U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ______.
COMMISSION FILE NUMBER 000-24991
---------
AUDIOGENESIS SYSTEMS, INC.
--------------------------
(Exact name of business issuer as specified in its charter)
New Jersey 22-3487471
---------- ----------
(State or other jurisdiction (IRS Employer Identification
of incorporation) number)
7 Doig Road, Suite 3, Wayne, New Jersey 07470
---------------------------------------- ------
(Address of principal executive offices) (Zip code)
(973) 696-9400
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 XX No
---- ----
The Company had 14,109,872 shares of common stock, par value $.0001 per share,
outstanding as of June 30, 1999.
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AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
INDEX
PAGE
PART 1. FINANCIAL INFORMATION ----
ITEM 1. FINANCIAL STATEMENTS
AUDIOGENESIS SYSTEMS, INC.
--------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF
JUNE 30, 1999 AND SEPTEMBER 30, 1998.................3
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR
THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998.........4
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS FOR
THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998.........5
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE PERIOD FROM
SEPTEMBER 30, 1998 TO JUNE 30, 1999..................6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.................9
PART II. OTHER INFORMATION.........................................12
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K...........12
SIGNATURES....................................................13
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AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
June 30, September 30,
1999 1998
---------- -------------
(unaudited) (audited)
Current assets:
Cash $ 15,929 $ 1,834
Accounts receivable 32,811 32,183
Inventories 68,715 41,065
Other current assets 34,300 300
---------- ---------
Total current assets 151,755 75,382
Equipment, net 3,931 1,990
Deposits 1,957 1,957
---------- ---------
Total assets $157,643 $79,329
========== =========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 26,702 $ 22,384
Accrued expenses 112,006 291,720
Taxes payable 3,560 4,492
Shareholder loan 80,000 95,000
---------- ---------
Total current liabilities 222,268 413,596
---------- ---------
Stockholders' equity (deficit):
Common stock (no par) authorized
shares 50,000,000, issued and
outstanding 9,709,872 1,192,858 1,149,858
Accumulated deficit (1,257,483) (1,484,125)
---------- ---------
Total stockholders' equity (deficit) ( 64,625) ( 334,267)
---------- ---------
Total liabilities and stockholders'
equity (deficit) $ 157,643 $ 79,329
========== ==========
See notes to unaudited condensed consolidated financial statements.
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AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
June 30,
----------------
1999 1998
---- ----
Sales $611,971 $363,117
Cost of sales 131,118 156,140
------- -------
Gross profit 480,853 206,977
------- -------
Operating expenses:
General and administrative 222,565 194,451
Selling 99,443 63,413
Research and development 25,000 75,000
Depreciation 673 776
------- -------
Total operating expenses 347,681 333,640
------- -------
Income (loss) from operations 133,172 ( 126,663)
Other income (expense):
Miscellaneous income 98,645 -
Interest expense ( 5,175) ( 4,800)
------- -------
Income (loss) before income taxes 226,642 (131,463)
Income taxes - -
Net income (loss) $ 226,642 ($ 131,463)
======= =======
Weighted average of common
shares outstanding 10,020,983 9,709,872
========== =========
Net income (loss) per common
share $ .02 $ (.01)
========= =========
See notes to unaudited condensed consolidated financial statements.
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AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
June 30,
1999 1998
---- ----
Cash flows from operating activities:
Net income (loss) $ 226,642 $(131,463)
Adjustments to reconcile net loss
to net cash used
by operating activities:
Depreciation 776 776
(Increase) decrease in accounts receivable ( 759) ( 759)
(Increase) decrease in inventory ( 33,825) 18,580
(Increase) decrease in other current assets ( 34,000) -
Increase (decrease) in accounts payable 4,318 ( 20,871)
Increase (decrease) in accrued expenses (147,715) 116,458
Decrease in taxes payable ( 932) -
Increase (decrease) in other current liabilities ( 15,000) 13,500
---------- ---------
Net cash provided (used) by operating activities 5,709 ( 3,779)
---------- ---------
Cash flows from investing activities:
Equipment purchases ( 2,613) -
---------- ---------
Net cash used by investing activities ( 2,613) -
---------- ---------
Cash flows from financing activities:
Issuance of common stock 11,000 -
---------- ---------
Net cash provided by financing activities 11,000 -
Net increase (decrease) in cash 14,095 ( 3,779)
Cash - beginning of period 1,834 3,779
---------- ---------
Cash - end of period $ 15,929 $ -
========== =========
Non cash transaction:
Accrued expenses paid through issuance
of common stock $ 32,000 $ -
Supplemental information:
Cash paid for interest: $ 0 $ 0
Cash paid for income taxes: $ 0 $ 0
See notes to unaudited condensed consolidated financial statements.
