SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): June 29, 1999 AUDIOGENESIS SYSTEMS, INC. (Exact name of registrant as specified in charter) New Jersey 000-24991 22-3487471 (State or other (Commission (IRS Employer jurisdiction File Number) Identification No.) of incorporation) 7 Doig Road, Suite 3 Wayne, New Jersey 07470 (Address of principal executive offices) Registrant's telephone number, including area code (973) 696-9400 EXPLANATORY NOTE This Form 8-K/A amends Item 7 of the current report on Form 8-K filed by Audiogenesis Systems, Inc. ("Audiogenesis") on July 12, 1999 to include financial statements that were not available at the time of the filing of the initial report. The financial statements are required as a result of an agreement executed on June 29, 1999 pertaining to the acquisition by Audiogenesis of Allstates Air Cargo, Inc. ("Allstates"). Item 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION Item 7(a) FALLON & FALLON LLP CERTIFIED PUBLIC ACCOUNTANTS 1392 ROUTE 36, SUITE 102 HAZLET, NEW JERSEY 07730-1716 TELEPHONE: (732) 888-2070 FAX: (732) 888-6245 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Allstates Air Cargo, Inc. And Subsidiaries We have audited the accompanying Consolidated Balance Sheets of Allstates Air Cargo, Inc. and Subsidiaries(the "Company") as of September 30, 1998 and 1997, and the related Consolidated Statements of Operations, Stockholders' Equity, and Cash Flows for the years then ended. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material Respects, the consolidated financial position of Allstates Air Cargo, Inc. and subsidiaries as of September 30, 1998 and 1997, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. HAZLET, NEW JERSEY MAY 19, 1999 -9- ALLSTATES AIR CARGO, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1998 AND 1997 ASSETS 1998 1997 Current assets: ---- ---- Cash and cash equivalents $ 175,673 $ 200,978 Accounts receivable - trade, net of allowance for doubtful accounts of $410,501 in 1998 $577,990 in 1997 3,796,346 4,058,905 Prepaid expenses and other assets 85,659 53,942 Deferred income taxes 165,502 228,981 --------- --------- Total current assets 4,223,180 4,542,806 Property, plant and equipment, net 477,449 476,040 Security deposits 104,759 20,514 Deferred income taxes 34,090 4,958 Other assets 184,629 165,573 --------- --------- Total assets $5,024,107 $5,209,891 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $2,824,374 $3,291,845 Accrued expenses 482,063 353,766 Short-term bank borrowing 400,000 280,000 Current portion of notes payable 101,084 113,914 Income taxes payable - 4,379 Note payable, related party - - Interest payable, related party - 20,384 --------- --------- Total current liabilities 3,807,521 4,064,288 Long-term notes payable, less current portion 69,618 100,865 --------- --------- Total liabilities 3,877,139 4,165,153 --------- --------- Commitments and contingencies Stockholders' equity: Common stock, no par value, 1,000 shares authorized, 210 shares issued and outstanding 6,000 6,000 Deferred financing costs ( 60,000) ( 50,000) Currency translation adjustments ( 9,824) ( 1,447) Retained earnings 1,210,792 1,090,185 --------- --------- Total stockholders' equity 1,146,968 1,044,738 --------- --------- Total liabilities and stockholders' equity $5,024,107 $5,209,891 ========= ========= The accompanying notes are an integral part of the consolidated financial statements. -10- ALLSTATES AIR CARGO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997 1998 1997 ---- ---- Revenues $25,997,927 $25,133,787 Cost of 16,304,751 15,729,005 ----------- ---------- Gross profit 9,693,176 9,404,782 Selling, general and administrative expenses (includes rent expense to related party of $92,203 and $86,150, respectively) 9,416,799 9,318,419 ----------- ---------- Income from operations 276,377 86,363 Interest income 9,512 1,887 Interest expense (includes interest expense due to related party of $0 and $13,467, respectively) ( 54,061) ( 45,301) Other income 19,733 33,195 ----------- ---------- Income before income tax provision 251,561 76,144 Income tax provision ( 130,954) ( 98,553) Net income (loss) $ 120,607 $( 22,409) =========== ========== The accompanying notes are an integral part of the consolidated financial statements. -11- ALLSTATES AIR CARGO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997 Deferred Currency Total Common Stock Financing Translation Retained Stockholders' Shares Amount Costs Adjustments Earnings Equity ------ ------ ---------- ------------- ---------- -------------- Balance at September 30, 1996 210 $6,000 $ - $ - $1,112,594 $1,118,594 Deferred financing costs - - (50,000) - - 50,000 1997 net loss - - - - (22,409) ( 22,409) Currency translation adjustments - - - (1,447) - ( 1,447) ------ ------ ---------- ------------- ---------- -------------- Balance at September 30, 1997 210 6,000 (50,000) (1,447) 1,090,185 1,044,738 Deferred financing costs (10,000) ( 10,000) 1998 net income 120,607 120,607 Currency translation adjustments - - - (8,377) - ( 8,377) ------ ------ ---------- ------------- ---------- -------------- Balance at September 30, 1997 210 $6,000 $(60,000) $(9,824) $1,210,792 $1,146,968 ====== ====== ========== ============= ========== ============== The accompanying notes are an integral part of the consolidated financial statements. -12- ALLSTATES AIR CARGO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997 1998 1997 ---- ---- Cash flows from operating activities: Net income (loss) $ 120,607 $ ( 22,409) Adjustments to reconcile net income to net Cash used in operating activities: Depreciation 179,012 154,745 Provision for doubtful accounts 6,703 182,500 Gain (loss) on sale of equipment 2,328 ( 1,200) Deferred income taxes 34,347 ( 4,045) (Increase) decrease in assets: Accounts receivable 255,856 (829,092) Prepaid expenses and other assets ( 50,773) (218,748) Security deposits ( 84,245) ( 2,400) Increase (decrease) in liabilities: Accounts payable