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 MARCH 31, 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 9,709,872 shares of common stock, par value $.0001 per share,
outstanding as of March 31, 1999.
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<PAGE>
AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
INDEX
PAGE
PART 1. FINANCIAL INFORMATION ----
ITEM 1. FINANCIAL STATEMENTS
ARCA CORP. AND SUBSIDIARY
-------------------------
CONSOLIDATED BALANCE SHEETS AS OF
MARCH 31, 1999 AND SEPTEMBER 30, 1998...............3
CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998........4
CONSOLIDATED STATEMENT OF CASH FLOWS FOR
THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998........5
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE PERIOD FROM
SEPTEMBER 30, 1998 TO MARCH 31, 1999................6
NOTES TO 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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<PAGE>
AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
March 31, September 30,
1999 1998
-------- -------------
(unaudited) (audited)
Current assets:
Cash $ 68,670 $ 1,834
Accounts receivable 33,026 32,183
Inventories 74,890 41,065
Other current assets 300 300
---------- ---------
Total current assets 176,886 75,382
Equipment, net 4,116 1,990
Deposits 1,957 1,957
---------- ---------
Total assets $182,959 $79,329
========== =========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 44,329 $ 22,384
Accrued expenses 160,180 291,720
Taxes payable 3,681 4,492
Shareholder loan 80,000 95,000
---------- ---------
Total current liabilities 288,190 413,596
---------- ---------
Stockholders' equity (deficit):
Common stock (no par) authorized
shares 50,000,000, issued and
outstanding 9,709,872 1,149,858 1,149,858
Accumulated deficit (1,255,089) (1,484,125)
---------- ---------
Total stockholders' equity (deficit) ( 105,231) ( 334,267)
---------- ---------
Total liabilities and stockholders'
equity (deficit) $ 182,959 $ 79,329
========== ==========
See notes to unaudited condensed consolidated financial statements.
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<PAGE>
AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
March 31,
----------------
1999 1998
---- ----
Sales $513,287 $243,108
Cost of sales 112,679 104,536
------- -------
Gross profit 400,608 138,572
------- -------
Operating expenses:
General and administrative 126,244 107,675
Selling 62,035 31,773
Research and development 25,000 50,000
Depreciation 487 517
------- -------
Total operating expenses 213,766 189,965
------- -------
Income (loss) from operations 186,842 ( 51,393)
Other income (expense):
Miscellaneous income 45,769 -
Interest expense ( 3,575) ( 3,200)
------- -------
Income (loss) before income taxes 229,036 ( 54,593)
Income taxes - -
Net income (loss) $ 229,036 ($ 54,593)
======= =======
Weighted average of common
shares outstanding 9,709,872 9,709,872
========= =========
Net income (loss) per common
share $ .02 $ (.01)
========= =========
See notes to unaudited condensed consolidated financial statements.
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<PAGE>
AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
March 31,
1999 1998
---- ----
Cash flows from operating activities:
Net income (loss) $ 229,036 $(54,593)
Adjustments to reconcile net loss
to net cash used
by operating activities:
Depreciation 487 517
(Increase) decrease in accounts receivable ( 843) ( 381)
(Increase) decrease in inventory ( 33,825) 12,997
Increase (decrease) in accounts payable 21,945 ( 10,112)
Increase (decrease) in accrued expenses (131,540) 53,201
Increase (decrease) in taxes payable ( 811) -
Increase (decrease) in other current liabilities ( 15,000) -
---------- ---------
Net cash provided by operating activities 69,067 1,629
---------- ---------
Cash flows from investing activities:
Capital expenditures ( 2,613) -
---------- ---------
Net cash used by investing activities ( 2,613) -
---------- ---------
Net increase (decrease) in cash 66,836 1,629
Cash - beginning of period 1,834 3,779
---------- ---------
Cash - end of period $ 68,670 $ 5,408
========== =========
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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<PAGE>
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)
Net income for the six
months ended March
31, 1999 (unaudited) - - 229,036 229,036
--------- ------- ----------- ----------------
Balance at December 31,
1999 9,709,872 $1,149,858 $(1,225,089) $(105,231)
========= ========= ========== ================
See notes to unaudited condensed consolidated financial statements.
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<PAGE>
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 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 March 31, 1999 and the
results of its operations for the six months ended March 31, 1999 and 1998.
Results of operations for the six months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the fiscal
year ending September 30, 1999.
1. Organization, Operations, and Significant Accounting Policies:
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.
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<PAGE>
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 six months ended March 31, 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 six months ended March 31, 1999 the Company received
revenue from the following segments:
Safety Audio-visual
product production
sales sales Totals
Revenue from external customers $213,287 $300,000 $513,287
Cost of sales 89,581 23,098 112,679
Segment gross profit 123,706 276,902 400,608
-8-
<PAGE>
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 Report on Form 10SB12G/A (File No.
000-24991) and the accompanying unaudited condensed consolidated financial
statements.
General
- -------
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.
Results of Operations
- ----------------------
The following discussion is for the six months ended March 31, 1999 compared to
six months ended March 31, 1998.
Sales increased 111% to $513,287 in the first six months of fiscal 1999 from
$243,108 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 $29,821 during the same period.
Gross profit rose in total by $262,036 and is also due to the audio-visual
sales. Operating expenses rose $23,801 primarily due to an increase in
salaries. Operating income increased $135,449 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 $47,866.
-9-
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's cash has increased to $68,670 at March 31, 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.
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 touncertainties 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
demand for safety equipment; (c) fluctuations in the operating costs
of the Company; (d) uninsurable risks; and (e) general economic conditions.
-11-
<PAGE>
PART II
OTHER INFORMATION
- ------------------
ITEM 1 LEGAL PROCEEDINGS
NONE
ITEM 2 CHANGES IN SECURITIES
NONE
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
None
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<PAGE>
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: May 14, 1999 /s/ Sam DiGiralomo
----------------------------------------
Sam DiGiralomo,
President, Chief Executive Officer and
Chief Financial Officer
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EARNINGS PER SHARE SCHEDULE
Calculation of net income
Net Income (loss) $229,036
Assumed interest expense reduction 0
Assumed interest income increase 0
---------
$229,036
=========
Calculation of weighted average number of shares
Weighted average shares outstanding 9,709,872
Common stock equivalents 0
----------
9,709,872
==========
Net income (loss) per share
$0.02
==========
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001072293
<NAME> AUDIOGENESIS SYSTEMS, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 68,670
<SECURITIES> 0
<RECEIVABLES> 33,026
<ALLOWANCES> 0
<INVENTORY> 74,890
<CURRENT-ASSETS> 176,886
<PP&E> 29,729
<DEPRECIATION> 25,613
<TOTAL-ASSETS> 182,959
<CURRENT-LIABILITIES> 288,190
<BONDS> 0
0
0
<COMMON> 1,149,858
<OTHER-SE> (1,255,089)
<TOTAL-LIABILITY-AND-EQUITY> 182,959
<SALES> 513,287
<TOTAL-REVENUES> 513,287
<CGS> 112,679
<TOTAL-COSTS> 213,766
<OTHER-EXPENSES> (45,769)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,575
<INCOME-PRETAX> 229,036
<INCOME-TAX> 0
<INCOME-CONTINUING> 229,036
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229,036
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
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