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23
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 0R 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT FOR THE TRANSITION PERIOD FROM ________ TO ________
ALLSTATES WORLDCARGO, INC.
(Exact Name of Registrant as Specified In Its Charter)
New Jersey 22-3487471
(State or Other (I.R.S. Identification
Jurisdiction of Number)
Incorporation or
Organization)
4 Lakeside Drive South, Forked River, New Jersey 08731
(Address of Principal Executive Offices) (Zip Code)
7 Doig Road, Suite 3, Wayne, New Jersey
07470
(Former address of Principal Executive Offices) (Zip Code)
(609) 693-5950
(Issuer's Telephone Number)
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock $.0001 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the 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
[ x ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in part III
of this Form 10-K or any amendment to this Form 10-K [ ]
The number of shares of Common Stock outstanding as of December 14,
2001 was 32,509,872 shares.
At December 14, 2001, the voting stock of the registrant had not been
publicly quoted.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General Overview
Allstates WorldCargo, Inc. (the "Company" or "Allstates") is a
New Jersey Corporation formed on January 14, 1997 as Audiogenesis
Systems, Inc. ("Audiogenesis"), pursuant to a corporate reorganization
of Genesis Safety Systems, Inc. ("Genesis"). On August 24, 1999,
Audiogenesis acquired 100 percent of the common stock of Allstates Air
Cargo, Inc. in a reverse acquisition, and on November 30, 1999,
changed its name to Allstates WorldCargo, Inc. The Company's business
is comprised of freight forwarding and the distribution and sales of
safety equipment. Allstates is headquartered in Forked River, New
Jersey.
The freight forwarding business of Allstates was founded by
Joseph M. Guido, the Company's Chairman of the Board, with its first
terminal opening in Newark, New Jersey in 1961. Allstates provides
domestic and international freight forwarding services to over 1,500
customers utilizing ground transportation, commercial air carriers,
and ocean vessels. Allstates operates 19 offices throughout the United
States, and employs 81 people.
Allstates has agreements with domestic and international
strategic partners and a network of agents throughout the world. In
Fiscal 2000, Allstates formed a strategic alliance with an established
freight forwarding company located in the United Kingdom, with its
principle office in the London Heathrow airport area. This strategic
partner replaced the Company's UK branch office, which discontinued
freight operations prior to the end of its September 30, 2000 fiscal
year end. The Company's UK branch office had done business as
Allstates Allcargo (UK) Ltd. since January 1997. Allstates plans to
increase its global market share by forming additional strategic
alliances and effecting selective acquisitions.
In September, 2000, Allstates entered in to an agreement with an
unrelated freight and warehousing company to provide services to them
which primarily included customer invoicing and transportation vendor
disbursements on business that they provided to the Company. Per the
agreement, Allstates paid a commission to this company based on the
invoiced amount, less deductions for transportation cost and a fee for
providing the service. In May, 2001, the assets of that company were
purchased by another company unrelated to Allstates WorldCargo, Inc.,
and consequently the service agreement was terminated.
Allstates neither owns nor operates any aircraft or ships. By
not owning or operating its own equipment, Allstates believes it is
able to provide more flexible delivery schedules and shipment size.
In addition, by eliminating the substantial fixed expenses associated
with the ownership of such equipment, Allstates has been able to
effect certain cost savings.
Marketing and Licensing
Allstates markets its services through a network of 19 domestic
offices, its European and South American strategic alliances, and
selected agents throughout the world. Of the 19 domestic locations, 9
are company-owned, and the remaining 10 are licensees and agents.
Allstates utilizes a combination of professionally prepared
advertising materials, highly trained sales and operations/customer
services professionals, direct mail, assorted promotional items, and
audio/visual presentations. Allstates maintains 15 full time sales
personnel operating from the 9 company-owned offices.
Allstates has formed strategic alliances in approximately 10
foreign countries with which it shares information, customers and
profits.
Allstates has several site licensing agreements and has created
two divisions that are responsible for certain specialized functions
of the Company. One of those divisions is GTD Logistics, which is
involved in ground transportation (trucking). The other division is
called Allstates Logistics. This division holds Ocean Transportation
Intermediary License No. 15364NF, and is responsible for the ocean
freight segment of Allstates. In addition, the Company invested in a
new start-up operation, e-tail Logistics, Inc., a New Jersey
corporation. To date, e-tail Logistics, Inc. has not conducted any
business.
Information Systems
A primary component of Allstates's business strategy is the
continued development of its advanced information systems. Allstates
has invested substantial management and financial resources in the
development of its information systems in an effort to provide
accurate and timely information to its management and customers.
Allstates continues to upgrade its information systems. Highlights of
the information system are:
o Real-time information which is available to employees and
customers, including customer service, operations, sales and
accounting
o Centralized system located in Forked River, New Jersey, with
terminals throughout all offices capable of dial-up by customers
(through direct dial-up or via Internet), including internal and
external e-mail
o System tracks shipments from pickup order to delivery; confirms
"on-board" and "out for delivery" status
o System can produce the following daily, monthly, yearly reports:
(1) Operations reports (inbound, outbound and on-hand reports)
(2) Sales reports (revenue, customer client list)
(3) Customer reports (POD report, shipping history report)
(4) Accounting reports (P&L reports)
o System auto rates revenues and costs
o System is capable of EDI (Electronic Data Interchange)
o System is flexible in customizing reports to meet customer needs
o System is "bar-code" capable
o System allows customers to dial up and retrieve rate quotes and
POD information
o System produces shipping labels and computerized airbills and
airline bills
Licensing and Government Regulation
Allstates is the holder of Ocean Transportation Intermediary
License No. 15364NF, and must be in compliance with the regulations
governing such certification. Also, Allstates must be in compliance
with the regulations of the Federal Aviation Administration that apply
to the business of Allstates. Allstates believes that it has the
resources, expertise and experience to continue its compliance with
all Federal agencies and regulations.
Allstates relies primarily on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and
contractual provisions to protect its proprietary technology. For
example, Allstates licenses its software pursuant to signed license
agreements, which impose certain restrictions on the licensees'
ability to utilize the software. In addition, Allstates seeks to avoid
disclosure of its trade secrets, including requiring those persons
with access to Allstates's proprietary information to execute
confidentiality agreements with Allstates and restricting access to
Allstates's source code. Allstates seeks to protect its software,
documentation and other written materials under trade secret and
copyright laws, which afford only limited protection.
Despite Allstates's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of Allstates's
products or to obtain and use information that Allstates regards as
proprietary. Policing unauthorized use of Allstates's products is
difficult, and, while Allstates is unable to determine the extent to
which piracy of its software products exists, software piracy can be
expected to be a persistent problem. In addition, the laws of many
countries do not protect Allstates's proprietary rights to as great an
extent as do the laws of the United States. There can be no assurance
that Allstates's means of protecting its proprietary rights will be
adequate or that Allstates's competitors will not independently
develop similar technology.
To date, Allstates has not been notified that Allstates's
products infringe the proprietary rights of third parties, but there
can be no assurance that third parties will not claim infringement by
Allstates with respect to current or future products. Allstates
expects that software product developers will increasingly be subject
to infringement claims as the number of products and competitors in
Allstates's industry segment grows and the functionality of products
in different industry segments overlaps. Any such claims, with or
without merit, could be time-consuming, result in costly litigation,
cause product shipment delays or require Allstates to enter into
royalty or licensing agreements. Such royalty or licensing agreements,
if required, may not be available on terms acceptable to Allstates or
at all, which could have a material adverse effect upon Allstates's
business, operating results and financial condition.
Competition
Allstates competes with other companies in the same business,
some of which are much larger and have substantially greater
resources. There are approximately 1,500 direct competitors of
various sizes throughout the country. The methods by which Allstates
chooses to compete include highly skilled and experienced upper and
middle management, a proprietary site-licensing program, cost control,
professional sales representation, highly trained operations and
customer service personnel, employee and customer premium awards
program, and a wide range of enhanced services. In addition, the
integration of Audiogenesis' experience and expertise with respect to
its applications for inventory control provides the Company with added
benefits for its customers. Allstates also owns its proprietary and
customized computer software and advanced hardware. Allstates's
website is functional, allowing for customer cargo tracking, with
further enhancements expected in the future.
Allstates's major competitors nationwide are Federal Express,
BAX, Eagle USA, and United Parcel Service. At each of Allstates's
locations, there are regional carriers who have strength in the local
marketplace. They, for the most part, all provide air, sea and ground
services. Service levels and pricing vary substantially based upon
geographic and customer volume criteria.
In order to remain competitive, Allstates negotiates with its
vendors to meet the appropriate service and pricing levels in its
markets. In addition to competitive pricing, Allstates strives to
provide its customers, with excellent service, highly trained inside
operations personnel, and state of the art computer services.
Customers
Allstates has a diverse customer base, with approximately 1,500
accounts. Over the 40 years of its operations, Allstates has done
business with over 25,000 customers. Some of Allstates's major
customers over the years have been J.B. Williams, Raytheon, Giorgio
Perfume, Cosmair, Ashton Tate, Merisel Corporation, Budd Corporation,
Home Box Office (a division of Time-Warner), Sensormatic, AT&T, and
Polaris.
Employees
As of November 24, 2001, the Company employed a total of 81
individuals. Allstates Air Cargo, Inc. and subsidiaries accounted for
79 employees (of which 9 are part time), including 39 in operations
and customer service, 16 in sales, marketing and related activities,
and 24 in administration and finance. The Audiogenesis Systems
division had 2 full-time employees. Allstates's success is highly
dependent on its ability to attract and retain qualified employees.
The loss of any of the Company's senior management or other key sales
and marketing personnel could have a material adverse effect on
Allstates's business, operating results and financial condition.
Pension Plan
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
Internal Revenue Code Section 401(k), 404 and 415 (the "Code"). For
2001, the maximum percentage allowed by the Code was the lesser of 25%
of an employee's compensation of which 15% is tax deductible, or
$10,500. 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 employee's third, fourth, fifth, sixth, and
seventh anniversary of employment. The employee's contributions are
100% vested at the time of deferral. 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 year ended September 30,
2001.
