U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2002
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to _____________
Commission File Number: 0-22341
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AUG CORP.
---------
(Exact name of Small Business Issuer as specified in its Charter)
Delaware 04-3089539
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1900 Corporate Blvd., Suite 305W, Boca Raton, Florida 33431
-----------------------------------------------------------
(Address of principal executive offices)
(561) 241-9921
--------------
(Issuer's telephone number)
---------------------------------------------------------------
(Former Name, former address and former fiscal year, if changed
since last Report.)
Check mark whether the Issuer (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
past 12 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 104,780,223shares of Common
Stock as of November 20, 2002.
INDEX
Page
----
PART I. FINANCIAL INFORMATION 3
---------------------
Item 1. Condensed Financial Statements (unaudited) 3
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Condensed Financial Statements 6-11
Item 2. Management's Discussion and Analysis and Plan of Operations 12
PART II. OTHER INFORMATION 14
-----------------
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 15
Item 4. Submissions of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
2
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Condensed Financial Statements
AUG CORP. AND SUBSIDIARY
CONDENSED BALANCE SHEETS
------------------------
ASSETS
------
March 31, 2002
(Consolidated)
(Unaudited) December 31, 2001
-------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $ 273,351 $ 36,079
Cash advance for pending merger -- 600,000
Accounts receivable, net 3,809 --
Prepaid expenses and other assets 57,640 --
------------ ------------
Total Current Assets 334,800 636,079
Furniture, fixtures and equipment, net 207,834 --
Goodwill 19,977,468 --
------------ ------------
TOTAL ASSETS $ 20,520,102 $ 636,079
------------ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 237,159 $ --
Accrued expenses 60,786 7,258
Loans payable to related party 500,000 --
------------ ------------
Total Current Liabilities 797,945 7,258
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, Series A, $0.01 par value, 2,000,000
shares authorized, none issued and outstanding -- --
Common stock, $0.0001 par value, 148,000,000 shares authorized,
88,364,964 and 82,189,964 shares issued and outstanding, respectively 8,836 8,220
Common stock to be issued (11,470,259 shares) 19,847,948 --
Additional paid-in capital 23,169,948 22,887,815
Accumulated deficit (23,304,575) (22,267,214)
------------ ------------
Total Stockholders' Equity 19,722,157 628,821
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,520,102 $ 636,079
------------------------------------------ ============ ============
See accompanying notes to condensed consolidated financial statements.
3
AUG CORP. AND SUBSIDIARY
CONDENSED STATEMENTS OF OPERATIONS
----------------------------------
(UNAUDITED)
For the Three
Months Ended March For the Three
31, 2002 Months Ended
(Consolidated) March 31, 2001
------------------ --------------
NET REVENUES $ -- $ --
------------ ------------
OPERATING EXPENSES
General and administrative expenses 1,024,361 11,443
------------ ------------
Total Operating Expenses 1,024,361 11,443
------------ ------------
LOSS BEFORE EXTRAORDINARY GAIN (1,024,361) (11,443)
EXTRAORDINARY GAIN
Gain on extinguishment of debt -- 1,665,043
------------ ------------
NET (LOSS) INCOME $ (1,024,361) $ 1,653,600
----------------- ============ ============
Net (loss) income per share of common stock - basic and diluted $ (0.01) $ 11.49
============ ============
Weighted average number of shares outstanding during the period -
basic and diluted 86,028,020 143,856
============ ============
See accompanying notes to condensed consolidated financial statements.
4
AUG CORP. AND SUBSIDIARY
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
(UNAUDITED)
For the Three
Months Ended March For the Three
31, 2002 Months Ended March
(Consolidated) 31, 2001
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $(1,024,361) $ 1,653,600
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Issuance of common stock for services 13,750 --
Extraordinary gain on extinguishment of debt -- (1,665,043)
Depreciation 24,439 --
Changes in assets and liabilities:
Accounts receivable (3,809) --
Prepaid expenses and other current assets 26,850 --
Accounts payable 138,079 --
Accrued expenses 42,976 (275,490)
----------- -----------
Net Cash Used In Operating Activities (782,076) (286,933)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (190,086) --
Cash acquired in merger acquisition 187,434 --
----------- -----------
Net Cash Used In Investing Activities (2,652) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock, net 522,000 --
Note payable -- 270,000
Loans payable to related party 500,000 --
----------- -----------
Net Cash Provided By Financing Activities 1,022,000 270,000
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 237,272 (16,933)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 36,079 29,172
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 273,351 $ 12,239
----------------------------------------- =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
-----------------------------------
Non-Cash Investing and Financing Activities:
During the three months ended March 31, 2002, 275,000 shares valued at $0.05 per
share were issued, or to be issued, for the payment of services valued at
$13,750.
