from sale of stock........................................... - 85,000 -
Subsidiary sale/purchase of treasury stock............................ - 256,000 -
Collections (increase) of receivable from shareholder, net............ - - (1,700,000)
----------- ---------- ----------
Net cash used in financing activities............................. - (5,229,000) (1,024,000)
---------- ---------- ----------
Net decrease in cash and cash equivalents................................ (762,000) (1,633,000) (448,000)
Cash and cash equivalents beginning of year.............................. 1,281,000 2,914,000 3,362,000
--------- --------- ----------
Cash and cash equivalents end of year.................................... $ 519,000 $ 1,281,000 $ 2,914,000
============= ============== =============
The accompanying notes are an integral part of this statement.
F-6
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
American United Global, Inc., a Delaware corporation (the "Company") is a
holding company which owns minority equity positions in five entities. The
Company's primary holding is it's 36% minority ownership of Western Power &
Equipment Corp. (Western). Western previously was a 59.6% majority owned
subsidiary and on November 1, 2001 the Company distributed 777,414 shares of
Western common stock owned by the Company pursuant to the final court approved
settlement of the shareholder class action. Such distribution decreased the
Company's percentage ownership of Western to 36%. All other equity positions
held by the Company are each less than five percent.
Western is engaged in the sale, rental and service of light, medium and
heavy construction, industrial and agricultural equipment and related parts.
These sales are conducted from 18 regional distribution operations owned by
Western located in the states of Washington, Oregon, California, Alaska and
Nevada. A majority of this equipment is manufactured by Case Corporation
("Case").
The Company was also previously involved in the engineering, design and
construction business through a minority owned subsidiary, IDF International,
Inc. ("IDF"). IDF ceased business operations in September 2000.
Connectsoft Communications Corp. ("CCC"), a wholly owned subsidiary had
been developing a telephony server product that reads email and select web
content over the telephone which was marketed under the name "Vogo Server". The
assets of CCC were sold to an unrelated third party on June 15, 1999 as
discussed in Note 9. CCC has been accounted for as discontinued operations for
the year ending July 31, 1999.
The Company has had a working capital deficit for each of the three years
ending July 31, 1999, 2000 and 2001. In addition, the cash, cash equivalents and
marketable securities of $745,000 as at July 31, 2001 are not sufficient to fund
current levels of operations through the end of fiscal 2002. The Company is
therefore actively pursuing various sources of financing. Should such financing
not be obtained, the Company may not be able to continue in business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
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.
Due to a distribution of 777,414 shares of Western owned by the Company as at
November 1, 2000 the percentage ownership of Western decreased to 36% and thus
the operations of Western have been accounted for using the equity method for
fiscal 2001. Western was, however, included as a consolidated subsidiary in
fiscal 2000 and 1999 and minority interest in those years represents the
minority shareholders' proportionate share of the equity of Western, which was
40.4% at July 31, 2000 and 39.4% in 1999.
F-7
Cash Equivalents
For financial reporting purposes, the Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. Cash and cash equivalents consist of bank demand deposits with
three financial institutions. At times, demand deposits may exceed amounts
insured by the Federal Deposit Insurance Corporation.
Restricted Cash
In accordance with Western's borrowing agreement with Deutsche Financial
Services ("DFS"), Western has a cash account restricted by DFS for the purpose
of paying down the line of credit. Restricted cash included in the cash balances
totaled $543,000 at July 31, 2000. (See note 6.)
Inventory Valuation
Inventories are stated at the lower of cost or market. Cost is determined
based upon the first-in, first-out method for parts inventory and the specific
identification for equipment inventories.
Investment Securities
Investments in marketable securities represent primarily common shares of
publicly traded companies and are carried at market value. These investments
have been classified as available for sale securities at July 31, 2001 and 2000.
Unrealized gains and losses are excluded from earnings and are included as a
component of accumulated other comprehensive (loss)income in shareholders'
(deficit) equity, net of applicable taxes, until realized.
Property and Equipment
Property, plant, and equipment are owned by Western and are stated at cost
less accumulated depreciation. Depreciation and amortization are computed using
the straight-line method over the estimated useful lives of the assets, ranging
from 5 to 20 years. Expenditures for replacements and major improvements are
capitalized. Repairs and maintenance costs are expensed as incurred. The cost of
assets retired or otherwise disposed of and the related accumulated depreciation
are eliminated from the accounts; any gain or loss thereon is included in the
results of operations.
INTANGIBLE ASSETS
Intangible assets include items with an indeterminate useful life, such as
name recognition, geographical location and market presence acquired by Western
in business acquisitions. Western uses estimates of the useful life of these
intangible assets ranging from 20 to 40 years. Such lives are based on the
factors influencing the acquisition decision and on industry practice.
The carrying value of intangible assets is assessed by Western for any
permanent impairment by evaluating the operating performance and future
undiscounted cash flows of the underlying assets. Adjustments are made if the
sum of the expected future net cash flows is less than book value.
Income Taxes
The Company accounts for income taxes using an asset and liability approach
which requires the recognition of deferred tax liabilities and assets for the
expected future consequences of temporary differences between the carrying
amounts for financial reporting purposes and the tax bases of assets and
liabilities.
Revenue Recognition
Revenue on equipment and parts sales of Western is recognized upon shipment
of products and passage of title. Equipment rental and service revenue is
generally recognized over the period such services are provided.
Advertising Expense
Western expenses all advertising costs as incurred. Total advertising
expense for the years ended July 31, 2000 and 1999 was $320,000 and $311,000
respectively.
F-8
Fair Value of Financial Instruments
The recorded amounts of cash and cash equivalents, accounts receivable,
short term borrowings, accounts payable and accrued liabilities as presented in
the consolidated financial statements approximate fair value based on the
short-term nature of these instruments. The recorded amount of long-term debt
approximates fair value as the actual interest rates approximate current
competitive rates. The recorded value of marketable securities held at July 31,
2001 and 2000 is the market value as quoted on the respective exchange on which
each security trades.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the fiscal periods presented. Actual results could differ from
those estimates.
Employee Stock Options
The Company accounts for stock based employee compensation plans under the
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation." This standard defines a fair value-based method
of accounting for these equity instruments. This method measures compensation
cost based on the value of the award and recognizes that cost over the service
period. The Company has elected to continue using the rules of APB Opinion No.
25 and provides pro forma disclosures of net income (loss) and earnings (loss)
per share as if Statement No. 123 had been applied.
Loss Per Share
The following table sets forth the computations of basic and fully diluted
loss per share for the years ended July 31, 2001, 2000 and 1999:
YEAR ENDED JULY 31,
2001 2000 1999
---- ---- ----
Numerators:
Net loss from continuing operations............................. $ (6,400,000) $ (7,030,000) $ (5,054,000)
Discontinued operations......................................... - - 1,989,000
----------- --------- ----------
Net loss ....................................................... (6,400,000) (7,030,000) (3,065,000)
========== ========== ==========
Denominator:
Denominator for basic and diluted earnings per share -
Weighted average outstanding shares............................. 12,285,330 11,948,368 11,748,210
========== ========== ==========
Basic and diluted earnings (loss) per share:
Loss from continuing operations................................... (0.52) (0.59) (0.43)
Income from discontinued operations............................... - - 0.17
----------- ----------- ----------
Basic and diluted net loss per share.............................. $ (0.52) $ (0.59) $ (0.26)
=========== =========== ===========
Diluted and basic loss per share are the same, since the inclusion of
common stock equivalents in the computation would be antidilutive.
3. EQUITY IN LOSS OF UNCONSOLIDATED SUBSIDIARY
Equity in loss of unconsolidated subsidiary represents the Company's share
of Western's loss in fiscal 2001 and represents the Company's share of the loss
of IDF International in fiscal 2000 and 1999.
