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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, 2002
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 8, 2002 was approximately $452,000.
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 8, 2002 was 1,997,624 shares.
Documents incorporated by reference: None
PART I
ITEM 1. DESCRIPTION OF BUSINESS
SUMMARY
American United Global, Inc. ("AUGI") intends to focus it's business
strategy on acquisitions of operating businesses in various sectors. However, we
have not as yet identified any definitive acquisition candidates or
opportunities. Currently, our primary business interest is our 36% ownership of
the common stock of Western Power & Equipment Corp. ("Western").
REVERSE SPLIT
At our annual meeting of stockholders held on August 28, 2001, our
stockholders approved a reverse stock split of 1-for-15, 1-for-20 or 1-for-25
with the precise ratio to be determined by our Board of Directors. On December
7, 2001, our Board of Directors declared a 1-for-25 reverse stock split. The
reverse stock split became effective on December 17, 2001 (the "Effective Date")
and each 25 shares of our common stock that was issued and outstanding
immediately prior to the effective time was changed into one validly issued,
fully paid and non-assessable share of our common stock without any further
action by the holders of shares of our common stock. Where appropriate,
references in this report give effect to the 1-for-25 reverse stock split. In
addition, our shareholders approved the reduction of our authorized capital,
common stock and the removal of classification among our common stock. Such
changes were also effective on December 17, 2001, see "Description of
Securities".
RECENT DEVELOPMENTS
On September 4, 2002 we made a loan of $100,000 to InforMedix, Inc.
("InforMedix") pursuant to the terms of a 12% Senior Convertible Secured
Promissory Note. The note is due January 24, 2003 or earlier under certain
acceleration provisions and is automatically convertible into 100,000 common
shares of InforMedix should InforMedix or any affiliate merge into a public
entity or otherwise become publicly traded. InforMedix has developed a portable
medical device linked to an integrated hardware and software system that enables
pharmaceutical and biotechnology companies to get new drugs to market faster and
at a lower cost than traditional methods.
On September 10, 2002, we received net proceeds of $2,875,000 from the
settlement of litigation against our former corporate counsel. The litigation
was originally filed in 1999 in the Circuit Court of the Eleventh Judicial
Circuit in and For Miami-Dade County, Florida and was amended in 2001.
On May 17, 2002, AUGI completed a bridge loan financing in the amount of
$250,000 (the "Bridge Loan") from The Rubin Family Irrevocable Stock Trust (the
"Trust"). In connection with the Bridge Loan AUGI issued a promissory note to
the Trust in the principal amount of $250,000 (the "Note"). The Note matures on
the earlier to occur of (i) AUGI's receipt of additional capital from any
source, other than proceeds from the then proposed rights offering, in excess of
$1,000,000, or (ii) April 30, 2007 (either date the "Maturity Date"). The Note
bore interest at a rate of 7.5% per year payable on the Maturity Date.
As additional consideration for providing the Bridge Loan, AUGI issued an
aggregate of 1,500,000 restricted shares of common stock to the Trust. As a
result, the Trust currently owns approximately 77.6 % of the issued and
outstanding shares of common stock of AUGI and is AUGI's controlling and
majority shareholder.
The Note was paid in full on September 30, 2002.
HISTORY
AUGI was initially organized as a New York corporation on June 22, 1988
under the name Alrom Corp. ("Alrom"), and completed an initial public offering
of securities in August 1990. Alrom effected a statutory merger in December
1991, pursuant to which Alrom was reincorporated in the State of Delaware under
the name American United Global, Inc. ("AUGI").
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Western
Western commenced operations in November 1992 with the acquisition from
Case Corporation of seven retail distribution facilities located in Oregon and
Washington. Western became our subsidiary simultaneous with such acquisition.
Prior to November 1, 2000, Western was our 59.6% majority owned operating
subsidiary. On November 1, 2000, we distributed 777,414 shares of Western common
stock owned by us 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 ours but we continue to own
approximately 36% of Western's outstanding common stock. Effective as of August
1, 2000 we account for our investment in Western using the equity method. All
other equity positions of other companies held by us are each less than 5% and
are recorded in the financial statements under the captions Investment in
marketable securities.
National O-Ring and Stillman Seal
In January 1996, we sold all of the assets of our 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, we 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 AUGI, were achieved. As such
benchmarks were not achieved, the Preferred Stock was convertible into Common
Stock only on a one-for-one basis, however, as a result of the reverse Stock
split effected December 17, 2001, each 25 shares of Preferred Stock outstanding
at that date became convertible into one share of AUGI's common stock. To date,
569,445 shares of Preferred Stock have been converted into 22,778 shares of
Common Stock, and 407,094 shares of Preferred Stock remain outstanding.
On July 10, 1998, we entered into an agreement to sell substantially all of
the assets of our 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 us and assumed approximately $5,182,000 of
Connectsoft liabilities and leases, of which approximately $2,900,000 were lease
obligations guaranteed by AUGI. Although eGlobe is responsible for payment of
the assumed liabilities, the assumption of such liabilities will not relieve
AUGI 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. We subsequently converted the eGlobe
preferred into common and sold all such shares of eGlobe owned by us.
Interglobe
In September 1996, we acquired Interglobe for a purchase price of $400,000,
and 32,000 shares of our 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 32,000
shares of the our Common Stock at an exercise price of $150.00 per share. All
such options have since been canceled. In August 1998, we discontinued the
operations of Interglobe.
3
Exodus
AUGI, through its Exodus subsidiary, had designed and developed a
proprietary software program, which was marketed as NTERPRISE, and allowed 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, we 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. We purchased the Seattle
OnLine assets for the sum of $147,000 and 640 shares of our Common Stock which
were used to settle certain creditor claims. We also issued to the former
stockholders of such corporation warrants to purchase an aggregate of 333,333
shares of our 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, we acquired TechStar Communications Corp.
("TechStar"). In connection therewith we issued to the former TechStar
stockholders an aggregate of 20,290 shares of our Common Stock, paid $780,000 in
cash and delivered three year promissory notes aggregating $600,000. In a
related transaction, in April 1997 we 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. We paid
$220,000 and issued 7,710 shares of Common Stock to Mr. Kandel.
In August 1997, we 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, we 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 preferred shares
converted to IDF common shares. As a result, our 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.
During Fiscal 2000 and 1999, we 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, we 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.
4
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 AUGI'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; 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 and an office at 25 Highland Blvd., Dix Hills, New York 11746.
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
Not applicable.
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 2001
- -----------
First Quarter 17.50 5.50
Second Quarter 14.845 3.125
Third Quarter 5.25 3.25
Fourth Quarter 4.50 2.25
Fiscal 2002
- ----------
First Quarter 3.125 2.00
Second Quarter 2.15 1.05
Third Quarter 2.00 1.00
Fourth Quarter 2.00 1.40
5
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 8, 2002 of $0.23 and $1.00
respectively. Each 25 warrants plus $25.00 can be exchanged for one common
share.
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
October 31, 2002 the last sale price of the Common Stock was $1.01 per share. As
of November 8, 2002, AUGI had approximately 114 record holders of its Common
Stock and 6 record holders of its Public Warrants.
At the annual meeting of stockholders held on August 28, 2001, our
stockholders approved a reverse stock split of 1-for-15, 1-for-20 or 1-for-25
with the precise ratio to be determined by our Board of Directors. On December
7, 2001, our Board of Directors declared a 1-for-25 reverse stock split which
became effective on December 17, 2001 (the "Effective Date") and each 25 shares
of our common stock that was issued and outstanding immediately prior to the
effective time was changed into one validly issued, fully paid and
non-assessable share of our common stock. In addition, our shareholders approved
the reduction of our authorized capital, common stock and removal of
classification among our common stock which changes were also effective on
December 17, 2001.
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.
ITEM 6. SELECTED FINANCIAL DATA
The Consolidated Statements of Income Data set forth below with respect to
fiscal years 2000, 2001 and 2002, and the Consolidated Balance Sheet Data at
July 31, 2001 and 2002 are derived from, and should be read in conjunction with,
the audited Consolidated Financial Statements and Notes thereto of American
United Global, Inc. (the "Company") included in this annual report on form 10-K.
The consolidated statements of income and balance sheet data set forth below
with respect to Western Power and Equipment Corp. as of and for the years ended
July 31 2002 and 2001 are derived from, and should be read in conjunction with,
the audited Consolidated Financial Statements and Notes thereto of Western Power
and Equipment Corp. included as an exhibit in this annual report on form 10-K.
The Consolidated Statements of Income Data set forth below with respect to
fiscal years 1998 and 1999 and the Consolidated Balance Sheet Data at July 31,
1998, 1999 and 2000 are derived from the audited consolidated financial
statements of the Company which are not included in this Annual Report on Form
10-K. The data set forth in the following table should be read in conjunction
with, and are qualified in their entirety by Management's Discussion and
Analysis of Financial Condition and Results of Operations, the Company's
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Annual Report on Form 10-K.
