U.S. Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 2 to
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS Under Section 12(b) or (g) of the
Securities Exchange Act of 1934
AUDIOGENESIS SYSTEMS, INC.
(Name of Small Business Issuer in Its Charter)
New Jersey 22-3487471
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7 Doig Road, Suite 3, Wayne, New Jersey 07470
(Address of Principal Executive Offices) (Zip Code)
(973) 696-9400
(Issuer's Telephone Number)
Securities to be registered pursuant to 12(b) of the Act: None
Securities to be registered pursuant to 12(g) of the Act:
Common Stock $.0001 Par Value
(Title of Class)
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Audiogenesis Systems, Inc. (the "Company" or "Audiogenesis") is a New
Jersey Corporation formed on January 14, 1997 as a wholly owned subsidiary of
Genesis Safety Systems, Inc.("Genesis"). On January 22, 1997 the Company
acquired 100 percent of the operations of the parent, Genesis, as part of a
reverse acquisition with another company. Audiogenesis is filing this Form
10-SB on a voluntary basis.
The shareholders of record of Genesis (approximately 350) at the close of
business on January 21, 1997 were granted a stock dividend of one share of
Audiogenesis for each share of Genesis owned on that date. No share
certificates have been distributed to the Company's Shareholders pending
notification from the SEC staff that it has no further comments concerning
this Form 10-SB.
A Brief History of Genesis Prior to Becoming Audiogenesis
- ---------------------------------------------------------
The Company's predecessor, Genesis, was formed in the State of New Jersey
on July 13, 1981. Genesis became a public company by conducting an offering
of its securities under Regulation A of the Securities Act of 1933 (the
"Securities Act") on July 12, 1982. Thereafter, Genesis was initially traded
through the medium of the "pink sheets" operated by the National Quotation
Bureau, and later by being quoted on the OTC Bulletin Board under the symbol
"GSIS". Genesis initially was comprised of two main segments of business; a
safety products sales division, and a safety training division. In recent
years, the safety products sales division, which had operated stores at
several locations in Fortune 500 companies, had been cut back to one safety
store, the safety training business had been expanded to include a broader
range of audio-visual products, and Genesis had focused its business upon
development of two devices; a device for the treatment of tinnitus (ringing in
the ears), and an ultrasonic echolocation device which is intended to provide
information to the visually impaired, and to sighted persons in situations of
low visibility, concerning their immediate surroundings. Both of these
devices will be discussed in detail in the section about the business of
Audiogenesis. The Company continues to sell previously developed products for
the employee safety training program, but presently does not intend to develop
additional products for this division, but rather to refocus its efforts on
audiovisual products for sales and marketing programs.
Current Business of Audiogenesis
- --------------------------------
<PAGE>
Sales of Safety Equipment.
Audiogenesis operates a store which sells safety equipment under the
service mark SafeTvend(sm) at a major pharmaceutical corporation in the New
York area. Audiogenesis's safety store is located on the customer's premises,
and sells respirators, hard hats, safety glasses, protective clothing, and
other similar products which are used or worn by the customer's employees to
help protect them from industrial accidents and injuries. During fiscal year
1997, the SafeTvend(sm) store had sales of $505,746. During the nine months
ended June 30, 1998, the SafeTvend(sm) store had sales of $363,117. Although
the SafeTvend(sm) store provides positive cash flow from its operations, the
operating expenses of the Company as a whole, which include substantial
general and administrative costs and research and development costs with
respect to the tinnitus and echolocation devices, has caused net losses which
were $175,842 for fiscal 1998, and $5,557 for the three months ended December
31, 1998. Such losses were due in part to the fact that neither of the
devices under development have generated any revenues.
Audio-Visual Products
During the 1980's, the Company developed and had marketed the Genesis
System 1000 Employee Safety Training Program. The system included color
slides, tape cassette, workbook, poster and associated equipment. The System
1000 was copyrighted, and was sold to more than 50 companies, including a
number of "Fortune 500" corporations. The System 1000 products, which include
training presentations for routinely used equipment such as respirators,
continue to be sold by the Company from time to time. However, the Company
has no present plans to produce any additional employee safety training
presentations, emphasizing instead audio-visual presentations for sales and
marketing programs.
With the increasing utilization of computers for audio-visual
presentations, the Company has broadened its safety training business to
include developing, producing and presenting customized audio-visual products
for business presentation. The Company has produced, for a company engaged in
domestic and international freight forwarding, a customized audio-visual
production with respect to a sales and marketing presentation. This
production included sales and marketing techniques, explanations, advances,
and exposure to such subjects as a new supplier of tele-communication
services, financial services, target territories and customers, customer
evaluation, promotions and incentives, strategic alliances and their import,
how to increase the volume of international air and ocean freight forwarding,
the formation of a trucking division, enhanced employee benefits, and detailed
information involving domestic licensing agreements and international
partners.
The format used for the presentation involved digital computerized color
projection with sound which was interactive in nature in that several
individuals (management personnel of the customer) presented various segments
of the program and were able to interact with the audience throughout the
presentation.
<PAGE>
The Company plans to begin marketing of its customized presentations by
using direct mail to contact the same customer base that purchased the
Company's Genesis System 1000 Employee Training Program.
It is the Company's intention to pursue other contracts similar to the
one described for the freight forwarding company.
AudioSelectron(sm)
Audiogenesis has developed a prototype belt-worn device which is designed
to treat tinnitus by combining treatment by sound generation which masks the
tinnitus, with stimulation of the affected area with very low voltage
electrical current. We will use the term "electrical stimulation" when
discussing the low voltage electrical treatment. The Company calls this
device the AudioSelectron(sm).
What is Tinnitus?
Tinnitus is ringing in the ears, and can range from moderate to extremely
severe. Although tinnitus affects 50 million people in the United States, it
is not generally known that tinnitus can be an extremely serious, debilitating
medical condition, affecting virtually every aspect of a person's life.
Tinnitus sufferers frequently have severe insomnia, and significant
interference with their ability to communicate. Tinnitus may prevent
sufferers from using a standard telephone. In addition, exercise frequently
causes the condition to worsen, preventing even normal levels of physical
activity. The psychological effect of tinnitus upon an individual can be
devastating, sometimes resulting in suicide as the only perceived relief from
the torment of the condition. Sufferers may take such drastic measures as
having the auditory nerve surgically severed, thus becoming deaf (perhaps to
no avail, as the condition may continue nevertheless). Even in less severe
cases, there is generally a pervasive feeling of anxiety, and fear that the
tinnitus is symptomatic of more severe illnesses.
Tinnitus is often the result of head injuries or illness, although it may
appear spontaneously with no apparent trigger. The mechanisms which cause
tinnitus are not well understood, and treatment until recently has been
generally ineffectual.
The Company's officers, who have had significant experience in the area
of medical device sales and service, recognizing the need for improved
tinnitus treatment devices, worked with Abraham Shulman, M.D., one of the
foremost physicians actively treating tinnitus patients, to develop the
AudioSelectron(sm). Dr. Schulman is a board certified physician in the area
of otolaryngology (the study or treatment of ear, nose and throat diseases),
currently Director, Division of Otolaryngology at the State University of New
York Health Center at Brooklyn. Dr. Shulman has been researching and writing
<PAGE>
medical journal articles on the treatment of tinnitus by electrical
stimulation for more than fifteen years, and is frequently cited by other
physicians and researchers as an authority in the field of otolaryngology.
Robert Guinta, the Company's Chairman of the Board, and Sam DiGiralomo, the
Company's CEO and President, each have over 20 years' experience in the fields
of sales and service of electronic medical instruments in the area of
otolaryngology, hearing and speech sciences, and electrical-hearing devices.
The value of electrical stimulation for tinnitus treatment is now being
verified by an increasing number of studies being performed worldwide. Based
upon the apparent need and increasing acceptance of this type of tinnitus
treatment, Audiogenesis developed a prototype treatment device, and has been
exploring a number of alternatives to move this project forward. However, it
has not yet moved from the prototype and planning stage, primarily due to the
fact that the Company does not have sufficient funds to allocate for this
purpose. Audiogenesis intends to actively pursue this project by seeking debt
or equity capital, joint ventures with other companies, or licensing of the
technology to others.
