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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, 2002
[ ] 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,
2002 was 32,509,872 shares.
At December 14, 2002, 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 1,700
customers utilizing ground transportation, commercial air carriers,
and ocean vessels. Allstates operates 20 offices throughout the United
States, and employs 108 people.
Allstates has agreements with domestic and international
strategic partners and a network of agents throughout the world.
Prior to the end of its September 30, 2000 fiscal year end, pursuant
to the Company's decision to discontinue freight operations at their
United Kingdom branch, Allstates formed a strategic alliance with an
established UK freight forwarding company to handle its freight
requirements in that area. The Company's UK branch office had done
business as Allstates Allcargo (UK) Ltd. since January 1997.
Allstates has similar alliance agreements with agents in the European,
South American and Far East markets.
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 20 domestic
offices, its strategic alliances, and selected agents throughout the
world. Allstates is a party to several site licensing agreements in
which those licensees have contracted with the Company to provide
exclusive freight forwarding services, including sales and operating
functions, under the Allstates name. Of the 20 domestic locations, 9
are licensees operations, while 11 are company owned and staffed
operations.
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 employs 28 full time sales
personnel operating from the 11 company-owned offices.
Two separate divisions of Allstates are responsible for certain
specialized functions of the Company. GTD Logistics, through its
capacity as a licensed truck broker, arranges for the procurement of
exclusive truckloads. The other division, Allstates Logistics, holds
Ocean Transportation Intermediary License No. 15364NF, and is
responsible for the ocean freight segment of Allstates.
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:
* Real-time information which is available to employees and
customers, including customer service, operations, sales and
accounting
* 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
* System tracks shipments from pickup order to delivery; confirms
"on-board" and "out for delivery" status
* 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)
* System auto rates revenues and costs
* System supports transactions via EDI (Electronic Data
Interchange)
* System is flexible in customizing reports to meet customer needs
* System is "bar-code" capable
* System allows customers to dial up and retrieve rate quotes and
POD information
* 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, EGL Inc., 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 1,700
accounts. Over the 41 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 December 10, 2002, the Company employed a total of 108
individuals. Allstates Air Cargo, Inc. and subsidiaries accounted for
106 employees (of which 9 are part time), including 53 in operations
and customer service, 28 in sales, marketing and related activities,
and 25 in administration and finance. The Audiogenesis Systems
division has 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
2002, the maximum contribution allowed by the Code was the lesser of
100% of an employees' compensation, or $11,000. Participants who
attained age 50 prior to the close of the plan year are eligible to
make catch-up contributions of an additional $1,000, after the maximum
contribution has been made. The Company may make matching
contributions equal to a discretionary percentage, as determined by
the Company, up to 6% of a participants' salary. Company
contributions vest at the rate of 20% of the balance at each
employees' third, fourth, fifth, sixth, and seventh anniversary of
employment. The employees' contributions are 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, 2002.
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
Allstates occupies 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
27,000 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 2003 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 approximately
$462,000 during fiscal 2002. 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, 2002 were:
NORTH AMERICA
Miami, Florida
Los Angeles, California
Kenilworth, New Jersey Dallas, Texas
St. Louis, Missouri Houston, Texas
Kansas City, Missouri Indianapolis, Indiana
Pittsburgh, Pennsylvania Minneapolis, Minnesota
Atlanta, Georgia Raleigh, North Carolina
Baltimore, Maryland San Francisco, California
Boston, Massachusetts San Diego, California
Chicago, Illinois Wayne, New Jersey
Jacksonville, Florida
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. The DEP subsequently issued a No Further Action ("NFA")
letter for the soil and groundwater. Pursuant to the NFA, Allstates
is to seal the monitoring wells at the site. Carpenter is tentatively
scheduled to perform this work, pending approval by the current
property owner, during the week of December 16, 2002, at an estimated
cost of $2900.
The NFA also sets forth details of the CEA prepared for the site that
projected when remaining groundwater contaminants will have fully
degraded to meet DEP groundwater quality standards. Although it is
not expressly stated in the NFA, the governing law and the underlying
regulations will require the submission of a biennial certification
conforming the effectiveness of the CEA. The biennial certifications
will focus primarily on a confirmation by Allstates, based on
inquiries made to local authorities, that groundwater at the site is
not being used. Pursuant to the 1998 Agreement of Sale with Father
Flanagan's Boys Home, the current owner is to pay Allstates $3,000 per
year for any reporting or monitoring associated with an institutional
control, which includes a CEA. This payment is to continue for so
long as DEP requires the work or for 20 years, whichever period is the
shortest. We anticipate that this will cover the cost of the
reporting.
In March 1997, Allstates made claims against liability insurance
carriers for coverage. Now that DEP has issues the NFA, counsel for
Allstates is preparing an update and proposed cost-sharing with
Allstates' insurance carriers.