and accrued expenses (339,174) 360,203 Income tax payable ( 4,379) ( 74,064) Interest payable, related party ( 20,384) 3,467 ---------- ---------- Net cash provided by (used in) operating activities 99,898 (451,043) Cash flows from investing activities: Purchase of equipment (110,924) (108,042) Proceeds from sale of equipment 42,343 1,200 Net Cash Used In Investing Activities ( 68,581) (106,842) ---------- ---------- Cash flows from financing activities: Repayments under notes payable ( 157,944) (110,246) Repayments under short-term bank borrowings (280,000) - Repayments under note payable, related party - (200,000) Borrowings under short-term bank borrowings 400,000 280,000 Deferred financing costs ( 10,000) ( 50,000) ---------- ---------- Net cash used in financing activities ( 47,944) ( 80,246) ---------- ---------- Net increase (decrease) in cash and cash equivalents ( 16,627) (638,131) Currency translation adjustments ( 8,678) ( 676) Cash and cash equivalents, beginning of year 200,978 839,785 ---------- ---------- Cash and cash equivalents, end of year $ 175,673 $ 200,978 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the year for income taxes $ 100,986 $ 176,662 Cash paid during the year for interest $ 75,411 $ 41,834 Equipment acquired through notes payable $ 113,867 $ 127,075 The accompanying notes are an integral part of the consolidated financial statements. -13- ALLSTATES AIR CARGO, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. Organization: Allstates Air Cargo, Inc. has been providing domestic and international air freight service since 1962. Allstates Air Cargo, Inc. maintains operating facilities throughout the United States and operates in one principal industry segment. The Company has two wholly owned subsidiaries, Allstates Allcargo (US), Inc., who owns Allstates Allcargo (UK) Ltd. (the "affiliate"), a corporation organized under the laws of England and Allstates Logistics, a New Jersey corporation. In January 1999, the Company purchased the minority interest of the affiliate for approximately $11,000. Allstates Logistics, Inc. was incorporated in December 1997 for the purpose of offering its customers ocean freight service. 2. Summary of Significant Accounting Policies: Principles of Consolidation The accompanying financial statements include the assets, liabilities and earnings (loss) of Allstates Air Cargo, Inc. and subsidiaries and its affiliate (collectively, the "Company"). All material intercompany accounts and balances have been eliminated. Translation of Foreign Currencies Assets and liabilities of the affiliate whose functional currency is British pounds are translated at year-end rates of exchange and revenues and expenses are translated at weighted average exchange rates prevailing during the year. Resulting translation adjustments and the related income tax effects, are accumulated in the currency translation adjustment component of stockholders' equity. Currency translation gains and losses are recognized in income currently. Revenue Recognition Revenues are recognized at the time the freight departs the terminal of origin. This method approximates recognizing revenues when shipment is completed. Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Concentration of Credit Risk Financial instruments which potentially subject the Company to a concentration of credit risk consists principally of cash and accounts receivable. The Company places its cash primarily with one quality financial institution. The Company had a cash balance on deposit with this bank at September 30, 1998 that exceeded the $100,000 balance insured by the F.D.I.C. -14- ALLSTATES AIR CARGO, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued): Concentration of Credit Risk (continued) The Company provides services to customers in diverse industries located primarily in the United States. Substantially all sales are denominated in the U.S. dollar. Management believes that concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base and their dispersion across many different industries and geographic regions. For the year ended September 30, 1997, $2,536,501 or 10% of the Company's consolidated revenues were earned from one major customer. The loss of this customer could have a material adverse effect on the Company's consolidated financial position and results of operations. No customer represented 10% or more of consolidated revenues for the year ended September 30, 1998. The Company performs ongoing credit evaluations of its customers to minimize credit risk. Fair Value of Financial Instruments The carrying amount of current notes payable approximates fair value because of the short maturity of these items. The Company's line of credit has a variable interest rate which adjusts with changes in market interest rates, and the book value of such indebtedness is deemed to approximate fair value. It is not practicable to estimate the fair value of long-term notes payable as the cost of obtaining an independent valuation appears excessive considering the materiality of the instruments to the Company. It is also not practicable to estimate the fair value of note payable, related party because of the association with the majority stockholder. Property, Plant and Equipment Property and equipment consist principally of buildings and improvements, vehicles, computers and computer software, office equipment and furniture and fixtures and is stated at cost. Depreciation is provided on the straight- line method over the estimated useful lives of the assets which is generally three to fifteen 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. Income Taxes The Company follows 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. Estimates Used in Preparation of Financial Statements 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 dates of the financial statements and the reported amounts of revenues and expenses for the periods reported. Actual results could differ from these estimates. -15- ALLSTATES AIR CARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Correction of an Error During 1998, the company discovered an error in the amount of $89,271 in its affiliates accounts payable. The effect of the correction of this error resulted in a decrease of $89,271 in net income for the year ended September 30, 1997, resulting in a loss for the period of $22,409. Accordingly, the financial statements have been restated for the above adjustments. 