During the three months ended March 31, 2001, 65,743 shares valued at $658 were
issued for the extinguishment of debt consisting of notes and interest valued at
$1,665,701. A gain on extinguishment of debt was recognized for $1,665,043.
See accompanying notes to condensed consolidated financial statements.
5
AUG CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
--------------------
(UNAUDITED)
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------ -----------------------------------------------------------
(A) Organization
----------------
AUG Corp. (the "Company") was incorporated in 1990 to develop and
distribute fiber optic printed circuit boards in the publishing and
printing markets. The fiber optic products had limited success and in
fiscal 1994 the Company began phasing out the fiber optic operations and
began the transition into a systems integration and engineering
consulting business. In 1995, the Company made a strategic shift in its
business operation into the server market.
In November 1998, the Company was informed by the investment bank that
had provided financing that they would be unable to secure the additional
funding required to repay an outstanding bridge loan and provide the
Company with the necessary working capital to support its plan and
ongoing operations. The Company began to seek alternative financing, but
was unable to secure the necessary funds for extinguishment of the bridge
loan.
In January 1999, the Board of Directors decided to seek buyers, strategic
partners and merger opportunities to make the Company economically
viable.
On March 11, 2000, Right2Web.Com, Inc. acquired 1,416,700 shares of the
Company's preferred stock convertible into 92% of the outstanding shares
of the Company's common stock. In return for the shares of preferred
stock, Right2Web.Com, Inc. undertook to satisfy the Company's current
debt and obligations and fund its operations. The transaction was valued
at $40,480 and was accounted for as a reverse merger in 2000. The
preferred stock was converted into common stock in 2001.
In September 2001, the Board of Directors and a majority of the
stockholders of the Company voted to change the name of the Company to
AUG Corp. The name change became effective on October 29, 2001.
Effective August 31, 2001, the Company entered into a Stock Purchase
Agreement ("Agreement") with the purchaser, a Curacao, Netherlands
Antilles corporation. Under this Agreement, the purchaser purchased
2,000,000 shares of the Company's Series A Preferred Stock, par value
$.01 and 670,854 shares of the Company's common stock (post 100:1 reverse
stock split) for the sum of $400,000. The preferred shares were converted
into an aggregate of 40,000,000 common shares, par value $.0001, upon the
completion of a 100:1 reverse stock split of the Company's common stock.
In addition, under the Agreement, the Company issued warrants to a
company related to and controlled by the purchaser to purchase 10,000,000
shares of the Company's common stock exercisable at $.01 per share until
November 30, 2001; warrants to purchase 20,000,000 shares of the
6
AUG CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
--------------------
(UNAUDITED)
Company's common stock exercisable at $.05 per share until August 31,
2004; and warrants to purchase 20,000,000 shares of the Company's common
stock exercisable at $.10 per share until August 31, 2006. In November
2001, the Company issued 10,000,000 shares of common stock in exchange
for the 10,000,000 warrants that were exercisable at $.01 per share. In
accordance with the Agreement, the Company also issued to another company
controlled by the purchaser a cash-less exercisable option to purchase
2,000,000 shares of the Company's common stock along with warrants to
purchase 1,000,000 shares of the Company's common stock exercisable at
$.05 per share until August 31, 2004 and was also issued warrants to
purchase 1,000,000 shares of the Company's common stock at $.10 per share
until August 31, 2006. In November 2001, the Company issued the 2,000,000
shares of common stock upon the cash-less exercise of the related
options.
In January 2002, the Company acquired 100% of the common stock of
Synthesys Secure Technologies, Inc. ("Synthesys"). The purchase price of
the investment amounted to $20,181,948, and was comprised of a cash
payment of $600,000 made in December 2001, and the issuance of 5,350,259
shares of restricted common stock valued at $19,581,948. The shares were
valued at the average quoted trading price during the acquisition period
(See Note 4). The fair value of the investment at the acquisition date
was determined to be $204,480. The excess of the purchase price over the
fair value of the investment in the amount of $19,977,469 was accounted
for as goodwill.
Synthesys was formed on May 18, 2001 in the State of Florida. Synthesys
is a global security solutions company specializing in security access to
computer networks, buildings, offices, and other secure areas. Synthesys
develops and markets a variety of innovative security-based products that
are used to secure databases, to authenticate people over the phone, over
the computer, and via cameras.
