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, 2000
[ ] 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 [ X]
The number of shares of Common Stock outstanding as of December 15,
2000 was 32,509,872 shares.
At December 15, 2000, 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, distribution and sales of safety
equipment, and development and sales of audio-visual products.
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 1,300
customers utilizing ground transportation, commercial air carriers,
and ocean vessels. Allstates operates 22 offices throughout the United
States, including Hawaii, and employs 98 people.
Allstates has agreements with domestic and international
strategic partners and a network of agents throughout the world.
Recently, Allstates formed a strategic alliance with an established
freight forwarding company located in the United Kingdom, with its
principle office in the London Heathrow airport area. This strategic
partner replaced the Company's UK branch office, which had done
business as Allstates Allcargo (UK) Ltd. since January 1997. The
Company decided to discontinue freight operations at its branch office
prior to the end of its September 30, 2000 fiscal year end. Allstates
plans to increase its global market share by forming additional
strategic alliances and effecting selective acquisitions.
Allstates neither owns or 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 22 domestic
offices, its European and South American strategic alliances, and
selected agents throughout the world.
Allstates utilizes a combination of professionally prepared
advertising materials, highly trained sales and operations/customer
services professionals, direct mail, assorted promotional items, and
audio/visual presentations. Allstates maintains 24 full time sales
personnel operating from 22 domestic offices. Of the 22 domestic
locations, 11 are company-owned, and the remaining 11 are licensees
and agents.
Allstates has formed strategic alliances in approximately 10
foreign countries with which it shares information, customers and
profits.
Allstates has several site licensing agreements and has created
two divisions that are responsible for certain specialized functions
of the Company. One of those divisions is GTD Logistics, which is
involved in ground transportation (trucking). The other division is
called Allstates Logistics. This division holds Ocean Transportation
Intermediary License No. 15364NF, and is responsible for the ocean
freight segment of Allstates. In addition, the Company has invested
in a new start-up operation, e-tail Logistics, Inc., a New Jersey
corporation. To date, e-tail Logistics, Inc. has not conducted any
business.
Information Systems
A primary component of Allstates's business strategy is the
continued development of its advanced information systems. Allstates
has invested substantial management and financial resources in the
development of its information systems in an effort to provide
accurate and timely information to its management and customers.
Allstates continues to upgrade its information systems. Highlights of
the information system are:
. 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 is capable of 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 audio-visual sales and training division and 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 provides
customer cargo tracking, with further enhancements expected in
the future.
Allstates's major competitors nationwide are Federal Express,
BAX, Eagle USA, and United Parcel Service. At each of Allstates's
locations, there are regional carriers who have strength in the local
marketplace. They, for the most part, all provide air, sea and ground
services. Service levels and pricing vary substantially based upon
geographic and customer volume criteria.
In order to remain competitive, Allstates negotiates with its
vendors to meet the appropriate service and pricing levels in its
markets. In addition to competitive pricing, Allstates strives to
provide its customers, with excellent service, highly trained inside
operations personnel, and state of the art computer services.
Customers
Allstates has a diverse customer base, with approximately 1,300
accounts. Over the 39 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, and AT&T.
Employees
As of November 30, 2000, the Company employed a total of 98
individuals. Allstates Air Cargo, Inc. and subsidiaries accounted for
96 employees (of which 8 are part time), including 49 in operations
and customer service, 24 in sales, marketing and related activities,
and 23 in administration and finance. The Audiogenesis Systems
division had 2 full-time employees. Allstates's success is highly
dependent on its ability to attract and retain qualified employees.
The loss of any of the Company's senior management or other key sales
and marketing personnel could have a material adverse effect on
Allstates's business, operating results and financial condition.
Pension Plan
Effective May 1994, the Company adopted a discretionary non-
standardized 401(k) profit sharing plan. The terms of the plan
provide for eligible employees ("participants") who have met certain
age and service requirements to participate by electing to contribute
up to the maximum percentage allowable not to exceed the limits of
Internal Revenue Code Section 401(k), 404 and 415 (the "Code"). For
2000, the maximum percentage allowed by the Code was the lesser of 25%
of an employees' compensation of which 15% is tax deductible, or
$10,500. The Company may make matching contributions equal to a
discretionary percentage, as determined by the Company, up to 6% of a
participants' salary. Company contributions vest at the rate of 20%
of the balance at each employees' third, fourth, fifth, sixth, and
seventh anniversary of employment. The employees' contributions are
100% 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, 2000.
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.
Audio-Visual Products
During the 1980's, Audiogenesis developed and had marketed the
Genesis System 1000 Employee Safety Training Program. The system
included color slides, tape cassette, workbook, poster and associated
equipment. The System 1000 was copyrighted, and was sold to more than
50 companies, including a number of "Fortune 500" corporations. The
System 1000 products, which include training presentations for
routinely used equipment such as respirators, continue to be sold by
Audiogenesis from time to time. However, Audiogenesis has no present
plans to produce any additional employee safety training
presentations, emphasizing instead audio-visual presentations for
sales and marketing programs.
With the increasing utilization of computers for audio-visual
presentations, Audiogenesis has broadened its safety training business
to include developing, producing and presenting customized audio-
visual products for business presentation. Prior to its acquisition,
Audiogenesis produced for Allstates Air Cargo, a customized audio-
visual production with respect to a sales and marketing presentation.
This production included sales and marketing techniques, explanations,
advances, and exposure to such subjects as a new supplier of
telecommunication services, financial services, target territories and
customers, customer evaluation, promotions and incentives, strategic
alliances and their import, how to increase the volume of
international air and ocean freight forwarding, the formation of a
trucking division, enhanced employee benefits, and detailed
information involving domestic site licensing agreements and
international partners.
The format used for the presentation involved digital
computerized color projection with sound which was interactive in
nature in that several individuals (management personnel of the
customer) presented various segments of the program and were able to
interact with the audience throughout the presentation.
Audiogenesis plans to begin marketing of its customized
presentations by using direct mail to contact the same customer base
that purchased Audiogenesis's Genesis System 1000 Employee Training
Program.
AudioSelectron(sm)
Audiogenesis has developed a prototype belt-worn device which is
designed to treat tinnitus by combining treatment by sound generation
which masks the tinnitus, with stimulation of the affected area with
very low voltage electrical current. The Company has determined to
defer any further development of the AudioSelectron(sm), but will
continue to pursue opportunities for the device that may be beneficial
to the Company.
Competition
Audiogenesis's SafeTvend(sm) store is subject to competition not
only from companies which would offer similar services on-site at the
customer's premises, but also from direct distributors and
manufacturers of the products which would sell directly to such
company. Virtually all of the competitors have greater financial,
technological, marketing and sales resources than Audiogenesis. There
are numerous organizations of varying sizes that engage in the
business of customized audio-visual presentations, most of these being
advertising agencies and organizations of similar nature. There is
intense competition for such business from a variety of organizations
who have greater financial, technical, marketing and sales resources
than Audiogenesis.