The Company has been actively pursuing potential partnering arrangements
through Management's contacts in the hearing industry. The Company has also
met with numerous potential sources of equity capital to explore funding for
the AudioSelectron(sm). To date, no such funding has been available.
Ultrasonic Echolocation Device
- ------------------------------
The Company has an exclusive worldwide license from the Virginia
Commonwealth University Intellectual Property Foundation (the "Foundation")
for the Foundation's patented echolocation technology in the area of use by
blind persons and emergency services personnel. The license is derived from
US Patent #5,047,944 which was a division of a patent granted January 1, 1991
(Patent #4,982,434), and concerns the echolocation aspects of the original
invention which was a supersonic bone conduction hearing aid and method. The
Company's license relates to that portion of the patent which coupled the
supersonic bone conduction technology with a device which generates supersonic
sound, to echolocate objects. The duration of the patent is until March 30,
2009.
The Theory of the Echolocation Device
For humans, the part of the ear known as the cochlea, is the principal
receptor and transmitter of sound frequencies. Researchers at Virginia
Commonwealth University discovered that humans could perceive very high
pitched frequencies, which are not normally able to be heard by humans (which
they named "ultrasound"), when a transmitting device was pressed against the
bones of the skull located behind the ear. These researchers believe that the
ultrasound is being transmitted by the bones of the skull to a part of the ear
known as the saccule, which is normally thought to involve only balance. This
transmission of sound does not involve air movement, which is the usual
mechanism to hear sound. As a result of the bone conducted sounds, the test
subjects at the university have been able to listen to ultrasonic signals
<PAGE>
bounced off objects and to differentiate between differently shaped objects.
Based upon data collected, the researchers theorize that humans should be able
to judge speed, distance, direction and size of objects in their surroundings
after being trained to perceive differences in reflected ultrasound. This
would theoretically permit a type of orientation by sound similar to that used
by bats and porpoises.
If a practical working device using the ultrasonic echolocation
technology could be developed, it would have applications for many different
types of military and civilian emergency services uses, such as firemen,
police, underwater rescue, as well as for use in murky water for emergency
repair, to aid in the assessment of damage of ships and underwater structures,
and as an aid to the visually impaired.
Details of the License Agreement
On May 20, 1994, the Company entered into an agreement to acquire a
license to develop and market products using echolocation technology. This
technology is currently in the research and development stage. As of
September 30, 1998, the Company has paid $102,000 to acquire this license.
On December 23, 1998, the Company amended this agreement. Beginning in
1999 the minimum royalty payments will be $50,000 per year from 1999 to 2010.
In addition, interest due in the amount of $8,269 at September 30, 1998 has
been waived and minimum royalty payments for 1998 have been reduced to $50,000
to be paid in periodic payments beginning January 31, 1999.
Although the Company has been able to satisfy the payment obligations
(which have been amended from time to time) to maintain its license, the
Company's lack of available capital has prevented Audiogenesis from exploring
anything more than the rudimentary aspects of the technology, and the Company
now believes that the best approach would be to sublicense the technology to
companies that would have sufficient funding to explore the capabilities of
the technology.
The Company has identified manufacturers of products that could be
enhanced by the addition of the echolocation technology, and has begun to
contact such companies through mailings, and where possible, by personal
contact. The Company has received positive feedback from its efforts, but
such contacts are only in the preliminary stages.
Regulatory Approvals
The FDA must approve the Echolocation device and the AudioSelectron (sm)
tinnitus device. With respect to the Company's AudioSelectron (sm) device,
the Company anticipates a period of approximately 24 months from the time the
clinical protocol (the schedule of steps that need to be taken that would
comply with FDA regulations) is created to the time that the Company's
AudioSelectron (sm) would receive FDA approval. There is no assurance that
this is the amount of time it would take to receive FDA approval nor is there
any assurance that once the device is submitted for approval by the FDA that
any approval would be forthcoming.
<PAGE>
Although the Company believes that the Echolocation device would require a
shorter period for FDA approval, there is no assurance that the period of
approval would be shorter, nor is there any assurance that any approval from
the FDA would be forthcoming.
With respect to the AudioSelectron (sm) tinnitus device, the Company does
not expect any revenues until the device receives FDA approval. There is no
assurance that even if the Company's AudioSelectron (sm) device should receive
approval, the Company would produce any revenues from sales of this device.
With respect to the Company's Echolocation device, although the Company
does not plan to sell this device, but rather license the technology to
interested parties, the potential need for FDA approval with regard to the
Echolocation technology could make the licensing of the technology more
difficult. There is no assurance that any licensing or fees would be produced
even if the Company received FDA approval.
Competition
- -----------
A number of companies with greater financial, technical, marketing and
sales resources than the Company, are marketing devices for the treatment of
tinnitus. If the Company's AudioSelectron(sm) reaches the stage where it will
be marketed, it will be in competition with a variety of different treatment
techniques and devices. A number of companies which have greater financial,
technical, marketing and sales resources than the Company, offer products for
the blind and for emergency personnel. If the echolocation technology were
incorporated into such units, users would be compelled to choose between very
different devices, many of which have been in use for a considerable period of
time and have general acceptance among such personnel. The Company's
SafeTvend(sm) store is subject to competition not only from companies which
would offer similar services on-site at the customer's premises, but also from
direct distributors and manufacturers of the products which would sell
directly to such company. Virtually all of the competitors have greater
financial, technological, marketing and sales resources than the Company.
There are numerous organizations of varying sizes that engage in the business
of customized audio-visual presentations, most of these being advertising
agencies and organizations of similar nature. There is intense competition
for such business from a variety of organizations who have greater financial
technical, marketing and sales resources than the Company.
Employees
- ---------
The Company currently employs five full-time employees.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company's sales for the years ended September 30, 1997 and 1998 were
$505,746 and $475,275 respectively. Sales for the three months ended December
31, 1997 and December 31, 1998 were $120,729 and $108,723 respectively. Sales
for these periods are entirely to one customer for safety products and
equipment and are declining slightly over the periods presented. Sales are
dependent upon the customer's research and development activities which define
their need for safety equipment. Cost of goods sold remained constant at
approximately 42 percent of sales for all periods presented. General and
administrative expenses remained constant during the periods presented except
for a one-time additional $189,053 of non-cash compensation paid to an officer
of the company which is included in the year ended September 30, 1997. This
additional compensation is the primary reason for the disproportional loss for
fiscal 1997 of $341,016 to $175,842 for fiscal 1998.
During the quarter ended December 31, 1998 the Company had a net income of
$5,557. The Company would have had a loss of $46,062 except for a one-time
miscellaneous income amount of $51,619, the majority of which was generated by
renegotiating the terms of a licensing agreement.
Plan of Operation
During the next twelve months, the Company will continue to operate the
SaveTvend(sm) store, as well as concentrating its efforts in the production of
customized audio-visual productions. If funding becomes available, the
Company would continue development of the AudioSelectron(sm), and would begin
the process of obtaining FDA approval for the device. This would include the
required clinical trials. At the present time, it is the Company's intention
to focus its efforts upon sublicensing the echolocation technology to a third
party rather than developing this technology in-house.
The clinical protocol is being written at this time with respect to the
AudioSelectron (sm) tinnitus device. There is an existing, belt-worn
AudioSelectron (sm) device that can be used at this time to begin FDA clinical
trials. The Company believes that the existing device has reached a level of
research and development which would qualify the device to begin FDA clinical
trials. The Company expects that any need for additional research and
development will be discovered during the planned FDA clinical trials.
The Company plans to bring the AudioSelectron (sm) device to market only
after receiving approval by the FDA. No assurance can be given that such
approval will be granted.