4. INVENTORIES
Inventories consist of the following:
JULY 31,
2000
-----------
Equipment (net of allowances of $4,770,000):
New equipment.......................................... $ 40,148,000
Used equipment......................................... 7,442,000
Parts (net of allowances of $22,000).................. 10,707,000
----------
$ 58,297,000
=============
F-9
5. FIXED ASSETS
Fixed assets consist of the following:
July 31
2000
--------------
Machinery and equipment................................... $ 4,030,000
Furniture and office equipment............................ 2,360,000
Computer hardware and software............................ 1,869,000
Land ................................................. 500,000
Building and leasehold improvements....................... 5,334,000
Leasehold improvements.................................... 550,000
Vehicles ................................................. 1,428,000
---------
16,071,000
Less: Accumulated depreciation........................... (6,621,000)
----------
Property plant & equipment, net .......................... $ 9,450,000
============
Rental equipment fleet.................................... 32,493,000
Less: Accumulated depreciation........................... (6,417,000)
----------
Rental equipment fleet, net............................... $ 26,076,000
============
Leased equipment fleet.................................... 5,481,000
Less: Accumulated depreciation........................... (506,000)
--------
Leased equipment fleet, net............................... $ 4,975,000
============
6. BORROWINGS
The Company is in default on an uncollaterized note payable in the amount
of $1,500,000 to an unrelated third party. The note bore interest at 8% through
its original due date of April 30, 1999. While in default, the note bears
interest at 10%.
Western has inventory floor plan financing arrangements with Case Credit
Corporation, an affiliate of Case, for Case inventory and with other finance
companies affiliated with other equipment manufacturers. The terms of these
agreements generally include a one-month to six-month interest free term
followed by a term during which interest is charged. Principal payments are
generally due at the earlier of sale of the equipment or twelve to forty-eight
months from the invoice date.
All floor plan debt is classified as current since the inventory to which
it relates is generally sold within twelve months of the invoice date.
The following table summarizes the debt and inventory floor plan financing
arrangements:
Maturity July 31,
Interest Rate Date 2001 2000
------------- ---- ---- ----
Note Payable 8%(10% default 4/30/99 $1,500,000 $1,500,000
rate)
Case Credit Corporation Prime + 2% 8 - 48 - 14,768,000
(10.00%) months
Deutsche Financial Services Prime - 0.5% 12 - 36 - 67,671,000
(7.50%) months
----------- -----------
$ 1,500,000 $83,939,000
=========== ===========
F-10
At July 31, 2000, Western was in technical default of the leverage covenant
and the minimum tangible net worth covenant in the Deutsche Financial Services
Loan Agreement. Western asked for but did not obtain a waiver letter as of July
31, 2000. The loan agreement was amended in October, 2000 and such amendment
included waivers of all prior defaults, established revised financial covenants
and created mandatory periodic reductions in the permitted credit limit. At July
31, 2001, Western was in technical default of the leverage and minimum tangible
net worth covenants and had requested a waiver letter from DFS. Western has not
obtained the waiver letter and there is no assurance that Deutsche Financial
Services will not call this debt at any time after July 31, 2001. If DFS were to
call the debt, it would become immediately due and payable in full and Western
would not be able to continue operations. Such event would have a material
adverse impact on the financial statements of the Company.
7. INCOME TAXES
The provision (benefit) for income taxes from continuing operations
comprises the following:
YEAR ENDED JULY 31,
-------------------
2001 2000 1999
---- ---- ----
Current:
Federal............................ $ (545,000) $ 179,000 $ (978,000)
State ............................. - 26,000 (156,000)
-------- ------- -------
(545,000) 205,000 (1,134,000)
Deferred:
Federal............................ - 500,000 29,000
State ............................. - 74,000 4,000
---------- ---------- -----------
- 574,000 33,000
---------- ---------- -----------
$ (545,000) $ 779,000 $ (1,101,000)
========== ========== ===========
The principal reasons for the variation from the customary
relationship between income taxes at the statutory federal rate and that
shown in the consolidated statement of operations are as follows:
YEAR ENDED JULY 31,
-------------------
2001 2000 1999
---- ---- ----
Statutory federal income tax rate.......................... $ (2,304,000) $ (2,989,000) $ (2,009,000)
Valuation allowance........................................ 2,603,000 4,101,000 1,011,000
State income taxes, net of federal income tax benefit...... (299,000) (334,000) (152,000)
Other, primarily adjustments to prior year accruals........ (545,000) 1,000 49,000
---------- ----------- --------------
$ (545,000) $ 779,000 $ 1,101,000
========== =========== =============
F-11
Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities are as follows:
JULY 31,
2001 2000
---- ----
Depreciation and amortization................ $ - $ (2,273,000)
---------- ----------
Gross deferred tax liabilities............... - (2,273,000)
---------- ----------
Inventory reserve............................ - 1,739,000
Bad debt reserve............................. - 219,000
Accrued vacation and bonuses................. - 127,000
Other .................................... - 444,000
Loss carryforwards........................... 8,224,000 8,227,000
Loss on Western initial public offering...... - 131,000
Stock options................................ - 874,000
------- -------
Gross Deferred Tax Assets.................... 8,224,000 11,761,000
Less valuation allowance..................... (8,224,000) (9,488,000)
--------- ---------
Net deferred tax asset - 2,273,000
--------- ---------
$ - $ -
========= =========
At July 31, 2001 the Company had federal income tax loss carryforwards of
approximately $22,900,000 which will begin to expire in 2011. Utilization of
such net operating losses will be subject to annual limitations in the event of
a change in ownership of the Company of more than 50%. As the Company cannot
anticipate future income with reasonable certainty, a valuation allowance of
$8,224,000 has been recorded.
8. SHAREHOLDERS' (DEFICIT) EQUITY
On February 25, 1994, the Company completed a public offering of 920,000
units at $5.25 per unit, each unit consisting of one share of common stock, $.01
par value, and one redeemable common stock purchase warrant. Each warrant
entitled the holder to purchase one share of common stock until July 31, 1998,
at an exercise price of $7.50. The exercise period for the 920,000 warrants was
subsequently extended to July 31, 2001 and on July 13, 2001, was extended to
July 31, 2003 and the exercise price was reduced to $1.00. The warrants are
subject to redemption by the Company at a redemption price of $.10 per warrant
under certain circumstances.
A total of 976,539 shares of the Company's Series B-1 convertible preferred
stock were issued in September 1996 in connection with the acquisition of
ConnectSoft, Inc. Such shares have a $3.50 per share liquidation value and are
convertible into shares of the Company's common stock at a conversion ratio of
one for one. Through the five fiscal years ended July 31, 2001 a total of
568,696 shares were converted to common stock at the ratio of one for one,
leaving 407,843 shares outstanding at July 31, 2001.
During the fourth quarter of fiscal 2000, the Company sold 212,500 shares
of common stock at $0.40 per share pursuant to a private placement memorandum.
During fiscal 2001, additional shares were issued pursuant to an amendment to
the private placement resulting in the issuance of an additional 287,000 shares
of Company common stock.
9. DISCONTINUED OPERATIONS
On July 10, 1998, the Company entered into an agreement to sell
substantially all of the assets of its Connectsoft Communications subsidiary,
including the network operations center ("NOC") to eGlobe, Inc., formerly known
as Executive TeleCard, Ltd. ("eGlobe"). The agreement, as amended June 17 and
September 1999 provided consideration for the assets acquired to be paid with
eGlobe Convertible Preferred Stock initially valued by the Company at
approximately $2,000,000. Such Preferred Stock was converted into 1,923,077
shares of eGlobe common stock in Fiscal 2000. In addition, eGlobe assumed
approximately $5,182,000 of Connectsoft liabilities and leases, of which
approximately $2,900,000 of lease obligations guaranteed by the Company.
Although eGlobe is responsible for payment of those assumed liabilities, the
assumption of such liabilities will not relieve the Company from its guarantees
until such liabilities have been paid in full. The final gain on disposal of
$1,989,000 was recognized in the accompanying consolidated statement of
operations as discontinued operations for the year ended July 31, 1999.