(B) Principles of Consolidation
-------------------------------
The accompanying condensed consolidated financial statements for 2002
include the accounts of AUG Corp, Inc. and its wholly owned subsidiary
Synthesys. All significant intercompany transactions and balances have
been eliminated in consolidation. The pre-acquisition financial
statements for 2001 only included the accounts of the parent company, AUG
Corp., Inc.
(C) Use of Estimates
--------------------
In preparing financial statements in conformity with accounting
principles generally accepted in the United States of America, management
is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and revenues and
expenses during the reported period. Actual results could differ from
those estimates.
7
AUG CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
--------------------
(UNAUDITED)
(D) Income (Loss) Per Common Share
----------------------------------
Basic earnings (loss) per common share are based on net income (loss)
divided by the weighted average number of common shares outstanding.
Diluted earnings per common share are adjusted to reflect the incremental
number of shares issuable for the assumed conversion of common stock
purchase warrants if such adjustments are dilutive. Warrants to purchase
42,000,000 shares of common stock were not included in the calculation of
diluted EPS for "loss before extraordinary item" as the effect would be
anti-dilutive. Additionally, there were no common stock equivalents
outstanding for the quarter ended March 31, 2001. The weighted average
shares outstanding for the quarter ended March 31, 2001 have been
restated for the reverse stock splits that occurred in 2001.
(E) Interim Condensed Consolidated Financial Statements
-------------------------------------------------------
The condensed consolidated financials statements as of March 31, 2002 and
for the three months ended March 31, 2002 and the condensed 2001
financial statements of the parent company are unaudited. In the opinion
of management, such financial statements include all adjustments
(consisting only of normal recurring accruals) necessary for the fair
presentation of the financial position and the results of operations. The
results of operations for the three months ended March 31, 2002
(consolidated) and 2001 are not necessarily indicative of the results to
be expected for the full year. The condensed balance sheet information as
of December 31, 2001 was derived from the audited financial statements
included in the Company's annual report Form 10-KSB. The interim
condensed financial statements should be read in conjunction with that
report.
(F) Furniture, Fixtures and Equipment
-------------------------------------
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using accelerated methods over the estimated
economic useful lives of 5 to 7 years. Expenditures for repairs and
maintenance are charged to expense as incurred and major improvements are
capitalized.
(G) Impairment of Long-Lived Assets
-----------------------------------
The Company has evaluated its long-lived assets for financial impairment,
and will continue to evaluate them as events or changes in circumstances
indicated that the carrying amount of such assets may not be fully
recoverable.
The Company evaluates the recoverability of long-lived assets not held
for sale by measuring the carrying amount of the assets against the
estimated undiscounted future cash flows associated with them. At the
time such cash flows of certain long-lived assets are not sufficient to
recover the carrying value of such assets, the assets are adjusted to
their fair values.
8
AUG CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
--------------------
(UNAUDITED)
(H) Going Concern
-----------------
The Company's condensed financial statements have been presented on the
basis that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. For the three months ended March 31, 2002 the Company has a net
loss of $1,024,361, a negative cash flow from operations of $782,076, and
a working capital deficiency of $463,145 and accumulated deficit of
$23,304,575 at March 31, 2002. These circumstances raise substantial
doubt as to the Company's ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on
the Company's ability to raise additional capital, and implement its
business plan. The condensed financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
NOTE 2 FURNITURE, FIXTURES AND EQUIPMENT
------ ---------------------------------
The furniture, fixtures and equipment were acquired with the acquisition
of the assets of SyntheSys on January 7, 2002.
Furniture, fixtures and equipment at March 31, 2002 consists of the
following:
Furniture and fixtures $ 11,027
Computer hardware 61,662
Computer software 133,198
Equipment 20,073
Leasehold improvements 16,667
-------------------
242,627
Less: accumulated depreciation (34,793)
-------------------
$ 207,834
===================
NOTE 3 AFFILIATED PARTY TRANSACTIONS
------ -----------------------------
The Company pays a licensed broker dealer corporation owned by the
president, fees for all funds raised for the Company from parties
introduced by the broker dealer. Fees associated with transactions
resulting in the issuances of common stock are recorded as a reduction of
additional paid-in capital (See Note 4(A) and (C)).