6
Consolidated Statements of Income Data (in thousands except per share data):
American United Global, Inc.
Year ended July 31,
-------------------
2002 2001(3) 2000 1999(1,2) 1998(1)
---- ---- ---- ----- ----
Net sales $ - $ - $155,637 $163,650 $163,478
Loss from
continuing operations (1,217) (6,400) (7,030) (5,054) (5,121)
Net loss (1,217) (6,400) (7,030) (3,065) (9,615)
Basic and Diluted Loss
Per Share:
Loss from
continuing operations (1.50) (13.02) (14.71) (10.75) (10.75)
Net loss (1.50) (13.02) (14.71) (6.52) (21.25)
Consolidated Balance Sheet Data (in thousands):
American United Global, Inc.
Year ended July 31,
-------------------
2002 2001 2000 1999 1998
---- ---- ---- ----- ----
Total assets $3,000 $1,724 $128,549 $142,409 $146,904
Total liabilities $3,587 $2,909 $115,413 $121,700 $121,914
Working capital (deficit) $ (587) (2,137) (17,579) (18,751) (5,972)
Stockholders'(deficiency) equity $ (587) (1,185) 7,373 12,797 15,862
(1) Includes loss from discontinued operations of the Technology Companies.
(2) Includes a gain on sale of the assets of Connectsoft Communications
Corp. of $1,989
(3) For 2002 and 2001, Western has been accounted for under the equity
method whereas in 1998 through 2000 Western was included in the consolidated
financial statements of AUGI.
Consolidated Statements of Income Data (in thousands except per share data):
Western Power & Equipment Corp.
Year ended July 31,
-------------------
2002 2001
---- ----
Net sales $ 107,988 $ 139,902
Net loss (9,887) (7,842)
Basic and Diluted Loss
Per Share:
Net loss (2.47) ( 2.30)
Consolidated Balance Sheet Data (in thousands):
Western Power & Equipment Corp.
2002 2001
---- ----
Total assets $ 62,117 $ 93,102
Total liabilities $ 62,253 $108,329
Working capital (deficit) $(21,850) $(20,102)
Stockholders (deficiency) equity $ (3,136) $ 6,751
7
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
Our most significant business interest is our 36% ownership of the common
stock of Western Power & Equipment Corp. ("Western") 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 15 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, forestry projects,
municipal construction and other projects.
Prior to November 1, 2000, we were 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
we 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, our ownership in Western became 36% and our investment in Western has
been accounted for under the equity method effective August 1, 2000.
We also own 39,800 shares of the common stock of Azurel, Ltd. and 27,000
shares of the common stock of Intertech Capital, Inc. The value of these two
interests is less than $20,000.
In previous years we engaged in other additional businesses such as the
technology business and the telecommunications and construction businesses,
which have all since been discontinued. We were formerly a stockholder of the
majority of the outstanding common stock of IDF International, Inc. through
which we engaged in the telecommunication and construction businesses, however,
since early fiscal 1998 we have 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, we either divested
of all assets of, or otherwise discontinued all operations of, the technology
businesses. Consequently, our operations during Fiscal 2000 consisted entirely
of the distribution business which we engaged in through Western. Accordingly,
any discussion relative to fiscal 2000 consists primarily of a discussion of
Western.
8
Results of Operations
Fiscal Year 2002, as compared to Fiscal Year 2001
In fiscal 2002, AUGI's pro-rata share of Western's loss is limited to its
remaining equity investment in Western of $702,000 while in fiscal 2001, our
share of Western's loss was $2,823,000.
Selling, general & administrative expenses in fiscal 2002 were $1,154,000,
a net decrease of $60,000 from the $1,214,000 recorded in 2001. The net decrease
is comprised primarily of an increase in executive bonus of $300,000; an
increase in rent expense of $97,500 and $65,000 of costs relative to the
abandoned registration of a rights offering in the current year offset by a
decrease of $175,000 in bad debt expense due to the charge taken in 2001 against
the Note receivable of $175,000 from Ego Magazine.Com, Inc. for which there is
no comparable figure in the current year; a decrease of $134,000 in legal
expense; a decrease of approximately $165,000 in salaries, benefits and expenses
of Intertech employees pursuant to the sale of Intertech in March 2001 and a
general net decrease in other expenses of approximately $49,000.
Net interest expense in Fiscal 2002, excluding the interest charge for
shares issued in the loan transaction with the Rubin Family Trust on May 17,
2002, was $149,000 which is comprised of $150,000 accrued on certain short term
debt; interest expense of $4,000 on the $250,000 Note due to the Rubin Family
Trust and interest income of $5,000. This was a decrease of $99,000 from 2001
which is due primarily to interest of $112,000 paid by AUGI in the first quarter
of fiscal 2001 relative to the shareholder settlement payments offset by
interest income in 2001 of approximately $13,000.
In fiscal 2002, AUGI had a loss on sales of marketable securities of
$837,000 This loss was comprised primarily of a loss of $242,000 from the sale
of 491,000 shares of Magna Labs, Inc. and a loss of $516,000 from the sale of
72,000 shares of RezConnect Technologies, Inc. In addition, there was a loss of
$26,000 from the sale of 15,000 shares of Azurel, Ltd. and a loss of $53,000
from the sale of 7,000 shares of Elephant & Castle Group, Inc. Total net
proceeds generated from these sales were $185,000. All of these shares, except
those of Elephant & Castle Group, Inc., were contributed to AUGI by Mr. Rubin as
part of his payment to AUGI in Fiscal 1999 and 2000 in settlement of the 1998
shareholder derivative action at which point they had significantly higher
values.
The loss of $837,000 on sale of marketable securities in Fiscal 2002
compares to a loss of $1,395,000 in Fiscal 2001 which was primarily comprised of
a loss of $514,000 from the sale of 1,215,000 shares of Magna Labs, Inc. and a
loss of $757,000 from the sale of 1,637,000 shares of eGlobe, Inc. In addition,
there was a loss of $3,000 from the sale of 500 shares of RezConnect
Technologies, Inc. and a loss of $121,000 from the sale of 58,000 shares of
Graphon Corp. Total net proceeds generated from the sales of marketable
securities in Fiscal 2001 were $1,275,000. The shares of eGlobe were acquired in
June 1999 in the form of eGlobe preferred convertible shares as part of the
sales price of the assets of Connectsoft Communications Corp. The trading prices
of eGlobe and Graphon shares decreased significantly during our required holding
period.
9
Fiscal Year 2001, as compared to Fiscal Year 2000
AUGI's share of Western's fiscal 2001 loss was $2,823,000 while in fiscal
2000, our 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 our proportionate share is due to the lower percentage of our
ownership of Western.
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.
Net interest expense in Fiscal 2001 was $248,000, an increase of $110,000
from the $138,000, net of Western's interest, recorded in fiscal 2000. Such
amounts consist primarily of interest accrued on short term borrowings and 2001
included interest of $112,000 paid during the first quarter of Fiscal 2001
relative to the shareholder settlement payment.
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.
Critical Accounting Policies
The Company's discussion and analysis of its financial condition and
results of operations are based upon AUGI's financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the use of
estimates that affect the reported amounts of assets, liabilities and expenses.
AUGI evaluates its estimates on an ongoing basis, including estimates for income
tax assets and liabilities and the impairment of the value of investments. The
Company bases its estimates on historical experience and on actual information
and assumptions that are believed to be reasonable under the circumstances at
that time. Actual results may differ from these estimates under different
assumptions or conditions. AUGI believes that the following critical accounting
policies affect its more significant estimates used in the preparation of its
financial statements.
Accounting for Income Taxes. AUGI currently records a full valuation
allowance against the deferred tax benefit for net operating losses generated,
since in management's opinion the net operating losses do not meet the more
likely than not criteria for future realization.
Impairment of Investments. AUGI reviews estimates of the value of its
investments each reporting period and records an impairment loss to the extent
that management believes that there has been an impairment to the carrying
value.
10
Liquidity and Capital Resources
General
During Fiscal 2002, AUGI's cash and marketable securities decreased by
$620,000, from $745,000 to $125,000. This decrease was primarily due to sales of
marketable securities, all of which were at a loss, in order to provide working
capital.
AUGI's cash and marketable securities of $125,000 as of July 31, 2002 are
not sufficient to fund current levels of operation for the next twelve months.
However, on September 10, 2002 we received net proceeds of $2,875,000 in
settlement of litigation against our prior corporate counsel. Such amount is
sufficient to fund AUGI's operations for at least the next twelve months
assuming little or no payment of certain existing indebtedness. Were AUGI
required to pay down such certain indebtedness, it would be necessary to secure
financing to fund operations.
AUGI remains contingently liable for certain capital lease obligations
assumed by eGlobe, Inc. (eGlobe) as part of the Connectsoft Communications Corp.
asset sale which was consummated in June 1999 (see Note 7).