F-12
10. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Western leases certain facilities under non-cancelable lease agreements.
The building portion of five of the Western's facility leases qualify under SFAS
13 as "capital leases" (i.e., an acquisition of an asset and incurrence of a
liability). The remaining facility lease agreements have terms ranging from
month-to-month to nine years. Certain of the facility lease agreements provide
for options to renew and generally require the Company to pay property taxes,
insurance, and maintenance and repair costs. Total rent expense under all
operating leases aggregated $0, $2,129,000 and $2,000,000 for the years ended
July 31, 2001, 2000 and 1999, respectively.
Assets recorded under capital leases included in fixed assets are as follows:
July 31,
2000
----------
Capitalized asset value.................... $ 4,553,000
Less: Accumulated amortization............ (667,000)
---------
$ 3,886,000
=========
Other Contingencies
The Company is guarantor on the capital lease obligations assumed by eGlobe
as described in Note 9.
Legal Proceedings
There are no pending material legal proceedings in which the Company or any
of its subsidiaries is a defendant, or to which any of their respective
properties are subject, which either individually or in the aggregate, may have
a material adverse effect on the results of operations or financial position of
the Company.
In May 1998, a lawsuit was filed on behalf of the Company in a purported
shareholder derivative action against Mr. Rubin and certain other directors of
the Company. In June 1998, a shareholder class action was filed against the same
directors.
On June 1, 1999 an agreement was entered into by all parties whereby the
class action was settled for $2,500,000 which is payable, net of costs, to
approved claimant shareholders. The settlement consisted of $600,000 in cash
from insurance proceeds and $1,900,000 by 777,414 shares of Western common stock
owned by the Company. The $600,000 was paid to the claims administrator for the
benefit of claimants during fiscal 2000 and the common shares of Western were
distributed to the claimant stockholders on November 1, 2000. As a result, the
Company no longer owns greater than 50% of Western, and has accounted for
Western using the equity method effective August 1, 2000. A loss of $1,434,000
was accrued at July 31, 2000 representing the difference between the book value
of the Western shares transferred and their market value pursuant to the
settlement agreement. In addition, on June 1, 1999 the derivative action was
settled for $2,800,000 which amount was subsequently amended to $2,891,000 and
was paid in full by Mr. Rubin to the Company during fiscal 2000 and 2001.
11. STOCK OPTION PLANS
The 1991 and 1996 Stock Option Plans
The 1991 Plan was approved by the Board of Directors and shareholders in
June 1991 and the 1996 Plan was approved by the Board of Directors in April
1996. Both of these plans were cancelled in December 1999 when the Board of
Directors approved the 2000 Employee Incentive Stock Option Plan (The 2000
Plan). All outstanding stock options under the 1991 and 1996 Plans were
cancelled and replaced with the same number of stock options under the 2000
Plan.
The 2000 Plan
The 2000 Plan was approved by the Board of Directors on December 7, 1999
and 1,375,000 stock options were simultaneously granted to replace those
cancelled from the 1991 and 1996 Plans. The Company granted 415,000 additional
stock options to certain Board members as well as 250,000 options to each of two
nominees for election to the Board and 10,000 options to a consultant for
services rendered. The exercise price of all 2,300,000 options granted under the
2000 Plan on December 7, 1999 was $0.21 per share (110% of the market value on
such date).
On April 27, 2000 the Company granted 1,650,000 stock options to a newly
elected director, 500,000, 100,000 and 50,000 respectively to certain special
consultants to the Company, 250,000 to a third nominee for election to the Board
and 300,000 and 250,000 respectively to two law firms for services rendered and
to be rendered. The exercise price of all 3,100,000 options granted on April 27,
2000 was $0.3485 per share (85% of the fair market value on such date).
Compensation in connection with these option grants has been accounted for by
the Black-Scholes method where applicable.
F-13
The 2001 Plan
On October 3, 2000, the Board of Directors cancelled the 2000 Plan and
approved the 2001 Stock Option Plan. All 5,400,000 options previously granted
under the 2000 Plan were cancelled and replaced by the same number of options in
the 2001 Plan. The Company also granted 100,000 options to a each of two special
special consultants, 50,000 additional options to a law firm, 10,000 options to
a financial consultant and 500,000 to a management employee. A total of
3,050,000 of the 2001 grants were subsequently cancelled.
On April 3, 2000 the FASB issued FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation - an Interpretation of
Accounting Principles Board Opinion No. 25" (FIN 44). FIN 44 clarifies the
application of Opinion 25 for certain issues including the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award. In accordance with FIN 44, effective July 31, 2000, any of
these options which are not exercised or cancelled, will be accounted for
pursuant to a variable stock option plan. Accordingly, compensation expense will
be recorded to the extent that the quoted market price of the Company's common
stock exceeds the revised exercise price of the repriced options.
Summary Information
The following table includes option information for the Company's plans:
WEIGHTED AVERAGE
FAIR VALUE OF
NUMBER OF WEIGHTED OPTION
STOCK OPTION ACTIVITY SHARES EXERCISE PRICE GRANTED
--------------------- ------ -------------- -------
July 31, 1998 1,872,000 4.55
Options granted - - -
Options exercised - -
Options canceled (190,000) 5.50
-----------
July 31, 1999 1,682,000 4.48
Options granted 5,350,000 0.29 0.29
Options exercised - -
Options canceled (1,412,000) 4.25
-----------
July 31, 2000 5,620,000 0.76
Options granted 6,160,000 0.28 0.28
Options exercised -
Options canceled (8,450,000) 0.30
------------
July 31, 2001 3,330,000 0.73
============
The following table summarizes stock options outstanding and exercisable
for the Company at July 31, 2001:
OUTSTANDING EXERCISABLE
----------- -----------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Exercise Price Range Shares Life Price Shares Price
- -------------------- ------ ---- ----- ------ -----
$0.28 to 0.28 3,110,000 4.2 $0.28 2,913,000 $0.28
$3.20 to 3.20 20,000 0.6 3.20 20,000 3.20
$6.13 to 6.50 200,000 0.8 6.41 200,000 6.41
------- -------
$0.28 to 6.50 3,330,000 4.0 0.66 3,133,000 $0.70
========= =========
F-14
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123. "Accounting for Stock-Based
Compensation." If compensation cost for the Company's stock option plans had
been determined based on the fair value at the grant date for awards in fiscal
2001 and fiscal 2000 in accordance with the provisions of SFAS No. 123, the
Company's net loss per share would have changed to the pro forma amounts
indicated below:
YEAR ENDED JULY 31,
2001 2000
---- ----
Net loss, as reported...................................... $ (6,400,000) $ (7,030,000)
Net loss, pro forma........................................ $ (7,160,000) $ (8,041,000)
Net basic and diluted loss per share, as reported.......... $ (0.52) $ (0.59)
Net basic and diluted loss per share, pro forma............ $ (0.58) $ (0.67)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
YEAR ENDED JULY 31,
2001 2000
---- ----
Expected volatility........................ 1.54 3.82
Risk-free interest rate.................... 4.50% 5.25%
Expected life of options in years.......... 5.0 5.0
Expected dividend yield.................... 0.00% 0.00%
12. INTERTECH TRANSACTION
On March 19, 2001, pursuant to a share purchase agreement (the "Intertech
Agreement") by and among the Company, Intertech Capital, Inc. ("Intertech"),
Jeffrey M. Berman ("Berman"), Eric Staffin ("Staffin") and Peter Gregory
Saridakis ("Saridakas") (Berman, Staffin and Saridakas are collectively referred
to as the "Purchasers"), the Company sold an aggregate of 500,000 shares of
common stock of Intertech, par value $.0001 per share (the "Intertech Shares")
to the Purchasers, which Intertech Shares constituted all of the issued and
outstanding capital stock of Intertech. In connection therewith, the Company
issued to: (i) Berman 825,000 warrants to purchase shares of the Company's
common stock (the "Warrants"); (ii) Staffin 166,667 Warrants; and (iii)
Saridakis 83,333 Warrants, all which are immediately vested, expire on March 19,
2006, and are exercisable at $0.275 per share. In consideration for the
Intertech Shares and the Warrants, each of the Purchasers terminated their
respective employment agreements with the Company, released the Company from any
obligations with respect to the employment agreements, including past due and
accrued salaries, and terminated and waived all right to any stock options
granted by the Company. In addition, Berman and Staffin resigned as officers
and/or directors of the Company.