Audiogenesis Systems Division
Sales of Safety Equipment.
Allstates, trading as Audiogenesis Systems, operates a store
which distributes 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.
Competition
Audiogenesis'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 Audiogenesis. 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 Audiogenesis.
ITEM 2. DESCRIPTION OF PROPERTY
As of September 30, 2001, Allstates occupied approximately 7,000
square feet of space in Forked River, New Jersey for its principal
administrative, sales and marketing support and product development
facility under a ten year lease. The Company's branch locations,
which are located in the vicinity of major metropolitan airports,
occupy approximately 1,000 to 23,000 square feet. All such branch
locations are company leased properties or properties leased by
licensee owners. Terms for company leased properties in North America
generally run from one to seven years and are scheduled to expire
between fiscal 2002 and fiscal 2008. In September, 2001, the Company
terminated its lease agreement in the UK by way of an executed Deed of
Surrender. That facility in the UK was leased for a ten year term and
was due to expire in fiscal 2009. The total rent expense for company
leased facilities was, during fiscal 2001, approximately $376,000.
Allstates believes that its existing facilities are adequate to
support its activities for the foreseeable future.
The Company's branch locations as of September 30, 2001 were:
NORTH AMERICA
Los Angeles, California Dallas, Texas
Kenilworth, New Jersey Houston, Texas
St. Louis, Missouri Indianapolis, Indiana
Kansas City, Missouri Minneapolis, Minnesota
Pittsburgh, Pennsylvania New York, New York
Atlanta, Georgia Raleigh, North Carolina
Baltimore, Maryland San Francisco, California
Boston, Massachusetts San Diego, California
Chicago, Illinois Wayne, New Jersey
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in an ongoing environmental proceeding. In
December 1996, five underground storage tanks ("UST's") and two above
ground 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 UST's. Also, at the time of the removals,
free-floating groundwater contamination was observed in the area of
these two former UST's. During 1999, the Company engaged Carpenter
Environmental Associates ("Carpenter")to prepare a Preliminary
Assessment/Site Investigation Report ("PA/SI Report"). Carpenter's
PA/SI Report stated that the chlorinated groundwater contamination is
emanating from an off-site source. The New Jersey Department of
Environmental Protection approved Carpenter's PA/SI Report and agreed
that no further investigation of the chlorinated solvents in the
groundwater was needed. A Remedial Investigation Work Plan was
submitted in November 1999. The NJDEP approved the work plan on
November 24, 1999. The approved work was performed by Carpenter in
December 1999, as set forth in Carpenter's report dated March 13,
2000. The Carpenter report indicated that benzene contamination was
delineated and proposed the installation of one additional monitoring
well and natural remediation and monitoring of remaining groundwater
contamination. The NJDEP approved the additional work and Carpenter
installed and sampled the additional well, the results of which
confirmed complete delineation of the benzene contamination.
Concentrations of benzene in MW-3, a separate well that Carpenter also
sampled, indicated an increase from the prior sampling event. The
NJDEP suggested that the increase may be due to sediments collected
with the groundwater sample, and recommended that the sampling be
repeated. Carpenter conducted two additional sampling events to
confirm groundwater concentrations of benzene in Monitoring Well 3
("MW-3"). The sampling results indicated that concentrations of
benzene have sufficiently decreased to allow case closure with the
institution of a Classification Exception Area ("CEA"). Counsel for
Allstates has confirmed with the New Jersey Department of
Environmental Protection ("DEP") that the sampling results
satisfactorily demonstrate a decreasing trend in benzene
concentrations. At the DEP's request, Carpenter prepared a CEA
proposal, which was submitted to the DEP on October 11, 2001. In the
CEA proposal, Carpenter proposed no further action for the
groundwater. It is likely that the DEP will issue a No Further Action
("NFA") letter for the soil and groundwater. DEP previously confirmed
to counsel for Allstates that NFA as to soils at the site would be
granted unless benzene concentrations in groundwater fail to decrease.
In March 1997, Allstates made claims against liability insurance
carriers for coverage. Now that the environmental work is nearly
complete, counsel for Allstates anticipates discussing cost-sharing
with Allstates' insurance carriers. As it is likely that the DEP will
issue a NFA letter for the Site, the likelihood is low that additional
investigatory or remedial work will be required. Therefore, we
anticipate that potential future remedial costs to Allstates should be
minimal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted, during the Fourth Quarter of the Fiscal
Year covered by this report, to a vote of security holders through
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has not yet been publicly traded. The
Company anticipates that its common stock will be listed for quotation
on the NASD OTC Bulletin Board in the near future.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth, selected consolidated financial data
for the Company for the five years ended September 30, 2001. The
selected consolidated financial data for the five years are derived
from the Company's audited consolidated financial statements. The
consolidated financial data set forth below should be read in
conjunction with the Company's Consolidated Financial Statements and
related Notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained herein.
YEAR ENDED SEPTEMBER 30,
(in thousands, except per share data)
1997 1998 1999 2000 2001
STATEMENT OF OPERATIONS DATA
Net sales $25,134 $25,998 $31,230 $33,213 $41,239
Income (loss) from operations 86 276 1,107 424 744
Income (loss) from continuing (22) 121 480 87 408
Net income (loss) (22) 121 480 (62) 408
Basic net income (loss) per
common share $.00 $.01 $.00 $.01
Diluted net income (loss) per
common share $.00 $.01 $.00 $.01
Weighted average
Common shares outstanding 32,510 32,510 32,510 32,510
- basic
Weighted average
Common shares outstanding 32,523 32,523 32,521 32,510
- diluted
BALANCE SHEET DATA:
Working capital $479 $ 416 $ 783 $ 598 $1,316
Total assets 5,210 5,024 6,070 7,892 7,095
Liabilities - current 4,064 3,808 3,812 5,695 4,614
Liabilities - long term 101 70 2,564 2,625 2,497
Total stockholders' equity 1,045 1,147 ( 306) (427) (16)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth for the periods indicated certain
financial information derived from the Company's consolidated
statement of operations expressed as a percentage of net sales:
Fiscal Year Ended September 30,
2001 2000 1999
---- ---- ----
Revenues 100.0% 100.0% 100.0%
Cost of transportation 57.7 60.6 60.2
------ ------ ------
Gross profit 42.3 39.4 39.8
Selling, general and administrative
expenses 40.5 38.1 36.3
------ ------ ------
Operating income 1.8 1.3 3.5
Income from continuing operations 1.0 0.3 1.5
Loss from discontinued operations,
net of tax benefit (0.5)%
Net income/(loss) 1.0% (0.2)% 1.5%
Revenues
Revenues of the Company represent gross consolidated sales less
customer discounts. Sales of Allstates WorldCargo increased by $8.0
million, or 24.2%, to $41,239,000 for the fiscal year ended September
30, 2001 as compared to the fiscal year ended September 30, 2000.
Revenues earned from domestic sources increased by $5.2 million, or
20.9%, to $30,302,000, and international revenues increased by $2.8
million, or 34.3%, to $10,936,000. While the increase in revenues for
fiscal 2001 is primarily due to an overall increase in the number of
shipments and the total weight of cargo shipped, a significant portion
of the increase is attributable to domestic and international sales
generated by one customer. That customer accounted for 13.3% of
consolidated revenues for Fiscal 2001. Although Allstates is
confident in its ability to continue providing freight services to
this customer, there is no contractual agreement in place, and
therefore the Company can not guarantee that this business will
continue indefinitely. Effective October 1, 2001, that customer, in
an effort to minimize their operating costs, began utilizing a larger
alternate freight forwarder to service its international freight
requirements. Allstates continues to provide domestic freight
forwarding services to this customer.
The increase in domestic sales for the year ended September 30,
2001 over the previous fiscal year is also attributable to new
business that was derived from the Company's service agreement with an
unrelated freight and warehouse services company. Sales in Fiscal
2001 related to this agreement totaled approximately $2.6 million.
That agreement was terminated in May 2001 pursuant to the sale of the
assets of that company to another unrelated company. International
revenues increased comparatively in Fiscal 2001 versus the previous
fiscal year despite the closing of the Company's UK branch prior to
the end of Fiscal 2000. Net revenues generated by the UK branch in
Fiscal 2000 totaled approximately $441,000 after the elimination of
intercompany sales
Total sales increased by $2.0 million, or 6.4%, to $33,213,000
for the fiscal year ended September 30, 2000 in comparison to the
fiscal year ended September 30, 1999, primarily reflecting an increase
in the number of shipments and the total weight of international cargo
shipped, as well as the full year effect of the reverse acquisition of
Audiogenesis Systems, Inc. International sales increased by 21.0%
from the prior fiscal year, primarily due to the Company's ability to
expand its international network of agents and services. The
integration of these services with the domestic product that Allstates
has traditionally provided has improved the Company's ability to
generate international business from its existing domestic customers.
Domestic revenues increased modestly by 3.0% in fiscal year 2000 over
the previous fiscal year, in spite of the loss of a significant
customer account early in the fiscal year. This increase was
primarily due to the full year effect of revenues generated by the
Audiogenesis Systems division. No one customer accounted for greater
than 10% of the Company's consolidated revenue in fiscal 2000.
Gross Profit
Gross profit represents the difference between net revenues and
the cost of providing transportation services. The cost of sales is
composed primarily of amounts paid by the Company to carriers and
cartage agents for the transport of cargo. The cost of sales
decreased as a percentage of revenues by 2.9% in fiscal 2001 to 57.7%
from 60.6% in the prior fiscal year. The net decrease in the
transportation cost percentage was primarily attributable to the
business that was derived from an unrelated freight and warehouse
services company, as the billing for the warehousing portion of that
business does not carry a related cost of sales. After discounting the
effect of that business on cost of sales, the transportation cost
percentage remained relatively unchanged from the prior fiscal year,
despite a higher mix of international sales versus domestic sales.
International sales generally carry a higher percentage cost of
transportation than domestic sales. International revenues accounted
for 26.5% of total sales in Fiscal 2001 as compared to 24.5% in Fiscal
2000. In absolute terms, the cost of transportation increased in
fiscal 2001 by 18.1% to $23,777,000 as a result of increases in
freight shipped. Gross margins increased to 42.3% in fiscal 2001 from
39.4% in fiscal 2000. Gross profit increased by 33.5% to $17,462,000
in fiscal 2001 from $13,084,000 in fiscal 2000.