Recent Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 145, Recission of SFAS Nos. 4, 44 and 64, amendment of SFAS No. 13 and
Technical Corrections as of April 2002. This Statement rescinds SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, and an amendment to that
Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. This Statement also rescinds SFAS No. 44, Accounting for
Intangible Assets of Motor Carriers. This Statement amends SFAS No. 13,
Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings or describe their applicability under changed conditions. The Company
has reviewed this pronouncement and will consider its impact if any relevant
transaction(s) occur.
In July 2002, the FASB issued SFAS No.146, Accounting for Costs Associated
with Exit or Disposal Activities. This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No.94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). This Statement applies to
costs associated with an exit activity that does not involve an entity newly
acquired in a business combination or with a disposal activity covered by SFAS
No. 144, Accounting for the Impairment or disposal of Long-Lived Assets. These
costs include, but are not limited to; termination benefits provided to current
employees that are involuntarily terminated under the terms of a benefit
arrangement that, in substance, is not an ongoing benefit arrangement or an
individual deferred compensation contract, costs to terminate a contract that is
not a capital lease and costs to consolidate facilities or relocate employees.
This Statement does not apply to costs associated with the retirement of a long-
lived asset covered by SFAS No. 143, Accounting for Asset Retirement
Obligations. The Company does not believe that these pronouncements apply but
will continue to review for possible relavancy in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE MARKET RISK
Not Applicable
11
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 (the "Company") at July 31, 2002 and 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended July 31, 2002, 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, 2000, 2001 and 2002. Further, as discussed in Note 1 to the financial
statements, the Company may require 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 8, 2002
F-2
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31,
--------
2002 2001
---- ----
ASSETS
Current assets:
Cash ................................................. $ 105,000 $ 519,000
Investment in marketable securities................... 20,000 226,000
Prepaid expenses and other receivables................ - 27,000
Litigation settlement receivable...................... 2,875,000 -
---------- ---------
Total current assets.............................. 3,000,000 772,000
Other assets (Note 9)................................. - 250,000
Investment in Western Power & Equipment Corp (Note 3). - 702,000
--------- -------
$ 3,000,000 $ 1,724,000
============= =============
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Short-term borrowings (Note 4)..................... $ 1,500,000 $ 1,500,000
Accounts payable................................... 26,000 39,000
Accrued liabilities................................ 1,811,000 1,370,000
Note Payable (Note 4).............................. 250,000 -
----------- -----------
Total current liabilities...................... $ 3,587,000 2,909,000
Commitments and contingencies (Note 7)
Shareholders' (deficit) equity (Notes 1, 6 and 8):
Series B-1 preferred stock, each 25 shares convertible
into one common, $3.50 per share liquidation value,
$.01 par value; 1,000,000 shares authorized; 407,094
and 407,843 shares issued and outstanding respectively.. 4,000 4,000
Common stock, $.01 par value; 40,000,000 shares
authorized; 1,997,624 and 497,572 shares
issued and outstanding, respectively................... 20,000 5,000
Additional contributed capital......................... 51,375,000 50,390,000
Accumulated deficit.................................... (51,927,000) (50,710,000)
Accumulated other comprehensive loss................... (59,000) (874,000)
----------- ----------
Total shareholders' deficit........................ (587,000) (1,185,000)
------------ ----------
$ 3,000,000 $ 1,724,000
============= ============
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JULY 31,
-------------------
2002 2001 2000
---- ----- ----
Net sales............................................. $ - $ - $ 155,637,000
Cost of goods sold.................................... - - 144,099,000
----------- ----------- -----------
Gross profit.......................................... - - 11,538,000
Selling, general and administrative expenses.......... 1,154,000 1,214,000 14,526,000
---------- ---------- ----------
Operating loss........................................ (1,154,000) (1,214,000) (2,988,000)
Gain on sale of patent................................ - - 240,000
Loss on transfer of Western shares.................... - - (1,434,000)
Impairment of Investment in Western Power
& Equipment Corp. .................................... - (1,771,000) -
Impairment of Investment in
Intertech Capital, Inc. (Note 9)..................... (250,000) - -
(Loss) gain on sale of marketable securities.......... (837,000) (1,395,000) 52,000
Income from litigation settlement..................... 2,875,000 - -
Other income.......................................... - 506,000 1,646,000
Interest expense, net................................. (149,000) (248,000) (6,307,000)
Interest expense paid in common stock (Note 4)........ (1,000,000)
Equity in loss of unconsolidated subsidiary (Note 3).. (702,000) (2,823,000) (364,000)
Minority interest in loss of consolidated subsidiaries - - 2,904,000
--------- ---------- ----------
Loss before taxes.................................... (1,217,000) (6,945,000) (6,251,000)
Benefit (provision) for income taxes (Note 5)........ - 545,000 (779,000)
------------- ------------ ------------
Net loss.............................................. $ (1,217,000) $ (6,400,000) $ (7,030,000)
============= ============= ============
Basic and diluted loss per share:
Basic and diluted loss per share...................... $ (1.50) $ (13.02) $ (14.71)
============ ============= ===========
Weighted average number of shares..................... 810,124 491,413 477,935
========== ========== =========
Comprehensive loss:
Net loss......................................... $ (1,217,000) $ (6,400,000) $ (7,030,000)
Unrealized (loss) gain on marketable securities.. 815,000 (2,158,000) 1,284,000
----------- ------------- --------------
Comprehensive loss............................. $ (402,000) $ (8,558,000) $ (5,746,000)
============= ============= ==============
The accompanying notes are an integral part of these consolidated
financial statements.
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, 1999.................... 425,620 $ 4,000 476,861 $ 5,000
Net loss ...................................
Issuance of common stock in
private placement.................... 8,500 -
Stock option compensation...................
Accumulated unrealized gains, net...........
Conversion of preferred stock to common..... (9,357) 374
-------- -------- ---------- -----------
Balance at July 31, 2000.................... 416,263 4,000 485,735 5,000
Net loss ...................................
Accumulated unrealized gains, net...........
Additional shares issued
in private placement.................... 11,500 -
Conversion of preferred stock to common..... (8,420) 337
------- -------- ---------- -----------
Balance at July 31, 2001.................... 407,843 4,000 497,572 5,000
Net loss
Conversion of preferred stock to common (749) 52
Shares issued in connection with the
loan from the Rubin Family Trust 1,500,000 15,000
------- -------- ---------- -----------
Balance at July 31, 2002 407,094 $ 4,000 1,997,624 $ 20,000
======= ======== ========== ===========
ACCUMULATED
ADDITIONAL OTHER TOTAL
CONTRIBUTED COMPREHENSIVE ACCUMULATED SHAREHOLDERS'
CAPITAL INCOME (LOSS) (DEFICIT) (DEFICIT) EQUITY
--------- ------------- ----------- ---------------
Balance at July 31, 1999............... $ 50,068,000 $ $ (37,280,000) $ 12,797,000
Net loss .............................. (7,030,000) (7,030,000)
Issuance of common stock.......... 85,000 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.............. 50,390,000 1,284,000 (44,310,000) 7,373,000
Net loss ................................. (6,400,000) (6,400,000)
Accumulated unrealized gain (loss) net.... (2,158,000) (2,158,000)
Additional shares issued
in private placement.....................
Conversion of preferred stock to common...
