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 September 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 November 14, 2003
AMERICAN UNITED GLOBAL, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet September 30, 2003 (unaudited).. 1
Consolidated Statements of Operations
Three Months Ended September 30, 2003 (unaudited).......... 2
Consolidated Statements of Operations January 18, 2003
(inception) to September 30, 2003 (unaudited).............. 3
Consolidated Statement of Additional Paid in Capital January
18, 2003 (inception) to September 30, 2003 (unaudited)..... 4
Consolidated Statement of Cash Flows January 18, 2003
(inception) to September 30, 2003 (unaudited).............. 5
Notes to the Consolidated Financial
Statements (unaudited)..................................... 6-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 14-17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.......................................... 17
Item 4. Controls and procedures............................ 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................. 17
Item 2. Changes in Securities.............................. 17
Item 3. Defaults Upon Senior Securities.................... 18
Item 4. Submission of Matters to a Vote of Security
Security Holders................................... 18
Item 5. Other Information ................................. 18
Item 6. Exhibits and Reports on Form 8-K................... 18
Signatures................................ 19
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30,
2003
----
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 577,000
Investment in marketable securities, at market value.................. 9,000
Note receivable, other................................................ 45,000
Note receivable from Spongetech, Inc.................................. 50,000
Prepaid expenses...................................................... 75,000
Interest receivable................................................... 40,000
Investment in Informedix Holdings, Inc................................ 100,000
-----------
TOTAL CURRENT ASSETS.................................................. 896,000
Investment in New York Medical, Inc, at cost.......................... 5,500,000
Notes receivable from New York Medical, Inc........................... 1,508,000
-----------
TOTAL ASSETS..................................................... 7,904,000
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term borrowings in default, including accrued interest
of $1,023,000........................................................ $ 2,523,000
Accounts payable...................................................... 14,000
Accrued liabilities................................................... 1,360,000
Note payable - treasury stock purchase................................ 27,000
Note payable - acquisition - current portion.......................... 2,500,000
Bridge notes payable, net of unamortized discount of $917,000......... 583,000
Distribution payable to Series B-3 Preferred shareholders............. 100,000
-----------
TOTAL CURRENT LIABILITIES............................................. 7,107,000
Note Payable - acquisition - non-current portion...................... 3,000,000
-----------
TOTAL LIABILITIES..................................................... 10,107,000
-----------
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............................................ 5,264,000
Accumulated deficit................................................... (7,498,000)
-----------
Total shareholders' deficit.......................................... (2,203,000)
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 7,904,000
===========
See accompanying notes to consolidated financial statements.
1
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
SEPTEMBER 30,
2003
----
General and administrative expenses.................... $ 1,169,000
-----------
Operating loss......................................... (1,169,000)
Interest expense, net.................................. (630,000)
------------
Net loss............................................... $ (1,799,000)
============
Basic and diluted loss per share....................... $ (0.11)
============
Weighted average number of common and
common equivalent shares............................... 15,997,624
============
See accompanying notes to consolidated financial statements.