During the fiscal year ended September 30, 2000, the cost of
sales as a percentage of revenues increased by 0.4% in comparison to
the previous fiscal year, primarily reflecting the higher mix of
international sales volume as a percentage of total sales, which
generally carries a higher percentage cost of transportation than
domestic sales. International revenue accounted for 24.5% of total
sales in Fiscal 2000 versus 22.1 % in Fiscal 1999. In absolute terms,
the cost of sales increased by $1,345,000, to $20,129,000 in Fiscal
2000, primarily due to the higher volume of international sales.
Total gross profit increased by $638,000, to $13,084,000 during the
fiscal year.
Gross margins were affected to a limited extent during both
Fiscal 2000 and 2001 by the increased cost of fuel. Many carriers had
added surcharges to their freight bills to cover the higher fuel
costs. The Company itself imposed a surcharge on all transportation
charges to its customers in an effort to offset these increased fuel
costs. As the cost of fuel has dropped in recent months, some
airlines have begun lifting their surcharges.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include all
personnel costs, facilities costs, and licensee commissions. In
fiscal 2001, operating expenses increased as a percentage of revenues
by 2.4% from fiscal 2000, to 40.5%, primarily reflecting the effect of
higher commissions paid as a percentage of revenue during the year.
In absolute terms, operating expenses increased for the fiscal year
ended September 30, 2001 by approximately $4.1 million, or 32.0%, as
compared to the previous fiscal year, primarily driven by the growth
in revenue and gross profit. The net increase in operating expenses
is offset in part by the savings realized from the discontinuation of
operations at the Company's UK branch at the end of fiscal 2000.
Operating expenses incurred by the Company's UK branch amounted to
$397,000 in fiscal 2000. Further offsetting the increase in operating
expenses was the effect of certain isolated expenses that were
recorded during fiscal 2000 related to the Company's restructuring.
Licensee commissions and related licensing royalties increased in
fiscal 2001 when compared to fiscal 2000 by approximately $2.2
million, primarily driven by higher gross profits at certain existing
licensee operations, but also reflecting the effect of two company
stations that were converted to licensee operations during the year.
Gross profits generated from sales to the significant customer
previously mentioned accounted for much of the increase in licensee
commissions and royalties. In addition, during fiscal 2001 the
Company paid commissions to an unrelated freight and warehousing
services company pursuant to an agreement made between them and
Allstates. Allstates paid approximately $1.8 million in commissions
to this company during the year.
As a percentage of sales, SG&A expenses increased 1.8%, to 38.1%
during the fiscal year ended September 30, 2000 in comparison the
prior fiscal year, primarily attributable to higher licensee
commissions resulting from increased gross profits of a significant
licensee operation. Operating expenses increased by $1,321,000, or
11.6%, during the fiscal year ended September 30, 2000 versus the
previous fiscal year, primarily reflecting the combination of higher
administrative personnel expenses associated with the Company's
efforts to build its corporate infrastructure and support its future
growth plans, the increase in licensee commissions, and the full year
effect of the Audiogenesis Systems division.
Licensee commissions increased by approximately $1,140,000 in
Fiscal 2000 compared to Fiscal 1999. A portion of that increase,
approximately $530,000, reflects the full year incremental effect of
two licensee operations that replaced company owned locations within
their local markets during the fourth quarter of Fiscal 1999. Royalty
expense, which is related to the licensee agreements, increased by
$72,000 for the same reason. The Company realized an offsetting
operating cost savings of approximately $509,000 with the replacement
of these company locations with licensee operations, primarily due to
the related reduction of personnel and facilities costs. The increase
in operating expenses also reflects certain isolated costs incurred by
the Company in connection with the reverse acquisition of Allstates
Air Cargo by Audiogenesis Systems, Inc. on August 24, 1999. The
Company incurred $140,500 as reimbursement to one officer, three
employees and three consultants for income taxes due the IRS in
connection with non-cash compensation received for their participation
in the Company's restructuring. Also, in accordance with Employment
Agreements that the Company entered into with three stockholders on
August 24, 1999, a bonus equating to 3% of the Fiscal 1999 increase in
before-tax profits over Fiscal 1998 was paid within 30 days of the
issuance of the Fiscal 1999 audited financial statements.
Operating expenses for fiscal 2000 included approximately
$197,000 of costs incurred by the Audiogenesis Systems division as
compared to approximately $22,000 incurred in Fiscal 1999 after the
date of the reverse merger.
Operating income
Income from operations increased during the fiscal year ended
September 30, 2001 by approximately $320,000, to $744,000 as compared
to the fiscal year ended September 30, 2000 for the reasons indicated.
Operating margins increased by 0.5% during the fiscal year, primarily
reflecting the saving realized from the closing of the Company's UK
branch in Fiscal 2000.
Income from operations decreased during the fiscal year ended
September 30, 2000 by approximately $682,000, to $424,000 as compared
to the fiscal year ended September 30, 1999 for the reasons indicated.
The operating margin decreased by (2.2%) during the same fiscal year,
primarily due to the higher selling, general and administrative
expenses as described above.
Interest income and expense
Net interest expense increased by approximately $24,000 during
the fiscal year ended September 30, 2001 as compared to the prior
fiscal year, reflecting the increased level of borrowing on the
Company's line of credit. During the fiscal year ended September 30,
2000, net interest expense increased by approximately $188,000 as
compared to the previous fiscal year, primarily due to the note
payable to the Estate of A.G. Hoffman, Jr. that the Company assumed
from Joseph M. Guido as provided in the terms of the August 24, 1999
reverse acquisition. Interest expense on the note was approximately
$173,000 and $175,000 during Fiscal 2001 and Fiscal 2000,
respectively.
Gain/(Loss) on Sale of Assets
Allstates realized a gain on the sale of property that the
Company co-owned with the Chairman, Joseph Guido. The property was
sold on January 11, 2001 and the proceeds of the sale were allocated
between Mr. Guido and Allstates WorldCargo. The Company's portion of
the net proceeds after closing costs was $184,005.98, of which a gain
of approximately $153,000 was realized. The total gain on the sale of
assets for the year ended September 30, 2001 was approximately
$157,000.
Net income/(loss)
Income before taxes and discontinued operations increased by
$467,000, to $696,000 for the fiscal year ended September 30, 2001, in
comparison to the prior fiscal year. The provision for income taxes
for continuing operations was approximately $288,000 for Fiscal 2001.
Income from continuing operations increased by $321,000, to $408,000
in Fiscal 2001 in comparison to the previous fiscal year. Net income
totaled $408,000 for the fiscal year ended September 30, 2001 versus a
net loss of ($62,000) in the fiscal year ended September 30, 2000.
Income before taxes and discontinued operations decreased by
$940,000, to $229,000 for the fiscal year ended September 30, 2000, in
comparison to the previous fiscal year. The provision for income tax
expense from continuing operations for fiscal 2000 was approximately
$142,000. Income from continuing operations decreased $394,000, to
$87,000 in fiscal 2000 as compared to the prior fiscal year. The net
loss in fiscal 2000 amounted to ($62,000) versus a net profit of
$480,000 in fiscal 1999.
Discontinued operations
Discontinued operations in fiscal 2000 represents the activity of
the Company's UK branch office for the three months ended September
30, 2000. Freight operations at the UK branch were terminated
effective September 15, 2000 and the business was turned over to a
local freight agent with whom the Company has forged a strategic
alliance agreement. The Company incurred a loss from discontinued
operations of $134,000 during this period, net of an income tax
benefit of $69,000, as well as an estimated loss on the disposal of
Allstates Allcargo (UK) Ltd. of $16,000, net of a tax benefit of $8,000.
During the three month period ended September 30, 2000, the UK
branch office recognized a gross profit of approximately $73,000 on
net revenues of $193,000. Operating expenses totaled approximately
$273,000, of which approximately $86,000 related to the closing of the
operation.
Liquidity and Capital Resources
Net cash provided by operations was approximately $591,000 for
the fiscal year ended September 30, 2001 compared to cash used for
operating activities of approximately $796,000 for the fiscal year
ended September 30, 2001. In Fiscal 2001, cash was primarily provided
by the net income of the Company and a decrease in accounts
receivable, offset by a decrease in accounts payable and a short term
loan that was extended to an unrelated freight and warehousing
company. For fiscal 2000, net cash was used primarily to satisfy
income tax obligations from fiscal 1999, and to finance the net loss
of the UK branch, Allstates Allcargo (UK) Ltd. Operating cash flows
during the fiscal year ended September 30, 2000 were negatively
impacted by losses generated by the Company's UK subsidiary, Allstates
Allcargo (UK) Ltd.
At September 30, 2001, the Company had cash and cash equivalents
of $624,000 and net working capital of $1,316,000, compared with cash
and cash equivalents of $116,000 and net working capital of $598,000
respectively, at September 30, 2000. The increase in working capital
at September 30, 2001 in comparison to September 30, 2000 is primarily
attributable to the net income of the Company during the fiscal year,
augmented by the discontinuation of freight operations at the
Company's UK branch. Additionally, working capital was increased with
the sale of company owned property during the second quarter of Fiscal
2001, and with the reclassification of an officer's loan as a current
receivable.
The Company's investing activities were primarily comprised of
expenditures for capital equipment, primarily representing purchases
of computer hardware and software, as well as company owned
automobiles used by its sales representatives. For the fiscal year
ended September 30, 2001, capital expenditures amounted to
approximately $191,000, of which $40,000 were acquired through notes
payable. For the fiscal year ended September 30, 2000, capital
expenditures amounted to approximately $468,000, of which $276,000
were acquired through notes payable. In March, 2001, Allstates
received proceeds from the sale of real estate that was partially
owned by the Company totaling approximately $184,000. Total proceeds
from the sale of assets amounted to approximately $224,000 during the
year ended September 30, 2001. Prior to the end of fiscal 2000,
Allstates extended a $200,000 loan to a shareholder and officer of the
Company. The loan is collectible in September 2002, and earns
interest at the prevailing rate of the Company's line of credit.