----------- --------- -------------- -----------
Balance at July 31, 2001.................$ 50,390,000 (874,000) $ (50,710,000) $ (1,185,000)
Net loss (1,217,000) (1,217,000)
Accumulated unrealized loss, net 815,000 815,000
Shares issued in connection with the
loan from the Rubin Family Trust 985,000 1,000,000
------------- ---------- ------------ ------------
Balance at July 31, 2002.............. $ 51,375,000 $ (59,000) (51,927,000) $ (587,000)
============= =========== =========== ============
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JULY 31,
-------------------
2002 2001 2000
---- ---- ----
Cash flows from operating activities:
Net loss from operations......................... $(1,217,000) $ (6,400,000) $ (7,030,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. - - 11,712,000
Gain on sale of fixed assets................... - - (59,000)
Loss applicable to minority interest........... - - (2,904,000)
Equity in loss of affiliate.................... 702,000 2,823,000 364,000
Stock option compensation...................... - - 236,000
Interest paid in common stock.................. 1,000,000 - -
Gain on sale of patent......................... - - (240,000)
Loss (gain) on sale of marketable securities... 837,000 1,395,000 (52,000)
Impairment of investments...................... 250,000 1,946,000 -
Change in assets and liabilities, net of
effects of acquisition and dispositions:
Trade accounts receivable................... - - (1,847,000)
Inventories................................. - - 2,903,000
Notes receivable............................ - - 500,000
Prepaid expenses and other receivable....... 27,000 240,000 (192,000)
Litigation settlement receivable............ (2,875,000)
Lease equipment, net........................ - - 289,000
Accounts payable............................ (13,000) 53,000 (2,416,000)
Accrued liabilities......................... 440,000 (1,271,000) 1,051,000
Income taxes payable........................ - - 817,000
Change in deferred revenue.................. - - (339,000)
---------- ----------- -----------
Net cash (used in) provided by operating
activities (849,000) (1,214,000) 2,793,000
--------- ---------- -----------
Cash flows from investing activities:
Purchase of property and equipment.............. - - (1,254,000)
Purchase of rental equipment, .................. - - (9,531,000)
Sales of rental equipment....................... - - 10,574,000
Sale of marketable securities................... 185,000 1,275,000 1,268,000
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 from sales of fixed assets............. - - 189,000
------- --------- ----------
Net cash provided by investing activities 185,000 452,000 803,000
------- -------- ----------
Cash flows from financing activities
Long term debt repayments....................... - - (20,000)
Borrowings under term loans..................... 250,000 - (2,390,000)
Inventory floor financing....................... - - (3,192,000)
Principal payments under capitalized lease obligations - - 32,000
Proceeds from sale of stock..................... - - 85,000
Subsidiary sale/purchase of treasury stock...... - - 256,000
---------- ---------- ----------
Net cash provided by
(used in) financing activities........... 250,000 - (5,229,000)
---------- ---------- ----------
Net decrease in cash and cash equivalents......... (414,000) (762,000) (1,633,000)
Cash and cash equivalents beginning of year....... 519,000 1,281,000 2,914,000
--------- --------- ----------
Cash and cash equivalents end of year............. $ 105,000 $ 519,000 $ 1,281,000
============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
1. DESCRIPTION OF BUSINESS
American United Global, Inc. (AUGI), is a Delaware corporation. The
Company's primary business interest is it's 36% minority ownership of the common
stock of Western Power & Equipment Corp. (Western). Western previously was a
59.6% majority owned subsidiary and on November 1, 2001 AUGI distributed 777,414
shares of Western common stock owned by AUGI pursuant to the final court
approved settlement of the shareholder class action of 1998. Such distribution
decreased AUGI's percentage ownership of Western to 36%. AUGI also owns 39,800
common shares of Azurel Ltd. which is less than 1% and is valued at $20,000; and
27,000 shares of Intertech Capital, Inc. which is less than 5% of the issued and
outstanding shares. (see Note 9).
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 15 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").
AUGI 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.
AUGI has had a working capital deficit for each of the three years ending
July 31, 2000, 2001 and 2002. In addition, the cash, and marketable securities
of $125,000 as at July 31, 2002 are not sufficient to fund current levels of
operations through the end of fiscal 2003. However, the Company received net
proceeds of $2,875,000 on September 10, 2002 from the settlement of litigation
against it's prior corporate counsel. Such proceeds have been reflected as a
current receivable in the financial statements as at July 31, 2002. These net
proceeds are sufficient to fund the operations of AUGI for at least the next 12
months assuming little or no payment of certain existing indebtedness. Were AUGI
to have to pay down such certain indebtedness it would be necessary to secure
financing to fund operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of AUGI 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 AUGI as at November 1, 2000
the percentage ownership of Western decreased to 36% and the operations of
Western have therefore been accounted for using the equity method for fiscal
2001 and 2002. Western was, however, included as a consolidated subsidiary in
fiscal 2000 and minority interest in that year represents the minority
shareholders' proportionate share of the equity of Western, which was 40.4% at
July 31, 2000.
Investment Securities
Investments in marketable securities represent 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, 2002 and 2001.
Unrealized gains and losses are excluded from earnings and are included as a
component of accumulated other comprehensive loss in shareholders' (deficit)
equity, net of applicable taxes, until realized.
Income Taxes
AUGI 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. A
valuation allowance is established for deferred tax assets when it is more
likely than not that the deferred tax assets will not be realized
F-7
Fair Value of Financial Instruments
The recorded amounts of cash, receivables, 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, 2002 and 2001 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. Management is continually evaluating and updating these
estimates and it is possible that these estimates will change in the near
future.
Employee Stock Options
AUGI 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. AUGI 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.
Recent Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 145, Recission of SFAS Nos. 4, 44 and 64, amendment of SFAS No. 13 and
Technical Corrections as of April 2002. This Statement rescinds SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, and an amendment to that
Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. This Statement also rescinds SFAS No. 44, Accounting for
Intangible Assets of Motor Carriers. This Statement amends SFAS No. 13,
Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings or describe their applicability under changed conditions. The Company
has reviewed this pronouncement and will consider its impact if any relavant
transaction(s) occur.
In July 2002, the FASB issued SFAS No.146, Accounting for Costs Associated
with Exit or Disposal Activities. This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No.94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). This Statement applies to
costs associated with an exit activity that does not involve an entity newly
acquired in a business combination or with a disposal activity covered by SFAS
No. 144, Accounting for the Impairment or disposal of Long-Lived Assets. These
costs include, but are not limited to; termination benefits provided to current
employees that are involuntarily terminated under the terms of a benefit
arrangement that, in substance, is not an ongoing benefit arrangement or an
individual deferred compensation contract, costs to terminate a contract that is
not a capital lease and costs to consolidate facilities or relocate employees.
This Statement does not apply to costs associated with the retirement of a long-
lived asset covered by SFAS No. 143, Accounting for Asset Retiremnt Obligations.
The Company does not believe that these pronouncements apply but will continue
to review for possible relavancy in the future.
F-8
Loss Per Share
Basic loss per common share is based upon the weighted average number of
shares outstanding during the period using net loss attributable to common stock
as the numerator. Diluted loss per per common share is based upon the weighted
average number of shares outstanding during the period, after consideration of
the dilutive effect of stock options and convertible preferred stock, using net
loss as the numerator. The weighted average number of common shares used in the
computation of loss per common share for the years ended July 31, 2002, 2001 and
2000 are as follows:
YEAR ENDED JULY 31,
2002 2001 2000
---- ---- ----
Numerator:
Net loss ....................................................... $ (1,217,000) $ (6,400,000) $ (7,030,000)
========== ========== ==========
Denominator:
Denominator for basic and diluted earnings per share -
Weighted average outstanding shares............................. 810,124 491,413 477,935
========== ========== ==========
Basic and diluted net loss per share.............................. $ (1.50) $ (13.02) $ (14.71)
=========== =========== ===========
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 AUGI's share of
Western's loss in fiscal 2002 and 2001 and represents AUGI's share of the loss
of IDF International in fiscal 2000. Fiscal results of Western indicate that our
pro-rata share of their loss would exceed our equity investment in Western and
has been limited to the remaining balance of our investment in Western.
Condensed financial data of Western for the two fiscal years ending
July 31, 2002 and 2001 are as follows:
July 31,
2002 2001
----- -----
Current assets $ 39,935 $ 62,771
Total assets $ 62,117 $ 93,102
Current liabilities $ 61,784 $ 82,882
Total liabilities $ 62,253 $ 108,329
Net sales $ 107,988 $ 139,902
Gross profit $ 9,746 $ 9,820
Net loss $ (9,887) $ (7,872)
4. BORROWINGS
AUGI is in default on an uncollaterized note payable in the amount of
$1,500,000 due 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%. There has been no demand for payment by the creditor and AUGI
believes that it may have certain partially offsetting claims.
On May 17, 2002, AUGI completed a bridge loan financing in the amount of
$250,000 (the "Bridge Loan") from The Rubin Family Irrevocable Stock Trust (the
"Trust"). In connection with the Bridge Loan AUGI issued a promissory note to
the Trust in the principal amount of $250,000 (the "Note"). The Note matures on
the earlier to occur of (i) AUGI's receipt of additional capital from any
source, other than proceeds from the then proposed rights offering, in excess of
$1,000,000, or (ii) April 30, 2007 (either date the "Maturity Date"). The Note
bore interest at a rate of 7.5% per year payable on the Maturity Date.
As additional consideration for providing the Bridge Loan, AUGI issued an
aggregate of 1,500,000 restricted shares of common stock to the Trust. As a
result, the Trust currently owns approximately 77.6% of the issued and
outstanding shares of common stock of AUGI and is AUGI's controlling and
majority shareholder. AUGI recognized interest expense related to the shares
issued pursuant to the loan agreement in the amount of $1,000,000.
The $250,000 note payable to the Rubin Family Irrevocable Stock Trust was
paid in full on September 30, 2002.