In February 2002, the Company received a loan from an affiliated party in
the amount of $375,000. The loan is due in 90 days and has a 10% interest
rate. The maturity date can be extended by 90 days. At March 31, 2002
there was $375,000 outstanding on the loan. The Company incurred
consulting fees related to the loan (See Note 4(B)).
9
AUG CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
--------------------
(UNAUDITED)
In March 2002, the Company received an additional short-term loan from an
affiliated party, in the amount of $125,000. This loan was repaid in full
in April 2002.
NOTE 4 STOCKHOLDERS' EQUITY
------ --------------------
2002
----
(A) Common Stock to be Issued
-----------------------------
In January 2002, the Company acquired 100% of the common stock of
Synthesys. In connection with the purchase, the Company was to issue
5,350,259 shares of restricted common stock valued at $19,581,948. The
shares were valued at the average quoted trading price during the
acquisition period. These shares were subsequently issued in August 2002.
In March 2002, the Company was to issue 6,020,000 shares of common stock
for $261,000, net of direct costs of $39,000 to an affiliated party,
according to a Term Sheet dated February 8, 2002. The shares were
subsequently issued in July 2002 and at March 31, 2002, the shares are
included in common stock to be issued in the accompanying condensed
consolidated balance sheet. The Company also incurred consulting fees
related to the issuance and was to issue 100,000 additional shares of
common stock in payment of these expenses valued at $5,000. These shares
were also subsequently issued in July 2002.
(B) Issuance of Common Stock for Services
-----------------------------------------
In February 2002, the Company issued 75,000 shares of common stock to
affiliated parties valued at $3,750 in payment of consulting fees
incurred as a result of the completion of a loan to the Company (See Note
3).
(C) Issuance of Common Stock for Cash
-------------------------------------
In February 2002, the Company issued 6,000,000 shares of common stock for
$261,000, net of direct costs of $39,000 to an affiliated party,
according to a Term Sheet dated February 8, 2002. The Company also
incurred consulting fees related to the issuance of this stock, and
issued 100,000 additional shares of common stock in payment of these
expenses valued at $5,000.
10
AUG CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
--------------------
(UNAUDITED)
2001
----
In February 2001, 15,778,406 common shares were retired and replaced by
3,944,602 common shares according to the 4:1 reverse stock split approved
by the Board of Directors. In September 2001, the Board of Directors and
a majority of the shareholders of the Company voted to effectuate a 100:1
reverse stock split of the Company's currently issued and outstanding
shares of common stock. The reverse stock split became effective on
October 29, 2001.
All shares and per share amounts have been restated to reflect these
transactions.
(A) Issuance of Common Stock for Debt
-------------------------------------
On March 31, 2001, 65,743 shares of common stock were issued for the
settlement of debt. The shares were valued at $2,200 using the fair value
as determined by an independent appraiser. This resulted in an
extraordinary gain of $1,665,043.
(B) Conversion of Outstanding Preferred Stock
---------------------------------------------
On March 31, 2001, the Company converted the 1,416,700 shares of
preferred stock outstanding to 1,209,678 shares of common stock.
NOTE 5 LITIGATION
------ ----------
An action was brought against the Company's subsidiary, Synthesys, prior
to the acquisition by AUG Corp., by an investment broker, alleging breach
of an investment-banking contract. This lawsuit was settled in May 2002
by a confidential agreement between the parties that resulted in no
change to the Company's consolidated financial position, results of
operations or cash flows.
NOTE 6 SUBSEQUENT EVENTS
------ -----------------
In April 2002 the Company issued 2,200,000 shares of common stock for
$1,100,000, according to a Term Sheet dated April 11, 2002. The Company
also incurred consulting fees related to the issuance of this stock, and
issued 100,000 additional shares of common stock in payment of these
expenses valued at $25,000.
11
Item 2. Management Discussion and Analysis
General
Management's discussion and analysis contains various forward-looking statements
within the meaning of the Securities and Exchange Act of 1934. These statements
consist of any statement other than a recitation of historical fact and can be
identified by the use of forward looking terminology such as "may," "expect,"
"anticipate," "estimates" or "continue" or use of negative or other variations
of comparable terminology. Management cautions that these statements are further
qualified by important factors that could cause actual results to differ
materially from those contained in forward looking statements, that these
forward looking statements are necessarily speculative, and there are certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in forward looking statements.