With respect to any safety related issues involving the
AudioSelectron(sm) device, the Company is not currently aware of any safety
hazards because the AudioSelectron(sm) device emits a very low voltage signal.
However, the Company will address any and all safety issues that may arise
during the FDA clinical trials.
<PAGE>
The Company believes that revenues from the SafeTvend(sm) store can
satisfy the Company's cash requirements for the next twelve months with
respect to the SafeTvend(sm) store and the production of customized audio-
visual products.
Such revenue will not support further development of the tinnitus and
echolocation devices. Further development of the AudioSelectron(sm) during
the next twelve months is dependent upon the Company's raising additional
funds from a debt or equity offering of its securities. At this time, the
Company has no present plans to seek such additional capital, and it is more
likely that the AudioSelectron(sm) project will remain shelved or that
development of the project will be continued by a third party through
licensing agreements, sales agreements, joint venture or other similar
arrangement.
The Company believes that its present facilities and employees are
sufficient to carry on its business operations, and no changes are anticipated
during the next twelve months.
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 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.
<PAGE>
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.
ITEM 3. DESCRIPTION OF PROPERTY
The Company does not own any real property but has a month to month lease
for 2600 square feet of office and warehouse space in Wayne, New Jersey at a
monthly rental of $1,922. Management believes that the facility is adequate
for its present needs.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common
Stock of the Company as of February 28, 1999 by each person who was known
by the Company to beneficially own more than 5% of the common stock, by each
director and executive officer who owns shares of common stock and by all
directors and executive officers as a group:
Title Name and Address No. of Shares Percent of
of class of Beneficial Owner and nature of class
Beneficial Ownership(1)
- -------- ------------------- ----------------------- -----------
Common Sam DiGiralomo
7 Doig Road, Suite 3
Wayne, NJ 07470 3,000,000(2) 27.75%
Common Robert R. Guinta
7 Doig Road, Suite 3
Wayne, NJ 07470 1,350,000(3)(4) 13.42%
Common Scott DiGiralomo
7 Doig Road, Suite 3
Wayne, NJ 07470 1,215,000(5)(6) 12.36%
Common Stephen M. Robinson
172 Tuckerton Road
Medford, NJ 08055 1,025,000(6) 10.43%
<PAGE>
Common Marshall Levine
6010 Dannenhauer Lane
Mays Landing, NJ 08330 1,195,222(7) 12.19%
Common Joseph and Teresa Guido
4 Lakeside Drive South
Forked River, NJ 08731 500,000(8) 5.10%
Common Frank and Elizabetta Magisano
711 South Main Street
Cedar Run, NJ 08092 510,000(9) 5.20%
Common All officers & directors
as a group (2 persons) 4,350,000 39.34%
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(1) The numbers and percentages shown include shares of common stock
issuable to the identified person pursuant to stock options that
may be exercised within 60 days. In calculating the percentage of
ownership, such shares are deemed to be outstanding for the purpose
of computing the percentage of shares of common stock owned by such
person, but are not deemed to be outstanding for the purpose of
computing the percentage of share of common stock owned by any other
stockholders.
(2) Includes options to purchase 1,000,000 shares of the Company's
common stock at $.50 per share.
(3) Includes 300,000 shares held by Guinta Associates.
(4) Includes options to purchase 250,000 shares of the Company's
common stock at $.50 per share.
(5) Includes 80,000 shares owned by Monica DiGiralomo and 40,000 shares
owned by Christian DiGiralomo, wife and son of Scott DiGiralomo
(6) Includes options to purchase 25,000 shares of the Company's
common stock at $.50 per share.
(7) Includes shares owned by Marshall E. Levine; Behavioral Health
Services, P.A. Money Purchase Pension Plan & Trust; and Marshall E.
Levine, Trustee of Marshall E. Levine Ph.D. Profit Sharing Plan
(8) Comprised of 250,000 shares owned by Joseph Guido and 250,000 shares
owned by Teresa Guido, who are husband and wife
(9) Comprised of 250,000 shares owned by Frank Magisano and 260,000 shares
owned by Elizabetta Magisano, who are husband and wife
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names and ages of the Company's
current Executive Officers, Directors and significant employees, together with
all positions and offices held with the Company by such Executive Officers.
Officers are elected to serve until the meeting of the Board of Directors
following the next Annual Meeting of Shareholders or until their successors
have been elected and have qualified.
Name Age Served Position
Since
- ---------------------------------------------------------------------
Sam DiGiralomo 55 1981 CEO, President, Treasurer
and Director
Robert R. Guinta 64 1981 Chairman of the Board,
Executive Vice President
Secretary
Scott DiGiralomo 33 1986 Corporate manager of
training of emergency
services
Sam DiGiralomo, a founder of the Company, President, Treasurer and a
Director, has been an officer and director of the Company since the inception
of Genesis in July 1981. During this time, Mr. DiGiralomo performed the
management, sales and marketing functions with respect to occupational safety
products and programs. He personally developed and sold the SaveTvend(sm)
program to several major pharmaceutical companies. From 1975 to 1981, Mr.
DiGiralomo served as Vice President and General Manager of Guinta Associates,
Inc., a sales and service organization of electronic medical instruments in
the field of otolaryngology, hearing and speech sciences. Mr. DiGiralomo
formed and operated the safety division of Guinta Associates called GSP
(Guinta Safety Products). This division sold occupational safety products
and programs, including training to many different companies. Mr. DiGiralomo
served as sales and marketing director of this division from 1975 to 1981.
His area of expertise also included noise measuring and hearing instruments
used for the purposes of occupational safety. Prior to his position at
Guinta Associates, Mr. DiGiralomo was employed for 18 months by Industrial
Products Company of Langhorn, Pennsylvania, as territory manager, and was
responsible for the management, sales and marketing of occupational safety
products to industrial customers. Mr. DiGiralomo's territory encompassed area
from the southern tip of New Jersey to the Canadian border of New York. Mr.
DiGiralomo has more than 20 years of management and marketing experience in
the field of occupational safety and electro-acoustic devices. He has
lectured at various trade associations and universities, and designed and
authored several employee training programs. Mr. DiGiralomo is a member of
the American Society of Safety Engineers.
<PAGE>
Robert R. Guinta, a founder of the Company, Chairman of the Board,
Executive Vice President, and Secretary, has been an officer and Director of
the Company since July 1981. From 1965 to the present, Mr. Guinta has also
been President and controlling shareholder of Guinta Associates, Inc., a sales
and service organization of electronic instruments in the field of
otolaryngology, hearing and speech sciences. He has over 25 years experience
in the field of medical electronics product development, manufacturing,
marketing and sales. From 1979 to the present, Mr. Guinta has been involved
in manufacturing, including design and costing, of testing and clinical
instruments, for the electro-acoustic and hearing health care markets. In
1980, Mr. Guinta directed the set up of an FDA approved facility for testing
and assembly of medical devices. Mr. Guinta is an author and instructor in
the area of medical electronics, hearing and speech. Mr. Guinta was a member
of the Mayor's Council of the Environment for the City of New York, a director
of the New York Foundation of Otolaryngology, a member of the Acoustical
Society of New York, and a member and past president of the New York Audiology
Study Group.
Scott DiGiralomo, the son of Sam DiGiralomo, has been employed on a
full-time basis since 1986 as a specialist in corporate safety systems,
hazardous materials management, search and rescue operations and emergency
management. Mr. DiGiralomo serves the Company as its Corporate Manager of
Training and Emergency Services. In addition, since 1994 Mr. DiGiralomo also
provides consulting services to companies, institutions, and various
government agencies. Since 1997, Mr. DiGiralomo has been contracted as a
consultant for Rutgers University, Department of Government Services. Mr.
DiGiralomo is a recognized instructor and serves on several technical
committees for the New Jersey State Police and the New Jersey Division of Fire
Safety. He is employed, on a part-time basis, as a fire prevention specialist
by the West Milford Fire Department, Office of the Fire Marshal. He has
published several procedure manuals for local and state agencies, related to
search and rescue, hazardous material response, and incident management. Mr.