In the matter of Allstate's WorldCargo, Inc. v. Logistics Management
Resources, Inc. and Daniel Pixler, Superior Court of New Jersey Law
Division, Ocean County (Docket No. OCN-L-1822-01) in which the Company
asserted a breach of contract, the parties signed a Stipulation of
Settlement. The settlement provided for (1) the immediate entry of a
judgment against Logistics Management Resources, Inc. in the amount of
$728,242.23 (which amount represents the full amount of the damages
sought, inclusive of interest and attorneys' fees), (2) the payment by
Daniel Pixler into escrow of no less than $80,000, (3) the assignment
by the defendants to the Company of certain accounts receivable, and
(4) the delivery by defendants to the Company of certain documentation
concerning Mr. Pixler's financial condition.
The Company has 90 days from November 12, 2002 to evaluate the
documentation received from Mr. Pixler and to rescind the settlement
with Mr. Pixler, only, if it so chooses. If the Company rescinds the
Pixler settlement, the $80,000 in escrow will be returned to Mr.
Pixler; otherwise it is to be turned over to the Company.
While the Company received what defendants contend was an assignment
of the accounts receivables, the Company is of the position that the
assignment is defective, and that the accounts receivable have not
been assigned to the Company. It is presently unknown whether the
defendants will be able to cure the defect. The actual value, and the
collectibility if any, of the receivables is also unknown.
Furthermore, the collectibility of the judgment against Logistics
Management Resources, Inc. is unknown.
The Company commenced an action entitled Allstates WorldCargo Inc. and
Joe Ruiz v. Exel North American Logistics, Inc. in the Superior Court
of New Jersey, Law Division, Ocean County (Docket No. OCN-L-2853-02)
which was removed to the United States District Court, District of New
Jersey (Civil Action No. and 02-4730 (GEB). In that action, the
Company seeks a declaratory judgment in connection with allegations
that the defendant made with respect to certain activities of the
Company and one of its employees. The defendant has asserted a
Counterclaim. Insofar as the Counterclaim involves the Company, the
defendant has asserted claims of misappropriation of trade secrets,
tortuous interference with business relations and contractual
relations, unfair competition, conspiracy to commit trade secret
theft, and conversion. The defendant seeks unspecified damages,
injunctive relief, an accounting, and the imposition of a constructive
trust.
The action is presently in pretrial discovery. The Company is
vigorously pursuing its claim, denies the wrongdoing alleged in the
Counterclaim, and is vigorously defending against that counterclaim.
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, 2002. 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)
1998 1999 2000 2001 2002
STATEMENT OF OPERATIONS DATA
Net sales $25,998 $31,230 $33,213 $41,239 $36,403
Income (loss) from operations 276 1,107 424 744 534
Income (loss) from continuing
operations 121 480 87 408 136
Net income (loss) 121 480 (62) 408 136
Basic net income (loss) per
common share $.00 $.01 $.00 $.01 $.00
Diluted net income (loss) per
common share $.00 $.01 $.00 $.01 $.00
Weighted average
Common shares outstanding
- - basic 32,510 32,510 32,510 32,510 32,510
Weighted average
Common shares outstanding
- - diluted 32,523 32,523 32,521 32,510 32,510
BALANCE SHEET DATA:
Working capital $416 $ 783 $ 598 $ 1,316 $1,534
Total assets 5,024 6,070 7,892 7,095 8,050
Liabilities - current 3,808 3,812 5,695 4,614 5,477
Liabilities - long term 70 2,564 2,625 2,497 2,453
Total stockholders' equity 1,147 (306) (427) (16) 120
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,
2002 2001 2000
---------------------------------
Revenues 100.0% 100.0% 100.0%
Cost of transportation 61.3 57.7 60.6
Gross profit 38.7 42.3 39.4
Selling, general and administrative
expenses 37.2 40.5 38.1
Operating income 1.5 1.8 1.3
Income from continuing operations 0.4 1.0 0.3
Loss from discontinued operations,
net of tax benefit (0.5)%
Net income/(loss) 0.4% 1.0% (0.2)%
Revenues
Revenues of the Company represent gross consolidated sales less
customer discounts. Total revenues for the fiscal year ended
September 30, 2002 decreased in comparison to sales of the fiscal year
ended September 30, 2001 by $4.8 million, or 11.7%, to $36,403,000,
due to lower volume and weight of cargo shipped. The effect of the
lower shipping volumes were present in both domestic and international
revenues, with domestic sales decreasing by $2.4 million, or 7.9%, and
international sales decreasing by $2.4 million, or 22.5% from the
previous fiscal year. Domestic and international revenues totaled
$27,922,000 and $8,481,000, respectively, in fiscal 2002.
