FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2003
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 N.E. 106TH PLACE
KIRKLAND, WASHINGTON 98033
(Address of principal executive offices) (Zip code)
Registrant's telephone number: 425-869-7410
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated Filer (as
defined in Rule 12-b-2 of the Exchange Act).
YES [ ] NO [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practical date.
Title of Class Number of Shares
Common Stock Outstanding
(par value $.01 per share) 1,997,624 as of August 18, 2003
AMERICAN UNITED GLOBAL, INC.
INDEX
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet June 30, 2003 (unaudited)....... 1
Consolidated Statements of Operations
Three Months Ended June 30, 2003 (unaudited)............... 2
Consolidated Statements of Operations January 18, 2003
(inception) to June 30, 2003 (unaudited)................... 3
Consolidated Statement of Additional Paid in Capital
January 18, 2003 (inception) to June 30, 2003 (unaudited).. 4
Consolidated Statement of Cash Flows January 18, 2003
(inception) to June 30, 2003 (unaudited)................... 5
Notes to the Consolidated Financial
Statements (unaudited)..................................... 6-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 13-16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.......................................... 16
Item 4. Controls and procedures............................ 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................. 17
Item 2. Changes in Securities.............................. 17
Item 3. Defaults Upon Senior Securities.................... 17
Item 4. Submission of Matters to a Vote of Security
Security Holders................................... 17
Item 5. Other Information ................................. 17
Item 6. Exhibits and Reports on Form 8-K................... 17-18
Signatures................................ 19
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30,
2003
----
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 1,029,000
Investment in marketable securities, at market value.................. 9,000
Notes receivable from New York Medical, Inc........................... 1,500,000
Note receivable, other................................................ 25,000
Prepaid expenses...................................................... 75,000
Interest receivable................................................... 17,000
Investment in Informedix Holdings, Inc................................ 100,000
-----------
TOTAL CURRENT ASSETS.................................................. 2,755,000
Investment in New York Medical, Inc, at cost.......................... 5,500,000
-----------
TOTAL ASSETS..................................................... 8,255,000
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term borrowings in default, including accrued interest
of $960,000.......................................................... $ 2,460,000
Accounts payable...................................................... 17,000
Accrued liabilities................................................... 860,000
Note payable - treasury stock purchase................................ 47,000
Note payable - acquisition - current portion.......................... 2,000,000
Bridge notes payable, net of unamortized discount of $1,417,000....... 83,000
Distribution payable to Series B-3 Preferred shareholders............. 100,000
-----------
TOTAL CURRENT LIABILITIES............................................. 5,567,000
Note Payable - acquisition - non-current portion...................... 3,500,000
-----------
TOTAL LIABILITIES..................................................... 9,067,000
-----------
Commitments and contingencies
SHAREHOLDERS' DEFICIT:
Preferred stock, 12.5% cumulative, $1.00 per share liquidation value,
$.01 par value; 1,200,000 shares authorized;
none issued and outstanding........................................... -
Series B-1 preferred stock, each 25 shares convertible into 1 common share,
$3.50 per share liquidation value, $.01 par value; 1,000,000 shares
authorized; 407,094 issued and outstanding............................ 4,000
Series B-2 preferred stock, each share convertible into 20 common shares,
$20.00 per share liquidation value, $.01 par value; 467,500 shares
authorized, 467,500 issued and outstanding............................ 5,000
Series B-3 preferred stock, each share convertible into 20 common shares,
$20.00 per share liquidation value, $.01 par value; 232,500 shares
authorized, 232,500 issued and outstanding............................ 2,000
Common stock, $.01 par value; 40,000,000 shares
authorized; 1,997,624 shares issued and outstanding................... 20,000
Additional paid-in capital............................................ 3,453,000
Accumulated deficit................................................... (4,296,000)
-----------
Total shareholders' deficit.......................................... (812,000)
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 8,255,000
===========
See accompanying notes to consolidated financial statements.
1
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
JUNE 30,
2003
----
General and administrative expenses.................... $ 238,000
-----------
Operating loss......................................... (238,000)
Interest expense, net.................................. (104,000)
------------
Loss from operations before transaction expense
of reverse acquisition................................ (342,000)
Transaction expense of reverse acquisition............. 3,954,000
------------
Net loss and accumulated deficit at June 30, 2003...... $ (4,296,000)
============
Basic and diluted loss per share....................... $ (0.42)
============
Weighted average number of common and
common equivalent shares............................... 10,295,768
============
See accompanying notes to consolidated financial statements.
2
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
JANUARY 18, 2003
(INCEPTION) TO
JUNE 30,
2003
----
General and administrative expenses.................... $ 238,000
-----------
Operating loss......................................... (238,000)
Interest expense, net.................................. (104,000)
------------
Loss from operations before transaction expense
of reverse acquisition................................ (342,000)
Transaction expense of reverse acquisition............. 3,954,000
------------
Net loss and accumulated deficit at June 30, 2003...... $ (4,296,000)
============
Basic and diluted loss per share....................... $ (0.44)
============
Weighted average number of common and
common equivalent shares............................. 9,869,019
============
See accompanying notes to consolidated financial statements.
3
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF ADDITIONAL PAID IN CAPITAL
(unaudited)
JANUARY 18, 2003
(INCEPTION) TO
JUNE 30,
2003
----
Paid in capital of Lifetime in excess of par value of
Series B-2 preferred stock issued in merger with AUGI.. $ 78,000
Market value of stock retained by AUGI common and
B-1 Preferred shareholders in excess of par............ 2,616,000
Value of outstanding vested stock options
of AUGI at date of merger............................. 639,000
Stock option compensation.............................. 120,000
----------
Balance at end of period....................... $ 3,453,000
==========
See accompanying notes to consolidated financial statements.