4. Property, plant and equipment: Property and equipment costs consist of the following at: September 30, September 30, 1998 1997 ------------- ------------- Land $ 30,000 $ 30,000 Buildings and improvements 180,294 180,294 Vehicles 633,287 659,098 Computer and other equipment 198,992 105,121 Computer software 144,137 144,137 Furniture and fixtures 47,843 38,333 ---------- ---------- 1,234,553 1,156,983 Less: accumulated depreciation 757,104 680,943 ---------- ---------- $ 477,449 $ 476,040 ========== ========== Depreciation expense charged to income from operations for the years ended September 30, 1998 and 1997 was $179,012 and $154,745, respectively. 5. Other Assets: On April 14, 1997, the Company pledged $165,573 as a condition of obtaining a HM Customs and Excise bond. The purpose of the bond is to guarantee payment of value added taxes and excise taxes that the Company's affiliate will collect from its customers. The cash pledged is maintained in a certificate of deposit in a financial institution earning interest at approximately 5%. At September 30, 1998 the cost approximated fair market value. The certificate of deposit matured on April 14, 1999 and was renewed for one year. 6. Notes Payable: Notes payable consisted of the following: September 30, September 30, 1998 1997 ------------- ------------ 1.90% to 10.90% interest on various notes payable $170,702 $214,779 Less: current portion 101,084 113,914 --------- --------- Notes payable, net of current portion $ 69,618 $100,865 ========= ========= -16- ALLSTATES AIR CARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Notes Payable (continued): The notes payable are collateralized by certain vehicles of the Company. Total maturities of notes payable as of September 30, 1998 are as follows: Year ending September 30, 1998 $101,084 1999 50,017 2000 19,601 -------- $170,702 ======== 7. Short-Term Bank Borrowing: The Company has a $1,000,000 line of credit agreement with a bank, which expires September 28, 1999. Interest on outstanding borrowings currently accrues at the Wall Street Journal's prime rate of interest less .25% per annum (8.25% at September 30, 1998). The interest rate is predicated upon the Company maintaining a compensating account balance in a non-interest bearing account equal to at least 15% of the outstanding principal balance. If, at any time, the Company fails to maintain the compensating balance, the interest rate will increase by 1% over the rate currently accruing. The line of credit is collateralized by the Company's accounts receivable. Advances under the line of credit are limited to 70% of accounts receivable sixty days or less. At September 30, 1998, there was $400,000 of outstanding borrowings under this agreement. The loan is due and payable in full at maturity or upon demand in the event of default. 8. Income Taxes: The Company's 1998 and 1997 provision for income taxes consists of the following: For the year ended September 30, 1998 1997 ---- ---- Current: Federal $ 73,675 $ 76,466 State 22,932 26,132 -------- --------- 96,607 102,598 Deferred: Federal 27,909 ( 3,115) State 6,438 ( 930) -------- ---------- 34,347 ( 4,045) -------- ---------- $130,954 $ 98,553 ======== ========== -17- ALLSTATES AIR CARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. Income Taxes (continued): The difference between the United States federal statutory tax rate and the Company's effective tax rate for 1998 and 1997 are as follows: For the Year Ended September 30, 1998 1997 ---- ---- United States federal statutory tax rate 34.0% 34.0% State taxes, net of federal benefit 6.1% 6.1% Non-deductible expenditures 15.1% 17.8% Other 1.2% 1.7% ----- ----- Effective tax rate 56.4% 59.6% ===== ===== The tax effect of temporary differences which make up the significant components of the deferred tax asset for financial reporting purposes at September 30, 1998 and 1997 are as follows: 1998 1997 ---- ---- Deferred tax assets: Accounts receivable $165,502 $228,981 Equipment 34,090 4,958 -------- -------- Deferred tax assets $199,592 $233,939 ======== ======== The Companies affiliate has income tax loss carryforwards amounting to $187,000. The deferred tax asset as a result of this carryforward has been offset in full by a valuation allowance. 9. Pension Plans: Effective May 1994, the Company adopted a discretionary non-standardized 401(k) profit sharing plan. The terms of the plan provide for eligible employees ("participants") who have met certain age and service requirements to participate by electing to contribute up to the maximum percentage allowable not to exceed the limits of Code Section 401(k), 404 and 415 (the "Code"). For 1998, the maximum percentage allowed by the Code was the lesser of 25% of an employees' compensation of which 15% is tax deductible, or $10,000. The Company may make matching contributions equal to a discretionary percentage, as determined by the Company, up to 6% of a participants' salary. Company contributions vest at the rate of 20% of the balance at each employees' third, fourth, fifth, sixth, and seventh anniversary of employment. The employees' contributions are immediately vested. The Company's contribution to the plan for the years ended September 30, 1998 and 1997 was $11,594 and $20,995, respectively. The plan also allows employer discretionary contributions allocated in accordance with participants' compensation. The Company did not make any discretionary contributions to the plan for the years ended September 30, 1998 and 1997. -18- ALLSTATES AIR CARGO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. Related Party Transactions: The Company leases real estate in two locations from the sole stockholder of the Company. Rent expense under these arrangements for the years ended September 30, 1998 and 1997 was $92,203 and $86,150, respectively. 