The net reduction in revenues between the comparative fiscal
years was led by two significant factors. First, sales from the
comparative fiscal year ended September 30, 2001 included domestic and
international revenues that were generated from one customer that
accounted for 13.3% of total sales for that period. Effective October
1, 2001, that customer, in an effort to minimize their operating
costs, began utilizing a larger alternate freight forwarder to service
their international import freight requirements. That action
effectively accounted for the overall reduction in international
revenues, as import sales to that customer amounted to approximately
$2,438,000 during the previous fiscal year ended September 30, 2001.
Allstates continues to provide domestic freight distribution services
to this customer. Secondly, domestic sales volume in fiscal 2001
included approximately $2.6 million in what was then new business that
was derived from the Company's service agreement with an unrelated
freight and warehouse services company. That agreement was terminated
in May 2001 pursuant to the sales of the assets of that company to
another unrelated company.
Fiscal 2002 sales volumes were adversely affected by the events
of September 11, 2001 as well. The increased level of caution and
uncertainty displayed by many businesses in the wake of that event was
also evident in many of our customers, and led to lower revenues for
the Company in the months following. Of significant note though is
that while total revenues decreased in fiscal 2002 as compared to
fiscal 2001, sales for the six months ended September 30, 2002
increased by approximately $2.8 million, or 16.1% over the six months
ended September 30, 2001. Sales during that period have been fueled
by the addition of two company stations as well as an increase in
sales staff in some of the Company's existing locations.
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, primarily due to
an overall increase in the number of shipments and the total weight of
cargo shipped. 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. A significant
portion of the overall increase is attributable to domestic and
international sales generated by one customer that accounted for 13.3%
of consolidated revenues for Fiscal 2001. As previously disclosed, as
of 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. Further to the
increase in sales for the year ended September 30, 2001 over the
previous fiscal year was the 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
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. As a percentage of
revenues, cost of sales increased by 3.6%, to 61.3%, for the fiscal
year ended September 30, 2002 in comparison to the fiscal year ended
September 30, 2001. The comparative percentage for fiscal 2001 was
lower primarily due to the effect of the business that was derived
from the Company's service agreement with an unrelated freight and
warehouse services company, for which there was no related cost of
sales on the warehousing portion of that billing. That agreement, as
previously indicated, was terminated in May 2001. After discounting
the effect of that business on the Company's total transportation
costs in fiscal 2001, the cost of sales percentage increased by 1.0 %
in fiscal 2002 in comparison to fiscal 2001. In absolute terms, cost
of sales decreased by approximately $1,464,000 or 6.2%, to
$22,313,000, during the fiscal year ended September 30, 2002 in
comparison to the fiscal year ended September 30, 2001, reflecting the
comparative change in sales volume between those periods. Gross
margins decreased to 38.7% in fiscal 2002 from 42.3% in fiscal 2001.
Gross profit decreased by 19.3% to $14,090,000 in fiscal 2002 from
$17,462,000 in fiscal 2001.
The cost of sales decreased as a percentage of revenues by 2.9%
in fiscal 2001 to 57.7% from 60.6% in fiscal 2000. The 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.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include all
personnel costs, facilities costs, and licensee commissions. SG&A
expenses as a percentage of revenues were lower in fiscal 2002 by 3.3%
in comparison to fiscal 2001, decreasing to 37.2% from 40.5%,
primarily reflecting comparatively lower commissions expenses as a
percent of revenues during the period. Allstates paid commissions to
salespeople, licensees and independent agents, as well as a third
party entity, as compensation for generating profits to the Company.
In absolute terms, operating expenses decreased by $3,161,000, or
18.9% in the fiscal year ended September 30, 2002 as compared to the
previous year, primarily reflecting lower commissions expense, offset
in part by higher personnel and facility related expenses.
Licensee commissions and royalties paid pursuant to licensee
agreements decreased by $1,258,000 in fiscal 2002, reflecting lower
gross profits generated by certain licensee operations as compared to
the prior fiscal year. This was significantly driven by the loss of
the international portion of business that was generated by a customer
that had accounted for 13.3% of revenues in fiscal 2001.
Additionally, during the comparative fiscal year ended September 30,
2001, the Company paid approximately $1,851,000 in commissions to an
unrelated freight and warehousing services company pursuant to an
agreement made between them and Allstates. That agreement was
terminated in May 2001. During the third quarter of fiscal 2002,
Allstates signed an agreement with an independent sales agent whereby
the Company pays a percentage of gross profits earned from revenues
generated by the agent. Allstates paid approximately $118,000 in
agency commissions in fiscal 2002.