Overview
On January 7, 2002, the Company and its wholly-owned subsidiary, AUG Acquisition
Corp. ("AAC"), entered into an Agreement and Plan of Merger, dated December 28,
2001 with SyntheSys Secure Technologies, Inc. ("Synthesys"). The Merger
Agreement provided that upon the terms and subject to conditions therein, for
the merger of AAC into Synthesys. Synthesys, the surviving corporation, became a
wholly-owned subsidiary of the Company. Synthesys and AAC made the appropriate
filings to complete the Merger Agreement with the State of Florida on January 7,
2002.
The Company paid $600,000 cash and the shareholders of Synthesys received an
aggregate of 5,350,259 shares of the Company's Common Stock in exchange for
their interest in Synthesys.
Synthesys, a Florida corporation, with its executive offices located in
Deerfield Beach, Florida, is a global secure solutions company that intends to
develop and market a variety of innovative security-based products that function
on multiple operating systems including Open VMS(TM), UNIX(TM), Linux(TM),
Windows NT(TM), Windows 2000(TM) and AS400(TM).
Management believes Synthesys' propriety software products position it to become
a leader in biometric crypto-controlling smart cards and secure systems
integration.
Synthesys was incorporated in May 2001 under the name SyntheSys Technologies,
Inc. Its name was subsequently changed to SyntheSys Secure Technologies, Inc.
SyntheSys is a development stage company.
Synthesys's operations are reflected in the results of operations for the three
month period ended March 31, 2002. As Synthesys was not incorporated until May
2001, results of operations for the three month period ended March 31, 2001 only
reflect the Company's historical operations.
Results of Operations for the Three Months ending March 31, 2002 and 2001
The Company had no revenues from operations for the quarter ended March 31, 2002
nor the quarter ended March 31, 2001. The Company's sales efforts are currently
focused on commercializing its' biometric and software products.
The Company incurred $1,024,361of general and administrative expenses for the
quarter ended March 31, 2002. These expenses were primarily incurred in the
research and development of biometric and software products and the marketing of
these products. The Company believes the research and development expenses will
decrease as the Company believes it is ready to commercialize its software and
biometric products. Operating expenses for the quarter ended March 31, 2002 were
$11,443. These expenses were primarily from administrative costs.
12
The Company incurred a net loss for the quarter ended March 31, 2002 of
$(1,024,361). For the quarter ended March 31, 2001 the Company had a net profit
of $1,653,600 due to a gain from the extinguishments of debt of $1,665,043.
Liquidity and Capital Resources
On March 31, 2002, cash and cash equivalents totaled $273,351.
The Company's condensed consolidated financial statements have been presented on
the basis that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. For
the three months ended March 31, 2002, the Company has a net loss of $1,024,361,
a negative cash flow from operations of $782,076, and a working capital
deficiency of $463,145 and accumulated deficit of $23,304,575 at March 31, 2002.
These circumstances raise substantial doubt as to the Company's ability to
continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the
Company's ability to raise additional capital, and implement its business plan.
Management believes that actions presently taken to implement its business plan
and obtain additional funding provide the opportunity for the Company to
continue as a going concern.
The Company has obtained short term financing and equity funding through the
issuance of restricted common stock and related party loans. In February 2002
the Company received a loan from an affiliated company in the amount of
$375,000. The loan is due in 90 days and has a 10% interest rate. The maturity
date can be extended by 90 days. At March 31, 2002 there was $375,000
outstanding on the loan.
In February 2002 the Company issued 6,000,000 shares of common stock to Lancer
Offshore, Inc. for $300,000, pursuant to a Term Sheet dated February 8, 2002.
The Company also issued 100,000 additional shares of common stock in payment of
consulting fees in connection with the transaction valued at $5,000.
In March 2002 the Company issued 6,000,000 shares of common stock to Lancer
Offshore, Inc. for $300,000 pursuant to a Term Sheet dated February 8, 2002. The
Company also incurred consulting fees related to the issuance of this stock, and
issued 100,000 additional shares of common stock in payment of these expenses
valued at $5,000.
In March 2002 the Company received a short-term loan from an affiliated company
in the amount of $125,000. This loan was repaid in full in April 2002.
In April 2002 the Company issued 4,400,000 shares of common stock for
$1,100,000, to Lancer Offshore, Inc. pursuant to a Term Sheet dated April 11,
2002. The Company also incurred consulting fees related to the issuance of this
stock, and issued 100,000 additional shares of common stock in payment of these
expenses valued at $25,000.
13
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
During the first quarter 2002 HD Brous & Co., Inc. filed an action in the United
States District Court for the Eastern District of New York against the Company's
subsidiary, SyntheSys Secure Technologies, Inc. (HD Brous & Co., Inc. vs.
