SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   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, 1997

(  )     TRANSITION  REPORT  PURSUANT  TO  SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the transition period from ____________________ to _____________________

Commission file number      0-22341
                       ------------------

                              AUGMENT SYSTEMS, INC.
                              ---------------------
             (Exact name of registrant as specified in its charter)

          Delaware                                             04-3089539
          --------                                             ----------
(State or other jurisdiction of                             (I. R. S. Employer
 incorporation or organization)                             Identification No.)


     2 ROBBINS ROAD WESTFORD, MA                       01886
     ---------------------------                       -----
(Address of principal executive offices)             (Zip Code)

                                  508-392-8626
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

Transitional Small Business Disclosure Format:

         Yes               No      X
            -----------       -----------

         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  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirement for the past 90 days. YES         NO    X
                                             ------     -------

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
Stock, as of the latest practicable date: As of July 1, 1997,


            Class                                   Outstanding at July 1, 1997
            -----                                   ---------------------------
Common Stock, $.01 par value per share                      4,713,319




                              AUGMENT SYSTEMS, INC.

                                      INDEX


                                                                          PAGES

PART I                     FINANCIAL INFORMATION

         Item 1    Financial Statements

                   Balance Sheets as of March 31, 1997
                                 And December 31, 1996                       3

                   Statements of Operations for the three month
                     periods ended March 31, 1997 and 1996                   4

                   Statements of Cash Flows for the three month
                     periods ended March 31, 1997 and 1996                   5

                   Notes to Financial Statements                           6-7

         Item 2    Management's Discussion and Analysis of
                     Financial Condition and Results of Operations         8-9

PART II                    OTHER INFORMATION

         Item 1    Legal Proceedings
         Item 2    Changes in Securities
         Item 3    Defaults Upon Senior Securities
         Item 4    Submission of  Matters to a Vote of Security-Holders
         Item 5    Other Information
         Item 6    Exhibits and Reports or Form 8-K                         10

         Signatures                                                         11



                                       2


                             AUGMENT SYSTEMS, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                      March 31,            December 31,
                                                                                       1997                   1996
                                                                                  -------------------   --------------------
                                                                                     (unaudited)
                                    ASSETS
<S>                                                                                <C>                   <C>
Current Assets:
      Cash.................................................                        $         116,761     $          452,753
      Inventories..........................................                                1,327,746                589,351
      Prepaid expenses.....................................                                  112,500                 97,500
                                                                                  -------------------   --------------------
            Total current assets...........................                                1,557,007              1,139,604
Property and equipment, net................................                                  313,736                348,889
Deferred financing costs, net..............................                                  754,992                176,815
Other assets...............................................                                   13,745                 13,745
                                                                                  -------------------   --------------------
            Total assets...................................                        $       2,639,480     $        1,679,053
                                                                                  ===================   ====================

                     LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
      Accounts payable.....................................                        $       1,336,183     $          601,274
      Accrued expenses.....................................                                  143,165                196,104
      Short term promissory notes..........................                                3,036,748              1,051,248
      Short term advance...................................                                        -                575,000
      Current portion of capital lease obligations.........                                   19,675                 19,013
                                                                                  -------------------   --------------------
            Total current liabilities......................                                4,535,771              2,442,639
Convertible promissory notes...............................                                   62,248                 62,248
Capital lease obligations, less current portion............                                   22,328                 27,530
                                                                                  -------------------   --------------------
            Total liabilities..............................                                4,620,347              2,532,417
                                                                                  -------------------   --------------------
Commitments
Stockholders' deficit:
      Common stock, $.01 par value;  30,000,000 shares authorized;
        2,913,319 and 2,865,512 shares issued and outstanding at
        March 31, 1997 and December 31, 1996, respectively                                   29,133                 28,655
      Additional paid-in capital...........................                                6,638,216              6,177,194
      Accumulated Deficit..................................                               (8,648,216)            (7,059,213)
                                                                                  -------------------   --------------------
            Total stockholders' deficit....................                               (1,980,867)              (853,364)
                                                                                  -------------------   --------------------
            Total liabilities and stockholders' deficit....                        $       2,639,480     $        1,679,053
                                                                                  ===================   ====================
</TABLE>


    The accompanying notes are an integral part of the financial statements.