F-9
The following table summarizes the debt arrangements:
Maturity July 31,
Interest Rate Date 2002 2001
------------- ---- ---- ----
Note Payable 8.0% (10% default rate) 4/30/99 $1,500,000 $1,500,000
Note Payable 7.5% 9/10/02 250,000 -
----------- -----------
$ 1,750,000 $ 1,500,000
=========== ===========
5. INCOME TAXES
The provision (benefit) for income taxes from operations comprises the
following:
YEAR ENDED JULY 31,
-------------------
2002 2001 2000
---- ---- ----
Current:
Federal............................ $ - $ (545,000) $ 179,000
State ............................. - 26,000
-------- ------- -------
- (545,000) 205,000
Deferred:
Federal............................ - - 500,000
State ............................. - - 74,000
---------- ---------- -----------
- - 574,000
---------- ---------- -----------
$ - $ (545,000) $ 779,000
========== ========== ===========
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,
-------------------
2002 2001 2000
---- ---- ----
Statutory federal income tax rate.......................... $ (438,000) $ (2,304,000) $ (2,989,000)
Valuation allowance........................................ 438,000 2,603,000 4,101,000
State income taxes, net of federal income tax benefit...... - (299,000) (334,000)
Other, primarily adjustments to prior year accruals........ - (545,000) 1,000
---------- ----------- --------------
$ - $ (545,000) $ 779,000
========== =========== =============
F-10
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities are as follows:
JULY 31,
2002 2001
---- ----
Loss carryforwards........................... $ 8,662,000 $ 8,224,000
Less valuation allowance..................... (8,662,000) (8,224,000)
--------- ---------
Net deferred tax asset $ - $ -
--------- ---------
At July 31, 2002 AUGI had federal income tax loss carryforwards of
approximately $24,000,000 which will begin to expire in 2011. Utilization of
such net operating losses are subject to annual limitations due to the change in
ownership of AUGI of more than 50% that occurred as a result of the loan
transaction with the Rubin Family Irrevocable Stock Trust in 2002. As AUGI
cannot anticipate future income with reasonable certainty, a valuation allowance
of $8,662,000 has been recorded.
6. SHAREHOLDERS' (DEFICIT) EQUITY
On February 25, 1994, AUGI 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. Pursuant to the
reverse stock split (see below) effected on December 17, 2001, each 25 warrants
plus $25.00 are exchangeable for one share of common. 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 AUGI'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 AUGI's common stock at a conversion ratio of twenty-five for one.
Through the six fiscal years ended July 31, 2002 a total of 569,445 shares were
converted to 22,778 shares of common stock leaving 407,094 shares outstanding at
July 31, 2002.
During the fourth quarter of fiscal 2000, AUGI sold 8,500 shares of common
stock at $10.00 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 11,500 shares of
Company common stock.
At the annual meeting of stockholders held on August 28, 2001, our
stockholders approved a reverse stock split of 1-for-15, 1-for-20 or 1-for-25
with the precise ratio to be determined by our Board of Directors. On December 7
2001, our Board of Directors declared a 1-for-25 reverse stock split which
became effective on December 17, 2001 (the "effective date:") and each 25 shares
of our common stock that was issued and outstanding immediately prior to the
effective time was changed into one validly issued, fully paid and
non-assessable share of our common stock. In addition, our stockholders approved
the reduction of our authorized capital common stock and removal of
classification among our common stock which changes were also effective on
December 17, 2001.
In May 2002, the Company issued 1,500,000 shares of its common stock to the
Rubin Family Irrevocable Stock Trust as additional consideration for a loan of
$250,000 (see Note 4).
F-11
7. COMMITMENTS AND CONTINGENCIES
Other Contingencies
The Company remains contingently liable for certain capital lease
obligations assumed by eGlobe, Inc. ("eGlobe") as part of the Connectsoft
Communications Corp. asset sale which was consummated in June 1999. The lessor
filed for bankruptcy in 2000 and the leases were acquired by another leasing
organization which subsequently also filed for bankruptcy in 2001. In addition,
eGlobe filed for bankruptcy in 2001. The Company has been unable to obtain any
further information about the parties but believes that in the normal course of
the proceedings that the assets and related leases were most likely acquired by
another company and that a mutually acceptable financial arrangement was reached
to accomplish such a transfer. To date, the Company has not been contacted and
has not been notified of any delinquency in payments due under these leases. The
original leases were entered into during early to mid 1997 each of which was for
a five year term. Extensions of an additional 20 months were negotiated with the
original lessor in 1998 and 1999 moving the ending date to approximately mid
2004. The balance due under the leases in June 1999 upon transfer and sale to
eGlobe was approximately $2,800,000 including accrued interest and monthly
payments were approximately $ 55,000. The balance that is currently due under
the leases is unknown and there would most likely have been negotiated
reductions of amounts due during the proceedings.
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 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
AUGI. 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 consisted of $600,000 in cash from
insurance proceeds and $1,900,000 by 777,414 shares of Western common stock
owned by AUGI. 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 more than 50% of Western, and has, therefore, accounted
for Western using the equity method effective August 1, 2000. 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 AUGI
during fiscal 2000 and 2001.
8. 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 55,000 stock options were simultaneously granted to replace those cancelled
from the 1991 and 1996 Plans. The Company granted 16,600 additional stock
options to certain Board members as well as 10,000 options to each of two
nominees for election to the Board and 400 options to a consultant for services
rendered. The exercise price of all 92,000 options granted under the 2000 Plan
on December 7, 1999 was $5.25 per share (110% of the market value on such date).
On April 27, 2000 the Company granted 66,000 stock options to a newly
elected director, 20,000, 4,000 and 2,000 respectively to certain special
consultants to AUGI, 10,000 to a third nominee for election to the Board and
12,000 and 10,000 respectively to two law firms for services rendered and to be
rendered. The exercise price of all 124,000 options granted on April 27, 2000
was $8.72 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-12
The 2001 Plan
On October 3, 2000, the Board of Directors cancelled the 2000 Plan and
approved the 2001 Stock Option Plan. All 216,000 options previously granted
under the 2000 Plan were cancelled and replaced by the same number of options in
the 2001 Plan. AUGI also granted 4,000 options to a each of two special
consultants, 2,000 additional options to a law firm, 400 options to a financial
consultant and 20,000 to a management employee. A total of 122,000 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 AUGI's plans:
WEIGHTED AVERAGE
FAIR VALUE OF
NUMBER OF WEIGHTED OPTION
STOCK OPTION ACTIVITY SHARES EXERCISE PRICE GRANTED
--------------------- ------ -------------- -------
July 31, 1999 67,000 113.75
Options granted 214,000 7.25 7.25
Options exercised - -
Options canceled (56,000) 106.25
-----------
July 31, 2000 225,000 19.00
Options granted 246,000 7.00 7.00
Options exercised - -
Options canceled (338,000) 7.50
-----------
July 31, 2001 133,000 18.25
Options granted - -
Options exercised -
Options canceled (3,000) 132.23
------------
July 31, 2002 130,000 14.04
============
The following table summarizes stock options outstanding and exercisable
for AUGI at July 31, 2002:
OUTSTANDING EXERCISABLE
----------- -----------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Exercise Price Range Shares Life Price Shares Price
- -------------------- ------ ---- ----- ------ -----
$6.875 to 6.875 124,000 3.2 $ 6.875 124,000 $ 6.875
$162.50 to 162.50 6,000 0.1 162.50 6,000 162.50
------- -------
$0.28 to 6.50 130,000 3.1 14.04 130,000 $ 14.04
========= =========
F-13
AUGI has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123. "Accounting for Stock-Based Compensation." If
compensation cost for AUGI's stock option plans had been determined based on the
fair value at the grant date for awards in fiscal 2002, 2001 and 2000 in
accordance with the provisions of SFAS No. 123, AUGI's net loss per share would
have changed to the pro forma amounts indicated below:
YEAR ENDED JULY 31,
2002 2001 2000
---- ---- ----
Net loss, as reported...................................... $ (1,217,000) $ (6,400,000) $ (7,030,000)
Net loss, pro forma........................................ $ (1,396,000) $ (7,160,000) (8,041,000)
Net basic and diluted loss per share, as reported.......... $ (1.50) $ (13.02) (14.71)
Net basic and diluted loss per share, pro forma............ $ (1.72) $ (14.57) (16.82)
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,
2002 2001 2000
---- ---- ----
Expected volatility........................ 1.82 1.54 3.82
Risk-free interest rate.................... 3.58 4.50% 5.25%
Expected life of options in years.......... 5.0 5.0 5.0
Expected dividend yield.................... 0.00% 0.00% 0.00%
9. 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
33,000 warrants to purchase shares of the Company's common stock (the
"Warrants"); (ii) Staffin 6,667 Warrants; and (iii) Saridakis 3,333 Warrants,
all which are immediately vested, expire on March 19, 2006, and are exercisable
at $6.875 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 AUGI.
Simultaneous with the closing of the Intertech transaction AUGI purchased
approximately 5.4% of Intertech's then issued and outstanding capital stock in
consideration for the transfer to Intertech of 79,895 shares of common stock of
New Media Technology, Inc. owned by AUGI.
Due to continuing worsening conditions in the investment banking and
advisory services industry, the lack of further significant financing for
Intertech and a reduced deal flow in the market place, AUGI determined that an
adjustment to the carrying value of its minority interest in Intertech was
necessary. AUGI has therefore recorded an impairment charge of $250,000 in the
current fiscal year.
10. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND SCHEDULE OF
NON-CASH INVESTING AND FINANCING ACTIVITIES
AUGI paid interest of $ -0-, $116,000 and $5,922,000 during the fiscal
years 2002, 2001 and 2000 respectively. AUGI also paid $1,000,000 of interest in
2002 by the issuance of 1,500,000 shares of common stock (see Note 4). AUGI paid
$219,000 in income taxes, net of refunds, during fiscal 2000.
F-14
11. RELATED PARTIES
Pursuant to an Agreement, dated May 30, 1996 (the "ERD Agreement") between
AUGI 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 AUGI 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. AUGI 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, AUGI 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, AUGI 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 7.
On June 28, 1996 AUGI 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 7 included amounts due under the note.
Since January, 1996, AUGI has used a business office located in the Rubin
residence and no rent for space or reimbursement for attendant expenses had ever
been paid. In September 2002, the Board of Directors approved an all inclusive
monthly rate of $1,250. The financial statements as at July 31, 2002 reflect a
charge for this rental since January 1996 in the amount of $97,500.
On September 24, 2002, the Board of Directors approved a performance bonus
in the amount of $300,000 for Mr. Rubin relative to his efforts in assisting
with the negotiations and finalization of the settlement of the Greenberg
Traurig litigation. The bonus was accrued at July 31, 2002 and was paid on
September 30, 2002.
F-15
12. SEGMENT INFORMATION
In fiscal 1999, AUGI 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 (in thousands):
Business Component Year Ended Year Ended Year Ended
Net Revenues July 31, 2002 July 31, 2001 July 31, 2000
- ---------------------------- ----------------- ----------------- --------------
Equipment Sales $ -0- $ -0- $ 92,513
Equipment Rental $ -0- $ -0- $ 26,334
Product Support $ -0- $ -0- $ 36,790
----------------- ----------------- -------------
Totals $ -0- $ -0- $ 155,637
================= ================= =============
Business Component Year Ended Year Ended Year Ended
Gross Margins July 31, 2002 July 31, 2001 July 31, 2000
- ----------------------------- ---------------- ----------------- --------------
Equipment Sales $ -0- $ -0- $ ( 66)
Equipment Rental $ -0- $ -0- $ 5,556
Product Support $ -0- $ -0- $ 6,048
---------------- ----------------- --------------
Totals $ -0- $ -0- $ 11,538
================ ================= ==============
13. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA
(Thousands, except per share data)
Quarter
Total
First Second Third Fourth Year
----- ------ ----- ------ -----
Fiscal 2002:
- -----------
Net sales $ - $ - $ - $ - $ -
Gross profit - - - - -
Net (loss)income (272) (833) (912) 800 (1,217)
Basic (loss) income per share (0.55) (1.67) (1.83) 2.55 (1.50)
Diluted (loss) income per share (0.55) (1.67) (1.83) 2.55 (1.50)
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) (o.47) (0.59)
F-16
14. SUBSEQUENT EVENTS
On September 4, 2002 the Company loaned $100,000 to InforMedix, Inc.
("InforMedix") pursuant to the terms of a 12% convertible secured promissory
note. The note is due on January 24, 2003 or earlier under certain acceleration
provisions and is automatically convertible into 100,000 common shares of
InforMedix should InforMedix or any affiliate merge into a public entity or
otherwise become publicly traded.
On September 10, 2002 AUGI received net proceeds of $2,875,000 pursuant to
a settlement of litigation against it's prior corporate counsel.
F-17
Report of Independant Accountants on
Financial Statement Schedules
To the Board of Directors
of American United Global, Inc.
Our audits of the consolidated financial statements referred to in our
report dated November 8, 2002 appearing on page F-2 in the 2002 Annual Report to
Shareholders of American United Global, Inc. and subsidiaries (which report and
consolidated financial statements are incorporated by reference on the Annual
Report on Form 10-K) also included an audit of the consolidated financial
statement schedules listed in Item 14(a)(2) of Form 10-K. In our opinion, these
consolidated financial statement schedules present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PricewaterhouseCoopers LLP
Portland, Oregon
November 8, 2002
F-18
SCHEDULE II
AMERICAN UNITED GLOBAL INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years Ended July 31, 2002, 2001 and 2000
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
----------- --------- -------- -------- ---------- ------
Income Tax Valuation Allowance:
Fiscal year ended July 31, 2000 $4,101,000 $5,387,000 - - $9,488,000
Fiscal year ended July 31, 2001 $9,488,000 - - $1,264,000 $8,224,000
Fiscal year ended July 31, 2002 $8,224,000 $ 438,000 $8,662,000
Accounts Receivable Reserve:
Fiscal year ended July 31, 2000 $724,000 $690,000 - $(851,000) $563,000
Fiscal year ended July 31, 2001 - - - - -
Fiscal year ended July 31, 2002 - - - - -
Inventory Reserve:
Fiscal year ended July 31, 2000 $2,513,000 $2,188,000 - $(591,000) $5,292,000
Fiscal year ended July 31, 2001 - - - - -
Fiscal year ended July 31, 2002 - - - - -
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 AUGI as of November 8, 2002. 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
AUGI is a party adverse to AUGI.
Name Age Position
Robert M. Rubin 62 Chairman of the Board of Directors, President and
Chief Executive Officer
C. Dean McLain 49 Director and Executive Vice President and Chief
Executive Officer of Western
David M. Barnes 59 Vice President of Finance, Chief Financial
Officer and Director
Howard Katz 60 Director
Seymour Kessler 71 Director
Allen Perres 54 Director
Michael Metter 45 Director
ROBERT M. RUBIN. Mr. Rubin has served as our Chairman of the Board of
Directors since May 1991, and was our 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 AUGI and its
subsidiaries; from January 1, 1994 to January 19, 1996, he served only as
Chairman of the Board of AUGI and its subsidiaries. From January 19, 1996 to the
present, Mr. Rubin has served as our Chairman of the Board, President and Chief
Executive Officer. 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. We own approximately 36% of the outstanding
common stock of Western. Mr. Rubin was a director of Med-Emerg, Inc., a publicly
- -held Canadian management company for hospital emergency rooms and out-patient
facilities until November, 2001. 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 40 hours per week to
the business of AUGI.
12
C. DEAN MCLAIN. Mr. McLain has served as our Executive Vice President since
March 1, 1993, as a director 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 AUGI's
business.
DAVID M. BARNES. Mr. Barnes has served our Chief Financial Officer 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 AUGI.
HOWARD KATZ. Mr. Katz has been a director since April 15, 1996, and was an
Executive Vice President from April 15, 1996 through July 31, 1998. 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.
SEYMOUR KESSLER. Dr. Kessler has served as a Director 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 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.
MICHAEL METTER. Mr. Metter has served as a Director since December 14,
2001. Since March 2001, Mr. Metter has been the President of RME International,
Ltd.(RME) Mr. Metter also currently consults to a broad range of businesses,
including IT communications and media businesses, on mergers, acquisitions,
restructuring, financing and other matters. From October 1998 to February 2001,
Mr. Metter was a principal of Security Capital Trading, Inc, and was a principal
at Madison Capital from September 1997 to October 1998. Prior thereto, Mr.
Metter was the President of First Cambridge Securities from October 1994 to
August 1997. Effective with a merger of a division of RME into Azurel, Ltd., in
October 2002, Mr. Metter became President of Azurel.
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.
Metter, 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 2002 the Board of Directors met on four occasions; The
Compensation Committee and The Audit Committee did not meet and The Corporate
Governance Committee met on three occasions. Each meeting of the Board of
Directors included a review of AUGI"s financial condition and a review of the
quarterly Form 10-Q when appropriate.
13
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, 2002, 2001, and 2000 to each of AUGI's most highly compensated executive
officers and key employees whose total compensation exceeded $100,000, and to
all executive officers and key employees of AUGI as a group
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS
------ NUMBER OF
NAME AND FISCAL SALARY BONUS OTHER RESTRICTED SECURITIES LTIP ALL OTHER
PRINCIPAL YEAR ($) ($) ANNUAL STOCK UNDERLYING PAYOUTS COMPENSATION
POSITION COMPENSATION AWARD(S) OPTIONS/SARS#(3) ($) ($)
- -------- ----- ------- ------- ------------- ------- -------- --- ----------
($) ($) SARS(#)
Robert M. Rubin 2002 450,000 300,000 -0- -0- -0- -0- -0-
Chairman, 2001 425,000 -0- -0- -0- -0- -0- -0-
President and 2000 400,000 -0- -0- -0- 10,000 -0- -0-
Chief Executive
Officer(1)
David M. Barnes 2002 160,000 -0- -0- -0- -0- -0- -0-
Chief Financial 2001 150,000 -0- -0- -0- -0- -0- -0-
Officer and 2000 140,000 -0- -0- -0- 4,000 -0- -0-
Director
Dean McLain 2002 393,000 135,000 -0- -0- -0- -0- -0-
Executive Vice 2001 390,000 -0- -0- -0- -0- -0- -0-
President and 2000 200,000 -0- -0- -0- 2,260 -0- -0-
Director;
President of
Western
(1) Includes $150,000, $200,000 and $200,000 paid under Mr. Rubin's
Consulting Agreement with Western during Fiscal 2000, 2001 and 2002
respectively.