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AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
Common Stock
------------------- Total
Number of Accumulated Stockholders'
Shares Amount Deficit Equity (Deficit)
--------- ------- ----------- ----------------
Balance at September 30,
1998 9,709,872 $1,149,858 $(1,484,125) $(334,267)
Issuance of
Common stock 4,300,000 43,000 43,000
Net income for the six
months ended June
30, 1999 (unaudited) - - 226,642 226,642
--------- ------- ----------- ----------------
Balance at June 30
1999 14,109,872 $1,192,858 $(1,257,483) $( 64,625)
========== ========= ========== ================
See notes to unaudited condensed consolidated financial statements.
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AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited condensed consolidated financial statements have been
prepared by Audiogenesis Systems, Inc. (the "Company") in accordance with the
rules and regulations of the Securities and Exchange Commission (the "SEC") for
interim financial statements and accordingly do not include all information and
footnotes required under generally accepted accounting principles for complete
financial statements. The financial statements have been prepared in conformity
with the accounting principles and practices disclosed in, and should be read
in conjunction with, the annual financial statements of the Company included in
the Company's Annual Report on Form 10SB12G/A (File No. 000-24991). In the
opinion of management, these interim financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the Company's financial position at June 30, 1999 and the
results of its operations for the nine months ended June 30, 1999 and 1998.
Results of operations for the nine months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 1999.
1. Organization and Operations:
Audiogenesis Systems, Inc. (the "Company") was incorporated in the state of New
Jersey on January 14, 1997 as a wholly owned subsidiary of Genesis Safety
Systems, Inc. ("Genesis"). On January 22, 1997 the Company acquired 100% of the
operations of its parent, Genesis, in a reverse acquisition. All the assets and
liabilities of the parent were carried forward at book value. The Company's
operations include offering safety services, educational programs, and products
to customers primarily engaged in chemical and industrial production.
The Company has one wholly owned subsidiary, Biowaste Technologies Systems, Inc.
(BTS). BTS was formed on July 1, 1988 for the purpose of engaging in the
business of the management of infectious waste. BTS is in the development stage
and, although the Company has been actively exploring various opportunities for
this subsidiary, no revenues have been produced to date.
2. Earnings per Share
Earnings per share appearing in the statements of operations for the nine months
ended June 30, 1999 and 1998 have been prepared in accordance with SFAS 128.
Such amounts have been computed based on the profit or (loss) for the period
divided by the weighted average number of shares of common stock outstanding
during the period.
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AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
2. New Accounting Pronouncements:
On October 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income", and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information".Under SFAS No. 130, companies are required to report in the
financial statements, in addition to net income, comprehensive income including,
as applicable, foreign currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. During the nine months ended June 30, 1999, the Company did not
have any components of other comprehensive income.
SFAS No. 131 requires that companies report separately, in the financial
statements, financial and descriptive information about operating segments, if
applicable. During the nine months ended June 30, 1999 the Company received
revenue from the following segments:
Safety Audio-visual
product production
sales sales Totals
Revenue from external customers $311,971 $300,000 $611,971
Cost of sales 108,020 23,098 131,118
Segment gross profit 203,951 276,902 480,853
4, Significant Purchase Business Combination
The following Unaudited Pro Forma Financial Data gives effect to the
proposed merger of Audiogenesis Systems, Inc. and Allstates Air Cargo, Inc.