Simultaneous with the closing of the Intertech transaction the Company
purchased approximately 5.4% of Intertech's then issued and outstanding capital
stock in consideration for the transfer of 79,895 shares of common stock of New
Media Technology, Inc. owned by the Company.
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND SCHEDULE OF
NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company paid interest of $116,000, $5,922,000 and $5,482,000 during the
fiscal years 2001, 2000 and 1999 respectively. The Company received an income
tax refund of $834,000 during fiscal 1999, and paid $219,000 in income taxes,
net of refunds, during fiscal 2000.
F-15
14. RELATED PARTIES
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, 1998 issued by Citibank, N.A. in favor of Chemical
Bank (the "Letter of Credit") on behalf of ERD. Chemical Bank was the principal
lender to ERD and its subsidiaries, and upon issuance of the Letter of Chase
Bank (formerly 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 was also the
Chairman, Chief Executive Officer, a director and a principal stockholder of
ERD, owning approximately 23.0% of the outstanding ERD Common Stock.
In September 1996, a subsidiary of ERD which operated a waste facility in
Nassau County, New York was cited by the New York State 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 was 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 had 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.
In February of 1997, the Company loaned $500,000 to ERD Waste Corp. The
loan was collateralized by a short term note bearing interest at 2% above the
prime lending rate of the Company's commercial bank (8.5% at April 30, 1997) and
a second collateral and security position on all accounts receivable of ERD
subject to the primary collateral position held by Chase Bank and was personally
guaranteed by Mr. Rubin. Principal together with accrued interest was due
October 5, 1997.
In September 1997 ERD filed for protection from creditors under Chapter 11
of federal bankruptcy laws. In October, 1997 Chemical bank drew the $4.4 million
available on the standby letter of credit. As a result, the Company recorded a
loss of approximately $5.0 million, related to the February Note and the
September letter of credit. Mr. Rubin had personally guaranteed approximately
$1.6 million of the ERD loss. This amount was repaid to the Company pursuant to
the shareholder litigation settlement as described in Note 10.
On June 28, 1996 the Company entered into a collateralized credit agreement
with Mr.Rubin pursuant to which Mr. Rubin delivered a demand promissory note for
up to $1,200,000 and payment in full was due no later than July 31, 1998. The
due date was subsequently extended to July 31, 1999 and then to September 30,
2000 as part of the shareholder litigation settlement. Mr. Rubin's payment of
$2,891,000 as described in Note 10 included amounts due under the note.
15. EMPLOYEE SAVINGS PLAN
The Company has a voluntary savings plan pursuant to Section 401(k) of the
Internal Revenue Code, whereby eligible participants may contribute a percentage
of compensation subject to certain limitations. The Company has the option to
make discretionary qualified contributions to the plan, however, no Company
contributions were made for fiscal 2001, 2000 or 1999.
F-16
16. SEGMENT INFORMATION
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and
Related Information," which requires the reporting of certain financial
information by business segment. All such information relates only to Western.
For the purpose of providing segment information, Western believes that all of
its operations consist of one segment. However, Western evaluates performance
based on revenue and gross margin of three distinct business components. Revenue
and gross margin by component are summarized as follows:
Business Component Year Ended Year Ended Year Ended
Net Revenues July 31, 2001 July 31, 2000 July 31, 1999
- ---------------------------- ----------------- ----------------- --------------
Equipment Sales -0- $ 92,513 $ 98,450
Equipment Rental -0- 26,334 25,771
Product Support -0- 36,790 39,429
----------------- ----------------- -------------
Totals -0- $ 155,637 $ 163,650
================= ================= =============
Business Component Year Ended Year Ended Year Ended
Gross Margins July 31, 2001 July 31, 2000 July 31, 1999
- ----------------------------- ---------------- ----------------- --------------
Equipment Sales -0- $ ( 66) $ 2,591
Equipment Rental -0- 5,556 5,017
Product Support -0- 6,048 6,986
---------------- ----------------- --------------
Totals -0- $ 11,538 $ 14,594
================ ================= ==============
17. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA
Quarter Total
First Second Third Fourth Year
Fiscal 2001: ----- ------ ----- ------ ----
- -----------
Net sales $ - $ - $ - $ - $ -
Gross Profit - - - - -
Net loss (725) (388) (2,567) (2,720) (6,400)
Basic loss per share (0.06) (0.03) (0.21) (0.22) (0.52)
Diluted loss per share (0.06) (0.03) (0.21) (0.22) (0.52)
Quarter Total
First Second Third Fourth Year
----- ------ ----- ------ ----
Fiscal 2000:
- ------------
Net sales $42,063 $33,988 $35,340 $44,246 $155,637
Gross Profit 4,920 3,865 3,236 (483) 11,538
Net loss (333) (281) (799) (5,617) (7,030)
Basic loss per share (0.03) (0.02) (0.07) (0.47) (0.59)
Diluted loss per share (0.03) (0.02) (0.07) (0.47) (0.59)
18. SUBSEQUENT EVENT
On September 18, 2001 Western entered into a Purchase agreement with
e*machinery.net, Inc. (OTCBB:EMAC) whereby EMAC would acquire the business and
substantially all of the assets and liabilities of Western's wholly owned
operating subsidiary, Western Power & Equipment Corp. (Oregon) for $500,000 in
cash, a seven year interest bearing promissory note for $700,000 and 1,200,000
shares of EMAC common stock valued at approximately $600,000. The closing is
subject to a number of conditions, including, but not limited to, due diligence
and approval by both Case Corporation and Deutsche Financial Services. There can
be no assurance that this transaction will be consummated.
Pursuant to this proposed transaction, management has recorded an
impairment loss in the amount of $1,771,000 at July 31, 2001 to reflect the
Company's investment in Western at its approximate fair value.
F-17
SCHEDULE II
AMERICAN UNITED GLOBAL INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years Ended July 31, 2001 and 2000
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
----------- --------- -------- -------- ---------- ------
Accounts Receivable Reserve:
Fiscal year ended July 31, 2001 - - --- - -
Fiscal year ended July 31, 2000 $724,000 $690,000 $ --- $(851,000) $563,000
Inventory Reserve:
Fiscal year ended July 31, 2001 - - --- - -
Fiscal year ended July 31, 2000 2,513,000 2,188,000 --- (591,000) 5,292,000
F-18
To the Board of Directors and
Stockholders of American United Global, Inc.
Our Audits of the consolidated financial statements referred to in our
report dated November 5, 2001 appearing on page F-1 of this annual report on
Form 10K also included an audit of the financial statement schedules listed in
Item 14(a)(2)of this Form 10K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related financial statements.
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
November 5, 2000
F-19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Officers, Directors and Key Employees
The following table sets forth information with respect to directors,
executive officers and key employees of the Company as of November 1, 2001.
Except for matters discussed in Item 3 of this Annual Report, there are no
pending legal proceedings to which any director, nominee for director or
executive officer of the Company is a party adverse to the Company.
Name Age Position
Robert M. Rubin 61 Chairman of the Board of Directors, President and
Chief Executive Officer
C. Dean McLain 48 Director and Executive Vice President and Chief
Executive Officer of Western
David M. Barnes 58 Vice President of Finance, Chief Financial Officer
and Director
Howard Katz 59 Director
Seymour Kessler 69 Director
Allen Perres 49 Director
ROBERT M. RUBIN. Mr.Rubin has served as the Chairman of the Board of
Directors of the Company since May 1991, and was its Chief Executive Officer
from May 1991 to January 1, 1994. Between October 1990 and January 1, 1994, Mr.