                                       3


                             AUGMENT SYSTEMS, INC.
                            Statements of Operations


<TABLE>
<CAPTION>
                                                                   Three Months Ended
                                                        March 31,                       March 31,
                                                          1997                            1996
                                                   --------------------            --------------------
<S>                                                 <C>                             <C>
Costs and expenses:
         Research and development                   $          464,047              $          131,342
         General and administrative                            489,138                         155,174
         Sales and marketing                                   541,687                               -
                                                   --------------------            --------------------
                Total cost and expenses             $        1,494,872              $          286,516
                                                   --------------------            --------------------
Loss from operations                                $        1,494,872              $          286,516
                                                   --------------------            --------------------

Other expense:
         Net interest expense                       $           94,131              $           15,071
                                                   --------------------            --------------------
                Total other expense, net            $           94,131              $           15,071
                                                   --------------------            --------------------

Net loss                                            $        1,589,003              $          301,587
                                                   ====================            ====================



                                                                 -0.55                           -0.21
Net loss per common share

Weighted average common and common                           2,913,319                       1,454,700
         equivalent shares outstanding

</TABLE>

    The accompanying notes are an integral part of the financial statements.


                                       4


                              AUGMENT SYSTEMS, INC.
                             Statements of Cash Flow


<TABLE>
<CAPTION>
                                                                                           Three Months Ended
                                                                                   March 31,                 March 31,
                                                                                    1997                   1996
                                                                              --------------------      --------------------
<S>                                                                            <C>                       <C>
Cash flows from operating activities:
         Net loss                                                                      (1,589,003)                 (301,587)
         Adjustments to reconcile net loss to net cash
             used in operating activities:
         Loss on disposal of fixed assets                                                   8,850                         -
         Depreciation and amortization                                                     40,432                         -
         (Increase) decrease in operating assets and liabilities:
                Prepaid expenses                                                          (15,000)                        -
                Inventory                                                                (738,395)                        -
                Other assets                                                                    -                   (20,000)
                Accounts payable                                                          734,909                     13,120
                Accrued expenses                                                          (52,939)                    59,077
                                                                              --------------------      --------------------
                Net cash used in operating activities                                  (1,611,146)                  (249,390)
                                                                              --------------------      --------------------

Cash flows from investing activities:
         Purchase of property and equipment                                               (14,129)                  (24,521)
                                                                              --------------------      --------------------
                Net cash used for investing activities                                    (14,129)                  (24,521)
                                                                              --------------------      --------------------

Cash flows from financing activities:
         Proceeds from issuance of common stock                                            72,000                    44,145
         Proceeds from issuance of convertible promissory notes                                 -                   347,399
         Proceeds from issuance of short-term promissory notes                          2,375,000                         -
         Repayment of short-term advance                                                 (575,000)                        -
         Payments on capital lease obligations                                             (4,540)                        -
         Payments on promissory notes                                                           -                  (150,000)
         Deferred financing costs                                                        (578,177)                        -
                                                                              --------------------      --------------------
                Net cash provided by financing activities                               1,289,283                   241,544
                                                                              --------------------      --------------------
Net increase (decrease) in cash                                                          (335,992)                   32,431
Cash at beginning of period                                                               452,753                   242,669
Cash at end of period                                                                     116,761                   210,302

</TABLE>


    The accompanying notes are an integral part of the financial statements.


                                       5



                              AUGMENT SYSTEMS, INC.