Synthesys Secure Technologies, Inc. a/k/a Synthesys Technologies, Inc., case #
CV 02 910). By its Complaint, Brous alleged that it performed investment banking
services for Synthesys and is entitled to be compensated. The complaint was
settled in early May 2002.
On May 10 2002, Information Transport Associates, Inc, Inc. filed an action in
the United States District Court in the Fifteenth Judicial Circuit of Florida
against the Company's subsidiary, Synthesys, Case No. 02-05130AH. By its
complaint, ITA alleged that it performed business, technical services for
Synthesys and is entitled to be compensated. The complaint was settled in
September 2002 for $25,000.
Item 2. Changes in Securities and Use of Proceeds
In January 2002, the Company acquired 100% of the common stock of Synthesys. In
connection with the purchase, the Company was to issue 5,350,259 shares of
restricted common stock valued at $19,581,948. The shares were valued at the
average quoted trading price during the acquisition period. These shares were
issued in August 2002.
In February 2002, the Company received a loan from an affiliated party, in the
amount of $375,000. The loan is due in 90 days and has a 10% interest rate. The
maturity date has been extended by 90 days. At June 30, 2002, there was $375,000
outstanding on the loan. The Company also issued 75,000 shares of common stock
to affiliated parties valued at $3,750 in payment of consulting fees incurred as
a result of the completion of the loan.
In February 2002, the Company issued 6,000,000 shares of common stock for
$261,000 net of direct costs of $39,000 to an affiliated party, according to a
Term Sheet dated February 8, 2002. The Company also incurred consulting fees
related to the issuance of this stock, and issued 100,000 additional shares of
common stock in payment of these expenses valued at $5,000.
During March, April and May 2002 the Company received an aggregate of $1,870,500
in cash from a stockholder, net of direct costs of $279,500 to an affiliated
party. The Company is obligated to issue an aggregate of 8,720,000 shares of
common stock for the cash received and 175,000 shares of common stock valued at
$42,500 for consulting services related to these transactions.
14
In May 2002 the Company issued 1,970,000 shares of common stock pursuant to the
exercise of two warrants with cash-less exercise provisions. The options had
exercise prices of $.035 and $.05 per share.
The securities issued in connection with the transactions above were issued
under the exemption from registration provided by Section 4(2) of the Securities
Act. The shareholders received information concerning the Company and had the
opportunity to ask questions about the Company. The securities issued are marked
with the appropriate restrictive legends.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
In April 2002 the Company issued 4,400,000 shares of common stock for
$1,100,000, to Lancer Offshore, Inc. pursuant to a Term Sheet dated April 11,
2002. The Company also incurred consulting fees related to the issuance of this
stock, and issued 100,000 additional shares of common stock in payment of these
expenses valued at $25,000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-B
The following exhibits are filed as part of this report:
Exhibits:
2.1 Agreement and Plan of Merger, dated December 28, 2001 with
SyntheSys Secure Technologies, Inc. (previously filed on
Form 8-K filed February 12, 2002).
99.1 Certification of Principal Executive Officer
99.2 Certification of Principal Accounting Officer
(b) Reports on Form 8-K
On February 12, 2002 the Company filed a Current Report on Form 8-K to disclose
that the Company and its wholly-owned subsidiary, AUG Acquisition Corp. ("AAC"),
entered into an Agreement and Plan of Merger, dated December 28, 2001 with
SyntheSys Secure Technologies, Inc. ("SyntheSys"). The Merger Agreement provided
for the merger of AAC into Synthesys. Synthesys, the surviving corporation,
became a wholly-owned subsidiary of the Company. Synthesys and AAC made the
appropriate filings to complete the Merger Agreement with the State of Florida
on January 7, 2002. Pursuant to the merger, Synthesys has become a wholly-owned
subsidiary of the Company.
On February 22, 2002 the Company filed a Current Report on Form 8-K disclosing
that HD Brous & Co., Inc. filed an action in the United States District Court
for the Eastern District of New York against the Company's subsidiary,
Synthesys. (HD Brous & Co., Inc. vs. Synthesys Secure Technologies, Inc. a/k/a
Synthesys Technologies, Inc., case # CV 02 910). The matter was subsequently
settled in May 2002.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned as duly authorized officers of the Registrant.
AUG CORP
By: /s/ Laurence S. Isaacson
------------------------
Laurence S. Isaacson, President
DATED: December 4, 2002
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