Rubin served as the Chairman of the Board and Chief Executive Officer of the
Company and its subsidiaries; from January 1, 1994 to January 19, 1996, he
served only as Chairman of the Board of the Company and its subsidiaries. From
January 19, 1996 to the present, Mr. Rubin has served as Chairman of the Board,
President and Chief Executive Officer of the Company. Mr. Rubin was the founder,
President, Chief Executive Officer and a Director of Superior Care, Inc. ("SCI")
from its inception in 1976 until May 1986. Mr. Rubin continued as a director of
SCI (now known as Olsten Corporation ("Olsten") until the latter part of 1987.
Olsten, a New York Stock Exchange listed Company, is engaged in providing home
care and institutional staffing services and health care management services.
Mr. Rubin was Chairman of the Board and Chief Executive Officer and is a
stockholder of ERD Waste Technology, Inc., a diversified waste management public
Company specializing in the management and disposal of municipal solid waste,
industrial and commercial non-hazardous waste and hazardous waste. In September
1997, ERD filed for protection under the provisions of Chapter 11 of the federal
bankruptcy act. Mr. Rubin is also a Director of Western. The Company owns
approximately 36% of the outstanding common stock of Western. Mr. Rubin is also
a director of Med-Emerg, Inc., a publicly-held Canadian management Company for
hospital emergency rooms and out-patient facilities. Mr. Rubin was also a
director of StyleSite Marketing, Inc., which liquidated its assets for the
benefit of secured creditors in January 2000. Mr. Rubin devotes approximately 35
hours per week to the business of the Company.
C. DEAN MCLAIN. Mr. McLain has served as an Executive Vice President of the
Company since March 1, 1993, as a director of the Company since March 7, 1994
and President of Western since June 1, 1993. From 1989 to 1993, Mr. McLain
served as Manager of Privatization of Case Corporation. From 1985 to 1989, Mr.
McLain served as General Manager of Lake State Equipment, a distributor of John
Deere construction equipment. Mr. McLain holds a B.S. degree in Business and
Economics, and a Master's of Business Administration from West Texas State
University. Mr. McLain devotes his full professional time to Western and
included in such time is time spent on the Company's business.
DAVID M. BARNES. Mr. Barnes has served as the Chief Financial Officer of
the Company since May 15, 1996, and has been a director since November 8, 1996.
Mr. Barnes is also presently a member of the Advisory Board of Interactive
Imagination, Inc., a privately-held video game developer based in Seattle, WA.
Mr. Barnes devotes the majority of his professional time to the business of the
Company.
HOWARD KATZ. Mr. Katz was Executive Vice President of the Company from
April 15, 1996 through July 31, 1998 and has been a director since April 15,
1996. Since August 1998 to the present Mr. Katz has been the Chief Executive
Officer of Imagine Networks, LLC., a New York City based privately held company
which engages in advanced technology and software development.
10
SEYMOUR KESSLER. Dr. Kessler has served as a Director of the Company since
August 28, 2001 and has been a Director of Western since February 2, 2000. From
January 1999 to the present Dr. Kessler has been co-Managing Director of RKP
Capital Partners, a holding Company for publicly and privately-held companies.
Between 1996 and the present Dr. Kessler has been an active investor in various
publicly and privately-held companies. From 1992 through 1996 Dr. Kessler was a
founder, Chief Executive Officer and a director of Princeton Dental Management
Corporation. Between 1982 and 1997 Dr. Kessler served on the Board of Trustees
of University of Health Science Center, in Des Moines, IA. Dr. Kessler also has
been a director of four nationally-chartered banks, including serving as Vice
Chairman of the Board of Directors of Peterson Bank. Dr. Kessler is a former
podiatric surgeon who since 1975 has held majority and minority interests and
actively served in over 85 partnerships, privately-held and publicly-owned
companies and institutions.
ALLEN PERRES. Mr. Perres has served as a Director of the Company since
August 28, 2001 and has been a director of Western since February 2, 2000. From
January 1999 to the present Mr. Perres has been co-Managing Director of RKP
Capital Partners, a holding Company for publicly and privately-held companies.
Mr. Perres is a partner in RB Partners, Inc., an investment banking firm for
homebuilders, and has served in such capacity from 1994 to the present. Mr.
Perres co-founded and managed that firm's commercial and residential mortgage
unit, First Dearborn Mortgage Company, Inc., during such period.
Committees of the Board
At present, the Board of Directors has three committees, the Compensation
Committee, the Audit Committee, and the Corporate Governance Committee.
The Compensation Committee's duties include the review of the compensation
for all employees and the granting of options under all of the Company's
employee stock option plans that may exist and be in effect from time to time.
The Compensation Committee presently consists of Messrs. McLain, Kessler and
Perres
The Audit Committee's duties include the review of AUGI's financial
statements, budget, and its' financing arrangements as well a review of its
internal financial controls. The Audit Committee presently consists of Messrs.
Kessler and Perres.
The Corporate Governance Committee's duties include the review of corporate
governance matters including proposed amendments to the Certificate of
Incorporation and bylaws and the conduct of meetings of directors, committees of
the Board of Directors and of stockholders. The Corporate Governance Committee
consists of Messrs. Barnes and Rubin.
During Fiscal 2001 the Board of Directors met on three occasions; The
Compensation Committee and The Audit Committee each met on one occasion. The
Corporate Governance Committee was formed in December 1999 and has met twice.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the amount of all compensation paid by
AUGI for services rendered during each of the three fiscal years of AUGI
ended July 31, 2001, 2000, and 1999 to each of AUGI's most highly
compensated executive officers and key employees whose total compensation
exceeded $100,000, and to all executive officers and key employees of AUGI
as a group.
11
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS
------ NUMBER OF
NAME AND FISCAL SALARY BONUS OTHER RESTRICTED SECURITIES LTIP ALL OTHER
PRINCIPAL YEAR ($) ANNUAL STOCK UNDERLYING PAYOUTS COMPENSATION
POSITION COMPENSATION AWARD(S) OPTIONS/SARS# ($) ($)
- -------- ----- ------- ------- --------------------- -------- --- ----------
($) ($) SARS(#)
Robert M. Rubin 2001 425,000 -0- -0- -0- -0- -0- -0-
Chairman, 2000 400,000 -0- -0- -0- 250,000 -0- -0-
President and 1999 375,000 -0- -0- -0- -0- -0- -0-
Chief Executive
Officer(1)
David M. Barnes 2001 150,000 -0- -0- -0- -0- -0- -0-
Chief Financial 2000 140,000 -0- -0- -0- 100,000 -0- -0-
Officer and 1999 125,000 -0- 2,000 -0- -0- -0- -0-
Director
C. Dean McLain (2) 2001 390,000 -0- -0- -0- -0- -0- -0-
Executive Vice 2000 200,000 -0- -0- -0- 56,500 -0- -0-
President and 1999 290,000 -0- -0- -0- -0- -0- -0-
Director;
President of
Western
(1) Includes $150,000 paid under Mr. Rubin's Consulting Agreement with
Western during Fiscal 1999 and Fiscal 2000 and $200,000 in fiscal 2001.
(2) All compensation paid by Western.
12
STOCK OPTION PLANS
OPTION GRANTS IN FISCAL 2001
On October 3, 2000, the Board of Directors cancelled the 2000 Plan and
approved the 2001 Stock Option Plan. All 5,400,000 options previously granted
under the 2000 Plan were cancelled and replaced by the same number of options in
the 2001 Plan. The Company also granted 100,000 options to a each of two special
consultants, 50,000 additional options to a law firm, 10,000 options to a
financial consultant and 500,000 to a management employee. A total of 3,050,000
of the 2001 grants were subsequently cancelled.