4
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
JANUARY 18, 2003
(INCEPTION) TO
JUNE 30,
2003
----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................ $ (4,296,000)
Adjustments to reconcile net loss to
net cash used by operating activities
Transaction expense of reverse
acquisition, non-cash............................ 3,565,000
Amortization of discount and
beneficial conversion feature.................... 83,000
Stock option compensation......................... 120,000
Changes in assets and liabilities, net of acquisition
Interest receivable............................. (3,000)
Accounts payable and accrued liabilities........ 404,000
----------
NET CASH USED BY OPERATING ACTIVITIES.................. (127,000)
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans to New York Medical.......................... (1,500,000)
---------
NET CASH USED BY INVESTING ACTIVITIES................... (1,500,000)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from AUGI prior to merger to
finance loan to New York Medical, Inc............ 1,500,000
Cash received in reverse acquisition.............. 1,073,000
Proceeds from sale of Lifetime common stock....... 83,000
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............. 2,656,000
---------
Net increase in cash and cash equivalents.............. 1,029,000
Cash and cash equivalents, beginning................... -
---------
Cash and cash equivalents, ending...................... $ 1,029,000
=========
See accompanying notes to consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial information included in this report has been
prepared in conformity with the accounting principles generally accepted in the
United States of America. All adjustments are, in the opinion of management,
necessary for a fair statement of the consolidated results for the interim
periods and are of a normal recurring nature other than the transaction expense
related to the reverse acquisition described below. On June 16, 2003, American
United Global, Inc. (the "Company" or "AUGI"), Lifetime Acquisition Corp., a
newly formed owned subsidiary of AUGI ("Merger Sub") and Lifetime Healthcare
Services, Inc. ("Lifetime") entered into an amended and restated agreement and
plan of merger (the "Merger Agreement"). AUGI consummated the acquisition of
Lifetime through the merger of Merger Sub with and into Lifetime, effective as
of June 17, 2003 (the "Lifetime Merger"). Lifetime is a holding company whose
only assets consist of a note receivable from NYMI and its ownership of 55% of
the capital stock of New York Medical, Inc. ("NYMI") acquired by Lifetime
immediately prior to the consummation of the Merger.
For accounting purposes, the transaction between AUGI (a non-operating
public shell corporation) and Lifetime is considered, in substance, a capital
transaction rather than a business combination. The exchange has been accounted
for as a reverse acquisition since the former shareholders of Lifetime will own
a majority of the outstanding common stock of AUGI when the B-2 Preferred shares
they received in the merger are converted (See Note 2). Accordingly, the
combination of Lifetime with AUGI has been recorded as a recapitalization of
Lifetime, pursuant to which Lifetime has been treated as the continuing entity
for accounting purposes and the historical financial statements presented are
those of Lifetime. Such historical financial statements reflect the results of
operations of Lifetime and reflect the issuance of the B-2 Preferred shares as
if they had been issued on January 18, 2003, Lifetime's date of inception.
Results of AUGI have been included for the period from June 17 to June 30, 2003.
As a result of the merger with Lifetime, AUGI has changed it's year end of July
31, to the year end of Lifetime of December 31.
The consolidated financial statements include the accounts of the Company
and Lifetime. All significant intercompany balances and transactions have been
eliminated in consolidation. The investment in NYMI is carried at cosv (see Note
3).
NOTE 2. - LIFETIME MERGER
As consideration for the Lifetime Merger, AUGI issued to the former
stockholders of Lifetime, an aggregate of 467,500 shares of AUGI's newly
designated Series B-2 Convertible Preferred Stock (the "B-2 Preferred"). Each
share of the B-2 Preferred is convertible on or after December 17, 2003 into 20
shares of AUGI common stock, although the B-2 Preferred shall be mandatorily
converted into AUGI common stock with no action required on the part of AUGI or
the holder of the B-2 Preferred upon the occurrence of certain fundamental
corporate events, such as a business combination or sale of substantially all
its assets. Accordingly, an aggregate of 9,350,000 shares of AUGI common stock
is issuable to the former Lifetime stockholders if all shares of B-2 Preferred
are converted.
Prior to the Lifetime Merger, the Rubin Family Irrevocable Stock Trust
owned approximately 1,549,831 shares, or approximately 77.6% of the shares of
AUGI's common stock. In contemplation of the Lifetime Merger, AUGI declared a
stock dividend to holders of record of AUGI common stock as of June 10, 2003.
The stock dividend took the form of the issuance of 232,500 shares of AUGI's
newly authorized and designated Series B-3 Convertible Preferred Stock (the "B-3
Preferred"). Each share of the B-3 Preferred also is convertible, on or after
December 17, 2003 (or earlier as provided above), into 20 shares of AUGI common
stock. Accordingly, an aggregate of 4,650,000 shares of AUGI common stock is
issuable to the holders of the B-3 Preferred if all shares of B-3 Preferred are
converted. Both the B-2 Preferred and the B-3 Preferred vote together with
AUGI's common stock on an "as converted basis" and are substantially identical
to each other in all other respects. In addition, both the B-2 Preferred and the
B-3 Preferred are not entitled to a fixed or stated dividend or distribution,
except that if a dividend or distribution is declared on common stock the
preferred holders are entitled to the receive such dividend on an "as converted"
basis. Further, the holders of the B-3 Preferred will receive a dividend of the
1,222,586 shares of Western Power & Equipment Corp. as well as a dividend of the
54,000 shares of Informedix, Inc. owned by AUGI (See Notes 9 and 12).