ITEM 2. DESCRIPTION OF PROPERTY
As of September 30, 2000, Allstates occupied approximately 7,000
square feet of space in Forked River, New Jersey for its principal
administrative, sales and marketing support and product development
facility under a ten year lease. The Company's branch locations,
which are located in the vicinity of major metropolitan airports,
occupy approximately 1,000 to 15,000 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 five years and are scheduled to expire
between fiscal 2001 and fiscal 2003. The Company's facility in the UK
is leased for a ten year term and is due to expire in fiscal 2009. The
Company is currently seeking an assignment of the lease through a
reputable realtor in the London Heathrow area. The total rent expense
for company leased facilities is approximately $403,000.00. 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, 2000 were:
NORTH AMERICA
Los Angeles, California Honolulu, Hawaii
Newark, New Jersey Houston, Texas
St. Louis, Missouri Indianapolis, Indiana
Kansas City, Missouri Minneapolis, Minnesota
Pittsburgh, Pennsylvania New York, New York
Atlanta, Georgia Philadelphia, Pennsylvania
Baltimore, Maryland Raleigh, North Carolina
Boston, Massachusetts San Francisco, California
Chicago, Illinois Shreveport, Louisiana
Dallas, Texas Wayne, New Jersey
San Diego, California Reno, Nevada
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 is now performing additional samplings. The
Company has made claims against its liability insurance carriers for
coverage, and is responding to requests for information in connection
with its attempts to establish coverage. Due to the uncertain nature
and extent of any additional remedial activities that may be required
regarding the existing site conditions, potential future costs cannot
be estimated by management or its counsel at this time. If an adverse
judgment is entered, the potential effect on the consolidated
financial position and consolidated results of operations, in the
period in which resolved, cannot be ascertained at this time, but may
be material.
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, 2000. 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 Results of
Operations and Financial Condition" contained herein.
YEAR ENDED SEPTEMBER 30,
(in thousands, except per share data)
1996 1997 1998 1999 2000
STATEMENT OF OPERATIONS DATA
(1):
Net sales $22,390 $25,134 $25,998 $31,230 $33,213
Income (loss) from operations 326 86 276 1,107 424
Income (loss) from continuing 114 (22) 121 480 88
operations
Net income (loss) 114 (22) 121 480 (62)
Basic net income (loss) per $.00 $.00 $.00 $.01 $.00
common share
Diluted net income (loss) per $.00 $.00 $.00 $.01 $.00
common share
Weighted average
Common shares outstanding 32,510 32,510 32,510 32,510 32,510
- basic
Weighted average
Common shares outstanding 32,523 32,523 32,523 32,523 32,521
- diluted
BALANCE SHEET DATA:
Working capital $ 770 $ 479 $ 416 $ 783 $ 598
Total assets 4,903 5,210 5,024 6,070 7,892
Liabilities - current 3,697 4,064 3,808 3,812 5,695
Liabilities - long term 88 101 70 2,564 2,625
Total stockholders' equity 1,119 1,045 1,147 (306) (427)
(1) Comparability of the Statement of Operations is affected by the reverse
acquisition of Audiogenesis Systems, Inc. on August 24, 1999. Accordingly,
the shares issued during the fiscal year ended September 30, 1999 as a result
of the reverse acquisition are treated as being outstanding for each fiscal
year presented.
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,
-------------------------------
2000 1999 1998
----- ----- -----
Revenues 100.0% 100.0% 100.0%
Cost of transportation 60.6 60.2 62.7
----- ----- -----
Gross profit 39.4 39.8 37.3
Selling, general and
administrative expenses 38.1 36.3 36.2
----- ----- -----
Operating income 1.3 3.5 1.1
Income from continuing
operations 0.3 1.5 0.5
Loss from discontinued
operations, net of
tax benefit (0.5)%
Net income/(loss) (0.2)% 1.5% 0.5%
Revenues
Revenues of the Company represents gross consolidated sales less
customer discounts. The total sales of Allstates WorldCargo, Inc.
increased by $2.0 million, or 6.4%, to $33,213,000 for the fiscal year ended
September 30, 2000 in comparison to the fiscal year ended September 30,
1999, primarily reflecting an increase in the number of shipments and the
total weight of international cargo shipped, as well as the full year
effect of the reverse acquisition of Audiogenesis Systems, Inc.
International sales increased by 21.0% from the prior fiscal year,
primarily due to the Company's ability to expand its international
network of agents and services. The integration of these services
with the domestic product that Allstates has traditionally provided
has improved the Company's ability to generate international business from
its existing domestic customers. Domestic revenues increased by 3.0% in
fiscal year 2000 over the previous fiscal year, in spite of the loss of
a significant customer account early in the fiscal year. This increase was
primarily due to the full year effect of revenues generated by the
Audiogenesis Systems division. While no one customer accounted for greater
than 10% of the Company's consolidated revenue in fiscal 2000, one customer
accounted for approximately 15% of sales for the three months ended
September 30, 2000. The Company expects that customer to account
for approximately 10% of revenues in fiscal 2001.
Revenues of the Company increased by $5.2 million, or 20.1%, to
$31,230,000 for the fiscal year ended September 30, 1999 as compared to the
fiscal year ended September 30, 1998. The increase in revenues in fiscal 1999
is primarily due to an increase in the number of shipments and the total
weight of cargo shipped. The higher number of shipments and increased weight
resulted primarily from additional volume generated through increased
penetration of existing markets and the incremental effect of the addition of
a key licensee operation in the later part of fiscal 1998. During fiscal
1999, one customer accounted for approximately 9.0% of total revenues. As
indicated above, sales to that customer ceased during the first quarter of
fiscal 2000, due to circumstances beyond the Company's control. No other
customer accounted for greater than 4% of total revenues. The Company
believes that it can replace the loss of any significant account from its
customer base but there is no guarantee of that occurring.
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. During the fiscal year ended September 30, 2000, the
cost of sales as a percentage of revenues increased by 0.4% in comparison to
the previous fiscal year, primarily reflecting the higher mix of
international sales volume as a percentage of total sales, which generally
carries a higher percentage cost of transportation than domestic sales.
International revenue accounted for 24.5% of total sales in Fiscal 2000
versus 22.1 % in Fiscal 1999. In absolute terms, the cost of sales increased
by $1,345,000, to $20,129,000 in Fiscal 2000, primarily due to the higher
volume of international sales. Total gross profit increased by $638,000, to
$13,084,000 during the fiscal year.
Gross margins were affected to a limited extent during fiscal 2000
by the increased cost of fuel. Certain carriers have begun to add
surcharges to their freight bills to cover the higher fuel costs. The
Company has itself imposed a surcharge on all transportation charges to
its customers in an effort to offset these increased fuel costs.
The cost of transportation decreased as a percentage of revenues by
2.5% in fiscal 1999 to 60.2% from 62.7% in the prior fiscal year. This
decrease was significantly attributable to the favorable impact of the
introduction of a key licensee operation during the later part of fiscal 1998
that had a generally lower cost of transportation as a percent of
revenues. In addition, a combination of improvements in the Company's
methods of providing customer freight quotes and more favorable rates
negotiated with its carriers provided improved gross margins. In absolute
terms, the cost of transportation increased in fiscal 1999 by 15.2% to
$18,783,000 as a result of the increases in the freight shipped. Gross
margins increased to 39.8% in fiscal 1999 from 37.3% in fiscal 1998.