("Allstates") as a recapitalization of Allstates with Allstates as the
acquiror (reverse acquisition). This event has been presented as if it occurred
at the beginning of each nine month period presented. In the opinion of
management, all significant adjustments necessary to reflect the effects of the
merger have been made. The Unaudited Pro Forma Financial Data is not
necessarily indicative of what the actual combined financial data of the
combining companies would have been, nor does it purport to represent the future
combined financial data of the combining companies.
Unaudited Pro Forma Financial Data
Nine Months Ended
June 30,
--------------------
1999 1998
---- ----
Revenues $ 23,842,057 $ 19,067,834
Income (loss) before income taxes $ 1,150,025 $ (172,316)
Net income $ 696,653 $ (165,687)
Net income per share $ .02 $ ( .01)
Weighted average common shares outstanding 32,109,872 32,109,872
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected certain aspects of the Company's financial position
and operating results during the periods included in the accompanying unaudited
condensed consolidated financial statements. This discussion should be read in
conjunction with the discussion under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the annual financial
statements included in the Company's Annual Report on Form 10SB12G/A (File No.
000-24991) and the accompanying unaudited condensed consolidated financial
statements.
General
- -------
The Company's safety product and equipment sales are entirely to one customer
and
have been declining slightly over the last three years. Sales are dependent
upon the customer's research and development activities which define their need
for safety equipment. Cost of goods sold has remained constant at approximately
42 percent of sales while general and administrative and selling expenses have
been increasing.
Nine Months Ended June 30, 1999 Compared to Nine Months Ended June 30, 1998
- ---------------------------------------------------------------------------
Sales increased 69% to $611,971 in the first nine months of fiscal 1999 from
$363,117 in the same period of fiscal 1998 due to the completion of a $300,000
contract to produce custom audio-visual presentations to a single customer.
Revenues from safety product sales decreased $51,146 during the same period.
Gross profit rose in total by $273,876 and is also due to the audio-visual
sales.
Operating expenses rose $28,114 primarily due to an increase in salaries.
Operating income increased $287,949 and was also a result of the audio-visual
production sales. Without the audio-visual production sales, the Company's
operating loss would have been $143,730.
The Company recorded $98,645 of other income for the period
ended June 30, 1999.
The majority of this amount is due to the mutual cancellation of their license
for the Echo Location technology resulting in reduced amounts accrued under that
agreement.
Liquidity and Capital Resources
- -------------------------------
The Company's cash has increased to $15,929 at June 30, 1999 from $1,834 at
September 30, 1998. This increase in cash is primarily due to a lucrative sale
of custom audio-visual production. The Company intends to pursue more contracts
to provide this type of product to industry, however, presently there are no
customers. Traditionally, the Company has lost money funding developing
technologies over and above any marginal income from
their safety product sales.
If there is no market for the audio-visual production expertise of the Company,
it is anticipated that the Company will continue with operating losses.
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Impact of the Year 2000 Issue
- -----------------------------
The Company's State of Readiness
- --------------------------------
The Company has reviewed its critical information systems for Year 2000
compliance. The compliance review revealed that the Company's critical
accounting
information systems are Year 2000 compliant due to the fact that the Company's
hardware and operating system are "off-the-shelf" products from third parties
with Year 2000 compliant versions.
As part of the Company's Year 2000 compliance review, the Company is in the
process of contacting its primary vendors and large customers to determine the
extent to which the Company is vulnerable to those third parties' failure to
remediate their Year 2000 compliance issues. However, there can be no guarantee
that the systems of other companies on which the Company's business relies will
be timely converted or that failure to convert by another company would not have
a material adverse effect on the Company and its operations.
The Cost to Address the Company's Year 2000 Issues
- --------------------------------------------------
The Company estimates that the cost of its Year 2000 compliance issues will
be less than $1,000 and is not expected to be material to the Company's
financial position, cash flow or results of operations.