                           NOTES TO FINANCIAL STATEMENTS

                                 MARCH 31, 1997

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

         In fiscal year 1996,  and for the first three  months of 1997,  Augment
Systems,  Inc.  (the "Company"),  formerly Augment Systems  Incorporated,  was a
development  stage  company  which  develops  and sells  high-end  super  server
products  designed  to move large image and text files  rapidly and  efficiently
over  computer  networks.  The  Company's  initial  target  markets  will be the
electronic  publishing  industry and the  Internet/Intranet  market. The Company
plans to introduce in 1997 a Windows  NT-based super server targeted to meet the
growing demand for Windows  NT-based high  performance  Internet/Intranet  World
Wide Web servers and a super server  system  designed to support  multi-platform
networks comprised of Macintosh, Windows NT and UNIX-based workstations.

         The  accompanying  unaudited  financial  statements  are  presented  in
accordance  with the  requirements  for Form  10-QSB and do not  include all the
disclosures  required by generally accepted  accounting  principles for complete
financial  statements.  Reference should be made to the Company's Prospectus for
its initial public  offering  declared  effective on May 12, 1997 for additional
disclosures including a summary of the Company's accounting policies.

         In the opinion of management of the Company,  the financial  statements
include all adjustments, consisting of only normal recurring accruals, necessary
for a fair presentation of the financial  position of Augment Systems,  Inc. The
results of  operations  for the three  months  ended March 31, 1997 or any other
interim period, are not necessarily indicative of the results to be expected for
the full year.



2.   NET LOSS PER SHARE OF COMMON STOCK

         In February  1997,  the  Financial  Accounting  Standards  Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share,"  which the  Company is  required  to adopt for both  interim  and annual
periods ending after December 15, 1997. SFAS No. 128 simplifies the earnings per
share ("EPS")  calculation by replacing primary EPS with basic EPS. Basic EPS is
computed by dividing  reported  earnings  available  to common  stockholders  by
weighted average shares outstanding.  Fully diluted EPS, now called diluted EPS,
is still required. Early application is prohibited, although footnote disclosure
of proforma EPS amounts computed is required. Under SFAS 128, proforma basic EPS
and diluted EPS for the three months ended March 31, 1997 would not have changed
from the amount reported. All other EPS amounts for the periods presented remain
the same.  Common  stock  equivalents  issued prior to this period have not been
included since their effect would be anti-dilutive.



3.    SUBSEQUENT EVENTS

         In April 1997, the Board of Directors declared a three-for-four reverse
stock  split of the  Company's  Common  Stock.  All  Common  Stock and per share
information  discussed in the financial  statements and notes have been adjusted
to give effect for this stock split.

         In April 1997,  the Company issued to Venture  Management  Consultants,
LLC  ("Venture  Management"),  of which Fred L.  Chanowski,  a  director  of the
Company,  is a 20% member, a promissory note in the principal amount of $200,000
in  consideration  for $200,000.  The promissory  note bears interest at 18% per
annum with interest and principal payable at maturity on May 31, 1998.



                                       6


         On May 16, 1997, the Company completed its initial  public  offering of
1,800,000 shares of its Common Stock at a price of $5.50 per share and 2,070,000
Redeemable Common Stock Purchase  Warrants at $.15 per warrant.  Each Redeemable
Common  Stock  Purchase  Warrant  entitles  the holder to purchase  one share of
Common Stock for $6.60 during the four year period  commencing May 12, 1998. The
net  proceeds  from the  Company's  initial  public  offering,  after  deducting
underwriting  discounts and  commissions and estimated  expenses  payable by the
Company were approximately $8,484,000.

         In May 1997,  certain  warrant  holders agreed to the  cancellation  of
warrants to purchase  235,878  shares of Common Stock issued in connection  with
Short Term Promissory  Notes issued between  November 1996 and February 1997. No
consideration was given in connection with the cancellation of these warrants.

         In May 1997, the Company issued to Venture Management a promissory note
in  the  principal  amount  of  $200,000  in  consideration  for  $200,000.  The
promissory  note bears  interest at 18% per annum with  interest  and  principal
payable at maturity on June 30, 1998.