6
In conjunction with the merger, the Company has recognized as
non-recurring, non-cash transaction costs (i) the fair market value of the
Common and B-1 Preferred shares held by the pre-merger shareholders of AUGI
totaling $2,618,000 (ii) the estimated value of all vested outstanding AUGI
stock options as of June 17, 2003 in the aggregate amount of $639,000 and (iii)
the net deficit of AUGI as of June 17, 2003 in the amount of $308,000. In
addition, transaction costs include a $389,000 finders fee( See Note 7).
NOTE 3 - ACQUISITION OF NEW YORK MEDICAL, INC. AND RELATED OBLIGATIONS
Immediately prior to the consummation of the Lifetime Merger, Lifetime
acquired 55% of the capital stock of NYMI, a Delaware corporation pursuant to a
stock purchase agreement dated March 21, 2003, as amended on June 16, 2003 (the
"NYMI Stock Purchase Agreement"). The selling NYMI stockholder was Redwood
Associates, L.P. ("Redwood"), an entity of which Dr. Jonathan Landow, the
President and Chief Executive Officer of NYMI, was the general partner. The
limited partner of Redwood, owning 99% of its equity, is Tracy Landow, the wife
of Dr. Jonathan Landow.
NYMI operates a healthcare practice management business that provides
management services and facilities to a variety of healthcare practitioners who
specialize in the areas of neurology, orthopedics, physical medicine and
rehabilitation, internal medicine, pain management, physical therapy, massage
therapy and acupuncture. NYMI provides its management and facilities services to
a professional corporation that is currently owned and controlled by Dr.
Jonathan Landow, a New York licensed physician as well as to certain other
licensed healthcare practitioners. Dr. Landow also serves as NYMI's President
and Chief Executive Officer and is a member of AUGI's board of directors.
Under the terms of the NYMI Stock Purchase Agreement, Lifetime issued to
Redwood a $5,500,000 principal amount 6% convertible note (the "Lifetime Note"),
of which $2,000,000 is due and payable on or before March 22, 2004. In
connection with the Lifetime Merger, AUGI unconditionally guaranteed the
Lifetime Note. The balance of the Lifetime Note is payable in seven quarterly
installments of $500,000 each, commencing July 1, 2004 and is convertible at the
option of the holder into shares of AUGI common stock at a conversion price of
$4.00 per share. Each principal installment due under the Lifetime Note also is
subject to mandatory conversion in the event that the closing price of AUGI
common stock equals or exceeds $4.80 per share for the 30 consecutive trading
days ending the last trading day prior to the subject installment payment date.
In addition to the Lifetime Note, AUGI also guaranteed payment by NYMI of a
separate $4,663,000 6% Amended and Restated Senior Subordinated Term Loan
Promissory Note of NYMI, dated as of June 16, 2003 and payable to Tracy Landow,
as assignee of Dr. Jonathan Landow (the "Landow Note"). The Landow Note is
payable in four annual installments commencing November 30, 2003. Under the
terms of a certain closing agreement dated June 16, 2003, among AUGI, Lifetime,
Dr. Jonathan Landow, Tracy Landow, certain former stockholders of Lifetime, the
Rubin Family Irrevocable Stock Trust and Robert M. Rubin (the "Closing
Agreement"), AUGI agreed to pay all but $1,000,000 of the principal amount of
the Landow Note by October 17, 2003. Such Closing Agreement also provides that
if, for any reason, AUGI and/or Lifetime is unable to pay (i) at least
$3,662,830 of the outstanding principal amount under the Landow Note in full by
October 17, 2003 (subject only to the potential deferral of $500,000 of such
amount for up to six months) and/or (ii) the entire Landow Note in full and an
aggregate of $2,000,000 in principal amount of the Lifetime Note by March 22,
2004 (collectively, the "Payment Events"), a "Default Event" will be deemed to
have occurred. In such event, at the request of Dr. Landow, AUGI is required to
engage the services of an investment banker to sell NYMI at the highest
available price and (subject to AUGI's receipt of an opinion from such banker
that the terms of sale are fair, from a financial point of view, to AUGI,
Lifetime and AUGI's stockholders) may compel AUGI to consummate such sale.
7
Pending consummation of the Payment Events or forced sale of NYMI, the
parties to the Closing Agreement have agreed upon certain mutual covenants in
respect of the activities of AUGI and the operation and control of the NYMI
business. In addition, the parties to the Closing Agreement agreed that
Redwood's designees would constitute a majority of the board of directors of
each of NYMI and Lifetime, and that the board of directors of AUGI would be
reconstituted to consist of five persons; Robert M. Rubin and another person
acceptable to him, two nominees of Redwood, and a fifth independent director to
be mutually acceptable to each of Mr. Rubin and Redwood. As a result of the
control over the Board of Directors of NYMI and its operations retained by the
seller pending consummation of the Payment Events, Lifetime does not have a
controlling financial interest in NYMI and accordingly is not consolidating
NYMI. Upon consummation of the Payment Events, NYMI will be consolidated with
Lifetime and prior period financial statements subsequent to the date of
acquisition will be restated on a consolidated basis.
The Closing Agreement also provides that in the event a forced sale of NYMI
were to occur, the proceeds of such sale would be applied in the following order
of priority:
- to pay transaction costs (other than the fairness opinion, which is to
be paid by AUGI);
- to pay all indebtedness of NYMI (other than approximately $1,500,000
of NYMI indebtedness owed to AUGI);
- to pay all obligations under the Landow Note and the Lifetime Note;
- to pay the costs of the fairness opinion; and
- to AUGI, to the extent of any remaining net proceeds.