AUGI, on October 3, 2000, granted 500,000 non-qualified stock options to
Michael Sweeney, 250,000 non-qualified stock options to each of Seymour Kessler
and Allen Perres (each then a nominee for Director, and elected on August 28,
2001), 250,000 non-qualified stock options to Stephen Byers and 100,000
non-qualified stock options to Michael Metter, all in consideration for services
rendered and to be rendered by such persons who have agreed to be engaged as
consultants to the Company, and 300,000 non-qualified stock options to Gersten,
Savage & Kaplowitz, LLP ("GSK"), and 50,000 non-qualified stock options to Bert
Gusrae in consideration of corporate finance consulting services, and 250,000
non-qualified stock options to Stephen Berger in consideration for legal
services. The options granted vested fully upon their grant and are exerciseable
for five years after issuance for $0.275 per share (125% of the market value on
the date of grant) and the options granted to Messrs. Kessler, Perres and Berger
vest in twenty percent (20%) increments at granting and each of the four years
thereafter. 400,000 of the options granted to Mr. Sweeney and all of the options
granted to Mr. Byers have since been cancelled.
AUGI also issued 1,650,000 incentive stock options to Jeffrey Berman, which
options vested one-half at granting and the remaining one-half on May 27, 2001,
and 500,000 incentive stock options to Eric Staffin which vested one-third at
granting and at each of the two years thereafter. On March 19, 2001, all of the
options granted to Mr. Berman and Mr. Staffin were cancelled in connection with
the Intertech Transaction, and Mr. Berman and Mr. Staffin were issued warrants
to purchase 825,000 and 166,667 shares of Common Stock, respectively. Such
number of shares represented the number of vested and exercisable options held
by each of Mr. Berman and Mr. Staffin on such date. The exercise price of these
warrants is 0.275 per share which is the same as the exercise price of their
cancelled vested options.
AUGI also issued a total of 1,790,000 incentive stock options, vesting
immediately upon granting, to Messrs. Rubin (840,000) Katz (350,000), McLain
(300,000) and Barnes (300,000) to replace an equal number of options under the
2000 Plan that were cancelled, and such options are exercisable for five years
after issuance for $0.275 per share (110% of the fair market value on the date
of the grant).
13
Option Grants to Named Executive Officers in Last Fiscal Year
The following table sets forth certain information with respect to all
outstanding stock options issued during 2001 to AUGI's named Executive Officers.
Individual Grants
Percent
of Total
Options Potential
Number of Granted Realizable Value
Securities to At Assumed annual
Underlying Employees Rates of Price
Options In Fiscal Exercise Expiration Appreciation for
Name Granted Year Price Date Option Term
- ---- ------- ---- ----- ---- -----------
5% 10%
Robert M. Rubin 840,000 58.3% $0.275 10/03/05 $67,536 $141,120
C. Dean McLain 300,000 20.8% $0.275 10/03/05 $24,120 $50,400
David M. Barnes 300,000 20.8% $0.275 10/03/05 $24,120 $50,400
The following table provides information concerning the exercise of stock
options during the last completed fiscal year by each Named Executive Officer,
and the fiscal year-end value (as of July 31, 2001) of unexercised options held
by each such person. None of these options has been exercised as of November 1,
2001.
Aggregated Options Exercised
in Last Fiscal Year and Fiscal
Year-End Option Values
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options/SARs Options/SARs
Acquired on Value at FY-End at FY-End
Name Exercise (#) Realized Exercisable Exercisable
Robert Rubin -0- -0- 840,000 $0
David Barnes -0- -0- 300,000 $0
C. Dean McLain -0- -0- 300,000 $0
THE 2001 STOCK OPTION PLAN
The 2001 Plan was adopted on October 3, 2000 and as of such date 5,910,000
options were granted and on such date all previously issued and outstanding
options granted under the 2000 Plan were cancelled. 2,800,000 of the options
granted on October 3, 2000 were subsequently cancelled by AUGI. Please see the
discussion under "Option Grants in Fiscal 2001" above.
AUGI's Board of Directors cancelled as of December 7,1999 all options
outstanding under the Company's 1991 and 1996 Stock Option Plans and adopted the
2000 Plan. On October 3, 2000, the Board cancelled the 2000 Plan and all options
granted thereunder and adopted the 2001 Plan. The 3,110,000 options currently
outstanding under the 2001 Plan replaced options for an identical number of
shares of Common Stock as were issuable upon exercise of the 2000 Plan cancelled
options. In addition, 2,800,000 other options granted under the 2001 plan were
cancelled during the third and fourth quarter of fiscal 2001.
14
Employment, Incentive Compensation and Termination Agreements
ROBERT M. RUBIN. Mr. Rubin is employed by AUGI as the Chairman of the Board
of Directors of the Company. Mr. Rubin is so employed pursuant to an amended and
restated employment agreement, dated as of June 3, 1998 and as most recently
amended as of December 7, 1999 (the "Restated Agreement") for a term expiring
December 7, 2004. The Restated Agreement provides for a minimum base salary
payable to Mr. Rubin of $225,000, incentive bonuses consisting of 10% of the
sale price in excess of AUGI's basis, up to a maximum aggregate bonus of
$3,000,000, to be paid to Mr. Rubin contingent upon AUGI's ability to dispose of
its holdings of the common stock of either eGlobe, Inc. or Western and receive
net aggregate proceeds in excess of $3,000,000 from the sale of the shares of
either eGlobe or Western shares, and 250,000 incentive stock options. No
incentive bonus was earned in fiscal 2001 or 2000.
Mr. Rubin is also engaged by Western, AUGI's 36% minority owned subsidiary,
pursuant to a two- year Consulting Agreement, effective August 1, 1998 and
extended for seven years from August 1, 2000 under which starting in Fiscal 2001
he is paid $200,000 annually plus reimbursement for his business expenses.
C. DEAN MCLAIN. C. Dean McLain serves as the President and Chief Executive
Officer of Western pursuant to a ten-year employment agreement expiring July 31,
2005. Pursuant to such agreement, Mr. McLain received an annual base salary,
payable monthly, of $290,000 per annum in Fiscal 1999 and $300,000 per annum in
Fiscal 2000. For each of the fiscal years ending 2001 through 2005, Mr. McLain's
base salary shall be $390,000 plus a cost of living adjustment. In addition, Mr.
McLain is entitled to receive certain incentive bonus payments equal to one and
one half percent (1 1/2 %) of each fiscal years adjusted consolidated pre-tax
income of Western in excess of $1,750,000 provided, that the maximum amount of
the Incentive Bonus payable by Western to Mr. McLain shall not exceed $150,000
in any such fiscal year. Mr. McLain was also granted 300,000 incentive stock
options on October 3, 2000 under the 2001 Plan, which options are immediately
exercisable for five years at $0.275 per share.
HOWARD KATZ. Howard Katz is a director of AUGI. Mr. Katz received salary
severance of $32,500 in Fiscal 2001 and $78,000 in Fiscal 2000, and $91,738 in
salary severance and other compensation during Fiscal 1999. Prior to July 31,
1998, Mr. Katz served as AUGI's Executive Vice President since April 15, 1996
and received an annual base salary of $185,000 for Fiscal 1998. In addition, on
October 3, 2000 Mr. Katz received 350,000 stock options under the 2001 Plan,
which are immediately exercisable for five years at $0.275 per share.
DAVID M. BARNES. David M. Barnes is a director and Chief Financial Officer
of AUGI. In Fiscal 2001 Mr. Barnes received total compensation of $150,000. In
Fiscal 2000 Mr. Barnes received total compensation of $140,000. In Fiscal 1999
Mr. Barnes received a base salary of $125,000 and certain executive benefits
which brought his total Fiscal 1999 compensation to $127,000. In Fiscal 2002 Mr.