                                       7


                                 AUGMENT SYSTEMS

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

         THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS
         ENDED MARCH 31, 1996


INTRODUCTION

Since  October  1995,  the Company had been  operating  as a  development  stage
company  and  had  been  engaged   principally  in  research  and   development,
recruitment  of personnel and financing  activities.  The Company had engaged in
limited  marketing  activities  and did not  commence  shipments  of its initial
products, which are high-end Macintosh-based super servers, until February 1997.
To date,  the Company has shipped  six systems and  recognized  initial  product
revenue in April 1997.

The initial  target  market for the  Company's  super  server is the  electronic
publishing  industry,  both for the creation and preparation of printed material
(prepress) and for  electronic  publishing  via the  Internet/Intranet.  Each of
these markets requires the rapid and efficient  movement of large image and data
files over  networks.  During 1997, the  Company  plans to  introduce  a Windows
NT-based server targeted to meet the growing demand for high performance Windows
NT-based  Internet/Intranet  WEB  servers.  Additionally,  the Company  plans to
introduce a super server  system  designed to support a  multi-platform  network
comprised of Macintosh, Windows NT and UNIX-based workstations.

RESULTS OF OPERATION

During the three month periods ended March 31, 1997 and 1996, respectively,  the
Company was  operating  as a  development  stage  company  and as such,  did not
recognize any revenues from product sales. The Company did not recognize initial
revenue until April 1997.

The Company  recorded a net loss of $1,589,003  for the three month period ended
March 31,  1997,  as compared  to a net loss of $301,587  for the same period in
1996.  The  $1,287,416  increase  is  attributable  primarily  to an increase in
personnel  to  support  research  and  development,   sales  and  marketing  and
administration.  In  addition,  the Company  increased  the level of spending to
support  engineering  development of its server  products,  to begin a marketing
program  consisting of attending trade shows and distributing  promotional sales
material and to establish a worldwide sales organization.

Research and  development  costs for the three month period ended March 31, 1997
were $464,047 as compared to $131,342 for the same period in 1996.  The $332,705
increase is  attributable  primarily to  additional  engineering  personnel  and
increased use of consultants  associated  with the  development of the Company's
server product.  The Company also increased spending for associated  engineering
supplies and prototype  materials in the development of its server product.  The
Company  anticipates  that  research  and  development  costs will  continue  to
increase  through the balance of 1997 as compared to comparable  periods in 1996
These costs are expected to be incurred in connection  with the  development  of
additional products to support the Windows NT and Unix platforms.

General and administrative costs for the three month period ended March 31, 1997
were $489,138 as compared to $155,174 for the same period in 1996.  The $333,964
increase  is  primarily  attributable  to  additional   administrative  support,
increased  spending for outside  legal and  accounting  support and other normal
operating expenses.

Selling and marketing costs for the three month period ended March 31, 1997 were
$541,687.  The  $541,687  increase is  attributable  to an increase in marketing
support and sales personnel,  participation in various trade shows and increased
spending on sales promotional material. The Company anticipates that selling and
marketing  expenses will continue to increase through the balance of 1997 as the
Company develops its sales and  distribution  channels and expands its marketing
efforts.



                                       8



The Company currently has 46 full-time employees and 12 independent  contractors
and plans to hire an  additional  50 full time  employees in various  capacities
over the next 12 months.  Additional  personnel may be required depending on the
level of  business  activity.  The Company  expects,  however,  to continue  its
current  practice of utilizing  independent  consultants  on an as-needed  basis
rather than exclusively hiring additional full time employees.