Personnel expenses were higher by approximately $69,000 in the
fiscal year ended September 30, 2002 compared to the fiscal year ended
September 30, 2001, led by a net increase in sales salaries. During
the third quarter of fiscal 2002, Allstates opened and staffed two
company-owned stations in Florida, where there had been no presence in
recent years, and also increased sales staff in other existing
locations. Salesperson headcount increased to 26 at September 30,
2002 versus 16 at September 30, 2001. Offsetting the increase in
sales salaries is the effect of cost reducing steps that the Company
took, beginning in the fourth quarter of fiscal 2001 through the
second quarter of fiscal 2002. In response to lower sales volumes
during that period, Allstates reduced headcount at two locations,
consolidated the operations of one of its offices with another
station, and eliminated three positions within the corporate staff.
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.
Operating income
Income from operations decreased during the fiscal year ended
September 30, 2002 by approximately $210,000, to $534,000, in
comparison to the fiscal year ended September 30, 2001 for the reasons
indicated. Operating margins decreased by 0.3% during the fiscal
year.
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.
Interest income and expense
Allstate's interest expense obligation consists primarily of 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, as well as on borrowings against the
line of credit established with the bank. Interest on the note was
approximately $171,000 and $173,000 during fiscal 2002 and fiscal
2001, respectively.
Net interest expense decreased by approximately $19,000 during
the fiscal year ended September 30, 2002 as compared to the prior
fiscal year, reflecting a lower borrowing rate of interest on the
Company's line of credit, offset by higher average outstanding
borrowings. During the fiscal year ended September 30, 2001, net
interest expense increased by approximately $24,000 as compared to the
fiscal year ended September 30, 2000, reflecting the increased level
of borrowing on the line of credit.
Gain/(Loss) on Sale of Assets
During the fiscal year ended September 30, 2001, 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 decreased by $383,000, to $313,000 for the
fiscal year ended September 30, 2002, as compared to the previous
fiscal year. The provision for income taxes was approximately
$177,000 for fiscal 2002. Net income totaled $136,000 for the fiscal
year ended September 30, 2002 versus $408,000 for the fiscal year
ended September 30, 2001.
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 ended September 30, 2000. 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 compared to fiscal 2000. 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.
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 used for operating activities was approximately $914,000
for the fiscal year ended September 30, 2002 compared to cash provided
by operations of approximately $591,000 for the fiscal year ended
September 30, 2001. In fiscal 2002, cash was primarily used to
finance the increase in accounts receivable, offset by the net income
of the Company as well as the increase in accounts payable. 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.
At September 30, 2002, the Company had cash and cash equivalents
of $173,000 and net working capital of $1,534,000, compared with cash
and cash equivalents of $624,000 and net working capital of $1,316,000
respectively, at September 30, 2001. The increase in working capital
at September 30, 2002 in comparison to September 30, 2001 is primarily
attributable to the net income of the Company during the fiscal year.
The Company's investing activities were primarily comprised of
expenditures for capital equipment, primarily representing purchases
of computer hardware and software. For the fiscal year ended September
30, 2002, Allstates spent approximately $136,000 on capital
expenditures, while receiving approximately $37,000 in proceeds from
the sale of company-owned automobiles.. For the fiscal year ended
September 30, 2001, capital expenditures amounted to approximately
$191,000, of which $40,000 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 was paid in full
to the Company in September 2002 as per the loan agreement.
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 (4.75% at September 30, 2002). 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, 2002 and 2001 were $1,400,000 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 had not made any payments to Allstates. The Company
filed suit against the other company for breach of contract, and
subsequently the parties signed a Stipulation of Settlement whereby
Allstates received a Summary Judgement for the full amount plus
interest and attorney's fees. An $80,000 payment in lieu of the
personal guarantee has been placed in escrow pending legal review of
documentation supplied by the other company. Allstates is continuing
to pursue the collection of the balance, although no assurance can be
made at this time with respect to the recoverability of those 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, 2002 and 2001
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
For the Fiscal Years Ended September 30, 2002 and 2001
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' Equity(Deficit) F6
Consolidated Statements of Cash Flows F7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS F8 - F18
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, 2002 and 2001, and the
related consolidated statements of income, earnings per
share, stockholders' equity (deficit), and cash flows for
the 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 audits.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of Allstates WorldCargo,
Inc. and Subsidiaries, as of September 30, 2002 and 2001,
and the results of their operations and cash flows for the
years then ended in conformity with accounting principles
generally accepted in the United States of America.