11. Stockholders' Equity: The Company has incurred direct costs associated with plans to obtain additional debt or equity financing. These costs have been shown separately in the equity section of the consolidated balance sheet and deducted from total stockholders' equity and will be expensed if the financing is not obtained. 12. Commitments and Contingencies: Lease Commitments The Company leases certain terminal facilities and its corporate headquarters under operating leases which expire over the next four years. These operating leases provide the Company with the option to renew it's lease at the then fair rental value. Generally, management expects that leases will be renewed or replaced by other leases in the normal course of business. In September 1998 the Companies' affiliate leased terminal facilities in the U.K. for approximately $80,000 annually for ten years. The affiliate plans to sublet a portion of the space. Future minimum lease payments under all leases with initial or remaining noncancellable lease terms in excess of one year are as follows as of September 30, 1998: Year ending September 30: ------------- 1999 $ 330,012 2000 289,962 2001 170,712 2002 132,914 2003 130,240 Thereafter 427,125 ---------- $1,480,965 Rent expense under operating leases for the years ended September 30, 1998 and 1997 was $365,968 and $342,751, respectively. In addition, the Company sublet office space and has recorded $17,360 and $18,691 in rental income for the years ended September 30, 1998 and 1997, respectively. -19- ALLSTATES AIR CARGO, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) 13. Litigation: The Company is involved in legal proceedings, claims and litigation including employee matters and other matters arising in the normal course of business. In the opinion of management, the outcome of such current legal proceedings will not materially affect the Company's consolidated financial position when resolved in a future period. The Company is also involved in an environmental proceeding. In December 1996, five underground storage tanks ("USTs") and two aboveground storage tanks were removed from a facility in which the Company leases office space. Post-excavation sampling results confirmed that certain soil contamination remained present after the removals at the location of two of the USTs. Also, at the time of the removals, free-floating groundwater contamination was observed in the area of these two former USTs. In response, the Company entered into a Memorandum of Agreement with the New Jersey Department of Environmental Protection (the "DEP") on June 11, 1997 to address the contamination. The Company installed three monitoring wells and sampled the wells in December 1997. Negotiations with the DEP have resulted in the DEP's concurrence that no further delineation of soil contamination is required for one of the two former USTs. The remaining UST has shown certain contaminants to be present at levels in excess of the DEP's groundwater cleanup criteria. The Company believes that certain of the contaminants are migrating onto the premises from off-site sources. Under New Jersey statutory law, a property owner cannot be required to clean up groundwater contamination emanating from another party's site; nor may a property owner be required to clean groundwater to a condition better than that of the groundwater entering its property. The Company has made claims against their liability insurance carriers for coverage. Due to the uncertain nature and extent of any additional investigatory or remedial activities that may be required regarding the existing site conditions, potential future costs cannot be estimated by management at this time. If an adverse judgment is entered, the potential effect on the consolidated financial position and consolidated results of operations, in the period in which resolved, cannot be ascertained at this time, but may be material. The Company was a plaintiff in a lawsuit with the United States Government (the "Government") for delinquent accounts receivables approximating $273,000 (net of $131,000 allowance) as of September 30, 1998. The lawsuit has been settled and, in March of 1999, the government paid the Company $282,000 in satisfaction of the full outstanding receivable. 14. Subsequent Events In April of 1999 the Company purchased one share of stock from its sole shareholder for $202,597. -20- FALLON & FALLON LLP CERTIFIED PUBLIC ACCOUNTANTS 1392 ROUTE 36, SUITE 102 HAZLET, NEW JERSEY 07730-1716 TELEPHONE: (732) 888-2070 FAX: (732) 888-6245 ACCOUNTANTS' COMPILATION REPORT To the Board of Directors Allstates Air Cargo, Inc. and Subsidiaries We have compiled the accompanying consolidated balance sheet of Allstates Air Cargo, Inc. and Subsidiaries as of March 31, 1999, and the statements of operation, stockholder's equity, and cash flows for the six months ended March 31, 1999 and 1998, in accordance with Statements on Standards for Accounting and Review Services issued by the American institute of Certified Public Accountants. A compilation is limited to presenting in the form of financial statements information that is the representation of management. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any other form of assurance on them. Management has elected to omit substantially all of the disclosures required by generally accepted accounting principles. If the omitted disclosures were included in the financial statements, they might influence the user's conclusions about the company's financial position, results of operations, and cash flows. Accordingly, these financial statements are not designed for those who are not informed about such matters. July 28, 1999 FALLON & FALLON LLP -21- ALLSTATES AIR CARGO, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 ASSETS Current assets: Cash and cash equivalents $ 109,056 Accounts receivable - trade, net of allowance for doubtful accounts of $469,856 3,686,760 Prepaid expenses and other assets 86,773 Deferred income taxes 189,428 ------------ Total current assets 4,072,017 Property, plant and equipment, net 518,743 Security deposits 76,484 Deferred income taxes 33,879 Other assets 184,584 ------------ Total assets $4,885,707 LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $2,302,957 Accrued expenses 462,396 Short-term bank borrowing 170,000 Current portion of notes payable 86,201 Income taxes payable 273,023 ------------ Total current liabilities 3,294,577 Long-term notes payable, less current portion 65,649 ------------ Total liabilities 3,360,226 ------------ Commitments and contingencies Stockholder's equity: Common stock, no par value, 1,000 shares authorized, 210 shares issued and outstanding 6,000 Currency translation adjustments 3,888 Retained earnings 1,515,593 ------------ Total stockholder's equity 1,525,481 ------------ Total liabilities and stockholder's equity $4,885,707 ============ See accountants' compilation report. -22- ALLSTATES AIR CARGO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME SIX MONTHS ENDED MARCH 31, 1999 1998 ------ ------ Revenues $15,926,900 $12,819,451 Cost of transportation 9,564,065 8,128,232 ----------- ----------- Gross profit 6,362,835 4,691,219 Selling, general and administrative expenses 5,727,572 4,596,119 ----------- ----------- Income from operations 635,263 95,100 Interest income 63 9,000 Interest expense ( 27,299) ( 23,956) Other income (loss) ( 665) 12,380 ----------- ----------- Income before income tax provision 607,362 92,524 Income tax provision ( 302,561) ( 45,272) ----------- ----------- Net income $ 304,801 $ 47,252 =========== =========== See accountants' compilation report. -23- ALLSTATES AIR CARGO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Deferred Currency Total Common Stock Financing Translation Retained Stockholders' Shares Amount Costs Adjustments Earnings Equity ------ ------ ---------- ------------- ---------- -------------- Balance at September 30, 1997 210 6,000 (50,000) (1,447) 1,090,185 1,044,738 Net income for the six months ended March 31, 1998 - - - - 47,252 47,252 Deferred financing costs (10,000) ( 10,000) Currency translation adjustments - - - (1,984) - ( 1,984) ------ ------ ---------- ------------- ---------- -------------- Balance at March 31, 1998 210 $6,000 $(60,000) $(3,431) $1,137,437 $1,080,006 ====== ====== ========== ============= ========== ============== Deferred Currency Total Common Stock Financing Translation Retained Stockholders' Shares Amount Costs Adjustments Earnings Equity ------ ------ ---------- ------------- ---------- -------------- Balance at September 30, 1998 210 6,000 (60,000) (9,824) 1,210,792 1,146,968 Net income for the six months ended March 31, 1999 - - - - 304,801 304,801 Deferred financing costs 60,000 60,000 Currency translation adjustments - - - 13,712 - 13,712 ------ ------ ---------- ------------- ---------- -------------- Balance at March 31, 1999 210 $6,000 $ - $ 3,888 $1,515,593 $1,525,481 ====== ====== ========== ============= ========== ============== See accountants' compilation report. -24- ALLSTATES AIR CARGO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED MARCH 31, 1998 1997 ---- ---- Cash flows from operating activities: Net income $ 304,801 $ 47,252 Adjustments to reconcile net income to net Cash used in operating activities: Depreciation 87,356 81,542 Provision for doubtful accounts 58,818 41,581 Gain (loss) on sale of equipment 582 4,551 Deferred financing cost 60,000 - Deferred income taxes (23,715) (Increase) decrease in assets: Accounts receivable 50,767 813,548 Prepaid expenses and other assets 8,862 ( 14,910) Security deposits ( 28,275) 779 Increase (decrease) in liabilities: Accounts payable and accrued expenses (572,470) (1,036,120) Income tax payable 273,023 37,560 Interest payable, related party - ( 20,384 ---------- ---------- Net cash provided by (used in) operating activities 276,299 ( 44,601) ---------- ---------- Cash flows from investing activities: Purchase of equipment ( 70,025) ( 85,469) Proceeds from sale of equipment 14,070 6,700 Investment in subsidiary ( 10,014) - ---------- ---------- Net Cash Used In Investing Activities ( 65,969) ( 78,769) ---------- ---------- Cash flows from financing activities: Repayments under notes payable ( 60,663) ( 65,217) Repayments under short-term bank borrowings (330,000) (320,000) Borrowings under short-term bank borrowings 100,000 350,000 ---------- ---------- Net cash used in financing activities ( 290,663) ( 35,217) ---------- ---------- Net increase (decrease) in cash and cash equivalents ( 80,329) (158,587) Currency translation adjustments ( 13,712) ( 1,984) Cash and cash equivalents, beginning of six months 175,673 200,978 ---------- ---------- Cash and cash equivalents, end of six months $ 109,056 $ 40,407 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the six months for income taxes $ 26,538 $ 7,712 Cash paid during the six months for interest $ 45,552 $ 19,831 Equipment acquired through notes payable $ 41,811 $ 39,851 See accountants' compilation report. -25- Forward looking statements Certain statements made in this Information Statement 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 products and services, competitive pressures, and the ability to attract and retain key executive sales and management personnel. Audiogenesis and Allstates each disclaims any obligation or responsibility to update any such forward-looking statements. -26- Item 7(b) AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY SELECTED FINANCIAL DATA AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA The Selected Financial Data and the Unaudited Pro Forma Financial Data is provided to aid you in your analysis of the financial aspects of the merger and is presented in summary only. This Data should be read in conjunction with, and is qualified in its entirety by, the respective historical financial statements and notes thereto, if applicable, of Audiogenesis Systems, Inc. ("ASI") and Allstates Air Cargo, Inc. ("Allstates") incorporated by reference into the Information Statement and the financial statements and notes thereto in ASI's Form 10QSB dated May 12, 1999 and 10SB12G/A dated April 1, 1999. ALLSTATES AIR CARGO, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA We derived the following information from Allstates' audited financial statements. Years Ended September 30, 1998 1997 1996 -------------------------------------- OPERATION STATEMENT DATA: Revenues........................ $25,997,927 $25,133,787 $22,390,079 Income before income taxes...... 251,561 76,144 281,165 Net income (loss)............... 120,607 (22,409) 113,546 BALANCE SHEET DATA: Accounts receivable............. $ 3,796,346 $ 4,058,905 $ 3,416,029 Total assets.................... 5,024,107 5,209,891 4,902,854 Accounts payable................ 2,824,374 3,291,845 3,033,012 Notes payable................... 170,702 214,779 397,950 Total liabilities............... 3,877,139 4,165,153 3,784,260 Stockholders' equity............ 1,146,968 1,044,738 1,118,594 F-1 AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY SUMMARY HISTORICAL FINANCIAL DATA AND SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA Allstates Allstates Pro Forma Historical Six Historical Six Pro Forma Six Year Ended Months Ended Months Ended Months Ended September 30, March 31, 1999 March 31, 1998 March 31, 1999 1998 -------------- -------------- -------------- ----------- OPERATING DATA: Total revenues.... $15,926,900 $12,819,451 $16,140,187 $26,473,202 =========== =========== ============ =========== Income (loss) before income taxes.....$ 607,362 $ 92,524 $ 746,798 $( 103,481) =========== =========== ============ =========== Net income (loss)..$ 304,801 $ 47,252 $ 480,973 $( 160,963) =========== =========== ============ =========== Net income (loss) per weighted average Common Stock outstanding $ 0.02 $ 0.00 $ 0.01 $( 0.01) =========== =========== ============ =========== Weighted average Common Stock outstanding 18,000,000 18,000,000 32,109,872 32,109,872 =========== =========== ============ =========== BALANCE SHEET DATA (at end of period): Accounts receivable........ $3,686,760 $ 3,203,775 $ 3,719,786 $ 3,828,529 Total assets........ 4,885,707 4,240,847 5,291,496 5,555,302 Accounts payable... 2,302,957 2,190,620 2,347,286 2,846,758 Notes payable...... 151,850 189,413 2,711,850 2,730,702 Total liabilities... 3,360,226 3,160,842 6,208,416 6,850,735 Stockholders' equity. 1,525,481 1,080,006 (916,920) (1,295,433) F-2 AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY BASIS OF PRESENTATION TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET As of March 31, 1999 The Unaudited Pro Forma Combined Balance Sheet gives effect to the proposed merger of Audiogenesis Systems, Inc. ("ASI") and Allstates Air Cargo, Inc. ("Allstates") as a recapitalization of Allstates with Allstates as the acquiror (reverse acquisition). This event has been presented as if it had occurred on March 31, 1999. The Unaudited Pro Forma Combined Balance Sheet gives effect to the merger under the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16. In the opinion of management, all significant adjustments necessary to reflect the effects of the merger have been made. The Unaudited Pro Forma Combined Balance Sheet is presented for comparative purposes only and is not necessarily indicative of what the actual combined financial position of ASI and Allstates would have been, nor does it purport to represent the future combined financial position of ASI and Allstates. This Unaudited Pro Forma Combined Balance Sheet should be read in conjunction with, and is qualified in its entirety by, the respective historical financial statements and notes thereto, if applicable, of ASI and Allstates incorporated by reference into the Information Statement and the financial statements and notes thereto in ASI's Form 10QSB dated May 12, 1999. F-3 AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY UNAUDITED PRO FORMA COMBINED BALANCE SHEET As of March 31, 1999 ASSETS Pro Forma ASI ASI Allstates Merger Pro Forma Historical Historical Adjustments Combined ---------- ---------- ----------- --------- Cash and cash equivalents $ 68,670 $ 109,056 $(22,500)(A) $ 155,226 Accounts receivable 33,026 3,686,760 - 3,719,786 Inventories 74,890 - - 74,890 Property, plant and equipment 4,116 518,743 - 522,859 Security deposits 1,957 76,484 - 78,441 Other assets 300 494,664 - 494,964 Goodwill - - 245,330 (B) 245,330 ---------- ---------- ----------- --------- Total assets $ 182,959 $4,885,707 $ 222,830 $5,291,496 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable $ 44,329 $2,161,594 $ - $2,205,923 Accrued expenses 160,180 462,396 - 622,576 Short-term bank borrowing - 311,363 - 311,363 Notes payable - 151,850 2,560,000(C) 2,711,850 Shareholder loan 80,000 - - 80,000 Taxes payable 3,681 273,023 - 276,704 ---------- ---------- ----------- --------- Total liabilities 288,190 3,360,226 2,560,000 6,208,416 ========== ========== =========== ========= Stockholders' equity: Common stock 1,149,858 6,000 (1,032,259)(D) 123,599 Currency translation adjustments - 3,888 - 3,888 Retained earnings (deficit) (1,255,089) 1,515,593 1,255,089(E) 1,515,593 Treasury stock - - (2,560,000)(F)(2,560,000) ---------- ---------- ----------- --------- Total stockholders' equity ( 105,231) 1,525,481 (2,337,170) ( 916,920) ---------- ---------- ----------- --------- Total liabilities and stockholders' equity $ 182,959 $4,885,707 $ 222,830 $5,291,496 ========== ========== =========== ========= F-4 AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY BASIS OF PRESENTATION TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS For the Six Months Ended March 31, 1999 The Unaudited Pro Forma Combined Statement of Operations gives effect to the proposed merger of Audiogenesis Systems, Inc. ("ASI") and Allstates Air Cargo, Inc. ("Allstates") as a recapitalization of Allstates with Allstates as the acquiror (reverse acquisition). This event has been presented as if it had occurred at the beginning of the six month period ended March 31, 1999. The Unaudited Pro Forma Combined Statement of Operations gives effect to the merger under the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16. In the opinion of management, all significant adjustments necessary to reflect the effects of the merger have been made. The Unaudited Pro Forma Combined Statement of Operations is presented for comparative purposes only and is not necessarily indicative of what the actual combined financial position of ASI and Allstates would have been, nor does it purport to represent the future combined financial position of ASI and Allstates. This Unaudited Pro Forma Combined Statement of Operations should be read in conjunction with, and is qualified in its entirety by, the respective historical financial statements and notes thereto, if applicable, of ASI and Allstates incorporated by reference into the Information Statement and the financial statements and notes thereto in ASI's Form 10QSB dated May 12, 1999. F-5 AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS For the Six Months Ended March 31, 1999 Pro Forma ASI ASI Allstates Merger Pro Forma Historical Historical Adjustments Combined ---------- ---------- ----------- --------- Revenues $513,287 $15,926,900 $(300,000)(G)$16,140,187 Cost of revenues 112,679 9,564,065 - 9,676,744 ---------- ---------- ----------- ---------- Gross profit 400,000 6,362,835 (300,000) 6,463,443 Operating expenses: Selling, general and administrative 188,766 5,727,572 (300,000)(G) 5,616,338 Research and development 25,000 - - 25,000 ---------- ---------- ----------- --------- Total operating expenses 213,766 5,727,572 (300,000) 5,641,338 ---------- ---------- ----------- --------- Income from operations 186,842 635,263 - 822,105 Other income (expense): Interest income - 63 - 63 Interest expense (3,575) ( 27,299) (89,600)(H) (120,474) Other income (loss) 45,769 ( 665) - 45,104 ---------- ---------- ----------- --------- Income before income taxes 229,036 607,362 (89,600) 746,798 ---------- ---------- ----------- --------- Income tax provision - ( 302,561) 36,736(I) (265,825) ---------- ---------- ----------- --------- Net income $229,036 $ 304,801 $(52,864) $ 480,973 ========== ========== =========== ========= Weighted average of common shares outstanding $18,000,000 $14,109,872(J)$32,109,872 ========== =========== ========= Net income per common share $ 0.02 $ 0.01 ========== ========== F-6 AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY BASIS OF PRESENTATION TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET As of September 30, 1998 The Unaudited Pro Forma Combined Balance Sheet gives effect to the proposed merger of Audiogenesis Systems, Inc. ("ASI") and Allstates Air Cargo, Inc. ("Allstates") as a recapitalization of Allstates with Allstates as the acquiror (reverse acquisition). This event has been presented as if it had occurred on September 30, 1998. The Unaudited Pro Forma Combined Balance Sheet gives effect to the merger under the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16. In the opinion of management, all significant adjustments necessary to reflect the effects of the merger have been made. The Unaudited Pro Forma Combined Balance Sheet is presented for comparative purposes only and is not necessarily indicative of what the actual combined financial position of ASI and Allstates would have been, nor does it purport to represent the future combined financial position of ASI and Allstates. This Unaudited Pro Forma Combined Balance Sheet should be read in conjunction with, and is qualified in its entirety by, the respective historical financial statements and notes thereto of ASI and Allstates incorporated by reference into the Information Statement and the financial statements and notes thereto in ASI's Form 10SB12G/A dated April 1, 1999. F-7 AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY UNAUDITED PRO FORMA COMBINED BALANCE SHEET As of September 30, 1998 ASSETS Pro Forma ASI ASI Allstates Merger Pro Forma Historical Historical Adjustments Combined ---------- ---------- ----------- --------- Cash and cash equivalents $ 1,834 $ 175,673 $(22,500)(K) $ 155,007 Accounts receivable 32,183 3,796,346 - 3,828,529 Inventories 41,065 - - 41,065 Property, plant and equipment 1,990 477,449 - 479,439 Security deposits 1,957 104,759 - 106,716 Other assets 300 469,880 - 470,180 Goodwill - - 474,366(L) 474,366 ---------- ---------- ----------- --------- Total assets 79,329 5,024,107 451,866 5,555,302 ========== ========== =========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable 22,384 2,824,374 - 2,846,758 Accrued expenses 291,720 482,063 - 773,783 Short-term bank borrowing - 400,000 - 400,000 Notes payable - 170,702 2,560,000(M) 2,730,702 Shareholder loan 95,000 - - 95,000 Taxes payable 4,492 - - 4,492 ---------- ---------- ----------- --------- Total liabilities 413,596 3,877,139 2,560,000 6,850,735 ========== ========== =========== ========= Stockholders' equity: Common stock 1,149,858 6,000 (1,032,259)(N) 123,599 Currency translation adjustments - ( 9,824) - (9,824) Retained earnings (deficit) (1,484,125) 1,210,792 1,484,125(O) 1,210,792 Deferred financing costs - (60,000) - ( 60,000) Treasury stock - - (2,560,000)(P)(2,560,000) ---------- ---------- ----------- --------- Total stockholders equity ( 334,267) 1,146,968 (2,108,134) (1,295,433) ---------- ---------- ----------- --------- Total liabilities and stockholders' equity $ 79,329 $5,024,107 $ 451,866 $5,555,302 ========== ========== =========== ========= F-8 AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY BASIS OF PRESENTATION TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS For the Year Ended September 30, 1998 The Unaudited Pro Forma Combined Statement of Operations gives effect to the proposed merger of Audiogenesis Systems, Inc. ("ASI") and Allstates Air Cargo, Inc. ("Allstates") as a recapitalization of Allstates with Allstates as the acquiror (reverse acquisition). This event has been presented as if it had occurred at the beginning of the year ended September 30, 1998. The Unaudited Pro Forma Combined Statement of Operations gives effect to the merger under the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16. In the opinion of management, all significant adjustments necessary to reflect the effects of the merger have been made. The Unaudited Pro Forma Combined Statement of Operations is presented for comparative purposes only and is not necessarily indicative of what the actual combined financial position of ASI and Allstates would have been, nor does it purport to represent the future combined financial position of ASI and Allstates. This Unaudited Pro Forma Combined Statement of Operations should be read in conjunction with, and is qualified in its entirety by, the respective historical financial statements and notes thereto of ASI and Allstates incorporated by reference into the Information Statement and the financial statements and notes thereto in ASI's Form 10SB12G/A dated April 1, 1999. F-9 AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS For the Year Ended September 30, 1998 Pro Forma ASI ASI Allstates Merger Pro Forma Historical Historical Adjustments Combined ---------- ---------- ----------- --------- Revenues $475,275 $25,997,927 $ - $26,473,202 Cost of revenues 197,429 16,304,751 - 16,502,180 ---------- ---------- ----------- --------- Gross profit 277,846 9,693,176 - 9,971,022 ---------- ---------- ----------- --------- Operating expenses: Selling, general and administrative 339,019 9,416,799 - 9,755,818 Research and development 100,000 - - 100,000 ---------- ---------- ----------- --------- Total operating expenses 439,019 9,416,799 - 9,855,818 ---------- ---------- ----------- --------- Income from operations (161,173) 276,377 - 115,204 Other income (expense): Interest income - 9,512 - 9,512 Interest expense (14,669) ( 54,061) (179,200)(Q) (247,930) Other income (loss) - 19,733 - 19,733 ---------- ---------- ----------- --------- Income before income taxes (175,842) 251,561 (179,200) (103,481) Income tax provision - 130,954 ( 73,472)(R) 57,482 ---------- ---------- ----------- --------- Net income (loss) $(175,842) $ 120,607 $(105,728) $(160,963) ========== ========== =========== ========= Weighted average of common shares outstanding $18,000,000$14,109,872(S)$32,109,872 ========== =========== ========== Net income per common share $ 0.01 $ ( 0.01) ========== ========= F-10 AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET As of March 31, 1999 A. Represents an adjustment for the estimated costs of the merger for professional fees and printing. B. Goodwill is calculated as the excess of the aggregate fair value of ASI's outstanding stock ($140,099 assuming a market price of $.01 per share) at the date of acquisition after allocation to ASI's net assets of $(105,231). C. The merger agreement provides for the assumption of an obligation to pay $2,560,000 to the Estate of Albert G. Hoffman, Jr. D. Represents an adjustment to eliminate the book value of ASI's common stock of $1,149,858, to increase Allstates' common stock by the fair value of ASI's outstanding stock of $140,099, and to record the estimated costs of the merger of $22,500. E. Represents an adjustment to eliminate ASI's retained deficit. F. The assumption of the $2,560,000 obligation (see note C) has been accounted for as the purchase of treasury stock. F-11 AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS For the Six Months Ended March 31, 1999 G. Represents an adjustment to eliminate inter-company transactions. H. Represents interest on the assumed note payable of $2,560,000 for six months at 7%. I. Represents the tax adjustment for the additional interest expense. J. Recapitalizes Allstates' shares to 18,000,000, the equivalent number of shares received in the transaction and shows the shares retained by ASI's shareholders as issued for the reverse acquisition. F-12 AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET As of September 30, 1998 K. Represents an adjustment for the estimated costs of the merger for professional fees and printing. L. Goodwill is calculated as the excess of the aggregate fair value of ASI's outstanding stock ($140,099 assuming a market price of $.01 per share) at the date of acquisition after allocation to ASI's net assets of $(334,267). M. The merger agreement provides for the assumption of the obligation to pay $2,560,000 to the Estate of Albert G. Hoffman, Jr. N. Represents an adjustment to eliminate ASI's common stock of 1,149,858, to increase Allstates' common stock by the fair value of ASI's outstanding stock of $140,099, and to record the estimated costs of the merger of $22,500. O. Represents an adjustment to eliminate ASI's retained deficit. P. The assumption of the $2,560,000 obligation (see note M) has been accounted for as the purchase of treasury stock. F-13 AUDIOGENESIS SYSTEMS, INC. AND SUBSIDIARY NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS For the Year Ended September 30, 1998 Q. Represents interest on the assumed note payable of $2,560,000 for one year at 7%. R. Represents the tax adjustment for the additional interest expense. S. Recapitalizes Allstates' shares to 18,000,000, the equivalent number of shares received in the transaction and shows the shares retained by ASI's shareholders as issued for the reverse acquisition. F-14 Item 7(c) Exhibits None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Audiogenesis Systems, Inc. /s/ Sam DiGiralomo DATED: August 17, 1999 By: Sam DiGiralomo President