Gross profit increased by 28.4% to $12,446,000 in fiscal 1999 from
$9,693,000 in fiscal 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include all
personnel costs, facilities costs, and licensee commissions. As a
percentage of sales, SG&A expenses increased 1.8%, to 38.1% during the fiscal
year ended September 30, 2000 in comparison the prior fiscal year,
primarily attributable to higher licensee commissions resulting from
increased gross profits of a significant licensee operation. Operating
expenses increased by $1,321,000, or 11.6%, during the fiscal year ended
September 30, 2000 versus the previous fiscal year, primarily reflecting
the combination of higher administrative personnel expenses associated
with the Company's efforts to build its corporate infrastructure and
support its future growth plans, the increase in licensee commissions,
and the full year effect of the Audiogenesis Systems division.
Licensee commissions increased by approximately $1,140,000 in Fiscal
2000 compared to Fiscal 1999. A portion of that increase, approximately
$530,000, reflects the full year incremental effect of two licensee
operations that replaced company owned locations within their local markets
during the fourth quarter of Fiscal 1999. Royalty expense, which is
related to the licensee agreements, increased by $72,000 for the same
reason. The Company realized an offsetting operating cost savings of
approximately $509,000 with the replacement of these company locations with
licensee operations, primarily due to the related reduction of personnel and
facilities costs. The increase in operating expenses also reflects certain
isolated costs incurred by the Company in connection with the reverse
acquisition of Allstates Air Cargo by Audiogenesis Systems, Inc. on
August 24, 1999. The Company incurred $140,500 as reimbursement to
one officer, three employees and three consultants for income taxes due
the IRS in connection with non-cash compensation received for their
participation in the Company's restructuring. Also, in accordance with
Employment Agreements that the Company entered into with three stockholders
on August 24, 1999, a bonus equating to 3% of the Fiscal 1999 increase in
before-tax profits over Fiscal 1998 was paid within 30 days of the
issuance of the Fiscal 1999 audited financial statements.
Operating expenses for the Fiscal 2000 included approximately
$197,000 of costs incurred by the Audiogenesis Systems division as
compared to approximately $22,000 incurred in Fiscal 1999 after the date
of the reverse merger.
In fiscal 1999, operating expenses increased slightly as a
percentage of revenues by 0.1% from fiscal 1998, to 36.3%, primarily
reflecting one time charges incurred by the Company to bolster its
marketing effort. In absolute terms, operating expenses increased by
approximately $1.9 million over the previous fiscal year. Licensee
commissions increased by approximately $1.5 million in fiscal 1999
primarily due to the addition of two licensee operations that replaced
existing company locations in those local markets. Personnel costs, which
include all compensation, employee benefits and payroll taxes, decreased in
total by approximately $0.3 million as compared to the previous year,
most significantly as a result of the cost savings realized from the
replacement of those company locations in favor of the licensee operations.
Included in this net reduction were higher administrative personnel
expenses, which increased in fiscal 1999 versus the previous year as the
Company added personnel to support its future growth plans. Selling
expenses increased by $330,000, reflecting costs incurred for marketing
presentation and consulting services that were obtained during the fiscal
year. Accounting fees were higher in fiscal 1999 as compared to the
previous year by approximately $102,000, primarily due to a write off of
$60,000 of deferred finance costs that were recorded in prior years.
General insurance expense increased by approximately $95,000,
primarily related to higher cargo insurance costs which resulted from
the increased volume of freight in fiscal 1999. The provision for bad
debt expense increased by approximately $99,000 due to the effect of an
extraordinary credit to the expense that was recorded in fiscal 1998
related to the successful collection of a significant outstanding receivable.
Operating income
Income from operations decreased during the fiscal year ended
September 30, 2000 by approximately $682,000, to $424,000 as compared to the
fiscal year ended September 30, 1999 for the reasons indicated. The
operating margin decreased by (2.2%) during the same fiscal year, primarily
due to the higher selling, general and administrative expenses as
described above.
Operating income increased by approximately $0.8 million to
$1,107,000 in fiscal 1999 as compared to fiscal 1998 for the reasons
indicated above. Operating margins increased by 2.4% to 3.5% of
revenues due to the lower cost of transportation as a percentage of
revenues as described above.
Interest income and expense
Net interest expense increased by approximately $188,000 during the
fiscal year ended September 30, 2000 as compared to the previous fiscal
year, primarily due to the note payable to the Estate of A.G. Hoffman, Jr.
that the Company assumed from Joseph M. Guido as provided in the terms of
the August 24, 1999 reverse acquisition. Interest expense on the note was
approximately $175,000 during Fiscal 2000 . Net interest expense
decreased for the fiscal year ended September 30, 1999 by approximately
$21,000 in comparison to the prior fiscal year, primarily reflecting the
full repayment of short-term bank borrowings during the year.
Net income/(loss)
Income before taxes and discontinued operations decreased by
$940,000, to $229,000 for the fiscal year ended September 30, 2000, in
comparison to the previous fiscal year. The provision for income tax
expense from continuing operations for fiscal 2000 was approximately
$142,000. Income from continuing operations decreased $394,000, to $87,000
in fiscal 2000 as compared to the prior fiscal year. The net loss in
fiscal 2000 amounted to ($62,000) versus a net profit of $480,000 in
fiscal 1999.
Income before income taxes increased to $1,170,000 in fiscal 1999 from
$252,000 in 1998. The provision for income taxes for fiscal 1999 was
$689,000 as compared to the provision for income taxes of $131,000 for
fiscal 1998. Net income amounted to $480,000 in fiscal 1999 versus
$121,000 in fiscal 1998.
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
The net amount of cash used for operating activities was
approximately $796,000 for the fiscal year ended September 30, 2000
compared to cash flow provided from operations of $1,002,000 for fiscal
year 1999. For fiscal 2000, net cash was used primarily to satisfy
income tax obligations from fiscal 1999, and to finance the net loss of
the UK branch, Allstates Allcargo (UK) Ltd. In fiscal 1999, cash was
provided primarily by the net income of the Company, and by an increase
in income taxes payable, reflecting the higher earnings during the year.
Cash flow from operations for fiscal 1999 was negatively impacted by the
loss generated by the Company's UK subsidiary, Allstates Allcargo (UK)
Ltd.
At September 30, 2000, the Company had cash and cash equivalents of
$116,000 and net working capital of $598,000, compared with cash and cash
equivalents of $407,000 and net working capital of $783,000 respectively, at
September 30, 1999. The decrease in working capital at September 30, 2000
from the respective period in 1999 is primarily attributable to the net
loss at the Company's UK operation. In addition, working capital was
negatively impacted by a $200,000 loan provided to an officer of the
Company.
The Company's investing activities were primarily comprised of
expenditures for capital equipment, primarily representing purchases of
computer hardware and software, as well as company owned automobiles
used by its sales representatives. For the fiscal year ended September
30, 2000, capital expenditures amounted to approximately $468,000, of
which $276,000 were acquired through notes payable. For the fiscal year
ended September 30, 1999, capital expenditures totaled approximately
$258,000, of which approximately $174,000 were acquired through notes
payable. Prior to the end of fiscal 2000, Allstates extended a $200,000
loan to a shareholder and officer of the Company. The loan is collectible
in September 2002, and earns interest at the prevailing rate of the
Company's line of credit. During the fiscal years ended September 30,
2000 and 1999, the Company paid approximately $71,000 and $203,000 for the
purchase of one share of Allstates Air Cargo, Inc. stock.
Domestically, the Company has a commercial line of credit with a bank,
pursuant to which the Company may borrow up to $1,350,000, 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 less .25% per annum (9.25% at September 30, 2000).