DiGiralomo holds numerous state and national certifications in life safety,
hazardous materials handling, inspection, management, and emergency response.
He is active in national and statewide professional organizations. Mr.
DiGiralomo is a graduate of Fairleigh Dickinson University and received his
Masters of Education from Seton Hall University in 1993.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth the compensation of the named executive
officers for each of the Registrant's last three completed fiscal years.
<PAGE>
EXECUTIVE COMPENSATION SUMMARY TABLE
Annual Compensation Long term compensation
----------------------- --------------------------
Name and Year Salary Bonus Other Awards All
Principal ($) ($) Annual Restrict- Options/ LTIP Other
Position Compen- ed Stock SARs(#) Pay- Compensa-
sation ($) ($) outs($) tion ($)
- --------- ---- ------ ----- -------- --------- --------- ------ --------
Sam 1997 65,000 0 0 0 0 0 0
DiGiralomo, 1996 65,000 0 0 0 0 0 0
President, 1995 65,000 0 0 0 0 0 0
CEO
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following persons were granted options in Audiogenesis to replace the
options which had been terminated pursuant to the reverse acquisition
agreement. All of such options have an exercise price of $.50 per share. The
option plan pursuant to which such options were granted is being filed
herewith as an exhibit. The Company presently has not adopted an option plan.
Name of Optionee #Options Grant Date(1) Expiration Date
---------------- -------- ---------- ---------------
Sam DiGiralomo (2) 1,000,000 03/20/90 12/31/99
Scott DiGiralomo (3) 25,000 03/20/90 12/31/99
Joanne Cammarata (4) 25,000 03/20/90 12/31/99
Stephen M. Robinson(5) 25,000 03/20/90 12/31/99
Robert R. Guinta(6) 250,000 03/20/90 12/31/99
(1) Originally issued in Genesis Safety Systems, Inc.
(2) CEO & President of the Company, and father of Scott DiGiralomo
(3) Employee of Audiogenesis, and son of Sam DiGiralomo
(4) Employee of Audiogenesis since 1986 (currently office manager)
(5) Counsel for the Company
(6) Chairman of the Board of Directors and Secretary of the Company
The following shares have been reserved to be issued to the holders of
the Genesis options which remained outstanding after the reverse acquisition
pursuant to the anti-dilution provisions of such options. Such shares will be
issued only in the event that such option holders exercise their options in
the Company's parent, at no additional cost to the option holders.
# Options Terminates:
------------ ----------
535,000 12/31/99
3,000 11/27/00
10,000 7/31/00
<PAGE>
On February 7, 1997, the Company issued 3,000,750 shares of common stock to
two officers, one employee, and two consultants for their participation in the
Company's restructuring. The Company recorded $30,008 of non-cash
compensation expense related to this transaction. See Part II, Item 4 "Recent
Sales of Unregistered Securities" for details of such issuances.
On July 1, 1997, the Company borrowed $80,000 from Marshall E. Levine, an
affiliate of the Company, under a promissory note bearing interest at 8% per
annum. Principal and interest on the note are due June 30, 1999.
On June 22, 1998 and June 29, 1998, the Company borrowed $12,000 and $1,500,
respectively, from Sam DiGiralomo, President of the Company, under promissory
notes bearing interest at 8% per annum. Such notes have been satisfied in
full.
On September 18, 1998, the Company entered into an agreement with Allstates
Air Cargo, Inc. to develop customized audio-visual products. The controlling
shareholder of Allstates Air Cargo, Inc. is Joseph Guido, an affiliate of the
Company. The Company believes that the terms of such agreement are the same
as would be negotiated through arms-length bargaining with an unaffiliated
purchaser. The Company has fulfilled its obligations under such agreement.
The Company's legal counsel, Stephen M. Robinson, Esq., owns 1,000,000 shares
of common stock and has been granted 25,000 stock options.
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 50,000,000
shares of common stock, par value $.0001 per share ("Common Stock").
Common Stock
Holders of shares of Common Stock of the Company are entitled to cast one
vote for each share held at all shareholders meetings for all purposes,
including the election of directors, and to share equally on a per share basis
in such dividends as may be declared by the Board of Directors out of funds
legally available. Upon liquidation or dissolution, each outstanding share of
Common Stock will be entitled to share equally in the assets of the Company
legally available for distribution to shareholders after the payment of all
debts and other liabilities. Shares of Common Stock are not redeemable, have
no conversion rights and carry no preemptive or other rights to subscribe to
or purchase additional shares in the event of a subsequent offering. All
outstanding shares of Common Stock are and will be fully paid and non-
assessable, when issued.
Non-Cumulative Voting
The Common Stock does not have cumulative voting rights which means that
the holders of more than fifty percent of the Common Stock voting for election
of directors can elect one hundred percent of the directors of the Company if
they choose to do so.
<PAGE>
Dividends
There are no limitations or restrictions upon the right of the Board of
Directors to declare dividends out of any funds legally available
Effect of anti-takeover effects of New Jersey Shareholders Protection Act
The Company is subject to the provisions of the New Jersey Shareholders
Protection Act. The New Jersey Shareholders Protection Act provides that "no
resident domestic corporation shall engage in any business combination with
any interested stockholder of that resident domestic corporation for a period
of five years following that interested stockholder's stock acquisition date
unless that business combination is approved by the board of directors of that
resident domestic corporation prior to that interested stockholder's stock
acquisition date."
Effect of two member Board of Directors
The Company's Board of Directors is comprised of Sam DiGiralomo who is
CEO, President and Treasurer, and Robert R. Guinta who is Executive Vice
President and Secretary. Mr. DiGiralomo and Mr. Guinta control 39.34 percent
of the Company's votes and together with Scot DiGiralomo, they would control
56.8 percent of the Company's votes. The effect of the two member Board of
Directors and such potential voting control may have the effect of
discouraging, delaying or preventing a change in control of the Company or
unsolicited acquisition proposals that a stockholder might consider favorable.
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
(a) Market Information. There is no public trading market for the
common stock of Audiogenesis, and no stock certificates have been distributed
to the Audiogenesis shareholders pending notification by the SEC staff that
there are no further comments with respect to this Form 10-SB. The common
stock of Genesis was quoted on the OTC Bulletin Board under the symbol "GSIS".
However, the market for Genesis common stock was sporadic and thinly traded,
and the price range of the common stock was not meaningful.
(b) Holders. There are 225 holders of record of Audiogenesis common
stock. The Company estimates that there are at least another 125 shareholders
whose stock is held in street name.
(c) Dividends. Neither Audiogenesis or its predecessor Genesis has
declared or paid any cash dividends on its common stock. Audiogenesis
presently, and for the foreseeable future, intends to retain all its earnings,
if any, for the development of the Company's business. The declaration and
payment of cash dividends in the future will be at the discretion of the Board
of Directors, and will depend upon a number of factors, including among
others, future earnings, operations, funding requirements, the general
financial condition of the Company, and such other factors as the Board of
Directors may deem relevant.
(d) Options. There are 1,773,000 options outstanding. See Item 7
"Certain Relationships and Related Transactions".
(e) 144 Shares. Of the 9,809,872 outstanding shares, 7,495,222 shares
are held by affiliates of the Company. All of these shares have been held
more than one year and are subject to the restrictions set for in rule 144 for
shares held by affiliates. An additional 100,000 shares were issued December
1, 1998 to an non-affiliate and are subject to the provisions of Rule 144.
ITEM 2. LEGAL PROCEEDINGS
No material legal proceedings to which the Company or any of its property
is subject are pending, nor to the knowledge of the Company are any such legal
proceedings threatened.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following information sets forth certain information for
all securities the Company sold during the past three years without
registration under the Securities Act of 1933 (the "Securities Act"). With
respect to the sales made, the Registrant relied upon Section 4(2) of the
Securities Act of 1933, as amended. These securities were offered for
investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted. There were no underwriters in
any of these transactions.