To the extent that all obligations under the Landow Note and the Lifetime
Note are not paid in full out of the proceeds of the NYMI forced sale, AUGI will
be liable for any unpaid balance due within six months following such sale. AUGI
will, however, have the right to demand and receive payment from NYMI on any
unpaid amount due on AUGI's loans to NYMI in the principal aggregate amount of
$1,500,000, which matures on January 2, 2004.
As at the date of filing this Report, the Company intends to conduct a
private placement of Company's securities including Common Stock and Warrants to
purchase Common Stock (the "Offering") for anticipated proceeds of a minimum of
$5,000,000 ("Minimum Offering") and a maximum of $10,000,000 ("Maximum
Offering"), the net proceeds of which will be used to (a) pay off the Landow
Note and Lifetime Note obligations to the extent required to satisfy the
"Payment Events" under the Closing Agreement, and (b) if sufficient net proceeds
are received to retire the entire Landow Note and Lifetime Note, to the extent
not converted by the holders into Company Common Stock repay a maximum of
$1,500,000 of recently issued convertible Bridge Notes.
Although the Company has received a letter of intent from an investment
banking firm (the "Bank") to act as placement agent on a best efforts basis in
respect of the Offering, and believes that it will be able to timely complete
the Offering, there is no assurance that this will be the case. Bruce Meyers,
one of the former stockholders of Lifetime, who currently holds an aggregate of
140,119 shares of the Company's Series B-2 Preferred (convertible into an
aggregate of 2,802,380 shares of Company Common Stock), is the controlling
stockholder and an affiliate of such Bank. In the event that the Offering is
consummated, the Company will pay commissions to and expenses of such Bank,
estimated to be approximately $1,300,000 if the private placement is fully
consummated as presently contemplated. The Company and the Bank have agreed that
the Company will: (i) grant the Bank a right of first refusal to conduct all the
Company's financings other than commercial bank lending for a period of sixty
(60) months, which right the Company may re-purchase for $150,000; (ii) issue to
the Bank five-year warrants to purchase 13% of the number of shares of Company
Common Stock sold in the private placement, if any; (iii) pay the Bank a fee of
$75,000, and (iv) nominate a designee of the Bank to the Company's board of
directors.
8
NOTE 4 - SENIOR INDEBTEDNESS OF NYMI
NYMI's senior secured credit facility with its lender DVI Credit Corp.
("DVI") matures on September 24, 2003. DVI has requested that NYMI refinance
such facility with another lender. The current outstanding amount under the DVI
facility is approximately $5,700,000. The Company has entered into preliminary
discussions with DVI to extend the maturity date of the loan beyond September
24, 2003. While no definitive response to AUGI's proposal has been received from
DVI, AUGI is hopeful that DVI will agree to extend the maturity date of the loan
until at least December 31, 2003, to provide AUGI and NYMI with additional time
to seek refinancing of the DVI indebtedness. However, unless AUGI is able to
secure financing from other sources by September 24, 2003 (or any extension of
such maturity date), if DVI were not to extend the loan beyond September 24,
2003, DVI could elect at any time after the final maturity date of such credit
facility to foreclose on substantially all of the assets and properties of NYMI
(AUGI's only operating asset). Such foreclosure would have a material and
adverse impact upon AUGI's business, financial condition and future prospects.
There can be no assurance that AUGI will be able to refinance the DVI debt on
terms as favorable to those applicable under the existing DVI loan and security
agreement, if at all. In addition, the unwillingness of DVI to extend the
September 24, 2003 maturity date of its senior credit facility may create an
investment risk that adversely affects AUGI's ability to complete the Offering
(See Note 3). DVI has recently announced that it may file a petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. Such
filing may further adversely affect DVI's willingness to work with the Company
in connection with its loan facility.
NOTE 5 - BRIDGE NOTES PAYABLE AND OTHER SHORT TERM BORROWINGS
On June 17, 2003, the Company received aggregate net proceeds of $1,350,000
from the sale of $1,500,000 principal amount of 10% convertible notes due in
March 2004 (the "Bridge Notes"). The Bridge Notes are convertible into common
stock of the Company at any time at the rate of $1.00 of Notes for one share of
common stock and are secured by a second lien on all of the assets of NYMI. In
addition, the purchasers of the Bridge Notes received five year warrants to
purchase an aggregate of 1,000,000 shares of common stock of the Company at
$0.75 per share; provided, that if the Bridge Notes have not been prepaid in
full by October 17, 2003, the number of shares issuable upon exercise of the
warrants will increase to 1,250,000 shares and will increase further to
1,500,000 shares in the event that, for any reason, the Bridge Notes have not
been paid in full by January 17, 2004. The Company utilized an aggregate of
$650,000 of the net proceeds from the sale of the Bridge Notes to increase its
outstanding loans to Lifetime (and indirectly to NYMI) from $850,000 to
$1,500,000 (see Note 6).
The value allocated to the warrants resulted in a debt discount of
$1,150,000 that is being recognized as interest expense over the nine month term
of the Bridge Notes. Additionally, by allocating value to the warrants, the debt
holders received a beneficial conversion feature in the amount of $350,000 that
resulted in additional debt discount that is being recognized as interest
expense over the nine month term of the bridge notes. The amortization of the
debt discount recognized as interest expense totaled $ 83,000 for both the three
months ended June 30, 2003 and the period from January 18, 2003 (inception) to
June 30, 2003.