The interest rate is predicated on the Company maintaining a compensating
account balance in a non-interest bearing account equal to at least 15% 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. At September 30, 2000, $350,000 of the line of credit
was restricted as collateral for a letter of credit opened in support
of a duty deferment for the Company's UK branch. On November 30, 2000
that portion of the line of credit became unrestricted after the UK customs
service released the duty deferment guarantee and the letter of credit was
allowed to lapse. Outstanding borrowings on the line of credit totaled
$900,000 at September 30, 2000.
Historically, the Company's branch location in the United Kingdom relied
primarily on its ultimate parent company, Allstates Air Cargo, Inc., for
its financial support. The parent company provided cash advances in the
form of loans to the UK branch to support its working capital needs and
purchase computer equipment. At September 30, 2000, the UK branch had
incurred L463,000 in loans payable to the parent (the equivalent of
approximately $678,000), which will not be recovered. In April 1997,
the parent company had deposited $165,000 (the US$ equivalent of L100,000
at that time) in a restricted account in a UK bank, bearing interest at
approximately 5%, as a condition of obtaining a HM Customs and Excise bond.
The bond was a requirement to guarantee the payment of VAT and excise taxes
to UK Customs on cargo imports, which the Company collects from its
customers. In September, 1999, the UK branch entered in to an agreement
with a new bank to provide a separate overdraft facility and an HM
Customs and Excise bond, and subsequently the amount of L183,000, which
included the guarantee deposit funds plus earned interest, was transferred
from the original bank to be used for working capital. The agreement
allowed the UK branch to draw to a maximum of L100,000 (the equivalent
of approximately $146,000 @ September 30, 2000). Interest was calculated on
the cleared daily balance of the account, and was payable on the amount
owing up to the limit at 3% per annum over the bank's base rate (8.25% at
September 30, 2000). The overdraft facility and HM Customs guarantee were
collateralized by a $350,000 letter of credit opened at the Company's US
bank. In September 2000, the bank overdraft total of L89,000 (the
equivalent of approximately $130,000) was paid by the parent company and
the overdraft facility was canceled.
Update on Year 2000 Computer Issues
The Company did not experience any computer or systems problems
relating to the Year 2000. Upon review of its internal and external
systems during 1999, the Company determined that it did not have any
material exposure to such computer problems and that the software and
systems required to operate its business and provide services were Year
2000 compliant. As a result, the Company did not incur, and does not expect
to incur, any material expenditures relating to Year 2000 systems
remediation.
Forward Looking Statements
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, effects of the Year 2000
issue; 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 with Supplemental Information
For the Fiscal Years Ended September 30, 2000 and 1999
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Financial Statements with Supplemental Information
For the Fiscal Years Ended September 30, 2000 and 1999
CONTENTS Page
Independent Accountants' Report 1
Financial Statements:
Consolidated Balance Sheets 2-3
Consolidated Statement of Operations 4
Consolidated Statements of Stockholders' Equity
(Deficit) 5
Consolidated Statements of Cash Flows 6
Notes to the Consolidated Financial Statements 7-18
Supplemental Information: 19
Unaudited Pro Forma Combined Statements of Operations
For the Fiscal Year Ended September 30, 1999 20
Notes to the Unaudited Pro Forma Combined Statements of
Operations 21
<PAGE>
INDEPENDENT ACCOUNTANTS' 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, 2000 and 1999, and the
related consolidated statements of operations, stockholders'
equity (deficit), comprehensive income, and cash flows for
the fiscal years then ended. These consolidated financial
statements (see Note 1) are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on
our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as an evaluation the overall financial
statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of Allstates WorldCargo,
Inc. and Subsidiaries, as of September 30, 2000 and 1999,
and the consolidated results of their operations and cash
flows for the fiscal years then ended in conformity with
generally accepted accounting principles.
December 14, 2000
1
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of September 30,
Assets
<TABLE>
<S> <C> <C>
2000 1999
---- ----
Current Assets
Cash $ 115,736 $ 406,842
Accounts Receivable - trade, net of allowance for doubtful
accounts of $312,783 and $316,815, respectively 5,757,204 3,920,495
Inventories 30,684 39,139
Prepaid Expenses and Other Assets 285,057 100,006
Deferred Income Taxes - Current Portion 103,840 128,028
------------ -----------
Total Current Assets 6,292,521 4,594,510
------------ -----------
Property, Plant and Equipment
Buildings and Improvements 210,294 210,294
Vehicles 806,852 652,184
Equipment and Software 606,567 484,979
Furniture and Fixtures 47,541 47,541
------------ -----------
1,671,254 1,394,998
Less: Accumulated Depreciation 950,258 869,945
------------ -----------
Net Property, Plant and Equipment 720,996 525,053
------------ -----------
Other Assets
Deposits 68,217 79,823
Goodwill, net of accumulated amortization of
of $68,971 and $5,305, respectively 567,681 631,347
Acquisition Costs, net of accumulated amortization of
of $5,052 and $389, respectively 41,586 46,249
Deferred Income Taxes - 9,430
Loans Receivable - Related Parties 201,199 -
Other Assets - 183,252
------------ -----------
Total Other Assets 878,683 950,101
------------ -----------
Total Assets $ 7,892,200 $6,069,664
============ ============
</TABLE>
2
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of September 30,
Liabilities and Stockholders' Equity (Deficit)
<TABLE>
<S> <C> <C>
2000 1999
Current Liabilities ---- ----
Accounts Payable $ 3,206,463 $ 2,408,239
Accrued Expenses 1,405,221 755,177
Short-Term Bank Borrowings 900,000
Taxes Payable 20,480 526,873
Shareholder Loan Payable 5,000
Current Portion of Notes Payable 162,843 116,245
---------- ---------
Total Current Liabilities 5,695,007 3,811,534
---------- ---------
Long-Term Portion of Notes Payable 2,624,530 2,564,064
---------- ---------
Total Liabilities 8,319,537 6,375,598
---------- ---------
Stockholders' Equity (Deficit)
Common Stock, $.0001 par value, 50,000,000 shares
authorized, 32,509,872 shares issued
and outstanding 3,251 3,251
Accumulated Other Comprehensive Income:
Foreign Currency Translation Adjustments ( 3,651) (14,323)
Retained Earnings (Deficit) (426,937) (294,862)
---------- ---------
Total Stockholders' Equity (Deficit) (427,337) (305,934)
---------- ---------
Total Liabilities and Stockholders' Equity (Deficit) $ 7,892,200 $ 6,069,664
========== =========
-
</TABLE>
3
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Fiscal Years Ended September 30,
<TABLE>
<S> <C> <C>
2000 1999
---- ----
Revenues (Net of Discounts) $ 33,213,041 $ 31,229,694
Cost of Sales 20,128,628 18,783,408
------------ ------------
Gross Profit 13,084,413 12,446,286
Selling, General and Administrative Expenses (inclusive of
expenditures to related parties totaling $1,037,022 and
$1,131,675 for the fiscal years ended September 30, 2000
and 1999, respectively) 12,660,284 11,339,779
------------ ------------
Income from Operations 424,129 1,106,507
------------ ------------
Other Income (Expense)
Interest Income 10,036 30,169
Interest Expense (221,148) (53,622)
Gain (Loss) on Sale of Assets 4,965 (3,624)
Other Income 11,159 90,135
------------ ------------
Total Other Income (Expense) (194,988) 63,058
------------ ------------
Income Before Income Tax Provision 229,141 1,169,565
Provision for Income Tax Expense (142,348) (689,134)
------------ ------------
Income from Continuing Operations 86,793 480,431
Discontinued Operations:
Loss from operations of Allstates Allcargo (UK) Ltd.