2
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
JANUARY 18, 2003
(INCEPTION) TO
SEPTEMBER 30,
2003
----
General and administrative expenses.................... $ 1,406,000
-----------
Operating loss......................................... (1,406,000)
Interest expense, net.................................. (734,000)
------------
Loss from operations before transaction expense
of reverse acquisition................................ (2,140,000)
Transaction expense of reverse acquisition............. 5,358,000
------------
Net loss and accumulated deficit at September 30, 2003. $ (7,498,000)
============
Basic and diluted loss per share....................... $ (0.62)
============
Weighted average number of common and
common equivalent shares............................. 12,087,257
============
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
SEPTEMBER 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 and warrants
of AUGI at date of merger............................. 2,043,000
Stock option compensation.............................. 527,000
----------
Balance at end of period....................... $ 5,264,000
==========
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
SEPTEMBER 30,
2003
----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................ $ (7,498,000)
Adjustments to reconcile net loss to
net cash used by operating activities
Transaction expense of reverse
acquisition, non-cash............................ 4,969,000
Amortization of debt discount..................... 583,000
Stock option compensation......................... 527,000
Changes in assets and liabilities, net of acquisition
Interest receivable............................. (26,000)
Accounts payable and accrued liabilities........ 964,000
----------
NET CASH USED BY OPERATING ACTIVITIES.................. (481,000)
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans to New York Medical.......................... (1,508,000)
Loan to Spongetech, Inc............................ (25,000)
Other loans........................................ (45,000)
---------
NET CASH USED BY INVESTING ACTIVITIES................... (1,578,000)
---------
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
Payment of note payable - treasury stock purchase. (20,000)
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............. 2,636,000
---------
Net increase in cash and cash equivalents.............. 577,000
Cash and cash equivalents, beginning................... -
---------
Cash and cash equivalents, ending...................... $ 577,000
=========
See accompanying notes to consolidated financial statements.
5
AMERICAN UNITED GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial information included in this report has been prepared
in conformity with the accounting principles 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 New York Medical, Inc. ("NYMI") and its ownership of
55% of the capital stock of 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 September 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 cost (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 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 and
warrants as of June 17, 2003 in the aggregate amount of $2,043,000 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 finder's 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 ($4,355,000 as at September 30, 2003) 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 (the "Closing Agreement"), 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) DR. Landow may compel AUGI to consummate such
sale.
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.
7
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 now matures on January 3, 2005.
In August 2003, the Company undertook a private placement of between $5,000,000
and $10,000,000 of its common stock and warrants, intending to use the proceeds
to (i) retire its obligations under the Landow Note and the Lifetime Note, so as
to satisfy the Payment Events required under the Closing Agreement, and (ii) to
the extent sufficient net proceeds remained available, to repay the $1,500,000
of convertible Bridge Notes issued in June 2003.
As of October 17, 2003, no proceeds had been raised under such private placement
and the Company had not paid the payment obligations that were due on October
17, 2003. On October 23, 2003, the Company, Redwood, Tracy Landow and Dr. Landow
executed a Standstill Agreement (the "Standstill Agreement"). The Standstill
Agreement granted the Company an extension of time from October 17, 2003 to
October 31, 2003 to raise sufficient capital to fund the Payment Events under
the Landow Note. In addition, the Agreement required the acceleration of the
second payment obligation for $2,000,000 payable under the Lifetime Note,
originally required to be completed no later than March 22, 2004 under the
Merger Agreements, to October 31, 2003. Both Payment Event obligations aggregate
approximately $6.4 Million. As consideration for the extension of time to
complete its payment obligations, the Company agreed to extend the maturity date
of a $1,500,000 6% promissory note issued by NYMI to the Company, from January
3, 2004 to January 3, 2005.
In October 2003, the Company entered into a non-binding agreement with an
unaffiliated investor group for the purchase of $7,000,000 of Company Common
Stock. Under the terms of such agreement, the investor group would receive
common stock in an amount to represent 25% of the fully-diluted AUGI common
shares, as defined, after such investment is made. The proceeds of such sale
were to be used primarily to fund the Payment Events. Such agreement was subject
to termination by either party if the $7,000,000 of funding was not received by
November 13, 2003. although representatives of the investor group have orally
advised the company that payment will be forthcoming in the near future, as at
the date of filing of this report, such investor has not funded under the
agreement.
On November 13, 2003, Redwood, T. Landow and Dr. Landow agreed to extend to 5
P.M. EST on Monday November 17, 2003 the date under which a default by the
company in payment of the approximately $6.4 million of Payment Event
obligations would occur. in the event that the holders of the Landow Note and
the Lifetime Note do not receive payment in full of the Payment Event
obligations by 5:00 p.m. EST on November 17, 2003, an automatic default will
occur under the closing agreement and the Standstill Agreement and Dr. Landow
will have the right to exercise all of his rights under the Closing Agreement
and force the company to engage an investment bank and sell its New York Medical
subsidiary at the highest price offered by a qualified buyer. Such sale would
have a material adverse effect on the Company's results of operations, financial
condition and future prospects.