The Company is in default on certain existing indebtedness in the principle
amount of $1,500,000 plus accrued interest of approximately $960,000. The holder
of such indebtedness has not sought to collect such amounts due; however, were
the Company required to pay such certain indebtedness it would be necessary to
secure additional financing.
NOTE 6 - RECEIVABLE FROM NYMI
The obligations of NYMI to the Company in respect of the loans and advances
made between February and June 2003, aggregating $1,500,000, are evidenced by
NYMI's 6% note, payable in full as to principal and interest on January 3, 2004
(the "NYMI Note"). The NYMI Note is secured by a lien on the accounts
receivable, inventories and other assets of NYMI, subordinated to the liens of
DVI and the holders of the Bridge Notes.
9
NOTE 7 - RELATED PARTY TRANSACTIONS
Robert DePalo, a former officer of Lifetime, has agreed to guaranty up to
$1,000,000 of the indebtedness owed under the Lifetime Note. An affiliate of Mr.
DePalo has also entered into a maximum three year finders agreement with the
Company under which it shall receive a fee of $8,700 per month until such time
as the Payment Events shall have occurred; at which time such monthly fee shall
increase to $23,700, until an aggregate of $388,800 in finder's fees shall have
been paid by the Company. In the event that NYMI is sold as a result of the
occurrence and continuation of a "Default Event," the monthly fee shall continue
at $8,700 until an aggregate of $328,800 shall have been paid. The Company has
included the finders fee of $389,800 as a part of the transaction expense of the
reverse acquisition in the accompanying statements of operations and the
remaining balance of $379,800 in accrued liabilities in the accompanying balance
sheet.
The consulting agreement with Kenneth Orr entered into on June 16, 2003 was
terminated effective August 1, 2003.
(See Note 3)
NOTE 8 - ACQUISITION OF BALANCE OF NYMI STOCK
Effective as of July 31, 2003, AUGI and Lifetime entered into an agreement
and plan of merger with The NYMI Employees Stock Ownership Plan and Trust (the
"ESOP"), under which Lifetime will be merged with and into NYMI and the ESOP
will exchange all of its capital stock in NYMI for $1,500,000 of AUGI's Series
B-4 convertible, redeemable preferred stock (the "B-4 Preferred"). Consummation
of the acquisition of the remaining 45% of the NYMI capital stock from the ESOP
is expected to occur on or before August 31, 2003.
The B-4 Preferred is convertible into AUGI common stock at any time at the
option of the holder at a price of $4.00 per share, and is subject to mandatory
automatic conversion in the event the average of the closing bid prices of AUGI
common stock for any 30 consecutive trading days, as traded on the OTC-Bulletin
Board or on any national securities exchange shall exceed $4.80 per share. AUGI
may, subject to the holder's right of conversion, redeem the 150,000 shares of
B-4 Preferred for cash at $10.00 per share any time on 30 days prior written
notice of redemption. To the extent that any shares of B-4 Preferred have not
been previously redeemed or subject to optional or mandatory conversion by July
31, 2008, such B-4 Preferred is subject to mandatory redemption at any time at
the option of the holder on 90 days prior written notice given at any time
following July 31, 2008. The B-4 Preferred does not pay a dividend, but votes on
an "as converted basis" with the B-2 Preferred, the B-3 Preferred and the common
stock on all matters on which holders of AUGI common stock are entitled to vote.
NOTE 9 - OTHER LOANS AND ADVANCES
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 was originally due on April 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 April 24, 2003, the Company
agreed to an extension of the maturity date to July 24, 2003. On May 8, 2003,
InforMedix merged with a public entity whose name was changed to InforMedix
Holdings, Inc. and 54,000 shares of such entity's common stock were issued to
AUGI pursuant to the automatic conversion feature of the loan and accrued
interest. The shares of Informedix are to be distributed as a dividend to the
holders of the B-3 Preferred shares.
On January 13, 2003, the Company provided a working capital loan of $25,000
to Spongetech Delivery Systems, Inc. ("Spongetech") pursuant to the terms of a
7% promissory note which was originally due on May 15, 2003 which maturity date
has been extended to December 31, 2003. Subsequent to June 30, 2003, the Company
loaned an additional $25,000 to Spongetech under the same terms as the original
loan. Spongetech is a distributor of reusable specialty sponges for commercial
and everyday use. Michael Metter, a former director of the Company, is a
director and executive officer of Spongetech.
10
NOTE 10. - CONTINGENT OBLIGATIONS
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 the monthly
payments were approximately $55,000. The balance that is currently due under the
leases is unknown.
NOTE 11. - CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at two financial institutions. These
balances are insured for up to $100,000 per account by the Federal Deposit
Insurance Corporation. The cash balances at June 30, 2003 exceeded the insurance
limit by approximately $929,000, however, the Company believes it is not exposed
to any significant risk.
NOTE 12. - INFORMATION ABOUT WESTERN POWER & EQUIPMENT CORP. ("Western")
AUGI owns approximately 13% of the outstanding common stock of Western
which has been ascribed no value based on cumulative losses incurred by Western.
The Board of Directors of AUGI has declared a dividend of the 1,222,586 shares
of Western owned by AUGI to the holders of the B-3 preferred stock discussed in
Note 2.
CREDIT FACILITY
As of June 30, 2003, Western was in default of certain financial covenants
contained in a forbearance agreement with GE Commercial Distribution Finance
("GE"). To date, Western has not received a waiver of such defaults from GE and
although GE has not called the loan, there is no guarantee that it will not do
so in the future. GE was formerly known as Deutsch Financial Services ("DFS").