On May 26, 1996, 50 shares of the common stock of Genesis were issued to
Frank Vero, III, to compensate him for inconvenience relating to shares which
were lost in the mail. The 50 shares were issued for nominal consideration.
Mr. Vero also received a replacement certificate (including the additional 50
shares) for the 9,250 shares lost in the mail. The original 9,250 shares were
issued in consideration of Mr. Vero's execution of a termination agreement
with respect to a proposed acquisition by the Company of PrintPerfect Express,
Inc. Mr. Vero was a sophisticated investor who had been provided with a due
diligence package with respect to the Company.
On December 1, 1998, 100,000 shares of the common stock of Audiogenesis
Systems, Inc. were issued to Global Financial Press, Inc. as part of the
consideration to settle an outstanding bill for printing services in the
amount of $62,528.16. Such shares were valued at $27,500, or approximately
$.27 per share. Global Financial Press, Inc. is an accredited investor which
had been provided with a current informational package concerning the Company
prior to agreeing to accept such shares.
On February 7, 1997, the Company issued the following 3,000,750 shares
of its restricted common stock in consideration of the termination of each of
the individuals' options to purchase the restricted common stock of the
Company's predecessor Genesis, such terminations being a condition of the
reverse acquisition; additionally, in the case of Scott DiGiralomo, for his
substantial uncompensated efforts in connection with the acquisition,
development and marketing efforts relating to the echolocation technology
during the several previous years; further, in the case of Marshall E. Levine,
in consideration of Mr. Levine's agreement to transfer the outstanding
obligations of Genesis owed to Mr. Levine to Audiogenesis. The Company
recorded $30,008 of non-cash compensation expense related to this transaction.
1,000,000 shares Sam DiGiralomo
1,000,000 shares Scott DiGiralomo
500,000 shares Robert R. Guinta
250,000 shares Stephen M. Robinson
250,750 shares Marshall E. Levine
<PAGE>
All of the above individuals were affiliates of the Company at the time of
issuance of the shares.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The by-laws of the Company provide that every person who is or was a
director or officer, employee or agent of the Company, or any person who
serves or has served in any capacity with any other enterprise at the request
of the Company, shall be indemnified by the Company to the fullest extent
permitted by law. The Company shall indemnify the persons listed above
against all expenses and liabilities reasonably incurred by or imposed on them
in connection with any proceedings to which they have been or may be made
parties, or any proceedings in which they may have become involved by reason
of being or having been a director or officer of the Company, or by reason of
serving or having served another enterprise at the request of the Company,
whether or not in the capacities of directors or officers of the Company at
the time the expenses or liabilities are incurred.
New Jersey has enacted the following statutory indemnification provisions:
NJSA 14A:3-5. Indemnification of directors, officers and employees
- ------------------------------------------------------------------
(1) As used in this section,
(a) "Corporate agent" means any person who is or was a director, officer,
employee or agent of the indemnifying corporation or of any constituent
corporation absorbed by the indemnifying corporation in a consolidation or
merger and any person who is or was a director, officer, trustee, employee or
agent of any other enterprise, serving as such at the request of the
indemnifying corporation, or of any such constituent corporation, or the legal
representative of any such director, officer, trustee, employee or agent;
(b) "Other enterprise" means any domestic or foreign corporation, other
than the indemnifying corporation, and any partnership, joint venture, sole
proprietorship, trust or other enterprise, whether or not for profit, served
by a corporate agent;
(c) "Expenses" means reasonable costs, disbursements and counsel fees;
(d) "Liabilities" means amounts paid or incurred in satisfaction of
settlements, judgments, fines and penalties;
(e) "Proceeding" means any pending, threatened or completed civil,
criminal, administrative or arbitrative action, suit or proceeding, and any
appeal therein and any inquiry or investigation which could lead to such
action, suit or proceeding; and
<PAGE>
(f) References to "other enterprises" include employee benefit plans;
references to "fines" include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the
request of the indemnifying corporation" include any service as a corporate
agent which imposes duties on, or involves services by, the corporate agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and a person who acted in good faith and in a manner the person reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not opposed
to the best interests of the corporation" as referred to in this section.
(2) Any corporation organized for any purpose under any general or
special law of this State shall have the power to indemnify a corporate agent
against his expenses and liabilities in connection with any proceeding
involving the corporate agent by reason of his being or having been such a
corporate agent, other than a proceeding by or in the right of the
corporation, if
(a) such corporate agent acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation; and
(b) with respect to any criminal proceeding, such corporate agent had no
reasonable cause to believe his conduct was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not of itself create a presumption that
such corporate agent did not meet the applicable standards of conduct set
forth in paragraphs 14A:3-5(2)(a) and 14A:3-5(2)(b).
(3) Any corporation organized for any purpose under any general or
special law of this State shall have the power to indemnify a corporate agent
against his expenses in connection with any proceeding by or in the right of
the corporation to procure a judgment in its favor which involves the
corporate agent by reason of his being or having been such corporate agent, if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation. However, in such proceeding
no indemnification shall be provided in respect of any claim, issue or matter
as to which such corporate agent shall have been adjudged to be liable to the
corporation, unless and only to the extent that the Superior Court or the
court in which such proceeding was brought shall determine upon application
that despite the adjudication of liability, but in view of all circumstances
of the case, such corporate agent is fairly and reasonably entitled to
indemnity for such expenses as the Superior Court or such other court shall
deem proper.
(4) Any corporation organized for any purpose under any general or
special law of this State shall indemnify a corporate agent against expenses
to the extent that such corporate agent has been successful on the merits or
otherwise in any proceeding referred to in subsections 14A:3-5(2) and
14A:3-5(3) or in defense of any claim, issue or matter therein.
<PAGE>
(5) Any indemnification under subsection 14A:3-5(2) and, unless ordered
by a court, under subsection 14A:3-5(3) may be made by the corporation only as
authorized in a specific case upon a determination that indemnification is
proper in the circumstances because the corporate agent met the applicable
standard of conduct set forth in subsection 14A:3-5(2) or subsection
14A:3-5(3). Unless otherwise provided in the certificate of incorporation or
bylaws, such determination shall be made
(a) by the board of directors or a committee thereof, acting by a
majority vote of a quorum consisting of directors who were not parties to or
otherwise involved in the proceeding; or
(b) if such a quorum is not obtainable, or, even if obtainable and such
quorum of the board of directors or committee by a majority vote of the
disinterested directors so directs, by independent legal counsel, in a written
opinion, such counsel to be designated by the board of directors; or
(c) by the shareholders if the certificate of incorporation or bylaws or
a resolution of the board of directors or of the shareholders so directs.
(6) Expenses incurred by a corporate agent in connection with a
proceeding may be paid by the corporation in advance of the final disposition
of the proceeding as authorized by the board of directors upon receipt of an
undertaking by or on behalf of the corporate agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified as
provided in this section.
(7) (a) If a corporation upon application of a corporate agent has failed
or refused to provide indemnification as required under subsection 14A:3-5(4)
or permitted under subsections 14A:3-5(2), 14A:3-5(3) and 14A:3-5(6), a
corporate agent may apply to a court for an award of indemnification by the
corporation, and such court
(i) may award indemnification to the extent authorized under subsections
14A:3-5(2) and 14A:3-5(3) and shall award indemnification to the extent
required under subsection 14A:3-5(4), notwithstanding any contrary
determination which may have been made under subsection 14A:3-5(5); and
(ii) may allow reasonable expenses to the extent authorized by, and
subject to the provisions of, subsection 14A:3-5(6), if the court shall find
that the corporate agent has by his pleadings or during the course of the
proceeding raised genuine issues of fact or law.
(b) Application for such indemnification may be made
(i) in the civil action in which the expenses were or are to be incurred
or other amounts were or are to be paid; or
<PAGE>
(ii) to the Superior Court in a separate proceeding. If the application
is for indemnification arising out of a civil action, it shall set forth
reasonable cause for the failure to make application for such relief in the
action or proceeding in which the expenses were or are to be incurred or other
amounts were or are to be paid.