The Company has a commercial line of credit with a
bank, pursuant to which the Company may borrow up to $2,000,000, based
on a maximum of 70% of eligible accounts receivable. Per the
agreement, interest on outstanding borrowings accrues at the Wall
Street Journal's prime rate of interest (5.75% at September 30, 2001).
The interest rate is predicated on the Company maintaining a
compensating account balance in a non-interest bearing account equal
to at least 10% of the outstanding principal balance. If such average
compensating balances are not maintained, the interest rate will
increase by 1% over the rate currently accruing. Outstanding
borrowings on the line of credit at September 30, 2001 and 2000 were
$900,000 and $900,000, respectively.
In September, 2000, Allstates extended an operating loan to an
unrelated freight and warehouse services company, Q Logistics
Solutions, Inc. ("QLS"), as part of an agreement that the Company
entered into to provide customer invoicing and vendor disbursement
services. The loan was secured by a $750,000 promissory note signed
by the borrower, and for which a Form UCC-1 financing statement was
filed. In February 2001, QLS filed for Chapter 11 protection under
the U.S. bankruptcy laws. Pursuant to the bankruptcy proceedings,
another company, unrelated to Allstates WorldCargo, Inc., purchased
the assets of QLS in May 2001. Allstates had outstanding loan
advances of approximately $702,000 to QLS prior to the purchase. As a
condition of that purchase, Allstates entered in to an agreement with
the other company whereby Allstates assigned the Form UCC-1 filing to
them in exchange for their promissory note, secured by a personal
guarantee made by an officer of that company, to pay the full loan
amount of approximately $702,000, plus 9% interest over six months,
beginning in April 2001. The other company subsequently defaulted on
the loan and as of the date of this filing has not made any payments
to Allstates. Allstates has filed suit against the other company for
breach of contract, and will continue to pursue the matter. No
assurance can be made at this time with respect to the recoverability
of any or all of the funds due to Allstates.
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 statements contained in all parts of this
document (including the portion, if any, appended to the Form 10-K)
including, but not limited to, those relating to the availability of
cargo space; the Company's overseas presence and the plans for,
effects, results and expansion of international operations and
agreements for international cargo; future international revenue and
international market growth; the future expansion and results of the
Company's terminal network; plans for local delivery services and
truck brokerage; future improvements in the Company's information
systems and logistic systems and services; technological advancements;
future marketing results; construction of the new facilities; the
effect of litigation; future costs of transportation; future operating
expenses; future margins; any seasonality of the Company's business;
future dividend plans; future acquisitions and the effects, benefits,
results, terms or other aspects of any acquisition; Ocean
Transportation Intermediary License; ability to continue growth and
implement growth and business strategy; the ability of expected
sources of liquidity to support working capital and capital
expenditure requirements; future expectations; and any other
statements regarding future growth, future cash needs, future
terminals, future operations, business plans, future financial
results, financial targets and goals; and any other statements which
are not historical facts are forward-looking statements. When used in
this document, the words "anticipate," "estimate," "expect," "may,"
"plans," "project" and similar expressions are intended to be among
the statements that identify forward-looking statements. Such
statements involve risks and uncertainties, including, but not limited
to, those relating to the Company's dependence on its ability to
attract and retain skilled managers and other personnel; the intense
competition within the freight industry; the uncertainty of the
Company's ability to manage and continue its growth and implement its
business strategy; the Company's dependence on the availability of
cargo space to serve its customers; the effects of regulation; results
of litigation; the Company's vulnerability to general economic
conditions; the control by the Company's principal shareholder; risks
of international operations; risks relating to acquisitions; the
Company's future financial and operating results, cash needs and
demand for its services; and the Company's ability to maintain and
comply with permits and licenses, as well as other factors detailed in
this document and the Company's other filings with the Securities and
Exchange Commission. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove
incorrect, actual outcomes may vary materially from those indicated.
The Company undertakes no responsibility to update for changes related
to these or any other factors that may occur subsequent to this
filing.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
For the Fiscal Years Ended September 30, 2001 and 2000
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
For the Fiscal Years Ended September 30, 2001 and 2000
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT F1
FINANCIAL STATEMENTS
Consolidated Balance Sheets F2 -F3
Consolidated Statements of Income F4
Consolidated Statements of Earnings Per Share F5
Consolidated Statements of Stockholders' Deficit F6
Consolidated Statements of Cash Flows F7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS F8 - F19
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Allstates WorldCargo, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets
of Allstates WorldCargo, Inc. and Subsidiaries (the
"Company"), as of September 30, 2001 and 2000, and the
related statements of income, earnings per share,
stockholders' deficit, and cash flows for the fiscal years
then ended. These consolidated financial statements (see
Note 1) are the responsibility of the Company's management.
Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit 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 audit provides
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 WorldCargo,
Inc. and Subsidiaries, as of September 30, 2001 and 2000,
and the consolidated results of their operations and cash
flows for the years then ended in conformity with generally
accepted accounting principles.
Toms River, New Jersey
November 21, 2001
F1
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2001 and 2000
Assets
2001 2000
---- ----
Current Assets
Cash and cash equivalents $ 623,925 $ 115,736
Accounts Receivable, net of allowance for doubtful
accounts 4,164,432 5,757,204
Inventories 23,679 30,684
Prepaid Expenses and Other Assets 799,427 285,057
Deferred Income Taxes - Current Portion 118,038 103,840
Loans receivable - related parties - short term 200,000 -
------------ -----------
Total Current Assets 5,929,501 6,292,521
------------ -----------
PROPERTY, PLANT AND EQUIPMENT,
net of accumulated depreciation 595,407 720,996
------------ -----------
INTANTIBLE AND OTHER ASSETS
Deposits 28,832 68,217
Goodwill, net of accumulated amortization 504,016 567,681
Acquisition Costs, net of accumulated amortization 36,921 41,586
Loans Receivable - Related Parties - 201,199
------------ -----------
Total Other Assets 569,769 878,683
------------ -----------
Total Assets $ 7,094,677 $7,892,200
============ ============
See accompanying notes and independent auditors' report
F2
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2001 and 2000
Liabilities and Stockholders' Deficit
2001 2000
Current Liabilities ---- ----
Accounts Payable $ 2,562,260 $ 3,206,463
Accrued Expenses 1,016,270 1,405,221
Short-Term Bank Borrowings 900,000 900,000
Taxes Payable - 20,480
Current Portion of Notes Payable 131,325 162,843
Deferred Tax Liability - Current Portion 4,038 -
---------- ---------
Total Current Liabilities 4,613,893 5,695,007
---------- ---------
LONG TERM LIABILITIES
Long-Term Portion of Notes Payable 2,496,904 2,624,530
---------- ---------
Total Liabilities 7,110,797 8,319,537
---------- ---------
STOCKHOLDERS' DEFICIT
Common Stock, $.0001 par value, 50,000,000 shares
authorized, 32,509,872 shares issued
and outstanding 3,251 3,251
Accumulated Other Comprehensive Income:
Foreign Currency Translation Adjustments - ( 3,651)
Retained Earnings (Deficit) ( 19,371) (426,937)
---------- ---------
Total Stockholders' Deficit ( 16,120) (427,337)
---------- ---------
Total Liabilities and Stockholders' Equity (Deficit) $ 7,094,677 $ 7,892,200
========== =========
-
See accompanying notes and independent auditors' report
F3
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Fiscal Years Ended September 30, 2001 and 2000
2001 2000
---- ----
NET SALES $ 41,238,608 $ 33,213,041
Cost of Sales 23,776,817 20,128,628
------------ ------------
Gross Profit 17,461,791 13,084,413
OPERATING EXPENSES
and 1999, respectively) 16,717,707 12,660,284
------------ ------------
Income from Operations 744,084 424,129
------------ ------------
OTHER INCOME (EXPENSE)
Interest Income 26,753 10,036
Interest Expense (261,405) (221,148)
Gain on Sale of Assets 156,626 4,965
Other Income 29,983 11,159
------------ ------------
Total Other Income (Expense) ( 48,043) (194,988)
------------ ------------
Income Before Tax Provision 696,041 229,141
Provision for Income Taxes (288,476) (142,348)
------------ ------------
Income from Continuing Operations 407,565 86,793
Discontinued Operations:
Loss from operations of Allstates Allcargo (UK) Ltd.