8
In the event that the Company is required to sell New York Medical (the
Company's only operating business), it will seek other opportunities to acquire
businesses that are in the medical services industry similar to that engaged in
by New York Medical. Representatives of the company are in preliminary
discussions with other potential acquisition candidates and have held
discussions with investment bankers to assist the company in financing any such
potential acquisitions. There can, however, be no assurance that the company
will be able to either (a) timely pay or obtain an extension of its $1,500,000
of payment obligations on the Bridge Notes described below that are due in March
2004, or (b) consummate the acquisition of one or more operating businesses.
Even if the company is able to timely pay or obtain an extension on the due date
of its Bridge Notes and acquire one or more businesses, then it is possible that
any such transactions, if consummated, could significantly dilute the interests
of present stockholders of the company.
NOTE 4 - SENIOR INDEBTEDNESS OF NYMI
NYMI's senior secured credit facility ("Facility") with its lender DVI Credit
Corp. ("DVI") matured on September 24, 2003. In August, 2003 DVI filed for
protection under Chapter 11 of the US Bankruptcy Code and continued to operate
subject to certain conditions. DVI extended the Facility to October 31, 2003 and
in October, 2003 extended the maturity date to December 31, 2003. Pursuant to
such extension, DVI has continued to fund NYMI under the terms of the original
Facility. NYMI has continued to seek a new senior secured lender to replace DVI.
DVI has announced an asset management plan under which it would sell certain
assets and hold others until maturity and as a part of that plan, has expressed
a willingness to restructure the Facility as part of any NYMI refinancing with a
new lender. There can be no assurance that a new lender can be found on terms
acceptable to NYMI or that any restructuring of the Facility can be successfully
completed. Further, there can be no assurance that DVI will be able to continue
to fund NYMI's operating requirements beyond December 31, 2003. Should the
Payment Events explained in Note 3 be satisfied; the inability to obtain
refinancing prior to December 31, 2003, or the inability of DVI to provide
funding beyond December 31, 2003, in the absence of an alternative financing
facility, would have a material, adverse effect on AUGI's business, financial
condition and future prospects. As of September 30, 2003 the outstanding balance
under the DVI facility was approximately $5,900,000.
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. Payment was not made by October 17, 2003
and as a result, the number of shares issuable upon exercise of the warrants has
increased to 1,250,000 shares. 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 $687,000 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 $813,000 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 $ 500,000 and $583,000 for the three
months ended September 30, 2003 and the period from January 18, 2003 (inception)
to September 30, 2003, respectively.
9
The Company is in default on certain indebtedness in the principal amount of
$1,500,000 plus accrued interest of approximately $1,023,000. 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, originally payable in full as to principal and interest on January 3,
2004 (the "NYMI Note"). As discussed in Note 3, the maturity date of the NYMI
Note has been extended to January 3, 2005. 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. During the three months
ended September 30, 2003, the Company advanced an additional $8,000 to NYMI.
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 payment
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 has been paid. The Company has included
the finder's fee of $389,800 as a part of the transaction expense of the reverse
acquisition in the accompanying statement of operations for the period from
January 18, 2003 (inception) to September 30, 2003 and reflected the remaining
unpaid balance of $353,000 in accrued liabilities in the accompanying balance
sheet at September 30, 2003.