Western currently is in negotiations with GE to obtain a waiver of its
covenant defaults and extend or renew the credit facility beyond its current
December 31, 2002 expiration date under the forbearance agreement. Western
believes that it can reach agreement with GE to extend or renew the agreement on
reasonably acceptable terms. However, in the event that Western cannot reach a
reasonably acceptable agreement to extend or renew the current GE credit
facility, GE is entitled to demand repayment of the entire outstanding balance
at anytime. In such case, Western would be unable to repay the entire GE
outstanding balance. There can be no assurance that Western will be able to
successfully negotiate an acceptable extension or renewal of the existing GE
credit facility or that GE will not call the balance due at anytime.
TERMINATION OF PENDING SALE OF ASSETS OF WESTERN
On May 5, 2003, Western entered into an agreement to sell all of the
outstanding shares of its wholly owned subsidiary Western Power & Equipment
Corp., an Oregon corporation ("Western Sub"), to CDKnet.com, Inc. (OTCBB:CDKX)
in exchange for approximately 9,400,000 shares of CDK common stock. Western Sub
is engaged in the business of selling, renting, and servicing light, medium, and
heavy construction equipment and industrial equipment, parts, and related
products manufactured by Case Corporation and several other manufacturers. The
transaction replaces the prior agreement dated January 29, 2003 between the
parties and is intended to be a tax-free exchange of shares.
On July 18, 2003, Western Power & Equipment Corp. ("Western") was informed
by CDKnet.com, Inc. ("CDK") that the agreement to sell all of the capital stock
of Western's wholly-owned subsidiary to CDK, pursuant to a Stock Purchase and
Exchange Agreement dated May 5, 2003 ("Agreement") between Western and CDK, was
being terminated. CDK stated that its reason for terminating the Agreement was
the failure by both parties to complete the transaction in a timely manner.
11
NOTE 13. - PURCHASE OF TREASURY STOCK
In connection with the resignation of Seymour Kessler ("Kessler") from the
Board of Directors in January 2003, the Company agreed to repurchase common
shares of the Company that he and certain affiliates had acquired in a private
placement in 2000. The purchase price of $80,000 was equal to the amount paid by
Kessler and Kessler affiliates and is being paid in 12 equal monthly
installments of $6,666. As of June 30, 2003, five payments had been made.
NOTE 14 - STOCK OPTION GRANTS UNDER THE 2001 STOCK OPTION PLAN
As of the date of the merger, AUGI had outstanding stock options to
purchase 631,600 shares of common stock at exercise prices ranging from $0.62 to
$6.875.
In June, 2003 the Company granted a total of 1,350,000 options to employees
of NYMI at the market price of $1.30. In addition, a total of 1,500,000 options
were granted to Dr. Landow, a director of AUGI and the Chief Executive Officer
of Lifetime and NYMI at $1.10, a discount to market of $0.20 per share. The
intrinsic value of options will be charged to earnings over the vesting period
of the option grant. A non-cash compensation charge in the amount of $120,000
has been included in the three months ended June 30, 2003 and the period from
January 18, 2003 (inception) to June 30, 2003.
On August 8, 2003, an additional 150,000 options were granted to certain
directors of the Company at the closing market price on that date of $1.70.
If compensation cost for AUGI's stock option plans had been determined
based on the fair value at the grant date for awards 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:
Period from
January 18 (inception)
to June 30, 2003
-----------------
Net loss as reported $ (4,296,000)
Stock option compensation included in net loss 120,000
Less: total stock-based employee compensation expense
determined under the fair value method (1,180,000)
------------------
Pro Forma net loss $ (5,356,000)
==================
Net loss per share:
Basic loss per share as reported $ (0.44)
Pro Forma basic loss per share $ (0.54)
Diluted loss per share as reported $ (0.44)
Pro Forma diluted loss per share $ (0.54)
Weighted average number of shares 9,869,019
============
NOTE 15 - PER SHARE DATA
Basic and diluted loss per share is based on the weighted average number of
common shares outstanding and common shares issuable on conversion of Series B-2
and B-3 preferred stock. Common shares issuable on conversion of Series B-2 and
B-3 preferred stock are included based on preferred shareholders ability to
share in distributions of earnings available to common shareholders without
conversion. Common shares issuable (9,350,000) on the conversion of the B-2
preferred shares issued to the former Lifetime shareholders in the merger are
treated as if they were outstanding since inception of Lifetime. Common shares
issuable on the conversion of the B-3 preferred shares (4,650,000) as well as
outstanding common shares (1,997,624) retained by the AUGI shareholders are
considered to be issued on June 17, 2003, the date of the merger. As the Company
recorded a net loss during the periods, no effect is given to 7,409,684
potential dilutive common shares issuable on conversion of notes, Series B-1
preferred stock and exercise of outstanding options and warrants, as their
effect would be antidilutive.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Form 10-Q.
This management's discussion and analysis of financial conditions and
results of operations contains certain "forward-looking statements" as defined
in the Private Securities Litigation Reform Act of 1995. Such statements
relating to future events and financial performance are forward-looking
statements that involve risks and uncertainties, detailed from time to time in
the Company's various SEC filings. No assurance can be given that any such
matters will be realized.
RESULTS OF OPERATIONS
The Three Months Ended June 30, 2003 and the period from January 18,2003
(inception) to June 30, 2003
The results of operations for the Company are comprised of the operations
of Lifetime for the period from January 18, 2003 (inception) to June 30, 2003
and the results of American United Global, Inc. for the period of June 17 to
June 30, 2003.