to be disposed of (net of income tax benefit of
$68,779) - (133,512)
Estimated loss on disposal of Allstates Allcargo (UK)
Ltd., including provision for operating losses of
$23,856 during phase-out period (net of income
tax benefit of $8,111) - ( 15,745)
------------ ------------
Net Income (Loss) Applicable to Common Shareholders $ 407,565 $ ( 62,464)
============ ============
See accompanying notes and independent auditors' report
F4
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings Per Share
For the Fiscal Years Ended September 30, 2001 and 2000
Earnings Per Share - Basic
Income from Continuing Operations $ 0.01 $ 0.00
Loss from Discontinued Operations 0.00 0.00
Estimated Loss on Disposal of Allstates Allcargo
(UK), Ltd. 0.00 0.00
------------ ------------
Per Common Share - Basic $ 0.01 $ 0.00
============ ============
Shares Used in Per Share Calculation - Basic 32,509,872 32,509,872
============ ============
Earnings Per Share - Diluted
Income from Continuing Operations $ 0.01 $ 0.00
Loss from Discontinued Operations 0.00 0.00
Estimated Loss on Disposal of Allstates Allcargo
(UK), Ltd. 0.00 0.00
------------ ------------
Shares used in Per Share Calculation - Diluted $ 0.01 $ 0.00
============ ============
Shares Used in Per Share Calculation - Diluted 32,510,349 32,521,201
============ ============
See accompanying notes and independent auditors' report
F5
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Deficit
For the Fiscal Years Ended September 30, 2001 and 2000
Common Stock -------------
Deferred Other Retained Total
Number of Financing Comprehensive Earnings Stockholders'
Shares Par Value Costs Income (Loss) (Deficit) Equity (Deficit)
--------- --------- ---------- ------------- ---------- ----------------
Balance at September
30, 1999 32,509,872 3,251 - (14,323) (294,862) (305,934)
Adjustment to additional
paid in capital &
retained earnings
resulting from the
elimination of investment
in subsidiary - - - - (69,611) (69,611)
Other Comprehensive Income
(Currency Translation
Adjustment) for the fiscal
year ended
September 30, 2000 - - - 10,672 10,672
Consolidated net (loss)
for the fiscal year
ended September 30, 2000 (62,464) (62,464)
---------- ------- ---------- ------------- ---------- -----------
Balance at
September 30, 2000 32,509,872 $3,251 $ - $ (3,651) $ (426,937) $(427,337)
Other Comprehensive Income
(Currency Translation
Adjustment) for the fiscal
year ended
September 30, 2001 - - - 3,651 3,651
Consolidated net (loss)
for the fiscal year
ended September 30, 2001 407,566 407,566
---------- ------- --------- ------------- ---------- -------------
Balance at
September 30, 2001 32,509,872 $3,251 $ - $ - $ ( 19,371) $( 16,120)
========== ======= ========= ============= =========== =============
See accompanying notes and independent auditors' report
F6
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Fiscal Years Ended September 30, 2001 and 2000
2001 2000
Cash Flows From Operating Activities: ---- -----
Net Income $ 407,566 $ 86,793
Adjustments to Reconcile Net Income to
Net Cash Provided from (Used in)
Operating Activities:
Depreciation 249,816 240,620
Amortization 68,330 68,329
Provision for Uncollectible Accounts Receivable 145,713 166,204
Loss from Discontinued Operations - (133,512)
Loss on Disposal of Discontinued Operations - ( 15,745)
(Gain) Loss on Sale of Equipment ( 156,626) ( 4,965)
Deferred Income Taxes - 33,618
(Increase) Decrease in Operating Assets:
Accounts Receivable 1,447,059 (2,002,913)
Inventories 7,005 8,455
Prepaid Expenses and Other Assets (465,393) (185,051)
Deferred Income Taxes ( 10,159) -
Increase (Decrease) in Operating Liabilities:
Accounts Payable and Accrued Expenses (1,033,155) 1,448,266
Taxes Payable ( 69,457) (506,393)
---------- ---------
Net Cash Provided From (Used by) Operating Activities 590,699 (796,294)
---------- ---------
Cash Flows From Investing Activities:
Purchase of Equipment (151,489) (191,992)
Proceeds from Sale of Equipment 223,588 35,973
Loans to Shareholders - (200,000)
Release of Customs and Excise Bond - 183,252
Deposits 39,385 11,607
Purchase of Treasury Stock of Subsidiary - ( 70,810)
---------- ---------
Net Cash (Used by) Investing Activities 111,484 (231,970)
---------- ---------
Cash Flows From Financing Activities:
Repayments Under Notes Payable (198,844) (168,514)
Repayments Under Short-Term Bank Borrowings (200,000) (150,000)
Borrowing Under Short-Term Bank Borrowings 200,000 1,050,000
Repayments of Shareholder Loans Payable 1,199 ( 5,000)
---------- ---------
Net Cash Provided From (Used by) Financing Activities (197,645) 726,486
---------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 504,538 (301,778)
Currency Translation Adjustments 3,651 10,672
Cash and Cash Equivalents, Beginning of Year 115,736 406,842
---------- ---------
Cash and Cash Equivalents, End of Year $ 623,925 $ 115,736
========== =========
See accompanying notes and independent auditors' report
F7
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
1. Organization and Nature of Business
On August 24, 1999, Audiogenesis Systems, Inc.
(Audiogenesis), entered into a reverse acquisition with
Allstates Air Cargo, Inc. and its subsidiaries
(Allstates). On August 24, 1999, Allstates Air Cargo,
Inc. became a wholly owned subsidiary of Audiogenesis.
On November 4, 1999, Audiogenesis Systems, Inc. filed a
Certificate of Amendment to the Certificate of
Incorporation, officially changing its name to
Allstates WorldCargo, Inc. (WorldCargo). As a result
of this transaction, the sole shareholder of Allstates
Air Cargo, Inc. became a 55.37% shareholder of
WorldCargo. Management has elected to utilize the new
name (Allstates WorldCargo, Inc.) for purposes of these
financial statements. The entities that are included
in these financial statements are as follows:
Allstates Worldcargo, Inc. (formerly Audiogenesis
Systems, Inc.) - Worldcargo was incorporated in the
state of New Jersey on January 14, 1997, as the result
of a reverse acquisition by Genesis Safety Systems,
Inc. The Company's operations include sales and
distribution of safety equipment, development of audio-
visual products, including safety training program and
sales and marketing presentations, development of a
device to treat tinnitus, and development of an
echolocation device to assist sighted persons in
conditions of low visibility and the blind. The
Company intends to defer any further development of the
tinnitus device, but continues to pursue opportunities
concerning the device. The Company has ceased all
efforts concerning the echolocation device, and has
terminated its license for the intellectual property
underlying the device.
Biowaste Technologies Systems, Inc. - Biowaste
Technologies Systems, Inc. is a wholly owned subsidiary
of Worldcargo. Biowaste was formed on July 1, 1988 for
the purpose of engaging in the business of the
management of infectious waste. Biowaste is in the
developmental stage, and no revenues have been produced
to date. Presently, such subsidiary is inactive, and
the Company does not anticipate that it will become
active in the near future.
Allstates Air Cargo, Inc. - Allstates Air Cargo, Inc.
was incorporated in the state of New Jersey on October
3, 1962. The Company provides domestic and
international airfreight forwarding services.
Allstates maintains operating facilities throughout the
United States and has agents in Europe and South
America.
Allstates Allcargo (US), Inc. - Allstates Allcargo
(US), Inc. is a wholly owned subsidiary of Allstates
Air Cargo, Inc. Allstates Allcargo (US), Inc. owned
100% of Allstates Allcargo (UK), Ltd., a corporation
organized under the laws of England prior to the
dissolution of Allstates Allcargo (UK), Ltd. during the
year ended September 30, 2000. All appropriate foreign
currency translation adjustments have been made for
purposes of these financial statements.
Allstates Logistics, Inc. - Allstates Logistics, Inc.
is also a wholly owned subsidiary of Allstates Air
Cargo, Inc. Allstates Logistics was incorporated in
the state of New Jersey in December 1997, and provides
ocean freight services to its customers.
GTD Logistics, Inc. - GTD Logistics, Inc. was
incorporated in the state of New Jersey on October 27,
1998. GTD Logistics is a wholly owned subsidiary of
Allstates Air Cargo, Inc. GTD Logistics is also in the
business of freight forwarding.
e-tail Logistics, Inc. - e-tail Logistics, Inc. was
incorporated in the state of New Jersey on February 11,
2000. e-tail Logistics is a majority owned subsidiary
of Worldcargo.
F8
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
1. Organization and Nature of Business (continued)
Reverse Acquisition
For purposes of these financial statements, the
purchase of Allstates Air Cargo, Inc. by Allstates
Worldcargo, Inc. is treated as a reverse acquisition
under the purchase method of accounting, as outlined in
Accounting Principles Board Opinion No. 16. For
accounting purposes, Allstates Air Cargo, Inc. is
considered the acquirer in the reverse acquisition.
2. Summary of Significant Accounting Policies
Principles of Consolidation
For purposes of the accompanying financial statements,
Allstates Air Cargo, Inc. is considered the accounting
"Parent" company and Allstates Worldcargo, Inc. is
considered a subsidiary. Therefore, these financial
statements include the combined assets and liabilities
of Allstates Air Cargo, Inc. and its subsidiaries as of
September 30, 2001 and 2000. The statement of income
includes the income and expenses of Allstates Air
Cargo, Inc. and its subsidiaries for the years ended
September 30, 2001 and 2000. All material intercompany
payables, receivables, revenues and expenses have been
eliminated for purposes for this consolidation.
Use of Estimates
The preparation of the financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual
results could differ from those estimates.
Concentration of Credit Risk
The Company maintains cash balances at several banks.
Accounts at each institution are insured by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000.
At varying times during the fiscal years ended
September 30, 2001 and 2000, the Company had a cash
balance on deposit with one bank that exceeded the
$100,000 balance insured by the FDIC. Management
considers the risk of loss to be minimal.
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.
Fair Value of Financial Statements
The carrying values of cash, accounts receivable,
accounts payable, accrued expenses, taxes payable,
notes payable and other current liabilities
approximates fair value because of the relatively short
maturity of these instruments.
F9
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
2. Summary of Significant Accounting Policies (continued)
Inventory
For both financial reporting and income tax purposes,
inventory is stated on the cost basis. Cost is
determined using the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment consist principally of
building and improvements, vehicles, computers and
software, office equipment, and furniture and fixtures
which are stated at historical cost. Depreciation is
provided on the straight-line method over the estimated
useful lives of the assets, which are 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 statement 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.
Translation of Foreign Currencies
Assets and liabilities of the affiliate whose
functional currency is British pounds are translated at
year-end. Rates of exchanges for revenues and expenses
are translated using a weighted average method during
the applicable 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.
Earnings per Share
The Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (SFAS No. 128")
which establishes standards for computing and
presenting earnings per share ("EPS") and requires the
presentation of both basic and diluted EPS. As a
result primary and fully diluted EPS have been replaced
by basic and diluted EPS. EPS is calculated by dividing
net income by the weighted-average number of
outstanding shares of Common Stock for each year.
F10
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
2. Summary of Significant Accounting Policies (continued)
Bad Debts
The Company uses the allowance method to account for
uncollectible accounts receivable. The allowance for
doubtful accounts is based on prior years' experience
and is estimated by management. Bad debt recoveries
are charged against the allowance account as realized.
Bad debt expense for the years ended September 30, 2001
and 2000 was $145,713 and $166,204, respectively.