NOTE 8 - ACQUISITION OF BALANCE OF NYMI STOCK
Effective August 31, 2003, AUGI, Lifetime and NYMI entered into a share exchange
agreement (the "Share Exchange Agreement") with The NYMI Employees Stock
Ownership Plan and Trust (the "ESOP"), under which the ESOP will transfer to
Lifetime 450,000 shares of Series A convertible preferred stock of NYMI,
representing the remaining 45% of the outstanding NYMI capital stock (the "ESOP
Shares") in exchange for $4,500,000 of AUGI's 6.5% Series B-4 convertible,
redeemable preferred stock (the "B-4 Preferred"). Consummation of the share
exchange is subject to certain conditions, including receipt of a fairness
opinion from an independent banker and satisfaction by AUGI of all of the
Payment Events under the Closing Agreement. See note 3 for further information
regarding the Payment Events.
Each of the 150,000 shares of AUGI B-4 Preferred is convertible into AUGI common
stock at any time at the option of the holder into 7.5 shares of AUGI Common
Stock (an effective conversion 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 $30.00 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 December 31, 2009, 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 on or following January 1, 2010. The B-4 Preferred
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.
10
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 was automatically convertible into 100,000 common
shares (50,000 shares after a reverse split of 1 for 2 effective in May 2003) 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 as payment
of the principle and accrued interest pursuant to the automatic conversion
feature of the promissory note. The shares of Informedix are to be distributed
as a dividend to the holders of the B-3 Preferred shares.
During the three months ended September 30, 2003, the Company advanced an
additional $20,000 to InforMedix evidenced by an 8% promissory note due June 30,
2004. In addition the Company is to receive 50,000 shares of InforMedix common
stock and an option to purchase an additional 50,000 shares of InforMedix common
stock at $0.50 per share through July 23, 2006. The Company advanced $25,000 to
Scantech, Inc. in July 2003. The $25,000 principal plus $5,000 interest are to
be repaid to the Company by November 21, 2003. These advances have been recorded
under the caption of Notes receivable, other in the accompanying consolidated
balance sheet at September 30, 2003.
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 July 31, 2004. On July 7, 2003, the Company loaned an
additional $25,000 to Spongetech under the same terms and Spongetech agreed to
issue 250,000 shares of its common stock to the Company as additional
consideration. 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.
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 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, the assets and related leases were most likely acquired by another
company and that a mutually acceptable financial arrangement was reached to
accomplish such 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 expiration dates to approximately
early 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 September 30, 2003 exceeded the
insurance limit by approximately $473,000, however, the Company believes it is
not exposed to any significant risk.
11
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 net losses incurred by Western which,
for accounting purposes, has decreased the balance in the Investment in Western
account to -0-. 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 as discussed in Note 2.
CREDIT FACILITY
As of September 30, 2003, Western was in default of certain financial covenants
contained in a forbearance agreement with GE Commercial Distribution Finance
("GE"). Western has requested but has not received a waiver of such defaults
from GE and although GE has not called the loan and continues to make certain
advances to Western, there is no assurance that it will continue to fund or that
it will not call the loan 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 operating subsidiary Western Power & Equipment Corp.,
an Oregon corporation, to CDKnet.com, Inc. ("CDK")in exchange for approximately
9,400,000 shares of CDK common stock. The transaction replaced a prior agreement
dated January 29, 2003. On July 18, 2003, Western was informed by CDK that the
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.
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 September 30, 2003, eight 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 period from January 18, 2003 (inception) to September
30, 2003.