Toms River, New Jersey
December 9, 2002
F1
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2002 and 2001
Assets
2002 2001
---- ----
Current Assets
Cash and cash equivalents $ 173,277 $ 623,925
Accounts Receivable, net of allowance for doubtful
accounts 5,752,732 4,164,432
Inventories 24,212 23,679
Prepaid Expenses and Other Assets 978,914 799,427
Deferred Income Taxes - Current Portion 81,999 118,038
Loans receivable - related parties - short term - 200,000
------------ -----------
Total Current Assets 7,011,134 5,929,501
------------ -----------
PROPERTY, PLANT AND EQUIPMENT,
net of accumulated depreciation 468,211 595,407
------------ -----------
INTANTIBLE AND OTHER ASSETS
Deposits 34,877 28,832
Goodwill, net of accumulated amortization 504,016 504,016
Acquisition Costs, net of accumulated amortization 32,257 36,921
------------ -----------
Total Other Assets 571,150 569,769
------------ -----------
Total Assets $ 8,050,495 $7,094,677
============ ============
See accompanying notes and independent auditors' report
F2
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2002 and 2001
Liabilities and Stockholders' Equity (Deficit)
2002 2001
Current Liabilities ---- ----
Accounts Payable $ 3,150,565 $ 2,562,260
Accrued Expenses 846,174 1,016,269
Short-Term Bank Borrowings 1,400,000 900,000
Current Portion of Notes Payable 80,720 131,325
Deferred Tax Liability - Current Portion - 4,039
---------- ---------
Total Current Liabilities 5,477,459 4,613,893
---------- ---------
LONG TERM LIABILITIES
Deferred Tax Liability - Non-current portion 37,000 -
Long-Term Portion of Notes Payable 2,416,184 2,496,904
---------- ---------
Total Long-Term Liabilities 2,453,184 2,496,904
---------- ---------
Total Liabilities 7,930,643 7,110,797
---------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock, $.0001 par value, 50,000,000 shares
authorized, 32,509,872 shares issued
and outstanding 3,251 3,251
Retained Earnings (Deficit) 116,601 ( 19,371)
---------- ---------
Total Stockholders' Equity (Deficit) 119,852 ( 16,120)
---------- ---------
Total Liabilities and Stockholders' Equity (Deficit) $ 8,050,495 $ 7,094,677
========== =========
See accompanying notes and independent auditors' report
F3
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Fiscal Years Ended September 30, 2002 and 2001
2002 2001
---- ----
NET SALES $ 36,403,360 $ 41,238,608
COST OF SALES 22,312,966 23,776,817
------------ ------------
Gross Profit 14,090,394 17,461,791
OPERATING EXPENSES
Selling, General and Administrative 13,556,680 16,717,707
------------ ------------
Income from Operations 533,714 744,084
------------ ------------
OTHER INCOME (EXPENSE)
Interest Income 10,403 26,753
Interest Expense (226,322) (261,405)
Gain on Sale of Assets ( 6,133) 156,626
Other Income 1,506 29,983
------------ ------------
Total Other Income (Expense) (220,546) ( 48,043)
------------ ------------
Income Before Tax Provision 313,168 696,041
Provision for Income Taxes 177,195 288,476
------------ ------------
Net Income Applicable to Common Shareholders $ 135,973 $ 407,565
============ ============
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, 2002 and 2001
2002 2001
---- ----
EARNINGS PER SHARE - BASIC
Net Income Applicable to Common Shareholders
Per Common Share - Basic $ 0.00 $ 0.01
============ ============
Shares Used in Per Share Calculation - Basic 32,509,872 32,509,872
============ ============
Earnings Per Share - Diluted
Net Income Applicable to Common Shareholders
Per common share - diluted $ 0.00 $ 0.01
============ ============
Shares Used in Per Share Calculation - Diluted 32,509,872 32,510,349
============ ============
See accompanying notes and independent auditors' report
F5
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
For the Fiscal Years Ended September 30, 2002 and 2001
Common Stock
Other Retained Total
Number of Comprehensive Earnings Stockholders'
Shares Par Value Income (Loss) (Deficit) Equity (Deficit)
--------- --------- ------------- ---------- ----------------
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 gain
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)
Consolidated net gain
for the fiscal year
ended September 30, 2002 135,973 135,973
---------- ------- ------------ ---------- -------------
Balance at
September 30, 2002 32,509,872 $3,251 $ - $ 116,602 $ 119,853
========== ======= ============ =========== =============
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, 2002 and 2001
2002 2001
Cash Flows From Operating Activities: ---- -----
Net Income Applicable to Common Shareholders $ 135,973 $ 407,565
Adjustments to reconcile net income applicable to
common shareholders to net cash provided
by operating activities:
Depreciation 220,568 249,816
Amortization 4,664 68,330
Provision for bad debts 122,040 145,713
(Gain) Loss on Sale of Equipment 6,133 (156,626)
(Increase) Decrease in:
Accounts Receivable (1,710,340) 1,447,059
Inventories ( 533) 7,005
Prepaid Expenses and Other Assets (157,372) (465,393)
Deferred Income Taxes 69,000 ( 10,159)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 418,209 (1,033,155)
Taxes Payable ( 22,116) ( 69,457)
---------- ---------
Net Cash Provided From (Used by) Operating Activities (913,774) 590,698
---------- ---------
Cash Flows From Investing Activities:
Acquisition of Property and Equipment (136,007) (151,489)
Proceeds from Sale of Property and Equipment 36,503 223,588
Repayment of loan from shareholder 200,000 -
Deposits ( 6,046) 39,385
---------- ---------
Net Cash Provided from Investing Activities 94,450 111,484
---------- ---------
Cash Flows From Financing Activities:
Repayments Under Notes Payable (131,324) (198,844)
Repayments Under Short-Term Bank Borrowings - (200,000)
Proceeds Under Short-Term Bank Borrowings 500,000 200,000
Borrowings (Repayments) of Shareholder Loans Payable - 1,199
---------- ---------
Net Cash Provided From (Used by) Financing Activities 368,676 (197,645)
---------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (450,648) 504,537
Currency Translation Adjustments - 3,651
Cash and Cash Equivalents, Beginning of Year 623,925 115,737
---------- ---------
Cash and Cash Equivalents, End of Year $ 173,277 $ 623,925
========== =========
See accompanying notes and independent auditors' report
F7
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
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, 2002 and 2001
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, 2002 and 2001. The statement of income
includes the income and expenses of Allstates Air
Cargo, Inc. and its subsidiaries for the years ended
September 30, 2002 and 2001. All material intercompany
payables, receivables, revenues and expenses have been
eliminated for purposes of this consolidation.