3. Property, Plant and Equipment
Property, plant and equipment costs consist of the
following as of September 30, 2001:
Accumulated Net Book
Cost Depreciation Value
Leasehold
Equipment $ 36,066 $ 4,683 $31,383
Vehicles 696,272 351,089 345,183
Equipment and
Software 673,119 455,927 217,192
Furniture and
Fixtures 47,542 45,893 1,649
---------- --------- ---------
Totals $1,452,999 $857,592 $595,407
========== ========= =========
Depreciation expense charged to income from operations for
the years ended September 30, 2001 and 2000 was
$249,816 and $240,620, respectively.
4. Amortization of Goodwill and Acquisition Costs
The excess of cost over the fair value of net assets
acquired (goodwill) is being amortized on the straight-
line basis over a ten-year period. Amortization
expense for the years ended September 30, 2001 and 2000
is $63,665 and $63,664, respectively. The costs
associated with the acquisition of Audiogenesis by
Allstates are being amortized on the straight-line
basis over a ten-year period. Amortization expense for
the years ended September 30, 2001 and 2000 is $4,665
and $4,665, respectively.
Effective for years beginning after December 15, 2001,
FASB's Statement No. 142, Accounting for Goodwill and
Intangible Assets, will no longer allow for the
amortization of goodwill. The new statement will
require the Company to conduct an annual goodwill
impairment test and write off any decrease in the fair
value of the goodwill in the period of such declined
value. Since the Company could not implement the new
statement beginning with the first quarterly return for
the fiscal year, early implementation was not allowed.
Therefore, beginning with the quarter ending December
31, 2001, the Company will no longer amortize goodwill.
F11
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
5. Notes Payable
The following is a summary of Long-Term Debt as of
September 30, 2001 and 2000:
2001 2000
Notes payable from Joseph M. Guido to
the Estate of
A.G. Hoffman, Jr., assumed by the
Company, in the
aggregate originally totaled
$2,511,730, with repayment
over 101 years at annual principal
payments of
$25,000 plus interest at 7% per year.
All or any
of the notes may be paid at any time
before maturity
without any prepayment penalty. In
the event of a
default under the notes by the
Company, Joseph M.
Guido remains personally liable for
the notes, and
the 101 shares of Allstates Air
Cargo, Inc. common
stock held as security under the
notes (representing
48.1% of the issued and outstanding
common stock
of Allstates Air Cargo, Inc.) may be
sold at public or
private sale. $2,461,730 $2,861,730
Notes payable to First Union in the
aggregate originally
totaled $122,683, with repayment over
36 months at
monthly principal payments ranging
from $532.52 to
$744.79 plus interest ranging from
7.50% to 7.70%.
The loans are secured by vehicles to
which they relate. 4,085 11,811
Notes Payable to GMAC in the
aggregate originally
totaled $354,985, with repayment
over 36 months
at monthly payments, inclusive of
interest, ranging
from $513.00 to $843.57 with
interest ranging
from 0.90% to 3.90%. These loans
are secured
by the vehicles to which they
relate. 114,059 220,916
Notes Payable to Fleet Bank in
the aggregate
originally totaled $76,903, with
repayment over 36
months with monthly payments
inclusive of interest
ranging from 7.90% to 8.50%.
These loans are
secured by the vehicles which
they relate. 48,355 67,916
--------- ---------
2,628,229 2,787,373
Less: Current Portion of Notes
Payable 131,325 162,843
----------- ----------
Long-Term Portion of Notes
Payable $2,496,904 $2,624,530
=========== ===========
F12
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
6. Notes Payable (continued)
Maturities
----------
For the fiscal years ended September 30, 2002 $131,325
2003 80,720
2004 29,454
2005 25,000
2006 25,000
Thereafter 2,336,730
_________
Total $2,628,229
=========
7. Short-Term Bank Borrowing
Allstates Air Cargo, Inc. has a $2,000,000 line of
credit agreement with a bank, which expires February
28, 2002. Interest on outstanding borrowings currently
accrues at the Wall Street Journal's (WSJ) prime rate
of interest per annum (5.75% as of September 30, 2001).
The interest rate is predicated upon the Company
maintaining a compensating account balance in a non-
interest bearing account equal to at least 10% 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 WSJ's prime
rate at the time of failure. The balance outstanding
on the line of credit as of September 30, 2001 and 2000
was $900,000 and $900,000, respectively.
Loan collateral includes the Company's accounts
receivable and the unlimited, unconditional guarantees
of Joseph Guido, Teresa Guido and Allstates Allcargo
(US), Inc.
8. Income Taxes
A reconciliation of income tax at the statutory rate to
the Company's effective rate is as follows:
2001 2000
---- ----
Expected Federal
statutory rate 34.000% 34.000%
Expected State statutory 8.893% 8.893%
rates (average) ------- -------
Total expected 42.893% 42.893%
statutory rate
Disallowed utilization of net
operating
loss incurred from
continuing operations
of Allstates Allcargo (UK),
Ltd. for State income tax 0.000% 4.556%
purposes
Deferred income tax
expense:
Federal -1.130% 11.337%
State -1.450% 3.334%
------- -------
Income Tax Expense - 41.445% 62.120%
Effective Tax Rate ======= ========
F13
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
8. Income Taxes (continued)
The Company's provision for income taxes as of
September 30, 2001 and 2000 consisted of the following:
2001 2000
---- ----
Current Income Tax (Benefit) Expense
Federal 170,836 (33,528)
State 127,800 65,367
------- -------
Total - Current 298,636 31,839
------- -------
Deferred Income Tax (Benefit) Expense
Federal ( 7,925) 25,979
State ( 2,235) 7,640
------ ------
Total - Deferred (10,160) 33,619
------ -------
TOTALS $288,476 65,458
======== =======
2001 2000
---- ----
Income Tax Expense on Continuing
Operations $288,476 $142,348
Income Tax (Benefit) on Discontinued
Operations - (68,779)
Income Tax (Benefit) on Disposal of
Discontinued Operations - ( 8,111)
--------- --------
Total Income Tax Expense $288,476 $ 65,458
========= ========
The tax effect of temporary differences that make up
the significant components of the deferred tax asset
for financial reporting purposes at September 30, 2001
and 2000 are as follows:
2001 2000
---- ----
Deferred Tax Assets
--------------------
Accounts Receivable $108,016 $103,840
Equipment 10,022 -
-------- --------
Totals $118,038 $103,840
------ ======== ========
Deferred Tax Liabilities
------------------------
Equipment $ 4,038 $ -
======== ========
F14
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
9. Net Operating Loss Carryforward
Allstates WorldCargo, Inc. (formerly known as
Audiogenesis System, Inc.) generated net operating
losses prior to its acquisition of Allstates Air Cargo,
Inc. As a result of the reverse acquisition, the
ownership structure of Worldcargo changed as of August
24, 1999; thereby limiting and reducing the future
utilization of the Worldcargo net operating loss
carryforwards. These pre-reverse acquisition net
operating loss carryforwards will be limited and
reduced based upon the Federal and New Jersey change in
ownership net operating loss carryforward rules. Any
net operating loss carryforwards to future tax years
after limitation and reduction will generally be
available to offset future taxable income of WorldCargo
only, and will not be available to offset any future
income of Allstates Air Cargo, Inc. or any other
affiliated corporation. The income tax provisions do
not include any of these pre-reverse acquisition net
operating losses.
Pursuant to a ruling received by the Internal Revenue
Service, effective October 1, 1999, the operating
losses incurred by Allstates Allcargo (UK), Ltd. may be
offset against taxable income of Allstates WorldCargo,
Inc. in the consolidated filing of its Federal income
tax returns. For tax purposes only, Allstates Allcargo
US Inc. will treat the foreign subsidiary Allstates
Allcargo (UK), LTD as a disregarded entity and not as a
subsidiary. Therefore, the tax provisions included in
these financial statements utilize the operating loss
for the fiscal years 2001 and 2000 incurred by
Allstates Allcargo (UK), Ltd. in calculating the
Federal tax liability.
10. Pension Plan
Effective May 1994, the Company adopted a discretionary
non-standardized 401(k) profit sharing plan. The terms
of the plan provide for eligible employees who have met
certain age and service requirements to participate by
electing to contribute up to the lesser of 25% of an
employees' qualified compensation of which 15% is tax
deductible, or $11,000 and $10,500 for the years ended
September 30, 2001 and 2000, respectively. The Company
may make matching contributions equal to a
discretionary percentage, as determined by the Company,
up to 6% of a participant's salary. The Company did
not make a discretionary contribution to the plan for
the years ended September 30, 2001 and 2000. 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, 2001 and 2000.
11. Related Party Transactions
Allstates Air Cargo, Inc. leases real estate in two
locations from a majority stockholder of the Company.
Rent expense under these leases totaled $87,600 and
$98,600 for the years ended September 30, 2001 and
2000, respectively.
The Company has entered into royalty agreements for
selected licensee locations with an officer and
director of the Company, whereby the Company agrees to
pay the officer a royalty equal to 5% of the gross
profit per the contract. Royalty payments to this
individual for the years ended September 30, 2001 and
2000 totaled $405,433 and $214,500, respectively.
F15
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
11. Related Party Transactions (continued)
On August 24, 1999, the Company entered into Employment
Agreements with three of the Company's stockholders.
The Employment Agreements are effective for the term
beginning August 24, 1999, through December 31, 2004.
The following is a summary of the terms of these
agreements:
Annual Stock
Position Salary Bonus Options
-------- -------- ------ --------
Chairman of the $308,000 3% of fiscal Yes*
Board year increase
in net profits
President/Chief $208,000 3% of fiscal Yes*
Executive year increase
Officer in net profits
Executive Vice $207,922 3% of fiscal Yes*
President/ year increase
Chief Operating in net profits
Officer
No options have been granted to date. Options are to
be granted when and if the Company adopts a stock
option plan.
The Company accrued bonuses to the Company's
stockholders shown above for the years ended September
30, 2001 and 2000 totaling $64,500 and $-0-,
respectively.
The Company has an unsecured, non-interest bearing loan
from a shareholder. Principal amount outstanding as of
September 30, 2001 and 2000 are $200,000 and $200,000,
respectively. For the loan receivable due at September
30, 2001, the principal balance of the $200,000 is due
in full on September 10, 2002 and interest payments of
9 1/4% per annum are due annually. For the loan
receivable due at September 30, 2000, the loan was
payable and due upon demand.