to be disposed of (net of income tax benefit of
$68,779) (133,512) -
Estimated loss on disposal of Allstates Allcargo (UK)
Ltd., including provision for operating losses of
$23,856 during phase-out period (net of income
tax benefit of $8,111) (15,745) -
------------ ------------
Net Income (Loss) Applicable to Common Shareholders $ (62,464) $ 480,431
============ ============
Earnings Per Share - Basic
Income from Continuing Operations $ 0.00 $ 0.01
Loss from Discontinued Operations 0.00 0.00
Estimated Loss on Disposal of Allstates Allcargo
(UK), Ltd. 0.00 0.00
------------ ------------
Per Common Share - Basic $ 0.00 $ 0.01
============ ============
Shares Used in Per Share Calculation - Basic 32,509,872 32,509,872
============ ============
Earnings Per Share - Diluted
Income from Continuing Operations $ 0.00 $ 0.01
Loss from Discontinued Operations 0.00 0.00
Estimated Loss on Disposal of Allstates Allcargo
(UK), Ltd. 0.00 0.00
------------ ------------
Per Common Share - Diluted $ 0.00 $ 0.01
------------ ------------
Shares Used in Per Share Calculation - Diluted 32,521,201 32,522,872
============= ============
</TABLE>
4
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
For the Fiscal Years Ended September 30, 2000 and 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock
-------------
Additional Deferred Other Retained Total
Number of Paid in Financing Comprehensive Earnings Stockholders'
Shares Par Value Capital Costs Income (Loss) (Deficit) Equity (Deficit)
--------- --------- ---------- ---------- ------------- ---------- ----------------
Balance at
September 30, 1998 * 18,000,000 $1,800 $ 4,200 $ (60,000) $ (9,824) $1,210,792 $ 1,146,968
Issuance of common stock
for the acquisition of
Audiogenesis Systems,
Inc.(reverse
acquisition) inclusive
of the net income for the
subsidiary (i.e. Audio-
genesis Systems, Inc.)
through August 24, 1999
(Date of Acquisition)
included in accumulated
deficit 14,509,872 1,451 1,290,224 - - (1,256,833) 34,842
Adjustment to additional
paid in capital & retained
earnings resulting from
the elimination of
investment in subsidiary - - (1,294,424) - - ( 729,252) (2,023,676)
Deferred financing costs
expensed for the fiscal
year ended September 30,
1999 - - - 60,000 - 60,000
Other Comprehensive Income
(Currency Translation
Adjustment) for the fiscal
year ended September 30,
1999 - - - - (4,499) (4,499)
Consolidated net income for
the fiscal year ended
September 30, 1999 - - - - - 480,431 480,431
--------- ------- ----------- ---------- ------------- ---------- -------------
Balance at September
30, 1999 32,509,872 3,251 - - (14,323) (294,862) (305,934)
Adjustment to additional
paid in capital &
retained earnings
resulting from the
elimination of investment
in subsidiary - - - - - (69,611) (69,611)
Other Comprehensive Income
(Currency Translation
Adjustment) for the fiscal
year ended
September 30, 2000 - - - - 10,672 10,672
Consolidated net (loss)
for the fiscal year
ended September 30, 2000 (62,464) (62,464)
---------- ------- ----------- ---------- ------------- ---------- -------------
Balance at
September 30, 2000 32,509,872 $3,251 $ - $ - $ (3,651) $ (426,937) $(427,337)
========== ======= =========== ========== ============= =========== =============
</TABLE>
* Common stock of Allstates Air Cargo, Inc. at October 1, 1998, was 210
shares issued and outstanding with a book value of $6,000 and no par
value. As a result of the reverse acquisition, the common stock of
Allstates Air Cargo, Inc. has been restated to equal the number of
shares and the par value of Audiogenesis Systems, Inc. for the shares
acquired by the pre-acquisition 100% shareholder of Allstates Air Cargo,
Inc. as if the reverse acquisition had occurred on October 1, 1997.
5
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Fiscal Years Ended September 30,
<TABLE>
<S> <C> <C>
2000 1999
Cash Flows From Operating Activities: ---- -----
Net Income $ 86,793 $ 480,431
Adjustments to Reconcile Net Income to
Net Cash Provided from (Used in)
Operating Activities:
Depreciation 240,620 187,659
Amortization 68,329 5,694
Provision for Uncollectible Accounts Receivable 166,204 112,095
Loss from Discontinued Operations (133,512) -
Loss on Disposal of Discontinued Operations (15,745) -
(Gain) Loss on Sale of Equipment (4,965) (3,624)
Compensation Paid Through Stock Issuance 28,000
Deferred Income Taxes 33,618 62,134
(Increase) Decrease in Operating Assets:
Accounts Receivable (2,002,913) (202,954)
Inventories 8,455 (15,657)
Prepaid Expenses and Other Assets (185,051) (12,870)
Increase (Decrease) in Operating Liabilities:
Accounts Payable and Accrued Expenses 1,448,266 (165,380)
Taxes Payable (506,393) 526,873
---------- ---------
Net Cash Provided From (Used by) Operating Activities (796,294) 1,002,401
---------- ---------
Cash Flows From Investing Activities:
Purchase of Equipment (191,992) (83,554)
Proceeds from Sale of Equipment 35,973 29,688
Cash Received from Reverse Merger - 7,684
Acquisition Costs - (20,638)
Loans to Shareholders (200,000) -
Release of Customs and Excise Bond 183,252 -
Deposits 11,607 26,893
Purchase of Treasury Stock of Subsidiary (70,810) (202,597)
---------- ---------
Net Cash (Used by) Investing Activities (231,970) (242,524)
---------- ---------
Cash Flows From Financing Activities:
Repayments Under Notes Payable (168,514) (184,209)
Repayments Under Short-Term Bank Borrowings (150,000) (470,000)
Borrowing Under Short-Term Bank Borrowings 1,050,000 70,000
Repayments of Shareholder Loans Payable (5,000) -
Deferred Financing Costs - 60,000
---------- ---------
Net Cash Provided From (Used by) Financing Activities 726,486 (524,209)
---------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (301,778) 235,668
Currency Translation Adjustments 10,672 (4,499)
Cash and Cash Equivalents, Beginning of Year 406,842 175,673
---------- ---------
Cash and Cash Equivalents, End of Year $ 115,736 $ 406,842
========== =========
</TABLE>
6
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
1. Organization and Nature of Business
On August 24, 1999, Audiogenesis Systems, Inc.
(Audiogenesis), entered in a reverse acquisition with
Allstates Air Cargo, Inc. and is 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 known as
Audiogenesis Systems, Inc.) - Allstates WorldCargo,
Inc. 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 is a
wholly owned subsidiary of Allstates WorldCargo, Inc.
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 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 offices
or 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. owns 100%
of Allstates Allcargo (UK), Ltd., a corporation
organized under the laws of England. All appropriate
foreign currency translation adjustments have been made
for purposes of these financial statements.
Allstates Logistics, Inc. - Allstates Logistics 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 Allstates WorldCargo, Inc. e-tail Logistics, is in
the business of web site design.