Use of Estimates
The preparation of the financial statements in
conformity with accounting principles generally
accepted in the United States of America 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, 2002 and 2001, 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, 2002 and 2001
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.
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.
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, 2002
and 2001 was $122,040 and $145,713, respectively.
F10
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
3. Property, Plant and Equipment
Property, plant and equipment costs consist of the
following as of September 30, 2002:
Accumulated Net Book
Cost Depreciation Value
Leasehold
Equipment $ 47,105 $ 12,614 $34,491
Vehicles 517,707 315,616 202,091
Equipment and
Software 791,303 560,950 230,353
Furniture and
Fixtures 47,542 46,266 1,276
---------- --------- ---------
Totals $1,403,657 $935,446 $468,211
========== ========= =========
Depreciation expense charged to income from operations
for the years ended September 30, 2002 and 2001 was
$220,568 and $249,816, respectively.
4. Amortization of Goodwill and Acquisition Costs
For the fiscal year ended September 30, 2001, the
excess of cost over the fair value of net assets
acquired (goodwill) was being amortized on the straight-
line basis over a ten-year period. Amortization expense
for the year ended September 30, 2001 was $63,665.
Commencing with the fiscal year beginning October 1,
2001, the Company implemented Statement of Financial
Accounting Standards Statement No. 142, "Accounting for
Goodwill and Intangible Assets", which no longer allows
for the amortization of goodwill. The new statement
requires 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. Pursuant to the Company's impairment test
conducted for the year ended September 30, 2002, no
write off of the carrying value is deemed necessary.
The costs associated with the acquisition of
Audiogenesis by Allstates are being amortized on the
straight-line basis. Unlike the goodwill, the Company
will continue to amortize these costs over a ten-year
period. Amortization expense for the years ended
September 30, 2002 and 2001 were $4,664 and $4,665,
respectively.
F11
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
5. Notes Payable
The following is a summary of Long-Term Debt as of
September 30, 2002 and 2001:
2002 2001
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. $2,436,730 $2,461,730
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
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. 30,716 114,059
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. 29,458 48,355
--------- ---------
2,496,904 2,628,229
Less: Current Portion of Notes
Payable 80,720 131,325
----------- ----------
Long-Term Portion of Notes
Payable $2,416,184 $2,496,904
=========== ===========
F12
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
5. Notes Payable (continued)
Maturities
----------
For the fiscal years ended September 30, 2003 80,720
2004 29,455
2005 25,000
2006 25,000
2007 25,000
Thereafter 2,311,729
_________
Total $2,496,904
=========
6. Short-Term Bank Borrowing
Allstates Air Cargo, Inc. has a $2,000,000 line of
credit agreement with a bank, which expires March 31,
2003. Interest on outstanding borrowings currently
accrues at the Wall Street Journal's (WSJ) prime rate
of interest per annum (4.75% as of September 30, 2002).
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, 2002 and 2001
was $1,400,000 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.