The initial stock issuance of e-tail Logistics, Inc. to
its' minority investors were issued to related parties
and are recorded on the books of Allstates Worldcargo,
Inc. and Subsidiaries in loans receivable - related
parties for $0 and $1,199 for the fiscal years ended
September 30, 2001 and 2000, respectively. The loans
were payable and due upon demand.
12. Stock Option Plan
The Company adopted a non-qualified stock option plan,
which was terminated effective December 31, 1999. The
following shares have been reserved to be issued to the
holders of certain options, which remained outstanding
after a reverse acquisition transaction, by Genesis
Safety Systems, Inc. (predecessor of Audiogenesis
Systems, Inc.) pursuant to the anti-dilution provisions
of such options. Such shares will be issued, at no
cost to the option holders, only in the event that such
option holders exercise their options in the Company's
predecessor. No options were exercised during the
fiscal years ended September 30, 2001 and 2000.
# of Options Expiration
------------ ----------
3,000 11/27/00
F16
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
12. Stock Option Plan (continued)
On October 16, 2000, the Company filed a Form S-8
registration statement with the Securities and Exchange
Commission, registering 4,500,000 shares of common
stock with a $.0001 par value. The shares are
registered on behalf of the Company, and will be issued
pursuant to the Company's "2000 Stock Option and Stock
Issuance Plan". As of September 30, 2001, no stock
options have been issued.
13. Leases
The Company leases certain terminal facilities and its
corporate headquarters under operating leases that
expire over the next ten years. These operating leases
provide the Company with the option to renew its' lease
at the fair rental value at the end of the lease term.
Management expects that leases will be renewed or
replaced by other leases in the normal course of
business.
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,
2001:
Fiscal Years Ending
September 30,
--------------------
2002 $ 201,217
2003 163,317
2004 104,995
2005 87,900
2006 87,900
Thereafter 196,700
--------
Total $ 842,029
==========
Rent expense under operating leases for the years ended
September 30, 2001 and 2000 was $376,208 and $403,244
respectively.
The Company sublets office space and has recorded
$2,100 and $54,000 of rental income for the years ended
September 30, 2001 and 2000, respectively.
14. Supplemental Cash Flow Disclosures
Cash paid for: 2001 2000
-------------- ----- -----
Income Taxes $357,933 $711,990
======== ========
Interest $261,405 $151,215
======== ========
Noncash Investing and Financing Activities
(a) Equipment acquired through notes payable for the years
ended September 30, 2001 and 2000 totaled $39,700 and
$275,578, respectively.
(b) Loans receivable totaling $0 and $1,199 for the years
ended September 30, 2001 and 2000, respectively, resulted
from issuance of stock to minority shareholders.
F17
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
15. Discontinued Operations
In May 2000, the Company adopted an informal plan to
sell/dispose of Allstates Allcargo (UK), Ltd. The
Company formally discontinued its trading activities on
September 15, 2000. As of September 30, 2000, the
estimated loss on the disposal of the discontinued
operations of $15,745 (net of income tax benefit of
$8,111) represented unbilled amounts due to vendors and
the estimated remaining occupancy costs of the
Company's leased space (net of its current and
prospective future subtenant). These estimated costs
related to the loss on the disposal of the discontinued
operations were paid during the fiscal year ended
September 30, 2001.
Operating results of Allstates Allcargo (UK), Ltd. for
the nine months ended June 30, 2000 are included in the
income from continuing operations in the accompanying
financial statements for the year ended September 30,
2000.
Net sales of Allstates Allcargo, (UK), Ltd., for the
period commencing July 1, 2000 ("the measurement date")
through September 30, 2000 were $193,354. This amount
was not included in the gross revenues in the
accompanying financial statements.
16. Litigation
Allstates Air Cargo, Inc. w. Environmental Issues
Premises: 35 Fenwick Street, Newark, New Jersey
The Company has been involved in an on-going
environmental proceeding. In December 1996, five
underground storage tanks ("UST's") and two aboveground
storage tanks were removed from a facility in which the
Company leased office space. Post-excavation sampling
results confirmed that certain soil contamination
remained present after the removals at the location of
two of the UST's. Also, at the time of the removals,
free-floating groundwater contamination was observed in
the area of these two former UST's. During 1999, the
Company engaged Carpenter Environment Associates to
prepare a Preliminary Assessment/Site Investigation
Report ("PA/SI Report"). Carpenter's PA/SI Report
stated that the chlorinated groundwater contamination
is emanating from an off-site source. The New Jersey
Department of Environmental Protection approved
Carpenter's PA/SI report and agreed that no further
investigation of the site was needed.
The NJDEP approved a Remedial Investigation Workplan on
November 24, 1999. The approved work was performed by
Carpenter in December 1999. In its' report dated March
13, 2000, Carpenter indicated that benzene
contamination was delineated and proposed the
installation of one additional monitoring well and
natural remediation and monitoring of remaining
groundwater contamination. The NJDEP approved the
additional work and Carpenter installed and sampled the
additional well, the results of which confirmed
complete delineation of the benzene contamination.
Concentrations of benzene in MW-3, which Carpenter also
sampled, indicated an increase from the prior sampling
event. NJDEP suggested that the increase might have
been due to sediments collected with the groundwater
sample and recommended that the sampling be repeated.
Carpenter has conducted two additional sampling events
to confirm groundwater concentrations of benzene in MW-
3. The sampling results indicated that concentrations
of benzene have sufficiently decreased to allow case
closure with the institution of a Classification
Exception Area ("CEA"). It has been confirmed with the
NJDEP that the sampling results satisfactorily
demonstrate a decreasing trend in benzene
concentrations. At the NJDEP's request, Carpenter
prepared a CEA proposal, which was submitted to the
NJDEP on October 11, 2001. In the CEA proposal,
Carpenter proposed no further action for the
groundwater.
F17
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
16. Litigation (continued)
In the opinion of the Allstates' legal counsel, it is
likely that the NJDEP will issue a No Further Action
("NFA") letter for the soil and groundwater. NJDEP
previously confirmed that NFA as to soils at the site
would be granted unless benzene concentrations in
groundwater failed to decrease.
In March 1997, Allstates made claims against liability
insurance carriers for coverage. Now that the
environmental work is nearly complete, legal counsel
anticipates discussing cost-sharing with Allstates'
insurance carriers.
Allstates' legal counsel believes that since it is
likely that the NJDEP will issue a NFA letter for the
site, the likelihood is low that additional
investigatory or remedial work will be required.
Therefore, the potential future remedial costs to
Allstates is anticipated to be minimal.
Allstates Worldcargo, Inc. v. Logistics Management
Resources, Inc. and Daniel Pixler
Q Logistic Solutions, Inc. (Q Logistics), an unrelated
third party, borrowed $702,469 from Worldcargo during
the fiscal year ended September 30, 2001 collateralized
by Q Logistics accounts receivable to be repaid from
the collections of such accounts receivable.
Worldcargo filed a Form UCC-1 financing statement
protecting its interest in the balance owed from Q
Logistics. In February 2001, Q Logisitics filed for
Chapter 11 protection under U.S. bankruptcy laws.
Pursuant to the bankruptcy proceedings, another
unrelated third party, Logistics Management Resources,
Inc. (LMRI) purchased the assets of Q Logistics in May
2001. As a contingency of that purchase, Worldcargo
entered in to an agreement with the LMRI whereby
Allstates assigned the Form UCC-1 filing to them in
exchange for their promissory note, secured by a
personal guarantee made by an officer of LMR, to pay
the full loan amount totaling $702,469 plus interest
over six months, beginning in April 2001. LMRI has
defaulted on the loan and has made no payments to date.
Worldcargo has brought action against LMRI asserting
breach of contract.
The action is currently in the pretrial discovery
stage. Worldcargo is vigorously pursuing its claim,
and the defendant has raised certain defenses. At this
time, outside legal counsel is unable to render an
opinion as to Worldcargo's ability to collect the
$702,469. For the purposes of these financial
statements, no allowance for uncollectible accounts has
been recorded for this receivable.
17 Major Customers
The Company has shown diversity in major customers over
the past few years. However, the Company does have a
strong reliance on one of these customers.
Sales and accounts receivable balance for the Company's
major customer as of September 30, 2001 are as follows:
Accounts % of Total
Receivable Accounts
% of Total Balance Receivable
Sales Sales 09/30/01 Balance
----- ----------- ---------- -----------
Customer A $5,484,735 13.3% $464,152 10.5%
F19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
- ---- --- ---------
Joseph M. Guido 67 Chairman of the Board
Sam DiGiralomo 58 President, CEO, Director
Barton C. Theile 55 Executive Vice President, COO,
Director
Craig Stratton 50 CFO, Secretary, Treasurer,
Director
None of the above persons is related to any other of the above-named
persons by blood or marriage.
Based upon a review of filings with the Securities and Exchange
Commission and written representations that no other reports were
required, the Company believes that all of the Company's directors
and executive officers complied during fiscal 2001 with the reporting
requirements of Section 16(a) of the Securities Exchange Acts of
1934.
JOSEPH M. GUIDO, Chairman of the Board, is the founder of Allstates
Air Cargo, Inc., having served as its President and CEO from 1961 to
August 1999. Mr. Guido became Chairman of the Board of the Company
upon the acquisition of Allstates Air Cargo, Inc. on August 24, 1999.
Prior to forming Allstates Air Cargo, Inc., Mr. Guido served as a
freight supervisor with American Airlines, and as a sales and station
manager for Air Cargo Consolidators.
SAM DIGIRALOMO, became President, CEO and a director of the Company
upon the acquisition of Allstates Air Cargo, Inc. on August 24, 1999.
Prior to such acquisition, Mr. DiGiralomo had served as the President,
Treasurer, CEO and a director of Audiogenesis Systems, Inc. since it
was formed in January, 1997. From July 1981 through January 1997, Mr.
DiGiralomo had been the President of the predecessor of Audiogenesis
Systems, Inc., Genesis Safety Systems, Inc. Mr. DiGiralomo has more
than 20 years of management and marketing experience. 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.