7
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
1. Organization and Nature of Business (cont'd)
Reverse Acquisition
For purposes of these financial statements, the
purchase of Allstates Air Cargo, Inc. by Allstates
WorldCargo, Inc. (formerly known as Audiogenesis
Systems, 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.
The consolidated statement of operations for Allstates
WorldCargo, Inc. and Subsidiaries for the fiscal year
ended September 30, 1999, includes a full year of
revenues and expenses of Allstates Air Cargo, Inc. and
its subsidiaries combined with the revenues and
expenses for Allstates WorldCargo, Inc. and its
subsidiaries for the period from the date of
acquisition, August 24, 1999, through September 30,
1999.
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 Audiogenesis Systems, Inc. is
considered the subsidiary. Therefore, these financial
statements include the combined assets and liabilities
of Allstates Air Cargo, Inc. and its subsidiaries as of
September 30, 2000 and 1999. The statement of
operations includes the income and expenses of
Allstates Air Cargo, Inc. and its subsidiaries for the
full fiscal year ended September 30, 2000 and 1999 and
the income and expenses of Audiogenesis Systems, Inc.
for the full fiscal year ended September 30, 2000 and
the period from August 24, 1999 through September 30,
1999. All material intercompany payables, receivables,
revenues and expenses have been eliminated for purposes
for this consolidation.
Use of Estimates
The preparation of the financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual
results could differ from those estimates.
Concentration of Credit Risk
The Company maintains cash balances at several banks.
Accounts at each institution are insured by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000.
At varying times during the fiscal years ended
September 30, 2000 and 1999, 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.
8
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
2. Summary of Significant Accounting Policies (cont'd)
Inventory
For both financial reporting an 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 and equipment consists principally of building
and improvements, vehicles, computers and software,
office equipment, and furniture and fixtures and are
stated at historical cost. Depreciation is provided on
the straight-line method over the estimated useful
lives of the assets, which are generally three to
fifteen years. Expenditures for maintenance and
repairs, which do not extend the economic useful life
of the related assets, are charged to operations as
incurred. Gains or losses on disposal of equipment are
reflected in the statement of operations.
Income Taxes
The Company follows the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). SFAS 109 requires
recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that
have been included in the financial statements or tax
returns. Under this method, deferred tax liabilities
and assets are determined based on the difference
between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for
the year in which the differences are expected to
reverse.
Translation of Foreign Currencies
Assets and liabilities of the affiliate whose
functional currency is British pounds are translated at
year-end. Rates of exchanges for revenues and expenses
are translated using a weighted average method during
the applicable year. Resulting translation adjustments
and the related income tax effects are accumulated in
the currency translation adjustment component of
stockholders' equity (deficit). Currency translation
gains and losses are recognized in income currently.
Revenue Recognition
Revenues are recognized at the time the freight departs
the terminal of origin. This method approximates
recognizing revenues when shipment is completed.
Earnings per Share
During the fiscal year ended September 30, 1999, the
Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (SFAS No.
128"). SFAS No. 128 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.
Reclassifications
Certain 1999 amounts have been reclassified to conform
with 2000 presentation.
9
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
2. Summary of Significant Accounting Policies (cont'd)
Earnings per Share (continued)
EPS is calculated by dividing net income (loss) by the
weighted-average number of outstanding shares of Common
Stock for each year. As a result of the reverse
acquisition in which the sole shareholder of Allstates
Air Cargo, Inc. acquired a controlling interest in
Allstates WorldCargo, Inc. (formerly known as
Audiogenesis Systems, Inc.), the shares issued during
the fiscal year ended September 30, 1999 are treated as
being outstanding for each fiscal year presented.
3. 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, 2000
and 1999 was $166,204 and $112,095, respectively.
4. Property, Plant and Equipment
Property, plant and equipment costs consist of the
following as of September 30, 2000:
Accumulated Net Book Useful
Cost Depreciation Value Lives
Buildings and
Improvements $210,294 $179,444 $30,850 10-15 Years
Vehicles 806,852 339,918 466,934 5 Years
Equipment and
Software 606,567 385,377 221,190 3-5 Years
Furniture and
Fixtures 47,541 45,519 2,022 5-7 Years
---------- --------- ---------
Totals $1,671,254 $950,258 $720,996
========== ========= =========
Depreciation expense charged to income from operations for
the years ended September 30, 2000 and 1999 was
$240,620 and $187,659, respectively.
5. Customs and Excise Bond
On April 14, 1997, Allstates Air Cargo, Inc. pledged
$165,573 as a condition of obtaining a HM Customs and
Excise Bond. The purpose of the bond was to guarantee
payment of value added taxes and excise taxes that the
Company's affiliate would collect from its customers.
The cash pledged was maintained in a certificate of
deposit in a financial institution earning interest at
approximately 5%. On September 27, 1999, the Company's
affiliate entered into an agreement with a new bank to
provide a separate overdraft facility and a HM Customs
and Excise Bond to replace the guarantee provided by
the original bank. During November 1999, the
guaranteed funds on deposit at the original bank were
released and applied against the overdraft facility at
the new bank.
6. Amortization of Goodwill and Acquisition Costs
The excess of cost over the fair value of net assets
acquired (goodwill) is being amortized on the straight-
line basis over a ten-year period. Amortization
expense for the years ended September 30, 2000 and 1999
is $63,666 and $5,305, respectively.
10
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
6. Amortization of Goodwill and Acquisition Costs (cont'd)
The costs associated with the acquisition of Allstates
WorldCargo, Inc (formerly known as Audiogenesis
Systems, Inc.) by Allstates Air Cargo, Inc. are being
amortized on the straight-line basis over a ten-year
period. Amortization expense for the years ended
September 30, 2000 and 1999 is $4,663 and $389,
respectively.
7. Short-Term Bank Borrowing
Allstates Air Cargo, Inc. has a $1,350,000 line of
credit agreement with a bank, which expires December
31, 2000. Interest on outstanding borrowings currently
accrues at the Wall Street Journal's (WSJ) prime rate
of interest less 1/4% per annum (9.25% as of September
30, 2000). The interest rate is predicted upon the
Company maintaining a compensating account balance in a
non-interest bearing account equal to at least 15% of
the outstanding principal balance. If, at any time,
the Company fails to maintain the compensating balance,
the interest rate will increase by 3/4% over the WSJ's
prime rate at the time of failure. The balance
outstanding on the line of credit as of September 30,
2000 and 1999 was $900,000 and $0, respectively.
Loan collateral includes the Company's accounts
receivable and the unlimited, unconditional guarantees
of Joseph Guido, Teresa Guido and Allstates Allcargo
(US), Inc.