The application shall set forth the disposition of any previous
application for indemnification and shall be made in such manner and form as
may be required by the applicable rules of court or, in the absence thereof,
by direction of the court to which it is made. Such application shall be upon
notice to the corporation. The court may also direct that notice shall be
given at the expense of the corporation to the shareholders and such other
persons as it may designate in such manner as it may require.
(8) The indemnification and advancement of expenses provided by or
granted pursuant to the other subsections of this section shall not exclude
any other rights, including the right to be indemnified against liabilities
and expenses incurred in proceedings by or in the right of the corporation, to
which a corporate agent may be entitled under a certificate of incorporation,
bylaw, agreement, vote of shareholders, or otherwise; provided that no
indemnification shall be made to or on behalf of a corporate agent if a
judgment or other final adjudication adverse to the corporate agent
establishes that his acts or omissions (a) were in breach of his duty of
loyalty to the corporation or its shareholders, as defined in subsection (3)
of > N.J.S.14A:2-7, (b) were not in good faith or involved a knowing violation
of law or (c) resulted in receipt by the corporate agent of an improper
personal benefit.
(9) Any corporation organized for any purpose under any general or
special law of this State shall have the power to purchase and maintain
insurance on behalf of any corporate agent against any expenses incurred in
any proceeding and any liabilities asserted against him by reason of his being
or having been a corporate agent, whether or not the corporation would have
the power to indemnify him against such expenses and liabilities under the
provisions of this section. The corporation may purchase such insurance from,
or such insurance may be reinsured in whole or in part by, an insurer owned by
or otherwise affiliated with the corporation, whether or not such insurer does
business with other insureds.
(10) The powers granted by this section may be exercised by the
corporation, notwithstanding the absence of any provision in its certificate
of incorporation or bylaws authorizing the exercise of such powers.
(11) Except as required by subsection 14A:3-5(4), no indemnification
shall be made or expenses advanced by a corporation under this section, and
none shall be ordered by a court, if such action would be inconsistent with a
provision of the certificate of incorporation, a bylaw, a resolution of the
board of directors or of the shareholders, an agreement or other proper
corporate action, in effect at the time of the accrual of the alleged cause of
action asserted in the proceeding, which prohibits, limits or otherwise
conditions the exercise of indemnification powers by the corporation or the
rights of indemnification to which a corporate agent may be entitled.
<PAGE>
(12) This section does not limit a corporation's power to pay or
reimburse expenses incurred by a corporate agent in connection with the
corporate agent's appearance as a witness in a proceeding at a time when the
corporate agent has not been made a party to the proceeding.
Forward-Looking Statements
- --------------------------
Certain statements made in this Form 10-SB are "forward looking statements".
Without limiting the generality of the foregoing, such information can be
identified by the use of forward-looking terminology such as "anticipate",
"will", "would", "expect", "intend", "plans to" or "believes", or other
variations thereon, or comparable terminology. Actual results, performance or
developments may differ materially from those expressed or implied by such
forward-looking statements as a result of market uncertainties or industry
factors. Some important factors that may cause actual results that differ
materially from those in any forward-looking statements may include the
availability of financing in the time frame required, market acceptance of the
Company's products and services, competitive pressures, and the ability to
attract and retain key executive sales and management personnel. The Company
disclaims any obligation or responsibility to update any such forward-looking
statements.
<PAGE>
PART F/S
The following financial statements are filed as part of
this registration statement on Form 10-SB.
Report of Independent Accountants
Balance Sheets as of September 30, 1998 and 1997
and December 31, 1998 and 1997 (unaudited)
Statements of Operations for the years ended September 30,
1998 and 1997, and the three months ended December 31 1998
and 1997 (unaudited)
Statements of Changes in Stockholders' Equity (Deficit) for the years
ended September 30, 1998 and 1997 and the three
months ended December 31, 1998 and 1997 (unaudited)
Statements of Cash Flows for the years ended September 30, 1998,
and 1997 and the three months ended December 31, 1998 and 1997
(unaudited)
Notes to Financial Statements
<PAGE>
AUDIOGENESIS SYSTEMS, INC.
AND SUBSIDIARY
FINANCIAL STATEMENTS
Three Months Ended December 31, 1998 and 1997
(unaudited)
and
Years Ended September 30, 1998 and 1997
<PAGE>
AUDIOGENESIS SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Accountants F-2
Balance Sheets as of September 30, 1998 and 1997
and December 31, 1998 and 1997 (unaudited) F-3
Statements of Operations for the years ended September 30,
1998 and 1997, and the three months ended December 31 1998
and 1997 (unaudited) F-4
Statements of Changes in Stockholders' Equity (Deficit) for the years
ended September 30, 1998 and 1997 and the three
months ended December 31, 1998 and 1997 (unaudited) F-5
Statements of Cash Flows for the years ended September 30, 1998,
and 1997 and the three months ended December 31, 1998 and 1997
(unaudited) F-6
Notes to Financial Statements F-7
F-1
<PAGE>
FALLON & FALLON
Certified Public Accountants
Airport Plaza
State Highway 36, Suite 102
Hazlet, New Jersey 07730
Telephone: (732) 888-2070
FAX: (732) 888-6245
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Audiogenesis Systems, Inc.
We have audited the accompanying balance sheets of Audiogenesis Systems, Inc.
as of September 30, 1998 and 1997, and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the two years in
the period ended September 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Audiogenesis Systems, Inc. as
of September 30, 1998 and 1997 and the results of its operations and its cash
flows for each of the two years in the period ended September 30, 1998, in
conformity with generally accepted accounting principles.