The Risks Associated with the Company's Year 2000 Issues
- --------------------------------------------------------
The Company believes that the risks associated with Year 2000 issues
primarily relate to the failure of third parties upon whom the Company's
business
relies to timely remediate their Year 2000 issues. Failure by third parties to
timely remediate their Year 2000 issues could result in disruptions in the
Company's supply of inventory, late, missed, or unapplied payments, temporary
disruptions in order processing and other general problems related to the
Company's daily operations. While the Company believes its Year 2000 compliance
review procedures will adequately address the Company's internal Year 2000
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<PAGE>
issues, until the Company receives responses from its significant vendors and
customers, the overall risks associated with the Year 2000 issue will remain
difficult to accurately describe and quantify, and there can be no guarantee
that
the Year 2000 issue will not have a material adverse effect on the Company's
business, operating results and financial position.
The Company's Contingency Plan
- ------------------------------
The Company has not, to date, implemented a Year 2000 contingency plan. It
is the Company's intention to devote whatever resources are necessary to assure
Year 2000 compliance issues are resolved. However, the Company will develop and
implement a contingency plan by the end of the first half of 1999 in the event
the Company's Year 2000 compliance initiatives, particularly those that relate
to third parties, fall behind schedule.
Forward Looking Statements
- ---------------------------
The Company is making this statement in order to satisfy the "safe harbor"
provisions contained in the Private Securities Litigation Reform Act of 1995.
The foregoing discussion includes forward-looking statements relating to the
business of the Company. Forward-looking statements contained herein or in
other statements made by the Company are made based on management's
expectations
and beliefs concerning future events impacting the Company and are subject to
uncertainties and factors relating to the Company's operations and business
environment, all of which are difficult to predict and many of which are beyond
the control of the Company, that could cause actual results of the Company to
differ materially from those matters expressed in or implied by forward-looking
statements. The Company believes that the following factors, among others,
could affect its future performance and cause actual results of the Company to
differ materially from those expressed in or implied by forward-looking
statements made by or on behalf of the Company: (a) the effect of changes in
interest rates; (b) the rental rate and demand for apartment rental units; (c)
fluctuations in the costs to operate the properties owned by the Company; (d)
uninsurable risks; and (e) general economic conditions.
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PART II
OTHER INFORMATION
- ------------------
ITEM 1 LEGAL PROCEEDINGS
NONE
ITEM 2 CHANGES IN SECURITIES
During the period covered by this report, the Registrant sold 4,300,000
shares of common stock at an offering price of $.01 per share, pursuant to the
exemption provided by Rule 506 of Regulation D of the Securities Act.
ITEM 3 DEFAULTS ON 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
(a) Exhibits
Exhibit 1 - Earnings Per Share Schedule
Exhibit 27FDS - Financial Data Schedule
(b) Reports on Form 8-K
Report on Form 8-K date of earliest event June 29, 1999 with respect
to Item 2 concerning the termination of the Echolocation License between
VCU-IPF/VCU and Audiogenesis, and with respect to Item 5 concerning the
acquisition of Allstates Air Cargo, Inc.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AUDIOGENESIS SYSTEMS, INC.
Dated: August 12, 1999 /s/ Sam DiGiralomo
----------------------------------------
Sam DiGiralomo,
President, Chief Executive Officer and
Chief Financial Officer
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<PAGE>
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<ARTICLE> 5
<CIK> 0001072293
<NAME> AUDIOGENESIS SYSTEMS, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 15,929
<SECURITIES> 0
<RECEIVABLES> 32,811
<ALLOWANCES> 0
<INVENTORY> 68,715
<CURRENT-ASSETS> 151,755
<PP&E> 29,729
<DEPRECIATION> 25,798
<TOTAL-ASSETS> 157,643
<CURRENT-LIABILITIES> 222,268
<BONDS> 0
0
0
<COMMON> 1,192,858
<OTHER-SE> (1,257,483)
<TOTAL-LIABILITY-AND-EQUITY> 157,643
<SALES> 611,971
<TOTAL-REVENUES> 611,971
<CGS> 131,118
<TOTAL-COSTS> 347,681
<OTHER-EXPENSES> (98,945)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,175
<INCOME-PRETAX> 222,642
<INCOME-TAX> 0
<INCOME-CONTINUING> 222,642
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-BASIC> .02
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</TABLE>