8. Notes Payable
The following is a summary of long-term debt as of
September 30, 2000 and 1999:
<TABLE>
<S> <C> <C>
2000 1999
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. $2,486,730 $2,511,730
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. 11,811 37,220
------------ -----------
Subtotal - To next page $2,498,541 $2,548,950
</TABLE>
11
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
8. Notes Payable (cont'd)
<TABLE>
<S> <C> <C>
2000 1999
Subtotal - From Prior Page $2,498,541 $2,548,950
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. 220,916 124,359
Notes Payable to Summit 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. 67,916 -
Note Payable to Virginia
Commonwealth University
(VCU) for $10,000, due in monthly
payments of
$1,000 of principal only. The loan
matured on April 15,
2000. The note payable
represents payment in full
for the mutual termination of the
Echolocation License
Agreement between Audiogenesis
and VCU. - 7,000
----------- ----------
Totals 2,787,373 2,680,309
Less: Current Portion of Notes
Payable 162,843 116,245
----------- ----------
Long-Term Portion of Notes
Payable $2,624,530 $2,564,064
=========== ===========
</TABLE>
Maturities
----------
For the fiscal years ended September 30, 2001 $162,843
2002 135,053
2003 77,746
2004 25,000
2005 25,000
Thereafter 2,361,731
_________
Total $2,787,373
=========
12
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
9. Income Taxes
A reconciliation of income taxes at the statutory rate
to the Company's effective rate is as follows:
2000 1999
---- ----
Expected Federal
statutory rate 34.000% 34.000%
Expected State statutory 8.893% 8.893%
rates (average) ------- -------
Total expected 42.893% 42.893%
statutory rate
Disallowed utilization of net
operating
loss incurred from
continuing operations
of Allstates Allcargo (UK),
Ltd. for State income tax 4.556% 10.717%
purposes
Deferred income tax
expense:
Federal 11.337% 4.516%
State 3.334% 0.797%
------- -------
Income Tax Expense - 62.120% 58.923%
Effective Tax Rate ======= ========
The Company's provision for income taxes as of
September 30, 2000 and 1999 consisted of the following:
2000 1999
---- ----
Current Income Tax (Benefit) Expense
Federal (33,528) 474,000
State 65,367 153,000
------- -------
Total - Current 31,839 627,000
------- -------
Deferred Income Tax (Benefit) Expense
Federal 25,979 52,814
State 7,640 9,320
------ ------
Total - Deferred 33,619 62,134
------ -------
TOTALS $ 65,458 689,134
======== =======
2000 1999
Income Tax Expense on Continuing
Operations $142,348 $689,134
Income Tax (Benefit) on Discontinued
Operations (68,779) -
Income Tax (Benefit) on Disposal of
Discontinued Operations (8,111) -
--------- --------
Total Income Tax Expense $ 65,458 $689,134
========= ========
13
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
9. Income Taxes (cont'd)
The tax effect of temporary differences that make up
the significant components of the deferred tax asset
for financial reporting purposes at September 30, 2000
and 1999 are as follows:
2000 1999
---- ----
Deferred Tax Assets
--------------------
Accounts Receivable $103,840 $128,028
Equipment - 9,430
-------- --------
Totals $103,840 $137,458
------ ======== ========
Net Operating Loss Carryforward
Allstates WorldCargo, Inc (formerly known as
Audiogenesis Systems, Inc.) generated net operating
losses prior to its acquisition off Allstates Air
Cargo, Inc. As a result of the reverse acquisition,
the ownership structure of Allstates WorldCargo, Inc.
changed as of August 24, 1999; thereby limiting and
reducing the future utilization of the Audiogenesis 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 Allstates WorldCargo, Inc. 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.
In addition, for the fiscal year 1999, the income tax
provisions in these financial statements do not utilize
the current year operating loss of the Allstates
Allcargo (UK), Ltd. Subsidiary operations.
Accordingly, the deferred tax asset as a result of this
carryforward has been offset in full by a valuation
allowance for the fiscal year 1999. 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. Therefore, the tax provisions included in
these financial statements utilize the operating loss
for the fiscal year 2000 incurred by Allstates Allcargo
(UK), Ltd. in calculating the Federal tax liability.
10. Pension Plan
Effective May 1994, the Company adopted a discretionary
non-standardized 401(k) profit sharing plan. The terms
of the plan provide for eligible employees who have met
certain age and service requirements to participate by
electing to contribute up to the lesser of 25% of an
employees' qualified compensation of which 15% is tax
deductible, or $10,500 and $10,000 for the fiscal years
ended September 30, 2000 and 1999, 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, 2000 and 1999. 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, 2000 and 1999.
14
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
11. Related Party Transactions
Allstates Air Cargo, Inc. leases real estate in two
locations from a majority stockholder of the Company.
Rent expense under these leases totaled $98,600 and
$92,500 for the fiscal years ended September 30, 2000
and 1999, respectively.
The Company has entered into royalty agreements for its
Los Angeles and Chicago 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,
2000 and 1999 totaled $214,500 and $143,253,
respectively.
On August 24, 1999, the Company entered into Employment
Agreements with three of the Company's stockholders.
The Employment Agreements are effective for the term
beginning August 24, 1999, through December 31, 2004.
The following is a summary of the terms of these
agreements:
Annual Stock
Position Salary Bonus Options
-------- -------- ------ --------
Chairman of the $308,000 3% of fiscal Yes*
Board year increase
in net profits
President/Chief $208,000 3% of fiscal Yes*
Executive year increase
Officer in net profits
Executive Vice $207,922 3% of fiscal Yes*
President/ year increase
Chief Operating in net profits
Officer
No options have been granted to date. Options are to
be granted when and if the Company adopts a stock
option plan.
Prior to August 24, 1999, the Company issued 4,500,000
shares of common stock to one officer, three employees
and three consultants for their participation in the
Company's restructuring as a result of the reverse
acquisition. The Company recorded $16,000 of non-cash
acquisition costs, $28,000 of non-cash employee
compensation expense and $128,000 of non-cash, non-
employee compensation expense related to this
transaction.
The Company has an unsecured loan to a shareholder.
The principal amounts outstanding as of September 30,
2000 and 1999 are $200,000 and $-0-, respectively. The
loan receivable is due in full on September 10, 2002
and interest payments of 9 1/4% per annum are due
annually.
The Company had an unsecured, non-interest bearing loan
from a shareholder. The principal amounts outstanding
as of September 30, 2000 and 1999 were $-0- and $5,000,
respectively. The loan payable was due upon demand and
was non-interest bearing.
The initial stock issuance of e-tail Logistics, Inc. to
its' minority investors were issued to related parties
and are recorded on the books of Allstates WorldCargo,
Inc. and Subsidiaries in loans receivable - related
parties for $1,199 and $-0- for the fiscal years ended
September 30, 2000 and 1999, respectively. The loans
are payable and due upon demand.
15
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
12. Stock Option Plan
The Company adopted a non-qualified stock option plan,
which was terminated effective December 31, 1999. The
following shares have been reserved to be issued to the
holders of certain options, which remained outstanding
after a reverse acquisition transaction, by Genesis
Safety Systems, Inc. (predecessor of Audiogenesis
Systems, Inc.) pursuant to the anti-dilution provisions
of such options. Such shares will be issued, at no
cost to the option holders, only in the event that such
option holders exercise their options in the Company's
predecessor. No options were exercised during the
fiscal years ended September 30, 2000 and 1999.
# of Options Expiration
------------ ----------
3,000 11/27/00
10,000 7/31/00
13. Subsequent Event
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".
14. Leases
The Company leases certain terminal facilities and its
corporate headquarters under operating leases that
expire over the next ten years. These operating leases
provide the Company with the option to renew its' lease
at the fair rental value at the end of the lease term.
Management expects that leases will be renewed or
replaced by other leases in the normal course of
business. In September 1998, the Company's affiliate
leased terminal facilities in the U.K. for
approximately $80,000 annually for ten years. The
affiliate currently subleases a portion of the space
for approximately $21,600 annually.