FALLON & FALLON, LLP
Certified Public Accountants
January 6, 1999
March 30, 1999 as to notes 5,6 and 7
F-2
<PAGE>
AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31 September 30,
1998 1997 1998 1997
----------------- ---------------------
(unaudited)
Current assets:
Cash $ 70,901 $ 17,732 $ 1,834 $ 3,779
Accounts receivable 36,317 40,056 32,183 40,066
Inventories 64,221 51,632 41,065 55,526
Deferred expenses 23,097 - - -
Other current assets 300 300 300 300
-------- --------- --------- ---------
Total current assets 194,836 109,720 75,382 99,671
Equipment, net 1,746 2,705 1,990 2,964
Deposits 1,957 1,957 1,957 1,957
-------- --------- --------- ---------
Total assets $198,539 $ 114,382 $ 79,329 $104,592
======== ========= ========= =========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 42,547 $ 51,801 $ 22,384 $ 42,801
Accrued expenses 193,154 163,980 291,720 137,579
Deferred income 200,000 - - -
Taxes payable 11,548 2,837 4,492 2,637
Shareholder loan 80,000 80,000 95,000 80,000
-------- --------- --------- ---------
Total current liabilities 527,249 298,618 413,596 263,017
-------- --------- --------- ---------
Stockholders' equity (deficit):
Common stock (no par)
authorized shares
50,000,000, issued and
outstanding 9,709,872 1,149,858 1,149,858 1,149,858 1,149,858
Accumulated deficit (1,478,569)(1,334,094) (1,484,125) ( 1,308,283)
--------- --------- --------- ---------
Total stockholders'
equity (deficit) (328,710) (184,236) (334,267) (158,425)
--------- --------- --------- ---------
Total liabilities
and stockholders'
equity (deficit) $198,539 $ 114,382 $ 79,329 $ 104,592
======== ========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Years Ended
December 31, September 30,
(unaudited)
1998 1997 1998 1997
---- ---- ---- ----
Sales $108,723 $120,729 $475,275 $505,746
Cost of sales 45,664 51,913 197,429 216,192
------- ------- ------- -------
Gross profit 63,059 68,816 277,846 289,554
------- ------- ------- -------
Operating expenses:
General and
administrative 58,788 53,186 251,148 443,774
Selling 35,989 14,582 86,897 105,922
Research and development 12,500 25,000 100,000 80,000
Depreciation 244 259 974 1,429
------- ------- ------- -------
Total operating
expenses 107,521 93,027 439,019 631,125
------- ------- ------- -------
Loss from operations ( 44,462) ( 24,211) (161,173) (341,571)
------- ------- ------- -------
Other income (expense):
Miscellaneous income 51,619 - - -
Interest income - - - 5,045
Interest expense ( 1,600)( 1,600) ( 14,669) ( 4,490)
------- ------- ------- -------
Income (loss) before
income taxes 5,557 ( 25,811) (175,842) (341,016)
Income taxes - - - -
------- ------- ------- -------
Net income (loss) $ 5,557 $( 25,811) $(175,842) $(341,016)
========= ========= ========= =========
Weighted average of
common shares
outstanding 9,709,872 9,709,872 9,709,872 8,709,622
========= ========= ========= ========
Net loss per common share $ .01 $( .03) $( .02) $( .04)
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Stock Note Total
Number of Receivable Accumulated Stockholders'
Shares Amount from Officer Deficit Equity (Deficit)
Balance at September
30, 1996 6,709,122 1,119,850 (237,429) (967,267) ( 84,846)
Issuance of stock 3,000,750 30,008 30,008
Decrease in note
receivable from
officer 237,429 237,429
Net loss for the year
ended September
30,1997 - - - ( 341,016) (341,016)
---------- --------- ------------- ------------ -------------
Balance at September
30, 1997 9,709,872 1,149,858 - (1,308,283) (158,425)
---------- --------- ------------- ------------ -------------
Net loss for the year
months ended September
30, 1998 - - - ( 175,842) (175,842)
---------- --------- ------------- ------------ -------------
Balance at September
30, 1998 9,709,872 $1,149,858 $ - $(1,484,125) $ (334,267)
Net income for the
three months ended
December 31, 1998
(unaudited) - - - 5,557 5,557
Balance at December
31, 1998 9,709,872 $1,149,858 - $(1,478,568) $ (328,710)
========== ========= ============= ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Years Ended
December 31, September 30,
1998 1997 1998 1997
(Unaudited)
[S] [C] [C] [C] [C]
Cash flows from
operating activities:
Net loss $ 5,557 $( 25,811) $(175,842) $(341,016)
Adjustments to
reconcile net loss
to net cash used
by operating
activities:
Depreciation 244 259 974 1,429
Non-cash
compensation expense - - 173,955
(Increase) decrease in
accounts receivable ( 4,134) 10 7,883 1,326
Increase (decrease) in
inventory (23,156) 3,894 14,461 1,771
(Increase) decrease in
deferred expenses (23,097) - - -
(Increase) decrease in
prepaid expenses and
other current assets - - - 15,098
Increase (decrease)in
accounts payable 20,163 9,000 ( 20,417) ( 1,825)
Increase (decrease)in
accrued expenses (98,566) 26,401 154,141 914
Increase in deferred
income 200,000 - - -
Increase (decrease)in
taxes payable 7,056 200 1,855 ( 6)
Increase (decrease)in
other current
liabilities (15,000) - 15,000 80,000
-------- -------- --------- --------
Net cash provided by
operating activities 69,067 13,953 ( 1,945) ( 68,354)
-------- -------- --------- --------
Cash flows from
investing activities:
Capital expenditures - - - ( 2,367)
-------- -------- --------- --------
Net cash used by
investing activities - - - ( 2,367)
-------- -------- --------- --------
Cash flows from
financing activities:
Accrued interest on note
receivable from officer - - - ( 5,046)
Principal payment on bonds
payable, related party - - - (25,000)
Principal payment on note
receivable, related party - - - 98,528
-------- -------- --------- --------
Net cash provided by
financing activities - - - 68,482
-------- -------- --------- --------
Net increase (decrease)
in cash 69,067 13,953 ( 1,945) ( 2,239)
Cash - beginning
of period 1,874 3,779 3,779 6,018
-------- -------- --------- --------
Cash-end of period $ 70,901 $17,732 $ 1,834 $ 3,779
======== ======== ========= ========
Supplemental information:
Cash paid for interest: $ 0 $ 0 $ 0 $ 0
Cash paid for
income taxes: $ 0 $ 0 $ 0 $ 0
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited as to Information Related to the Three Months
Ended December 30, 1998 and 1997)
1. Organization:
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, and currently is expanding its business by focusing on its core
technologies, which include the further development of a medical device for
hearing disorders and its echolocation technology.
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. Summary of Significant Accounting Policies:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Audiogenesis Systems, Inc. and Subsidiary (collectively the "Company"). All
material intercompany accounts and balances have been eliminated.
Spin-Off
The Company is the successor of 100% of the operations of its former parent,
Genesis. The financial statements presented include all the operations of the
Company as well as the operations of the Company's predecessor, prior to the
spin-off, and have been accounted for in a manner similar to that in a pooling
of interests.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the year. Actual results
could differ from those estimates.
Research and Development
All costs of licensing certain technology the Company plans to develop and
market have been expensed as research and development.
F-7
<PAGE>
AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited as to Information Related to the Three Months
Ended December 30, 1998 and 1997)
2. Summary of Significant Accounting Policies (continued):
Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, accounts payable, accrued
expenses, taxes payable, bonds payable, and other current liabilities
approximates fair value because of the relatively short maturity of these
instruments.
Revenue Recognition
Revenues are recognized when a service is performed or a product is sold.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories consist of safety equipment, safety products, finished goods, and
work in process for audio-visual products.
Equipment
Equipment is recorded at cost. Depreciation is provided using the straight-
line method over the estimated useful lives of the assets, which is generally
five to seven years. Expenditures for maintenance and repairs, which do not
extend the economic useful life of the related assets, are charged to
operations as incurred. Gains or losses on disposal of equipment are
reflected in the statements of operations.
Earnings per Share
Earnings per share appearing in the statements of operations for the years
ended September 30, 1998 and 1997 and the three months ended December 31, 1998
and 1997 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.
Income Taxes
Effective October 1, 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
F-8
<PAGE>
AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited as to Information Related to the Three Months
Ended December 30, 1998 and 1997)
2.Summary of Significant Accounting Policies (continued):
Adoption of Recently Issued Accounting Standards
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation ("SFAS 123"). SFAS
123 requires companies to estimate the fair value of common stock, stock
options, or other equity instruments issued to employees using pricing models
which take into account various factors such as current price of the common
stock, volatility and expected life of the equity instrument. No adjustment
was required to be made to the operating results of the Company as a result of
this adoption.
Major Customers
A significant portion of the Company's revenues have been earned from a major
customer. Receipts from this major customer are as follows:
December 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Number of customers
contributing 10% or
more of revenue 1 1 1 1
Total revenues from
major customer $108,723 120,729 $475,275 $505,746
Percentage of revenue
from major customer 100% 100% 100% 100%
The loss of this major customer would have a material adverse effect on
the Company's financial position and results of operations.
Major Suppliers
A significant portion of the Company's purchases are bought from four major
suppliers. Purchases from these major suppliers are as follows:
December 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Total purchases from
major suppliers $62,099 $40,466 $168,253 $188,609
Percentage of
purchases from
major suppliers 90% 84% 89% 88%
The loss of these suppliers may have a material adverse effect on the
Company's financial position and results of operations.