General and administrative expenses totaled $238,000 for both the current
quarter and inception to date are comprised of stock option compensation expense
in the amount of $120,000, legal and professional fees in the amount of $100,000
and salaries, benefits and attendant overheads totaling $18,000. Such amounts
have no prior period comparable expenses.
Net interest expense for the three months and inception to date was
$104,000 and is comprised primarily of the interest expense of $83,000 related
to the discount and beneficial conversion feature relating to the $1,500,000
private placement which closed on June 17, 2003.
Acquisition expense is comprised of the fair market value of the Common and
B-1 Preferred shares held by the pre-merger shareholders of AUGI totaling
$2,618,000, the fair market value of all outstanding stock options as of June
17, 2003 in the aggregate amount of $639,000, the finders fee in the amount of
$389,000 and the net deficit of AUGI as of June 17, 2003 in the amount of
$308,000.
The Company has recorded 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.
Liquidity and Capital Resources
The Company's primary needs for liquidity and capital resources are the
funding of salaries, professional fees and other administrative expenses related
to the management of the Company.
During the period from January 18, 2003 (inception) to June 30, 2003, cash,
cash equivalents and marketable securities increased by $1,038,000 primarily due
to the merger of Lifetime with AUGI.
The Company's cash, cash equivalents and marketable securities of
$1,038,000 as of June 30, 2003 are not sufficient to support current levels of
operations for the next twelve months and it will be necessary for the Company
to seek additional financing.
As at the date of filing this Report, the Company intends to conduct a
private placement of Company's securities including Common Stock and Warrants to
purchase Common Stock (the "Offering") for anticipated proceeds of a minimum of
$5,000,000 ("Minimum Offering") and a maximum of $10,000,000 ("Maximum
Offering"), the net proceeds of which will be used to (a) pay off the Landow
Note and Lifetime Note obligations to the extent required to satisfy the
"Payment Events" under the Closing Agreement, and (b) if sufficient net proceeds
are received to retire the entire Landow Note and Lifetime Note, to the extent
not converted by the holders into Company Common Stock repay a maximum of
$1,500,000 of recently issued convertible Bridge Notes.
13
Although the Company has received a letter of intent from an investment
banking firm (the "Bank") to act as placement agent on a best efforts basis in
respect of the Offering, and believes that it will be able to timely complete
the Offering, there is no assurance that this will be the case. Bruce Meyers,
one of the former stockholders of Lifetime, who currently holds an aggregate of
140,119 shares of the Company's Series B-2 Preferred (convertible into an
aggregate of 2,802,380 shares of Company Common Stock), is the controlling
stockholder and an affiliate of such Bank. In the event that the Offering is
consummated, the Company will pay commissions to and expenses of such Bank,
estimated to be approximately $1,300,000 if the private placement is fully
consummated as presently contemplated. The Company and the Bank have agreed that
the Company will: (i) grant the Bank a right of first refusal to conduct all the
Company's financings other than commercial bank lending for a period of sixty
(60) months, which right the Company may re-purchase for $150,000; (ii) issue to
the Bank five-year warrants to purchase 13% of the number of shares of Company
Common Stock sold in the private placement, if any; (iii) pay the Bank a fee of
$75,000, and (iv) nominate a designee of the Bank to the Company's board of
directors.
On June 17, 2003, the Company received an aggregate of $1,350,000 (net of
selling commissions) in connection with the sale of 10% convertible notes due
March 2004 (the "Bridge Notes"). The Bridge Notes are convertible into Company
Common Stock at any time at $1.00, and are secured by a second lien on all of
the assets of New York Medical, Inc. ("NYMI"), an indirect 55%-owned subsidiary
of the Company. In addition, the purchasers of the Bridge Notes received five
year warrants to purchase an aggregate of 1,000,000 shares of Company Common
Stock; provided, that if the Bridge Notes have not been prepaid in full by
October 17, 2003, the number of shares issuable upon exercise of the warrants
will increase to 1,250,000 shares, and increase further to an aggregate of
1,500,000 shares, in the event that, for any reason, the Bridge Notes have not
been paid in full by January 17, 2005. The Company utilized an aggregate of
approximately $650,000 of the net proceeds from the sale of the Bridge Notes to
increase its outstanding loans to Lifetime and NYMI from $850,000 to $1,500,000.
The Company has lent NYMI an aggregate of $1,500,000, which was used for
working capital purposes as well as to repay certain obligations. The $1,500,000
of loans to NYMI are evidenced by its 6% note to the Company due as to principal
and interest on January 2, 2004 and secured by a lien on the NYMI assets
subordinated to DVI and the holders of the Bridge Notes.
For a description of the current status of NYMI's senior credit facility
with DVI, see Note 4.
In addition, the Company is in default on certain existing indebtedness in
the amount of $1,500,000, plus accrued interest of approximately $960,000.
Although the holder of such indebtedness has not sought to collect the same,
were the Company required to pay such indebtedness it would be necessary to
secure additional financing.
AUGI remains contingently liable for certain capital lease obligations
assumed by eGlobe, Inc. as part of the Connectsoft Communications Corp. asset
sale which was consummated in June 1999 (see Note 10).
AUGI guaranteed payment by NYMI of a separate $4,663,000 6% Amended and
Restated Senior Subordinated Term Loan Promissory Note of NYMI, dated as of June
16, 2003 and payable to Tracy Landow as discussed more fully in Note 3.
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.
14
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.
Recent Accounting Pronouncements
FASB Interpretation No. 45 Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others an interpretation of FASB Statements No. 5, 57, and 107 and rescission of
FASB Interpretation No. 34.