12
On August 8, 2003, five year options to acquire 200,000 shares of common stock
were granted to each of three directors of the Company at the closing market
price on that date of $1.70, of which options for 50,000 shares each vested on
the grant date, with the remaining options vesting at the rate of 50,000 shares
each on the three successive grant anniversary dates through 2006. On September
17, 2003 a five year option for 350,000 common shares was granted to an officer
of the Company at the closing market price of $1.25 of which 87,500 shares
vested on the grant date, with the remaining options vesting at the rate of
87,500 shares on each of the next three grant anniversary dates. 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:
Three months Period from
ended September January 18 (inception)
30, 2003 to September 30, 2003
--------------- -----------------
Net loss as reported $ (1,799,000) $ (7,498,000)
Stock option compensation included in net loss - 120,000
Total stock-based employee compensation expense
determined under the fair value method (330,000) (1,511,000)
--------------- ---------------
Pro Forma net loss $ (2,219,000) $ (8,889,000)
=============== ===============
Net loss per share:
Basic loss per share as reported $ (0.11) $ (0.62)
Pro Forma basic loss per share $ (0.14) $ (0.74)
Diluted loss per share as reported $ (0.11) $ (0.62)
Pro Forma diluted loss per share $ (0.14) $ (0.74)
Weighted average number of shares 15,997,624 12,087,257
=========== ============
NOTE 15 - INVESTOR RELATIONS AGREEMENT
On August 29, 2003, the Company entered into a financial consulting agreement
with Affiliated Holdings, Inc. and its affiliates, under which the Company
agreed to pay fees of $25,000 per month for a minimum of 90 days and unless such
agreement is cancelled by the Company at the end of 90 days for not less than
nine months thereafter, and issue to Affiliated Holdings, Inc. and its
affiliates an option to purchase an aggregate of 450,000 shares of AUGI common
stock for the exercise price of $1.00, the closing bid price on August 29, 2003
expiring August 29, 2008. The Company has recorded the fair value of the option
granted as a non-cash charge of $407,000 for the three months ended September
30, 2003 and the period from January 18, 2003 (inception) to September 30, 2003.
NOTE 16 - AGREEMENT TO ISSUE COMMON STOCK
On September 2, 2003, the Company agreed to issue an aggregate of 235,075 shares
of Company common stock to two law firms in payment of legal fees incurred by
the Company. In addition, the Company agreed to pay the shortfall if the firms
do not receive an aggregate of $235,075 from the subsequent sale of all such
shares. The Company recorded a non-cash charge in the amount of $235,075 for the
three months ended September 30, 2003 and the period from January 18, 2003
(inception) to September 30, 2003. Such shares were not yet issued at September
30, 2003.
NOTE 17 - 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 8,809,684
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.
13
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 September 30, 2003 and the period from January 18,
2003(inception) to September 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 September 30, 2003
and the results of American United Global, Inc. for the period of June 17 (the
acquisition date) to September 30, 2003.
General and administrative expenses were $1,169,000 and $1,406,000 for the
three months ended September 30, 2003 and inception to September 30, 2003
periods, respectively and are comprised of stock option compensation expense in
the amount of $0 and $120,000,respectively, legal and professional fees in the
amount of $1,020,000 and $1,120,000, respectively, and salaries, benefits and
attendant overheads totaling $149,000 and $166,000, respectively. Such amounts
have no prior period comparable expenses. The quarter and the period of
inception to September 30, 2003 include a non-cash charge of $407,000 related to
stock options granted under the investor relations agreement as discussed in
Note 15.
Net interest expense for the three months ended September 30, 2003 and inception
to September 30, 2003 was $630,000 and $784,000, respectively and is comprised
primarily of the interest expense of $583,000 and $500,000 related to the
amortization of debt discount on the $1,500,000 private placement of Bridge
Notes which closed on June 17, 2003, $82,000 and $95,000 of interest expense,
respectively related to the Landow note, $37,000 and $43,000, respectively of
interest expense accrued on the Bridge notes and $38,000 and $44,000 related to
short term borrowings in default, respectively. These are partially offset by
interest income from the loans to NYMI, Spongetech and interest earned on cash
balances aggregating $27,000 and $31,000, respectively for the three months
ended September 30, 2003 and inception to September 30, 2003.
Transaction expense related to reverse merger for the period of inception to
September 30, 2003 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 value of all outstanding stock options and warrants as of June
17, 2003 in the aggregate amount of $2,043,000, 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.
14
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 September 30, 2003, cash,
cash equivalents and marketable securities increased by $586,000 primarily due
to the merger of Lifetime with AUGI.