In September, 2002 the Board of Directors approved a performance bonus in
the amount of $300,000 for Mr. Rubin relative to his efforts in assisting with
the negotiations and finalization of the settlement of the Greenberg Traurig
Litigation. The bonus was accrued at July 31, 2002 and was paid on September 30,
2002.
(2) All compensation paid by Western. Mr. McLain's bonus is based upon a
percentage of earnings before interest, taxes, depreciation and amortization
(EBITDA) pursuant to his employment contract.
(3) Accounts for the 1-for-25 reverse stock split.
14
STOCK OPTION PLANS
OPTION GRANTS IN FISCAL 2002
Option Grants to Named Executive Officers in Last Fiscal Year
AUGI did not grant any options to its Named Executive Officers during
fiscal 2002.
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, 2002) of unexercised options held
by each such person. None of these options has been exercised as of the date of
this report.
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- 33,600 $0
David Barnes -0- -0- 12,000 $0
C. Dean McLain -0- -0- 12,000 $0
THE 2001 STOCK OPTION PLAN (the "2001 Plan")
The 2001 Plan was adopted by the Board of Directors on October 3, 2000 and
as of such date 227,000 options were granted and on such date all previously
issued and outstanding options granted under AUGI's 2000 Stock Option Plan (the
"2000 Plan") were cancelled. 112,000 of the options granted on October 3, 2000
were subsequently cancelled by the Board if Directors.
The purpose of the 2001 Plan is to provide additional incentives to our
directors, officers, employees and consultants who are primarily responsible for
the management and growth of AUGI. Each option shall be designated at the time
of grant as either an incentive stock option (an "ISO") or a non-qualified stock
option (a "NQSO"). The Board of Directors believes that the ability to grant
stock options to employees which qualify for ISO treatment provides an
additional material incentive to certain key employees.
AUGI previously had three other employee stock option plans, the 1991 Stock
Option Plan (the "1991 Plan"), the 1996 Stock Option Plan (the "1996 Plan") and
the 2000 Plan. All options granted under the 1991 Plan and 1996 Plan were
cancelled prior to or as of December 7, 1999. All options granted under the 2000
Plan were cancelled on October 3, 2000.
As of November 8, 2002, options to purchase 124,400 shares of Common Stock
in the aggregate, of which 71,600 are incentive stock options, have been granted
to our employees, directors and outside consultants under the 2001 Plan.
ADMINISTRATION OF THE PLAN
The 2001 Plan may be administered by the full Board of Directors or by the
Compensation Committee, which determines which eligible persons will be granted
options, when options will be granted, the number of shares to be subject to
options, the durations of options, any conditions to the exercise of options and
the manner in and price at which options may be exercised. The Compensation
Committee is authorized to amend, suspend or terminate the 2001 Plan. However,
except for adjustments resulting from changes in capitalization, the
Compensation Committee requires shareholder approval to (i) increase the maximum
number of shares that may be issued pursuant to the exercise of options granted
under the 2001 Plan; (ii) grant an option with an exercise price less than 85%
of the fair market value of the underlying Common Stock at the time of grant;
(iii) change the eligibility requirements for participation in the 2001 Plan;
(iv) extend the term of any option or the period during which any option may be
granted under the 2001 Plan; or (v) decrease an option exercise price (although
an option may be cancelled and a new option granted at a lower exercise price).
15
SHARES SUBJECT TO THE PLAN
The 2001 Plan currently provides that options may be granted to purchase up
to 7,500,000 shares of Common Stock, subject to adjustment upon certain changes
in capitalization without receipt of consideration by AUGI. In addition, if we
are involved in a merger, consolidation, dissolution or liquidation, the options
granted under the 2001 Plan will be adjusted or, under certain conditions, will
terminate, subject to the right of the option holder to exercise his option or a
comparable option substituted at our discretion prior to such event. If any
unexercised option expires or terminates for any reason, the non-purchased
shares subject to such unexercised option will be available again for the
purposes of the 2001 Plan.
PARTICIPATION
Any employee, director, consultant, or representative of AUGI is eligible
to receive ISOs or NQSOs granted under the 2001 Plan. Non-employee directors,
consultants or representatives may only receive NQSOs.
OPTION PRICE
The exercise price of each option shall be determined by the full Board of
Directors or by the Compensation Committee. However, the exercise price of each
option on the date the option is granted may not be less than (i) 100% of the
fair market value of the Common Stock underlying an incentive stock option on
the date of grant, or (ii) 85% of the fair market value of the Common Stock
underlying a non-qualified stock option on the date of grant. If an incentive
stock option is to be granted to an employee who holds over 10% of the total
combined voting power of all classes of AUGI's capital stock, then the exercise
price may not be less than 110% of the fair market value of the Common Stock
covered by the option on the date the option is granted.
TERMS OF OPTIONS
The full Board of Directors or the Compensation Committee shall, in its
discretion, fix the term of each option, provided that the maximum term of an
option shall be 10 years. ISOs granted to an employee who owns over 10% of the
total combined voting power of all classes of capital stock of AUGI shall expire
not more than five years after the date of grant. The 2001 Plan provides for the
earlier expiration of options in the event of certain terminations of employment
of the holder.
RESTRICTIONS ON GRANT AND EXERCISE
An option may not be transferred other than by will or the laws of descent
and distribution and, during the lifetime of the option holder, may be exercised
solely by him. The aggregate fair market value (determined at the time the
option is granted) of the shares of Common Stock as to which an employee may
exercise ISOs in any one calendar year may not exceed $100,000. The full Board
of Directors or the Compensation Committee may impose other conditions to
exercise as it deems appropriate.
TERMINATION
The 2001 Plan will terminate on October 3, 2010, unless terminated earlier
by the Board of Directors or the Compensation Committee.
Employment, Incentive Compensation and Termination Agreements
ROBERT M. RUBIN. Mr. Rubin is employed as our Chairman of the Board of
Directors. 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 annual base salary payable
to Mr. Rubin of $225,000, a minimum increase each year equal to the percentage
rise in The New York City wage index and certain incentive bonuses consisting of
10% of the sale price of certain securities in excess of AUGI's basis up to a
maximum aggregate bonus of $3,000,000, and 10,000 incentive stock options. No
incentive bonus was earned in fiscal 2000 or 2001 or 2002. In December, 2001,
Mr. Rubin agreed to waive the incentive bonus clause in his contract. Mr. Rubin
was granted 33,600 incentive stock options on October 3, 2000 under the 2001
Plan, which options are immediately exercisable for five years at $6.875 per
share.
Mr. Rubin is also engaged by Western, pursuant to a consulting agreement,
which expires on July 31, 2007. Under the consulting agreement with Western, Mr.
Rubin is paid $200,000 annually plus reimbursement for his business expenses.
16
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 $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 12,000 incentive stock options on October 3, 2000 under
the 2001 Plan, which options are immediately exercisable for five years at
$6.875 per share.
HOWARD KATZ. Howard Katz is a director of AUGI. Mr. Katz received severance
payments of $32,500 in Fiscal 2001 and $78,000 in Fiscal 2000. In addition, on
October 3, 2000 Mr. Katz received 14,000 stock options under the 2001 Plan,
which are immediately exercisable for five years at $6.875 per share.
DAVID M. BARNES. David M. Barnes is a director and Chief Financial Officer
of AUGI. In Fiscal 2002 Mr. Barnes received total compensation of $160,000. In
Fiscal 2001 Mr. Barnes received total compensation of $150,000 and in Fiscal
2000 Mr. Barnes received a base salary of $140,000. In addition on October 3,
2000 Mr. Barnes received 12,000 incentive stock options under the 2001 Plan,
which options are immediately exercisable for five years at $6.875 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During Fiscal 2002 the Board of Directors' Compensation Committee (the
"Compensation Committee") did not meet as there were no pertinent issues.
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 2002 AUGI held four meetings
of the Board of Directors. 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.
Transactions with ERD Waste Corp.
We incurred a loss of approximately $5,000,000 as a result of certain
transactions 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. We have 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, during 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 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.
17
TRANSACTIONS WITH OTHER AFFILIATES
During Fiscal 1999 and Fiscal 2000 AUGI provided financing to IDF, a
minority-owned subsidiary based in New York City, in the amounts of $992,000 and
$364,000, respectively. hese 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
33,000 warrants to purchase shares of AUGI's common stock (the "Warrants"); (ii)
Staffin 66,667 Warrants; and (iii) Saridakis 3,333 Warrants, all which are
immediately vested, expire on March 19, 2006, and are exercisable at $6.875 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 AUGI.