7. Income Taxes
A reconciliation of income tax at the statutory rate to
the Company's effective rate is as follows:
2002 2001
---- ----
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
Miscellaneous Book to Tax
Adjustments -8.344% 1.132%
purposes
Deferred income tax
expense (benefit):
Federal 17.186% -1.130%
State 4.847% -1.450%
------- -------
Income Tax Expense - 56.582% 41.445%
Effective Tax Rate ======= ========
F13
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
7. Income Taxes (continued)
The Company's provision for income taxes as of
September 30, 2002 and 2001 consist of the following:
2002 2001
---- ----
Current Income Tax Expense
Federal 50,775 170,836
State 57,420 127,800
------- -------
Total - Current 108,195 298,636
------- -------
Deferred Income Tax (Benefit) Expense
Federal 53,318 (7,925)
State 15,682 (2,235)
------ ------
Total - Deferred 69,000 (10,160)
------ -------
TOTALS $177,195 288,476
======== =======
The tax effect of temporary differences that make up
the significant components of the deferred tax asset
for financial reporting purposes at September 30, 2002
and 2001 are as follows:
2002 2001
---- ----
Deferred Tax Assets
--------------------
Accounts Receivable $ 81,999 $108,016
Intangibles - goodwill - 10,022
-------- --------
Totals $ 81,999 $118,038
------ ======== ========
Deferred Tax Liabilities
------------------------
Equipment $ 37,000 $ 4,039
======== ========
At September 30, 2002, the Company has a future income
tax benefit for net write offs of its investment
account in one of its Subsidiaries (Allstates Allcargo
(U.S.) Inc.). The estimated future income tax benefit
of this transaction is approximately $127,000. For
financial statement purposes, a 100% complete valuation
allowance has been recorded by Management in the amount
of $127,000
as of September 30, 2002, and therefore, this future
estimated tax benefit is not reflected in these
financial statements.
F14
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
8. 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 year 2001 incurred by Allstates Allcargo
(UK), Ltd. in calculating the Federal tax liability.
There are no gains or losses in fiscal year 2002 since
the foreign entity, Allstates Allcargo (UK), LTD., was
dissolved.
9. 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 100% of an
employees' qualified compensation, or $11,000 and
$10,500 for the calendar years ended 2002 and 2001,
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, 2002 and 2001. 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, 2002 and 2001.
10. Related Party Transactions
Allstates Air Cargo, Inc. leases office space located
in Forked River, New Jersey from a majority stockholder
of the Company. Rent expense under these leases
totaled $81,600 and $87,600 for the years ended
September 30, 2002 and 2001, 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, 2002 and
2001 totaled $319,595 and $405,433, respectively.
F15
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
10. Related Party Transactions (continued)
The Company entered into Employment Agreements with
four of the Company's stockholders. The Employment
Agreements are effective through December 31, 2004.
The following is a summary of the terms of these
agreements:
Annual Stock
Position Salary Bonus Options
-------- -------- ------ --------
Chairman of the $311,818 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
Chief Financial $125,266 Discretionary Yes
Officer
The Company accrued bonuses to the Company's
stockholders shown above for the years ended September
30, 2002 and 2001 total $-0- and $64,500, respectively.
The Company had an unsecured, non-interest bearing loan
from a shareholder. Principal amount outstanding as of
September 30, 2002 and 2001 are $-0- and $200,000,
respectively. For the loan receivable due at September
30, 2001, the principal balance of the $200,000 was due
in full on September 10, 2002 and interest payments of
9+% per annum were due annually.
11. Stock Option Plan
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, 2002, no stock
options have been issued.
12. 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 it's 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.
F16
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
12. Leases (Continued)
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,
2002:
Years Ending
September 30,
--------------------
2003 455,522
2004 397,042
2005 338,656
2006 244,275
2007 248,025
Thereafter 231,400
--------
Total $1,914,920
==========
Rent expense under operating leases for the years ended
September 30, 2002 and 2001 was $462,284 and $376,208
respectively.
The Company sublets office space and has recorded
$6,300 and $2,100 of rental income for the years ended
September 30, 2002 and 2001, respectively.
13. Supplemental Cash Flow Disclosures
Cash paid for: 2002 2001
-------------- ----- -----
Income Taxes $259,194 $357,933
======== ========
Interest $226,322 $261,405
======== ========
Noncash Investing and Financing Activities
Equipment acquired through notes payable for the years
ended September 30, 2002 and 2001 totaled $0 and
$39,700, respectively.
14. Litigation
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 LMRI (Daniel
Pixler), to pay the full loan amount totaling $702,469
plus interest over six months, beginning in April 2001.
LMRI defaulted on the loan and has made no payments to
date. Worldcargo brought action against LMRI asserting
breach of contract.
F17
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and 2001
14. Litigation (continued)
In August 2002, the parties to the action signed a
Stipulation of Settlement which provided for (1) the
immediate entry of a judgment against LMRI in the
amount of $728,242 (which amount represents the full
amount of damages sought, inclusive of interest and
attorney's fees), (2) the payment by Daniel Pixler into
escrow of no less than $80,000, (3) the assignment by
the defendants of the Company of certain accounts
receivable with a face value of approximately
$1,600,000, and (4) the delivery by the defendants to
the Company of certain documentation concerning Mr.
Pixler's financial condition.