The Company's cash, cash equivalents and marketable securities of $586,000 as of
September 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. The Company has entered into a non-binding agreement with
an investor group for the sale of $7.0 million of AUGI common stock to represent
25% of the fully diluted common shares of AUGI, as defined, after such
investment is made. However, as of November 14, 2003 such investor has not yet
funded the transaction. Such funding, were it to occur, would be used to
consummate the Payment Events more fully described in Note 3 in the amount of
approximately $6,400,000 with the remaining $600,000 being used for general
working capital purposes. Pursuant to a Standstill Agreement by and amongst the
Company, T. Landow, Redwood and Dr. Landow, the Payment Events must be
consummated by 5 P.M. EST on November 17, 2003, or a default will be declared.
There is no assurance that the investor group will fund on a timely basis or
that the Payment Event obligations will be satisfied. Should this be the case,
the Company will have to seek other sources to provide financing for its
operations. The Company is actively seeking such alternative financing.
In August 2003, the Company undertook a private placement of between $5,000,000
and $10,000,000 of its common stock and warrants, intending to use the proceeds
to (i) retire its obligations under the Landow Note and the Lifetime Note, so as
to satisfy the Payment Events required under the Closing Agreement, and (ii) to
the extent sufficient net proceeds remained available, to repay the $1,500,000
of convertible Bridge Notes issued in June 2003.
There have been no proceeds from this offering to date and thus the Company,
through this offering, will not be able to satisfy the funding of the Payment
Events required under the closing agreement by the extended due date of November
17, 2003 at 5 P.M. EST (see Note 3).
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 $1,508,000, which was used for working
capital purposes as well as to repay certain obligations, of which $1,500,000 is
evidenced by its 6% note to the Company due as to principal and interest on
January 3, 2005 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.
The Company is in default on certain indebtedness in the amount of $1,500,000,
plus accrued interest of approximately $1,023,000. 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 ($4,355,000 as at
September 30, 2003) 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.
15
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.
Recent Accounting Pronouncements
In February 2003, the Company adopted FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities" (FIN 46). FIN 46 requires a variable interest
entity to be consolidated by a company if that company is subject to a majority
of the risk of loss from the variable interest entity's activities or entitled
to receive a majority of the entity's residual returns or both. FIN 46 also
requires disclosures about variable interest entities that a company is not
required to consolidate but in which it has a significant variable interest. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. Adoption of this portion of the
interpretation did not have a material impact on the Company's financial
statements. The consolidation requirements apply to existing entities in the
first fiscal year or interim period beginning after June 15, 2003. Certain of
the disclosure requirements apply in all financial statements issued after
January 31, 2003, regardless of when the variable interest entity was
established. The impact of adoption of this portion of the interpretation is not
expected to have an impact on the Company's financial statements.
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.
16
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 September 30, 2003 exceeded the
insurance limit by approximately $474,000, 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.
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 (1,250,000
as of October 17, 2003) 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. (See Note 5) 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.
17
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
REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on July 2, 2003, as amended on
September 2, 2003 and September 8, 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.
The Company filed a Current Report on Form 8-K on September 24, 2003 announcing
the Company's signing of a contract to acquire the remaining 45% of the capital
stock of New York Medical, Inc. and pro-forma results of operations for the six
months ended June 30, 2003.
The Company filed a Current Report on Form 8-K on October 30, 2003 regarding the
execution of a Standstill Agreement relative to the Payment Events due date
pursuant to the NYMI Merger Agreements.
The Company filed a Current Report on Form 8-K on November 12, 2003 as amended
on Form 8-K/A on November 13, 2003 relative to a further extension of the
Payment Events due date pursuant to the NYMI Merger agreements.
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.
November 17, 2003
By: /s/ Robert M. Rubin
-------------------
Robert M. Rubin
Chief Executive Officer
By: /s/ David M. Barnes
-------------------
David M. Barnes
Chief Financial Officer
19