BARTON C. THEILE, became Executive Vice President, COO and a director
of the Company upon the acquisition of Allstates Air Cargo, Inc. on
August 24, 1999. Prior to such acquisition, Mr. Theile had served
Allstates Air Cargo, Inc., as a sales representative, operations
manager, Executive Vice President and COO over a period of 19 years.
In addition to his experience at Allstates, Mr. Theile was President
of Cargo Logistics Group, LLC. Mr. Theile has been involved in sales,
marketing operations and administration in the transportation industry
for over 25 years.
CRAIG STRATTON, became CFO, Secretary, Treasurer and a director of the
Company upon the acquisition of Allstates Air Cargo, Inc. on August
24, 1999. Prior to such acquisition, Mr. Stratton served as Chief
Financial Officer for Allstates Air Cargo, Inc. since November 1997.
Before joining Allstates, for three years, Mr. Stratton held the
position of Corporate Controller for Programmer's Paradise, Inc. a
cataloger and distributor of technical software. From 1990 through
1994, he was Controller for Baronet Corporation, an importer and
distributor of leather goods accessories. From 1981 through 1990, he
was employed by the finance department of Contel IPC, a specialty
telephone systems manufacturer and service provider, where he held
various positions of increasing responsibility in corporate
accounting, including an appointment to Assistant Controller in 1987.
In 1973, Mr. Stratton received his B.S. in accounting, and in 1980 he
earned his MBA. Mr. Stratton has been a CPA since 1986.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
EXECUTIVE COMPENSATION
Summary Compensation 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 ($)
- ---------- ---- ------- ----- --------- --------- --------- ------ --------
J. 2001 311,818 87,600(2)
Guido, 2000 311,082 27,540 108,600(1)
Chairman 1999 317,821 92,500(2) 202,597(3)
of the
Board
Sam 2001 208,000 405,433(4)
DiGiralomo, 2000 208,000 27,540 214,500(4) 98,000(6)
President, 1999 80,200(5) 143,253(4) 120,000(5)
CEO
B. Theile, 2001 207,922 19,273(7)
COO, 2000 207,922 27,540 9,833(7) 16,500(6)
Exec. VP 1999 189,411 4,920(7) 20,000(5)
Craig
Stratton, 2001 120,263
CFO, 2000 110,734 6,500(6)
Secretary, 1999 100,826 8,000(5)
Treasurer
____________
(1) Rental income from leasing of Newark branch location and Forked
River corporate office ($98,600), and proceeds of sale of
personal automobile to the Company ($10,000)
(2) Rental income from leasing of Newark branch location and Forked
River corporate office
(3) Proceeds from sale to Audiogenesis Systems, Inc. of one share
Allstates Air Cargo, Inc. stock
(4) Commissions paid for consulting services in connection with site
licensing agreements
(5) Excess stock compensation valued at $.04 per share
(6) Reimbursement for income taxes due the IRS in connection with
excess stock compensation
(7) Commission paid for management services to GTD Logistics, Inc.
On August 24, 1999, the Company entered into Employment Agreements
with three of the Company's stockholders. The Employment Agreements
are effective for the term beginning August 24, 1999 through December
31, 2004. The following is a summary of the terms of these
agreements:
Annual
Name/Position Salary Bonus
Joseph M. Guido,
Chairman of
The Board $308,000 3% of fiscal year
Increase in net profits
Sam DiGiralomo,
President/Chief
Executive Officer $208,000 3% of fiscal year
Increase in net profits
Barton M. Theile,
Executive Vice President/
Chief Operating Officer $207,922 3% of fiscal year
Increase in net profits
Under the terms of their respective employment agreements, Mr. Guido,
Mr. DiGiralomo and Mr. Theile have agreed to work full time. The
agreements also provide for health and life insurance benefits,
participation in the Company's 401(k) plan, disability benefits,
expense reimbursements, indemnification from civil or criminal actions
arising out of the Executive's employment, financial and tax advice,
tax "gross-up" provisions, severance pay (equal to 100% of
compensation for a period of five years), and payments in the event of
a change of control.
ITEM 12. 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 December 20, 2001 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:
No. of Shares
Title Name and Address and Percent
of of Beneficial Owner Nature of of
Class Beneficial Class(1)
Ownership
- ------- --------------------------- ------------- ---------
Common Joseph M. Guido 18,500,000(2) 56.91%
4 Lakeside Drive South
Forked River, NJ 08731
Common Sam DiGiralomo 5,000,000 15.38%
7 Doig Road, Suite 3
Wayne, NJ 07470
Common Barton C. Theile 500,000 1.54%
4 Lakeside Drive South
Forked River, NJ 08731
Common Craig D. Stratton 200,000 0.62%
4 Lakeside Drive South
Forked River, NJ 08731
All Officers and Directors as a Group 24,200,000 74.44%
__________________
(1) Based upon 32,509,872 shares outstanding as of December 20,
2001.
(2) Comprised of 18,250,000 shares owned by Joseph Guido and 250,000
shares owned by Teresa Guido, wife of Joseph Guido.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's $2,000,000 line of credit, which expires February
28, 2002, is personally guaranteed by Joseph M. Guido, Chairman of the
Board of the Company, and Teresa Guido, his wife.
The Company leased real estate in two locations from Joseph M.
Guido during Fiscal 2001. Rent expense under these leases totaled
$87,600 for the year ended September 30, 2001. The Company believes
that such leases are commensurate with the terms which could be
obtained from an unaffiliated third party.
Prior to his becoming President, CEO and a director of the
Company, the Company entered into royalty agreements for its Los
Angeles and Chicago licensee locations with Sam DiGiralomo, whereby
the Company agreed to pay Mr. DiGiralomo a royalty equal to 5% of the
gross profit per the contract. During fiscal 2000, similar royalty
agreements were made for its Minneapolis, San Francisco and Dallas
licensee locations, and in fiscal 2001 such an agreement was made for
the Indianapolis licensee location. Royalty payments to Mr.
DiGiralomo for the year ended September 30, 2001 totaled $405,400.
Pursuant to the Stock Purchase Agreement and Plan of
Reorganization between Audiogenesis Systems, Inc. and Allstates Air
Cargo, Inc., the Company assumed 101 Notes payable from Joseph M.
Guido to the Estate of A.G. Hoffman, Jr., aggregating $2,511,730 in
principal, with repayment over 101 years at annual principal payments
of $25,000 plus interest at 7% per year. All or any of the notes may
be paid at any time before maturity without any prepayment penalty. In
the event of a default under the notes by the Company, Joseph M. Guido
remains personally liable for the notes and the 101 shares of
Allstates Air Cargo, Inc. common stock held as security under the
notes (representing 48.1% of the issued and outstanding common stock
of Allstates Air Cargo, Inc.) may be sold at public or private sale.
In September 2000, the Company extended a personal loan of
$200,000 to Sam Di Giralomo. The loan, which was made pursuant to a
promissory note, is payable after twenty four months, with quarterly
interest payments at the Company's prevailing bank loan rate.
The Company's legal counsel, Stephen M. Robinson, Esq.,
beneficially owns 1,200,000 shares of common stock.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) The following exhibits are filed pursuant to Item 601 of
Regulation S-B.
Exhibit Description
No.
3.01* Articles of Incorporation of Audiogenesis Systems,
Inc. dated January 14, 1997 filed as an exhibit to
Registrant's Registration Statement on Form 10-SB,
filed October 23, 1998
3.02* By-laws of Registrant, filed as an exhibit to
Registrant's Registration Statement on Form 10-SB,
filed October 23, 1998
10.01* Echlocation Technology License Agreements, filed as
an exhibit to Registrant's Registration Statement on
Form 10-SB, filed October 23, 1998
10.02* Agreement with Allstates Air Cargo, Inc. dated
9/18/98, filed as an exhibit to Registrant's
Registration Statement on Form 10-SB, filed October
23, 1998
10.03* Promissory Note to Marshall E. Levine Ph.D. Profit
Sharing Plan, filed as an exhibit to Registrant's
Registration Statement on Form 10-SB, filed October
23, 1998
10.04* Genesis Safety Systems, Inc. Stock Option Plan, filed
as an exhibit to Amendment No. 1 to Registrant's
Registration Statement on Form 10-SB, filed March 11,
1999
10.05* Stock Purchase Agreement and Plan of Reorganization
dated June 30, 1999, filed as an exhibit to
Registrant's Form 8-K filed July 12, 1999
10.06* Employment Agreement with Joseph M. Guido, , filed as
an exhibit to Registrant's Form 8-K filed September
9, 1999
10.07* Employment Agreement with Sam DiGiralomo, filed as an
exhibit to Registrant's Form 8-K filed September 9,
1999
10.08* Employment Agreement with Barton C. Theile, filed as
an exhibit to Registrant's Form 8-K filed September
9, 1999
10.09* Certificate of Amendment to the Certificate of
Incorporation of Registrant changing the name of the
corporation from Audiogenesis Systems, Inc. to
Allstates WorldCargo, Inc., filed as an exhibit to
Registrant's Form 8-K filed December 1, 1999
11.01+ Statement re: Computation of Earnings per Share
21.01* List of Subsidiaries of Registrant, filed as an
exhibit to Registrant's Registration Statement on
Form 10-SB, filed October 1, 1999
__________________
* Filed previously, incorporated herein by reference
(b) Reports on Form 8-K: No reports on Form 8-K were filed during
the last quarter of the period covered by this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALLSTATES WORLDCARGO, INC.
BY: _____________________________________
Sam DiGiralomo, President and CEO
DATED: December 28, 2001
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
Signature Title Date
By: /s/ Joseph M. Guido
Joseph M. Guido Chairman of the Board of December 28,
Directors 2001
By: /s/ Sam DiGiralomo
Sam DiGiralomo President, CEO and December 28,
Director 2001
By: /s/ Barton C. Theile Executive Vice President,
Barton C. Theile COO and Director December 28,
2001
Secretary, Treasurer, and
Chief Financial Officer
By:/s/ Craig D. Stratton (Principal Financial
Craig D. Stratton Officer and Principal December 28,
Accounting Officer) 2001