Simultaneous with the closing of the Intertech transaction AUGI purchased
27,000 shares, or approximately 5.4% of Intertech's then issued and outstanding
capital stock, in consideration for the transfer to Intertech of 79,895 shares
of common stock of New Media Technology, Inc. owned by AUGI. AUGI recognized an
impairment loss on its investment in Intertech in the amount of $250,000 in
fiscal 2002.
BRIDGE LOAN TRANSACTION
On May 17, 2002, AUGI completed a bridge loan financing in the amount of
$250,000 (the "Bridge Loan") from The Rubin Family Irrevocable Stock Trust (the
"Trust"). In connection with the Bridge Loan AUGI issued a promissory note to
the Trust in the principal amount of $250,000 (the "Note"). The Note matures on
the earlier to occur of (i) AUGI's receipt of additional capital from any
source, other than proceeds from the proposed rights offering, in excess of
$1,000,000, or (ii) April 30, 2007 (either date the "Maturity Date"). The Note
bears interest at a rate of 7.5% per year payable on the Maturity Date.
As additional consideration for providing the Bridge Loan, AUGI issued an
aggregate of 1,500,000 restricted shares of common stock to the Trust. As a
result, the Trust owns approximately 77.6% of the issued and outstanding shares
of common stock of AUGI and is AUGI's controlling and majority shareholder. The
Note was paid in full on October 4, 2002.
18
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 did not meet
during Fiscal 2002 as there were no pertinent issues. 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 AUGI, with the exception of Mr. Metter who did not
timely file a Form 3 upon his election to the Board, no officers, directors,
beneficial owner of more than 10% percent of any class of equity securities of
AUGI 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 2002.
19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of November 8, 2002
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)
- ------------------- --------- --------------------- ----------------
Rubin Family Irrevocable 1,549,831(6) 77.6
Stock Trust
18 Pine Tree Drive
Great Neck, NY 11024
Robert M. Rubin Director, President, Chief 33,680(2)(6) 1.7
Executive Officer and
Chairman of the Board
C. Dean McLain Director, Executive 12,000(3) 0.6
4601 N.E. 77th Avenue Vice-President and
Suite 200 President of Western
Vancouver, WA 98662 Power and Equipment Corp.
("Western")
Howard Katz Director 14,000 (4) 0.7
David M. Barnes Chief Financial Officer 12,000 (5) 0.6
Vice President of Finance
and Director
Seymour Kessler Director 10,000 (7) 0.5
Allen Perres Director 10,000 (8) 0.5
Michael Metter Director 10,000 (9) 0.5
All Directors and Executive 101,680 4.8
Officers as a Group (7 persons)
* Unless otherwise indicated, the address of each such beneficial owner is
11108 N.E. 106th Place, Kirkland, Washington 98033.
20
(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 (10) below are
immediately exercisable.
(2) Includes (a) 80 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 33,600 shares for five years after issuance at an exercise price
of $6.875 per share, or approximately 110% of the closing sale price of the
Common Stock on such date.
(3) Includes incentive stock options to acquire 12,000 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 $6.875 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 14,000 shares of Common Stock for five years
after issuance at an exercise price of $6.875 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 12,000 shares of Common Stock for five years
after issuance at an exercise price of $6.875 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 10,000 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 $6.875 per share.
(8) Includes 10,000 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 $6.875 per share
(9) Includes 10,000 non-qualified stock options, which vested upon Mr.
Metter's appointment to the Board of Directors on December 14, 2001. Such
options are exercisable for five years after issuance for $1.25 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."
ITEM 14 CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
Our chief executive officer and our chief financial officer, after
evaluating our "disclosure controls and procedures" (as defined in the
Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-14(c) and
15d-14(c) have concluded that as of a date within 90 days of the filing date of
this report (the "Evaluation Date") our disclosure controls and procedures are
effective to ensure that information we are required to disclose in reports that
we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.
Changes in internal controls
Subsequent to the Evaluation Date, there were no significant changes in our
internal controls or in other factors that could significantly affect our
disclosure controls and procedures, nor were there any significant deficiencies
or material weaknesses in our internal controls. As a result, no corrective
actions were required or undertaken.
21
PART IV
ITEM 15. 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.
On May 31, 2002, AUGI filed a Form 8-K to report a change in control as a
result of the completion of the $250,000 bridge financing with the Rubin Family
Irrevocable Stock Trust (the "Trust") and the issuance of 1,500,000 shares of
restricted Common Stock to the Trust in connection with such financing.
On September 12, 2002, AUGI filed a Form 8-K to report its receipt of net
proceeds of $2,875,000 from the settlement of litigation against its former
corporate counsel.
(c) Exhibits.
Exhibit
Number Description
3.1 Certificate of Incorporation of Registrant.(1)
3.1.2 Amended Certificate of Incorporation (4)
3.2 By-laws of Registrant. (2)
4.1 Specimen Certificate of Common Stock. (3)
4.2 Deleted
21 Subsidiaries of AUGI*.
99.1 Promissory Note dated May 17, 2002. (5)
99.2 Certification of Chief Financial Officer and Chief Executive Officer
99.3 Western Form 10K for the fiscal year ended July 31, 2002 as filed on
November 13, 2002 (6)
(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 (AUGI'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.
(4) Filed as an Exhibit to AUGI's Definitive Proxy Materials, as filed on
July 2, 2001.
(5) Filed as an Exhibit to AUGI's Form 8-K dated May 31, 2002.
(6) Filed as an exhibit to this Form 10-K *
* Filed herewith
22
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, 2002
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, 2002
- -------------------- Executive Officer and Director
Robert M. Rubin
/s/ C. Dean McLain Executive Vice President and November 12, 2002
- ------------------ Director
C. Dean McLain
/s/ David M. Barnes Vice President--Finance and Chief November 12, 2002
- -------------------- Financial and Chief Accounting
David M. Barnes Officer and Director
/s/ Howard Katz Director November 12, 2002
- -------------------
Howard Katz
/s/ Seymour Kessler Director November 12, 2002
- -------------------
Seymour Kessler
/s/ Allen Perres Director November 12, 2002
- -------------------
Allen Perres
/s/ Michael Metter Director November 12, 2002
- -------------------
Michael Metter
EXHIBIT 99.2
I, Robert M. Rubin, certify that:
1. I have reviewed this annual report on Form 10-K of American United
Global, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ Robert M. Rubin
Date: November 12, 2002 -------------------------
Robert M. Rubin
Chief Executive Officer
I, David M. Barnes, certify that:
1. I have reviewed this annual report on Form 10-K of American United
Global, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ David M. Barnes
Date: November 12, 2002 -------------------------
David M. Barnes
Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert M. Rubin, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of American United Global, Inc. on Form 10-K for the year ended July 31,
2002 fully complies with the requirements of Section 15(d) of the Securities
Exchange Act of 1934 and the information contained in such Annual Report on Form
10-K fairly presents, in all material respects the financial condition and
results of operations of American United Global, Inc.
/s/ Robert M. Rubin
Date: November 12, 2002 -------------------------
Robert M. Rubin
Chief Executive Officer
I, David M. Barnes, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of American United Global, Inc. on Form 10-K for the year ended July 31,
2002 fully complies with the requirements of Section 15(d) of the Securities
Exchange Act of 1934 and the information contained in such Annual Report on Form
10-K fairly presents, in all material respects the financial condition and
results of operations of American United Global, Inc.
/s/ David M. Barnes
Date: November 12, 2002 -------------------------
David M. Barnes
Chief Financial Officer
EXHIBIT LIST
3.1 Certificate of Incorporation of Registrant.(1)
3.1.2 Amended Certificate of Incorporation (4)
3.2 By-laws of Registrant. (2)
4.1 Specimen Certificate of Common Stock. (3)
4.2 Deleted
4.3 2001 Stock Option Plan (4)
21 Subsidiaries of AUGI*.
99.1 Promissory Note dated May 17, 2002. (5)
99.2 Certification of Chief Financial Officer and Chief Executive Officer
99.3 Western Form 10K for the fiscal year ended July 31, 2002 as filed on
November 13, 2002 (6)
(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 (AUGI'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.
(4) Filed as an Exhibit to AUGI's Definitive Proxy Materials, as filed on
July 2, 2001.
(5) Filed as an Exhibit to AUGI's Form 8-K dated May 31, 2002.
(6) Filed as an exhibit to this Form 10-K *
* Filed herewith
EXHIBIT 21 - List of Subsidiaries.
Western Power and Equipment, Corp. Minority ownership of 36%.
Superior Ventures, Corp.
*Connectsoft, Inc.
*Connectsoft Communications, Corp.
*Exodus Technologies, Inc.
*InterGlobe Networks, Inc.
*CS Holdings, Inc.
* Operations have been discontinued but the corporation has not been dissolved.