While the Company received what the defendants contend
was an assignment of the required accounts receivables,
the Company is of the position that the assignment was
defective, and that the accounts receivable have thus
not been assigned to the Company. It is presently
unknown whether the defendants will be able to cure the
defect.
Worldcargo is continuing to vigorously pursue its
claim. At this time, the Company's general counsel is
unable to render an opinion as to Worldcargo's ability
to collect the $728,242. For the purposes of these
financial statements, no allowance for uncollectible
accounts has been recorded for this receivable.
F18
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 68 Chairman of the Board
Sam DiGiralomo 59 President, CEO, Director
Barton C. Theile 56 Executive Vice President, COO,
Director
Craig Stratton 51 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 2002 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
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. 2002 311,818 20,791 81,600(3)
Guido, 2001 311,818 87,600(2)
Chairman 2000 311,082 27,540 108,600(1)
of the
Board
Sam 2002 208,000 20,791 319,595(4)
DiGiralomo, 2001 208,000 405,433(4)
President, 2000 208,000 27,540 214,500(4) 98,000(6)
CEO
B. Theile, 2002 207,922 20,791 4,188(7)
COO, 2001 207,922 19,273(7)
Exec. VP 2000 207,922 27,540 9,833(7) 16,500(6)
Craig
Stratton, 2002 125,266 6,000 5,850(5)
CFO, 2001 120,263
Secretary, 2000 110,734 6,500(6)
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) Rental income from leasing of Forked River corporate office
(4) Royalties paid for consulting services in connection with site
licensing agreements
(5) Car allowance for use of personal auto
(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, and in 2001, entered into an
agreement with a fourth stockholder. The Employment Agreements are
effective for the term beginning with inception 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 $311,818 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
Craig D. Stratton,
Chief Financial Officer $125,266 At the discretion of
the Board of Directors
Under the terms of their respective employment agreements, each
individual has 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, 2002 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,
2002.
(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 March 31,
2003, 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 one location from Joseph M.
Guido during Fiscal 2002. Rent expense under this lease totaled
$81,600 for the year ended September 30, 2002. The Company believes
that this lease is 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. Similar royalty agreements have since
been executed which encompass its Minneapolis, San Francisco, Dallas
and Indianapolis licensee locations. Royalty payments to Mr.
DiGiralomo for the year ended September 30, 2002 totaled $319,595.
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, was payable after twenty four months, with quarterly
interest payments at the Company's prevailing bank loan rate. In
September 2002, the loan was paid in full to the Company.
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
+Filed herewith
(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.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The Company's
principal executive officer/principal financial officer, based on his
evaluation of the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) as of a date within 90 days prior to
the filing of this Annual Report on Form 10K, concluded that the Company's
disclosure controls and procedures are adequate and effective for the
purposes set forth in the definition in the Exchange Act rules.
(b) Changes in Internal Controls. There were no significant changes in
the Company's internal controls or in other factors that could significantly
affect the Company's internal controls subsequent to the date of the
evaluation.
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 27, 2002
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:
Joseph M. Guido Chairman of the Board of December 27, 2002
Directors
By:
Sam DiGiralomo President, CEO and December 27, 2002
Director
By: Executive Vice President,
Barton C. Theile COO and Director December 27, 2002
Secretary, Treasurer, and
Chief Financial Officer
By: (Principal Financial
Craig D. Stratton Officer and Principal December 27, 2002
Accounting Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of ALLSTATES WORLDCARGO, INC. (the
"Company") on Form 10K for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Sam DiGiralomo, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Sam DiGiralomo
Sam DiGiralomo
Chief Executive Officer
December 27, 2002
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of ALLSTATES WORLDCARGO, INC. (the
"Company") on Form 10K for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Craig D. Stratton, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Craig D. Stratton
Craig D. Stratton
Chief Financial Officer
December 27, 2002
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CERTIFICATION PURSUANT TO THE
SARBANES-OXLEY ACT
I, Sam DiGiralomo, the Chief Executive Officer of ALLSTATES WORLDCARGO, INC.,
certify
that:
1. I have reviewed this annual report on Form 10K of Allstates WorldCargo,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to me by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report my conclusions about the effectiveness of
the disclosure controls and procedures based on my evaluation as of the
Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this annual report whether there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of my most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 27, 2002 /s/ Sam DiGiralomo
-----------------------------
Sam DiGiralomo, Chief Executive Officer
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CERTIFICATION PURSUANT TO THE
SARBANES-OXLEY ACT
I, Craig D. Stratton, the Chief Financial Officer of ALLSTATES WORLDCARGO,
INC., certify that:
1. I have reviewed this annual report on Form 10K of Allstates WorldCargo,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to me by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report my conclusions about the effectiveness of
the disclosure controls and procedures based on my evaluation as of the
Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this annual report whether there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of my most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 27, 2002 /s/ Craig D. Stratton
-----------------------------
Craig D. Stratton, Chief Financial Officer
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