This Interpretation elaborates on the disclosures to be made by a guarantor
in its interim and annual financial statements about its obligations under
certain guarantees that it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. This Interpretation
does not prescribe a specific approach for subsequently measuring the
guarantor's recognized liability over the term of the related guarantee. This
Interpretation also incorporates, without change, the guidance in FASB
Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of
Others, which is being superseded.
The initial recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002, irrespective of the guarantor's fiscal
year-end. The disclosure requirements in this Interpretation are effective for
financial statements of interim or annual periods ending after December 15,
2002. The interpretive guidance incorporated without change from Interpretation
34 continues to be required for financial statements for fiscal years ending
after June 15, 1981 the effective date of Interpretation 34. The Company has
made the appropriate disclosures related to guarantees.
In April 2002, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 145, Rescission 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 relevancy in the future.
15
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - An Amendment of FASB Statement No.
123." This Statement provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation and requires prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
has elected not to adopt the recognition and measurement provisions of SFAS No.
123 and continues to account for its stock-based employee compensation plans
under APB Opinion No. 25 and related interpretations, and therefore the
transition provisions will not have an impact on its operating results or
financial position.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The Statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts entered into or modified after June 30,
2003. The guidance should be applied prospectively. The provisions of this
Statement that relate to SFAS 133 Implementation Issues that have been effective
for fiscal quarters that began prior to June 15, 2003, should continue to be
applied in accordance with respective effective dates. In addition, certain
provisions relating to forward purchases or sales of when-issued securities or
other securities that do not yet exist, should be applied to existing contracts
as well as new contracts entered into after June 30, 2003. The adoption of SFAS
No. 149 is not expected to have an impact on the Company's financial statements.
In May 2003, the FASB issued Statement of Accounting Standards No. 150
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" (SFAS No. 150). SFAS No. 150 establishes standards for
classification and measurement in the statement of financial position of certain
financial instruments with characteristics of both liabilities and equity. It
requires classification of a financial instrument that is within its scope as a
liability (or an asset in some circumstances). SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The Company has not yet determined the impact, if any, of the adoption
of SFAS on its financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company maintains cash balances at two financial institutions. These
balances are insured for up to $100,000 per account by the Federal Deposit
Insurance Corporation. The cash balances at June 30, 2003 exceeded the insurance
limit by approximately $929,000, however, the Company believes it is not exposed
to any significant risk.
ITEM 4. 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.
16
PART II
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
On June 17, 2003, the Company issued warrants to purchase 1,000,000 shares
of its Common Stock, $.01 par value, as partial consideration for certain bridge
notes. The warrants were fully vested on grant and are exercisable until June
17, 2008. The exercise price of $0.75 per share was less than the closing price
of the Common Stock on the date of grants. The warrants were issued pursuant to
an exemption by reason of Section 4(2) of the Securities Act of 1933, as
amended. The issuance was made without general solicitation or advertising. The
investors were sophisticated investors with access to all relevant information.
In addition, on June 17, 2003 as consideration for the Lifetime Merger,
AUGI issued to the former stockholders of Lifetime, an aggregate of 467,500
shares of AUGI's newly designated Series B-2 Convertible Preferred Stock (the
"B-2 Preferred"). Each share of the B-2 Preferred is convertible on or after
December 17, 2003 into 20 shares of AUGI common stock, although the B-2
Preferred shall be mandatorily converted into AUGI common stock with no action
required on the part of AUGI or the holder of the B-2 Preferred upon the
occurrence of certain fundamental corporate events, such as a business
combination or sale of substantially all its assets. Accordingly, an aggregate
of 9,350,000 shares of AUGI common stock is issuable to the former Lifetime
stockholders if all shares of B-2 Preferred are converted. The shares were
issued pursuant to an exemption by reason of 4(2) of the Securities Act of 1933,
as amended. The issuance was made without general solicitation or advertising.
Also on June 17, 2003 in contemplation of the Lifetime Merger, AUGI
declared a stock dividend to holders of record of AUGI common stock as of June
10, 2003. The stock dividend took the form of the issuance of 232,500 shares of
AUGI's newly authorized and designated Series B-3 Convertible Preferred Stock
(the "B-3 Preferred"). Each share of the B-3 Preferred also is convertible, on
or after December 17, 2003 (or earlier as provided above), into 20 shares of
AUGI common stock. Accordingly, an aggregate of 4,650,000 shares of AUGI common
stock is issuable the holders of the B-3 Preferred if all shares of B-3
Preferred are converted. The shares were issued pursuant to an exemption by
reason of 4(2) of the Securities Act of 1933, as amended. The issuance was made
without general solicitation or advertising.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
Exhibit 31.1 - Certification pursuant to U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Exhibit 31.2 - Certification pursuant to U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Exhibit 32.1 - Certification pursuant to U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
Exhibit 32.2 - Certification pursuant to U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
17
REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on July 2, 2003 regarding
the Company's merger with Lifetime Healthcare Services, Inc.
The Company filed a Current Report on Form 8-K on July 30, 2003 as amended
on Form 8-K/A on August 4, 2003 regarding the change in the Company's certifying
accountant.
The Company filed a Current Report on Form 8-K on July 30, 2003 regarding
the change of expiration date of warrants of the Company.
18
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN UNITED GLOBAL, INC.
August 19, 2003
By: /s/ Robert M. Rubin
-------------------
Robert M. Rubin
Chief Executive Officer
By: /s/ David M. Barnes
-------------------
David M. Barnes
Chief Financial Officer
19