F-9
<PAGE>
AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited as to Information Related to the Three Months
Ended December 30, 1998 and 1997)
3.Equipment:
Equipment consists of the following:
December 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Equipment and
furniture $27,116 $27,116 $27,116 $27,116
Accumulated
depreciation (25,370) (24,411) (25,126) (24,152)
------- ------- ------- -------
Net equipment $ 1,746 $ 2,705 $ 1,990 $ 2,964
======= ======= ======= =======
4. Income Taxes:
The tax effect of temporary differences and net operating loss carryforwards
which make up the significant components of the net deferred tax asset
recognized for financial reporting purposes are as follows:
December 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Deferred tax assets:
Accounts receivable $ - $ - $ - $ -
Inventory 2,340 2,340 2,340 2,340
Net operating loss
carryforward 905,143 760,669 910,700 734,858
--------- --------- --------- ---------
Subtotal 907,483 763,009 913,040 737,198
Valuation allowance (907,483) (763,009) (913,040) (737,198)
--------- --------- --------- ---------
- - - -
========= ========= ========= =========
As of September 30, 1998, the Company has available, for tax reporting
purposes, unused Federal and State net operating loss carryforwards of
approximately $895,000 and $893,000 , respectively. Such amounts will begin
to expire in the years 2006 and 1998, respectively.
F-10
<PAGE>
AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited as to Information Related to the Three Months
Ended December 30, 1998 and 1997)
5. Deferred Income and Deferred Expenses:
As of December 29, 1998 the Company had received $200,000 in advance of
delivering customized audio-visual products to a related party. Accordingly
this revenue has been deferred and will be recognized upon the delivery of the
products. Costs associated with the production of the customized audio-visual
products, amounting to $23,097 as of December 31, 1998, have also been
deferred and will be expensed upon the recognition of the matching revenue.
6. Miscellaneous Income:
During the three months ended December 31, 1998 a licensing agreement was
amended which increased the future royalties payable 5% to 10% on the sale of
products not yet developed with the licensed technology. In return the
Company was relieved of $45,769 of its prior obligations under this agreement.
This amount has been recorded as miscellaneous revenue for the three months
ended December 31, 1998.
The Company borrowed equipment on a rent-free basis for use in its production
of audio-visual products. The fair market rental value of $4,850 has been
included in miscellaneous income.
7. Related Party Transactions:
The Company has borrowed money from a shareholder. Principle amount due to
this shareholder is as follows:
December 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
$80,000 $80,000 $80,000 $80,000
======= ======= ======= =======
Interest accrues at 8% per annum.
The Company's legal counsel owns 1,000,000 shares of common stock and has been
granted 25,000 stock options.
The Company's officers and employees are due commissions and reimbursements of
expenses amounting to $84,463 at December 31, 1998 and $86,713 and $55,895 at
September 30, 1998 and 1997, respectively.
On January 22, 1997 the Company distributed as non-cash compensation, assets
of the Company totaling $189,053 to an officer of the Company for his services
in structuring the Company's spin-off. This amount has been included in
General and Administrative expenses for the year ended September 30, 1997.
On September 18, 1998, the Company agreed to provide a marketing program to a
freight forwarding company for a fee of $300,000. A shareholder of the
Company owns controlling interest in the freight forwarding company.
F-11
<PAGE>
AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited as to Information Related to the Three Months
Ended December 30, 1998 and 1997)
7. Related Party Transactions (continued):
Under the agreement, the Company will produce three customized audio-
visual productions featuring a sales and marketing program for domestic and
international applications, a presentation with respect to promoting the
freight forwarding company's image and a presentation for domestic and
international distribution services and capabilities. All three products were
delivered in January, 1999. The Company began producing the products in
September of 1998.
Scheduled payments made to the Company are as follows:
October 1998 $100,000
November 1998 50,000
December 1998 50,000
January 1999 100,000
The Company believes that the terms of the agreement are the same as
would be negotiated through arms-length bargaining with an unaffiliated
purchaser.
8. Commitments and Contingencies:
Facility Lease
The Company's non-cancelable lease agreement with an unaffiliated company
expired June 30, 1998.
As of July 1, 1998, the Company is renting on a month-to-month basis for
$1,922 per month plus utilities.
Total rent expense for the years ended September 30, 1998 and 1997 was $23,294
and $23,015, respectively
License Agreement
On May 20, 1994, the Company entered into an agreement to acquire a license to
develop and market products using echolocation technology. This technology is
currently in the research and development stage and, accordingly, all costs
are expensed. As of September 30, 1998, the Company has paid $102,000 to
acquire this license. Amounts due under this agreement include minimum
royalty payments of $100,000 per year from 1997 to 2010.
On December 23, 1998, the Company amended this agreement to acquire a license
to develop and market products using echolocation technology. Beginning in
1999 the minimum royalty payments will be $50,000 per year from 1999 to 2010.
In addition, interest due in the amount of $8,269 at September 30, 1998 has
been waived and minimum royalty payments for 1998 have been reduced to $50,000
to be paid in periodic payments beginning January 31, 1999.
F-12
<PAGE>
AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited as to Information Related to the Three Months
Ended December 30, 1998 and 1997)
8. Commitments and Contingencies (continued):
The Company may terminate this agreement upon 60 days' written notice and upon
payment of all amounts due through the effective date of the termination date.
9. Stock Option Programs
The Company has adopted a nonqualified stock option plan (the "Plan") pursuant
to which 1,850,000 shares of Common Stock have been reserved for issuance to
employees, officers and directors of the Company and all of its subsidiaries
and affiliates. Options granted pursuant to the plan are non-transferrable,
are exercisable immediately, and expire if not exercised after ten years.
Options will be granted in such amounts as determined by the Board of
Directors, but the price per share shall be the approximate fair value at the
time the options are granted for shares having the same characteristics. On
March 20, 1990 the Company granted 1,325,000 options exercisable at $0.50 per
share under this plan. The options expire December 31, 1999.
The Company had an additional 548,000 options outstanding to purchase common
stock at various prices prior to the spin-off. The options remain outstanding
with the Company's predecessor. If exercised, they entitled the optionee to
receive a share of the Company. The Company would not receive any additional
consideration in such event. Accordingly, the Company has reserved 548,000
shares of common stock for this purpose.
On February 7, 1997, the Company issued 3,000,750 shares of common stock to
two officers, one employee, and two consultants for their participation in the
Company's restructuring. The Company recorded $30,008 of non-cash
compensation expense related to this transaction.
10.Note to Interim Financial Statements (unaudited)
Basis of Presentation
The interim unaudited financial statements reflect adjustments, consisting
only of normal recurring accruals, which are, in the opinion of Company's
management, necessary in order to make the financial statements not
misleading. Sales and the net loss for any interim period are not necessarily
indicative of the results for a full year.
F-13
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
The following list describes the exhibits filed as part of
this registration statement on Form 10-SB:
Exhibit No. Description of Document
- ----------- -----------------------
3.01* Articles of Incorporation of Audiogenesis Systems,
Inc. dated January 14, 1997
3.02* By-laws of Audiogenesis Systems, Inc.
10.01* Echolocation Technology License Agreements
10.02* Agreement with Allstates Air Cargo, Inc. dated 9/18/98
10.03* Promissory Note to Marshall E. Levine Ph.D. Profit Sharing Plan
10.04* Genesis Safety Systems, Inc. Stock Option Plan
11.01* Statement re: Computation of Earnings per Share
21.01* List of Subsidiaries of Registrant
23.01* Consent of Fallon & Fallon, CPA's
27.01+ Financial Data Schedule
*Filed previously
+Filed herewith
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
AUDIOGENESIS SYSTEMS, INC.
/s/ Sam DiGiralomo
By: Sam DiGiralomo, President
Date: March 31, 1999
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<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-30-1998
<CASH> 70,901
<SECURITIES> 0
<RECEIVABLES> 36,317
<ALLOWANCES> 0
<INVENTORY> 64,221
<CURRENT-ASSETS> 194,836
<PP&E> 27,116
<DEPRECIATION> 25,370
<TOTAL-ASSETS> 198,539
<CURRENT-LIABILITIES> 527,249
<BONDS> 0
0
0
<COMMON> 1,149,858
<OTHER-SE> (1,478,569)
<TOTAL-LIABILITY-AND-EQUITY> 198,539
<SALES> 108,723
<TOTAL-REVENUES> 108,723
<CGS> 45,664
<TOTAL-COSTS> 107,521
<OTHER-EXPENSES> (51,619)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,600
<INCOME-PRETAX> 5,557
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