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its  operations  since  October 1995  principally  from a
combination of debt and equity financings totalling  approximately  $18,280,000.
From October 1995 through April 1996, the Company issued convertible  promissory
notes in the aggregate principal amount of approximately $864,000. Approximately
$802,000 of the  principal  balance of these notes plus  accrued  interest  were
converted into shares of Common Stock in November 1996 at a conversion  price of
$4.00 per share.  In December 1996 and February  1997,  the Company raised gross
proceeds of  $3,585,000 in a private  placement of  promissory  notes and common
stock purchase warrants. The promissory notes bear interest at 12% per annum and
are to be repaid from the proceeds of its initial public offering.  In addition,
from September 1995 through August 1996, the Company issued  1,653,623 shares of
its Common Stock for  approximately  $3,372,000  in gross  proceeds.  In each of
April 1977 and May 1977 the Company  issued to Venture  Management  Consultants,
LLC, of which Fred  Chanowski,  a director of the  Company,  is a 20% member,  a
promissory  note in the  principal  amount  of  $200,000  in  consideration  for
$200,000. The promissory notes both bear interest at 18% per annum with interest
and  principal  payable  at  maturity  on  May  31,  1998  and  June  30,  1998,
respectively.

On May 16, 1997, the Company  completed its initial public offering of 1,800,000
shares  of its  Common  Stock  at a price  of  $5.50  per  share  and  2,070,000
Redeemable Common Stock Purchase  Warrants at $.15 per warrant.  Each Redeemable
Common  Stock  Purchase  Warrant  entitles  the holder to purchase  one share of
Common Stock for $6.60 during the four year period  commencing May 12, 1998. The
net  proceeds  from the  Company's  initial  public  offering,  after  deducting
underwriting  discounts and  commissions and estimated  expenses  payable by the
Company were approximately $8,484,000. The net proceeds of the Company's initial
public  offering and cash  generated from  operations,  are expected to meet the
Company's  funding needs to achieve its  objectives  and growth  strategy for at
least the next 12 months.  The  Company  also plans to seek  additional  working
capital  funding  from  traditional   lines  of  credit  and  lease  lines  from
institutional lenders.

As a result of the  Company's  recurring  losses,  the  Company's  auditors have
expressed  substantial  doubt about the Company's ability to continue as a going
concern.  The accompanying  financial  statements do not include any adjustments
relating to the recovery and  classification  of recorded  asset  amounts or the
amounts and  classifications  of liabilities  that might be necessary should the
Company be unable to continue as a going concern.

FORWARD LOOKING STATEMENTS

         This report  contains  forward  looking  statements  that  describe the
Company's business  prospects.  These statements involve risks and uncertainties
including,  but not limited to, regulatory uncertainty,  level of demand for the
Company's products and services,  product acceptance,  industry wide competitive
factors,  seasonality factors,  timing of completion of major equipment projects
and  political,  economic or other  conditions.  Furthermore,  market trends are
subject to changes which could adversely affect future results.





                                       9




                           PART 11. OTHER INFORMATION



ITEM 1.           LEGAL PROCEEDINGS
                  In November  1996 a lawsuit  was filed  against the Company in
                  Suffolk  Superior  Court   (Massachusetts)   by  an  executive
                  recruitment  agency  alleging a breach of contract and seeking
                  damages  in the  amount of  $50,000.  In  connection  with the
                  lawsuit,  one of the Company's bank accounts has been attached
                  in the  amount  of  $50,000  pending  the  resolution  of this
                  matter.

ITEM 2.           CHANGES IN SECURITIES
                  NONE

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES
                  NONE

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                  NONE

ITEM 5.           OTHER INFORMATION
                  NONE

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K
                  NONE




                                       10


                                   SIGNATURES

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 thereunto duly authorized.


                              AUGMENT SYSTEMS, INC.

Date: July 1, 1997                    By: /s/Lorrin G. Gale
                                          -----------------
                                            Lorrin G. Gale
                                            President & Chief Executive Officer
                                            (Principal Executive Officer)


Date: July 1, 1997                    By: /s/Duane A. Mayo
                                          ----------------
                                            Duane A. Mayo
                                            Chief Financial Officer, Treasurer
                                            and Secretary (Principal Financial &
                                            Accounting Officer)



                                       11