Barnes will continue in these capacities with a base salary of $160,000 plus
certain executive benefits. Between May 15, 1996 and July 31, 1998 Mr. Barnes
received an annual salary of $150,000. In addition on October 3, 2000 Mr. Barnes
received 300,000 incentive stock options under the 2001 Plan, which options are
immediately exercisable for five years at $0.275 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During Fiscal 2001 the Board of Directors' Compensation Committee (the
"Compensation Committee") met once.
Mr. Rubin's annual compensation, identified in the Summary Compensation
Table, was determined by his employment agreements with AUGI, which were
approved by the Board of Directors. Mr. Rubin's employment agreement was amended
in December 1999 and is now for a five year term expiring December 7, 2004. For
information concerning Mr. Rubin's Restated Agreement, see "Employment,
Incentive Compensation and Termination Agreements." Mr. Rubin also entered into
a consulting agreement with Western. Mr. McLain's annual compensation was set by
his amended employment agreement with Western. See "Employment, Incentive
Compensation and Termination Agreements."
No director of AUGI is paid to attend Board meetings, although they are
reimbursed for their actual expenses. During Fiscal 2001 AUGI held three
meetings of the Board of Directors at which all directors were present
telephonically. While Mr. Rubin serves on the Compensation Committees of the
Boards of Directors of other publicly held corporations, no executive officers
or directors of such companies serve on the Company's Compensation Committee.
The Compensation Committee reviews the compensation for all employees and the
granting of options under all of AUGI's employee stock option plans that may
exist and be in effect from time to time, and presently consists of Messrs.
McLain, Kessler and Perres.
15
Transactions with ERD Waste Corp.
AUGI incurred a loss of approximately $5,000,000 as a result of certain
transactions it entered into with ERD Waste Corp. ("ERD") in Fiscal 1997. On
September 30, 1997, ERD filed for reorganization under Chapter 11 of the federal
bankruptcy laws. The Company has recorded a $5,000,000 net loss in connection
with these transactions, which included making available for ERD's benefit a
$4,400,000 letter of credit and making an additional $500,000 loan, for Fiscal
1997.
In June 1998 a stockholder class action (the "Class Action") was filed
against AUGI's directors alleging breaches of fiduciary duty and loyalty to AUGI
and its stockholders in connection with a letter of credit guarantee by AUGI for
ERD Waste Corp. ("ERD") and the delisting of AUGI's Common Stock and
publicly-traded warrants from NASDAQ in February 1998. During Fiscal 1997 AUGI
paid $4,400,000 pursuant to its guarantee for ERD, which sought protection from
creditors under Chapter 11 of the federal bankruptcy laws on September 30, 1997.
Final judicial approval of a settlement was received in August 1999, pursuant to
which AUGI has paid $2,500,000 (the "Class Payment") to members of the
stockholder class.
The Class Payment was paid in the form of $600,000 in cash (consisting of
proceeds from AUGI's directors' and officers' liability insurance policy) and
$1,900,000 in the form of 777,414 shares of common stock (valued at
approximately $2.44 per share) of Western Power & Equipment Corp. ("Western")
owned by AUGI. These shares were distributed on or about November 1, 2000 and
thereupon AUGI recognized a loss (accrued at July 31, 2000) of $1,434,000
representing the difference between the book value of the transferred shares and
their market value as calculated pursuant to the settlement agreement. AUGI
presently owns approximately 36% of the outstanding Western common stock.
TRANSACTIONS WITH OTHER AFFILIATES
During Fiscal 1999 and Fiscal 2000 AUGI provided financing to IDF, a
minority-owned subsidiary in the amounts of $992,000 and $364,000, respectively.
These funds were used for working capital, the payment of certain delinquent
taxes and other liabilities of Hayden/Wegman, Inc., an IDF subsidiary, and costs
related to the discontinuation of operations of the TechStar subsidiary. AUGI
took a full reserve against these advances at July 31, 2000 due to IDF's
significant decrease in revenue and its inability to obtain further financing.
In September 2000, IDF discontinued the operations of Hayden / Wegman.
Mr. Rubin was a director of IDF until August 1999 and owned 874,659 shares
of IDF common stock, representing approximately 9.0% of the then outstanding IDF
common stock after giving effect to the IDF Merger, and including Mr. Rubin's
conversion of an $800,000 loan previously made to IDF into preferred stock
convertible into an additional 400,000 shares of IDF common stock, prior to his
transfer of such shares to the Rubin Family Irrevocable Stock Trust. Subsequent
the IDF Merger, Mr. Rubin served as Chairman of the Board of Directors of IDF
until August 1999.
INTERTECH TRANSACTION
On March 19, 2001, pursuant to a share purchase agreement (the "Intertech
Agreement") by and among AUGI, Intertech Capital, Inc. ("Intertech"), Jeffrey M.
Berman ("Berman"), Eric Staffin ("Staffin") and Peter Gregory Saridakis
("Saridakas") (Berman, Staffin and Saridakas are collectively referred to as the
"Purchasers"), AUGI sold an aggregate of 500,000 shares of common stock of
Intertech, par value $.0001 per share (the "Intertech Shares") to the
Purchasers, which Intertech Shares constituted all of the issued and outstanding
capital stock of Intertech. In connection therewith, AUGI issued to: (i) Berman
825,000 warrants to purchase shares of AUGI's common stock (the "Warrants");
(ii) Staffin 166,667 Warrants; and (iii) Saridakis 83,333 Warrants, all which
are immediately vested, expire on March 19, 2006, and are exercisable at $0.275
per share. In consideration for the Intertech Shares and the Warrants, each of
the Purchasers terminated their respective employment agreements with AUGI,
released AUGI from any obligations with respect to the employment agreements,
including past due and accrued salaries, and terminated and waived all right to
any stock options granted by AUGI. In addition, Berman and Staffin resigned as
officers and/or directors of the Company.
Simultaneous with the closing of the Intertech transaction the Company
purchased approximately 5.4% of Intertech's then issued and outstanding capital
stock in consideration for the transfer of 79,895 shares of common stock of New
Media Technology, Inc. owned by the AUGI.
RECENT DEVELOPMENTS REGARDING WESTERN
On September 18, 2001 Western entered into a Purchase Agreement with
e*machinery.net, Inc. (OTCBB:EMAC) whereby EMAC would acquire the business and
substantially all of the assets and liabilities of Western's wholly owned
operating subsidiary, Western Power & Equipment Corp. (Oregon) for $500,000 in
cash, a seven year interest bearing promissory note for $700,000 and 1,200,000
shares of EMAC common stock valued at approximately $600,000. The closing is
subject to a number of conditions including, but not limited to, due diligence
and approval by both Case Corporation and Deutsche Financial Services. There is
no assurance that this transaction will be consummated.
16
Compensation Committee Report On Executive Compensation
The Board of Directors has been largely responsible for AUGI's executive
compensation policy in prior years and the Compensation Committee met once
during Fiscal 2001. The Board believes that offering its senior executive
officers employment agreements is the best way to attract and retain highly
capable employees on a basis that will encourage them to perform at increasing
levels of effectiveness and to use their best efforts to promote the growth and
profitability of AUGI and its subsidiaries. The Board believes this enabled it
to concentrate on negotiating particular employment contracts rather than
establishing more general compensation policies for all management and other
personnel. AUGI believes that its compensation levels as to all of its employees
were comparable to industry standards. Currently, Mr. Rubin is AUGI's only
senior executive officer employed under a contract approved by the full Board of
Directors. See "Executive Compensation-Employment, Incentive Compensation and
Termination Agreements."
In setting levels of compensation under such employment contracts and in
approving management's compensation of all other Company employees, the Board of
Directors evaluates AUGI's overall operations, the contribution of particular
individuals to AUGI's performance and industry compensation standards. A
significant percentage of the compensation that could be paid to each of Messrs.
Rubin and McLain under their respective employment agreements is tied to the
achievement of prescribed levels of pre-tax income or specific performance
goals. See "Employment, Incentive Compensation and Termination Agreements,"
above.
Compliance with Section 16(a) of the Exchange Act.
To the knowledge of the Company, with the exception of Messrs. Rubin,
McLain, Barnes, and Katz, who did not timely file a Form 4 reflecting the
cancellation of their 2000 Plan options and granting of their options under the
2001 Plan, and Messrs. Kessler and Perres who did not timely file a Form 3 upon
their election to the Board, no officers, directors, beneficial owner of more
than 1 percent of any class of equity securities of the Company registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any other person subject to Section 16 of the Exchange Act
with respect to AUGI, failed to file on a timely basis reports required by
Section 16(a) of the Exchange Act during Fiscal 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of November 1, 2001
with respect to the beneficial ownership of the Common Stock of AUGI by each
beneficial owner of more than five percent (5%) of the total number of
outstanding shares of the Common Stock of AUGI, each director and all executive
officers and directors of AUGI as a group. Unless otherwise indicated, the
owners have sole voting and investment power with respect to their respective
shares. The table does not include options or SARs that have not yet vested or
are not exercisable within 60 days of the date hereof.
Name and Address* Number of Shares Percentage of
of Beneficial Owner Office(s) Beneficially Owned(1) Common Stock (1)
- ------------------- --------- --------------------- ----------------
Robert M. Rubin Director, President, Chief 842,000(2)(6) 6.2
Executive Officer and
Chairman of the Board
C. Dean McLain Director, Executive 300,000(3) 2.3
4601 N.E. 77th Avenue Vice-President and
Suite 200 President of Western
Vancouver, WA 98662 Power and Equipment Corp.
("Western")
Howard Katz Director 350,000 (4) 2.7
David M. Barnes Chief Financial Officer 300,000 (5) 2.3
Vice President of Finance
and Director
Rubin Family Irrevocable 1,245,798 (6) 10.0
Stock Trust
25 Highland Blvd.
Dix Hills, NY 11746
Jeffrey Berman 825,000 (7) 6.1
Seymour Kessler Director 250,000 (8) 2.0
Allen Perres Director 250,000 (9) 2.0
All Directors and Executive 2,292,000 15.5
Officers as a Group (5 persons)
17
* Unless otherwise indicated, the address of each such beneficial owner is
11108 N.E. 106th Place, Kirkland, Washington 98033.
1) Pursuant to the rules and regulations of the Securities and Exchange
Commission, shares of Common Stock that an individual or group has a right to
acquire within 60 days pursuant to the exercise of options or warrants are
deemed to be outstanding for the purposes of computing the percentage ownership
of such individual or group, but are not deemed to be outstanding for the
purposes of computing the percentage ownership of any other person shown in the
table. All stock options and warrants mentioned in (2) through (9) below are
immediately exercisable.
(2) Includes (a) 2,000 shares of Common Stock owned by Mr. Rubin and (b)
incentive stock options issued to Mr. Rubin under the 2001 Plan on October 3,
2000 to acquire 840,000 shares for five years after issuance at an exercise
price of $0.275 per share, or approximately 110% of the closing sale price of
the Common Stock on such date.
(3) Includes incentive stock options to acquire 300,000 shares of Common
Stock granted to Mr. McLain under the 2001 Plan on October 3, 2000 for five
years after issuance at an exercise price of $0.275 per share, or approximately
110% of the closing sale price of the Common Stock on such date. Mr. McLain's
continuing employment is governed by the terms of his employment agreement with
Western.
(4) Includes incentive stock options granted to Mr. Katz under the 2001
Plan on October 3, 2000 to purchase 350,000 shares of Common Stock for five
years after issuance at an exercise price of $0.275 per share, or approximately
110% of the closing sale price of the Common Stock on such date.
(5) Includes incentive stock options granted to Mr. Barnes under the 2001
Plan on October 3, 2000 to purchase 300,000 shares of Common Stock for five
years after issuance at an exercise price of $0.275 per share, or approximately
110% of the closing sale price of the Common Stock on such date.
(6) Robert M. Rubin, a grantor of the Rubin Family Irrevocable Stock Trust
(the "Trust"), does not have any voting power over, and disclaims beneficial
ownership of, the shares of Common Stock held by the Trust.
(7) Includes a warrant to purchase up to 825,000 shares of Common Stock
issued to Mr. Berman pursuant to the Share Purchase Agreement between AUGI and
Intertech Capital, Inc dated March 19, 2001. The warrant was issued in
consideration for the cancellation of all options granted to Mr. Berman under
the 2001 Plan on October 3, 2000. The warrant is exercisable for five years at
$0.275 per share.
(8) Includes 250,000 non-qualified stock options, which vested upon Dr.
Kessler's election to the Board of Directors on August 28, 2001. Such options
are exercisable for five years after issuance for $0.275 per share.
(9) Includes 250,000 non-qualified stock options, which vested upon Mr.
Perres' election to the Board of Directors on August 28, 2001. Such options are
exercisable for five years after issuance for $0.275 per share
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Executive Compensation-Compensation Committee Interlocks and Insider
Participation" and "Executive Compensation-Employment, Incentive Compensation
and Termination Agreements", and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements are included in Part II Item 8 beginning at
page F-1.
2. Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
(b) Reports on Form 8-K.
None.
(c) Exhibits.
Exhibit
Number Description
3.1 Certificate of Incorporation of Registrant.(1)
3.2 By-laws of Registrant. (2)
4.1 Specimen Certificate of Common Stock. (3)
4.2 1991 Employee Stock Option Plan. (1)
21 Subsidiaries of AUGI*.
(1) Included with the filing of AUGI's Registration Statement on Form S-1 on
October 18, 1991, as amended by Amendment No. 1, dated December 18, 1991,
Amendment No. 2, dated January 9, 1990, Amendment No. 3, dated January 24, 1992
and Amendment No. 4, dated January 28, 1992.
(2) Filed as an Exhibit to the Definitive Proxy Materials of Alrom Corp., a New
York corporation (the Company's predecision), as filed on December 10, 1991.
(3) Filed as an Exhibit to the Company's Registration Statement on Form S-18
(Registration No. 3303330 81-NY) and incorporated herein by reference thereto.
* Filed herewith
19
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: November 12, 2001
AMERICAN UNITED GLOBAL, INC.
By:./s/ Robert M. Rubin
-----------------------
Robert M. Rubin, Chairman
In accordance with the Securities and Exchange Commission, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
Signature Title Date
/s/ Robert M. Rubin Chairman of the Board, Chief November 12, 2001
- -------------------- Executive Officer and Director
Robert M. Rubin
/s/ C. Dean McLain Executive Vice President and November 12, 2001
- ------------------ Director
C. Dean McLain
/s/ David M. Barnes Vice President--Finance and Chief November 12, 2001
- -------------------- Financial and Chief Accounting
David M. Barnes Officer
/s/ Howard Katz Director November 12, 2001
- -------------------
Howard Katz
/s/ Seymour Kessler Director November 12, 2001
- -------------------
Seymour Kessler
/s/ Allen Perres Director November 12, 2001
- -------------------
Allen Perres
EXHIBIT LIST
3.1 Certificate of Incorporation of Registrant.(1)
3.2 By-laws of Registrant. (2)
4.1 Specimen Certificate of Common Stock. (3)
4.2 1991 Employee Stock Option Plan. (1)
21 Subsidiaries of AUGI*.
(1) Included with the filing of the Company's Registration Statement
on Form S-1 on October 18, 1991, as amended by Amendment No. 1, dated
December 18, 1991, Amendment No. 2, dated January 9, 1990, Amendment No. 3,
dated January 24, 1992 and Amendment No. 4, dated January 28, 1992.
(2) Filed as an Exhibit to the Definitive Proxy Materials of Alrom Corp., a New
York corporation, as filed on December 10, 1991.
(3) Filed as an Exhibit to AUGI's Registration Statement on Form S-18
(Registration No. 3303330 81-NY) and incorporated herein by reference
thereto.
* Filed herewith