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,
2000:
Fiscal Years Ending
September 30,
--------------------
2001 $ 260,794
2002 225,215
2003 208,915
2004 164,100
2005 164,100
Thereafter 670,675
--------
Total $1,693,799
==========
Rent expense under operating leases for the fiscal
years ended September 30, 2000 and 1999 was $403,244
and $397,783, respectively.
The Company sublets office space and has recorded
$54,000 and $34,032 of rental income for the years
ended September 30, 2000 and 1999, respectively.
16
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
15. Supplemental Cash Flow Disclosures
Cash paid for: 2000 1999
-------------- ----- -----
Income Taxes $711,990 $166,735
======== ========
Interest $151,215 $ 36,281
======== ========
Noncash Investing and Financing Activities
(a) Equipment acquired through notes payable for the years
ended September 30, 2000 and 1999 totaled $275,578 and
$174,086, respectively.
(b) The Company assumed $2,511,730 of debt owed to the
Estate of Hoffman, which represents a portion of the
Company's investment in its subsidiary at September 30,
1999.
(c) The Company recorded goodwill in the amount of $636,652
as a result of the acquisition. Additionally, the Company
recorded $63,666 and $5,305 of related amortization expense
for the fiscal years ended September 30, 2000 and 1999,
respectively.
(d) Loans receivable totaling $1,199 and $-0- for the
fiscal years ended September 30, 2000 and 1999,
respectively, resulted from issuance of stock to minority
shareholders.
16. Discontinued Operations
In May 2000, the Company adopted an informal plan to
sell/dispose of Allstates Allcargo (UK), Ltd. The
Company formally discontinued its operating activities
on September 15, 2000. In the coming year, the Company
will deal with the collection of receivables and the
sale of fixed assets.
The estimated loss on the disposal of the discontinued
operations of $15,745 (net of income tax benefit of
$8,111) represents unbilled amounts due to vendors and
the estimated remaining occupancy costs of the
Company's leased space (net of its current and
prospective future subtenant). None of these estimated
costs related to the loss on the disposal of the
discontinued operations were paid as of September 30,
2000.
Operating results of Allstates Allcargo (UK), Ltd. for
the nine months ended June 30, 2000 are included in the
income from continuing operations in the accompanying
financial statements.
Net sales of Allstates Allcargo, (UK), Ltd., for the
period commencing July 1, 2000 ("the measurement date")
through September 30, 2000 were $193,354. This amount
was not included in the gross revenues in the
accompanying financial statements.
17. Litigation
In March 1999, the Company settled a lawsuit against
the United States Government (the "Government") for
delinquent accounts receivable. The Government paid
Allstates Air Cargo, Inc. $282,000 in satisfaction of
the full outstanding receivable.
17
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2000 and 1999
17. Litigation (Continued)
In April 1999, the Company reached a favorable
settlement with certain former employees arising out
their activities in leaving the Company's employ and
establishing a business to act as an exclusive sales
agent for a competing air freight forwarder. On
December 15, 1999, the Company reached a favorable
settlement agreement with the sole remaining defendant,
the competing air freight forwarder, and the action was
formally discontinued by the filing of a Stipulation of
Settlement with the Court in January, 2000.
On July 22, 1999, the Company settled a case with a
former employee involving the former employee's claims
for breach of contract, sex discrimination and sexual
harassment. The Company paid the employee $17,500 in
settlement of this case.
The Company is involved in an on-going environmental
proceeding. In December 1996, five underground storage
tanks ("UST's") and two aboveground storage tanks were
removed from a facility in which the Company 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 Environment Associates to
prepare a Preliminary Assessment/Site Investigation
Report ("PA/SI Report"). Carpenter's PA/SI Report
stated that the chlorinated groundwater contamination
is emanating from an off-site source. The New Jersey
Department of Environmental Protection approved
Carpenter's PA/SI report and agreed that no further
investigation of the site was needed.
The NJDEP approved a Remedial Investigation Workplan on
November 24, 1999. The approved work was performed by
Carpenter in December, 1999. In its' report dated
March 13, 2000, Carpenter indicated that benzene
contamination was delineated and proposed the
installation of one additional monitoring well and
natural remediation and monitoring of remaining
groundwater contamination. The NJDEP approved the
additional work and Carpenter installed and sampled the
additional well, the results of which confirmed
complete delineation of the benzene contamination.
Concentrations of benzene in MW-3, which Carpenter also
sampled, indicated an increase from the prior sampling
event. NJDEP suggested that the increase may have been
due to sediments collected with the groundwater sample
and recommended that the sampling be repeated.
Carpenter is, therefore, repeating that sampling event
to confirm groundwater concentrations. Carpenter
anticipated conducting two more rounds of groundwater
sampling to demonstrate a decreasing trend in benzene
concentration.
Previously, Carpenter had proposed that soils in excess
of NJDEP cleanup criteria be left in place under a Deed
Notice, because those soils could not be remediated due
to site constraints. The Company proposed to the NJDEP
that neither further delineation of soils, nor a Deed
Notice, should be required, because sample results are
below NJDEP's residential cleanup criteria. The NJDEP
has agreed. NJDEP confirmed that No Further Action
("NFA") as to soils at the site would be granted unless
benzene concentrations in the groundwater fail to
decrease.
The Company had made claims against their liability
carriers for coverage. Due to the uncertain nature and
extent of any additional investigatory or remedial
activities that may be required regarding the existing
site conditions, potential future costs cannot be
estimated at this time.
18
<PAGE>
SUPPLEMENTAL INFORMATION
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
BASIS OF PRESENTATION TO UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS
For the Fiscal Year Ended September 30, 1999
The Unaudited Pro Forma Combined Statements of Operations of
Allstates WorldCargo, Inc. and Subsidiaries gives effect to the
merger of Audiogenesis Systems, Inc. ("Audiogenesis") and
Allstates Air Cargo, Inc. ("Allstates") as a recapitalization of
Allstates with Allstates as the acquiror (reverse acquisition).
This event has been presented as if it had occurred at the
beginning of each year. The Unaudited Pro Forma Combined
Statements of Operations gives effect to the merger under the
purchase method of accounting in accordance with Accounting
Principles Board Opinion No. 16. In the opinion of management,
all significant adjustments necessary to reflect the effects of
the merger have been made.
The Unaudited Pro Forma Combined Statements of Operations is
presented for comparative purposes only and is not necessarily
indicative of what the actual combined financial position of
Audiogenesis and Allstates would have been, nor does it purport
to represent the future combined financial position of
Audiogenesis and Allstates. This Unaudited Pro Forma Combined
Statement of Operations should be read in conjunction with, and
is qualified in its entirety by, the financial statements and
notes thereto referenced in the 10K.
19
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Unaudited Pro Forma Combined Statement of Operations
For the Fiscal Year Ended September 30, 1999
<TABLE>
<S> <C> <C> <C> <C>
Pro Forma WorldCargo
Audiogenesis Allstates Merger Pro Forma
Historical Historical Adjustments Combined
Revenues $ 710,523 $ 31,195,581 $ (330,000)(A) $ 31,576,104
Cost of Revenues 211,212 18,765,807 18,977,019
-------------- ------------- -------------
------------
Gross profit 499,311 12,429,774 (330,000) 12,599,085
-------------- ------------- -------------
------------
Operating expenses:
Selling, general and admin 397,411 11,317,580 (271,645)(B) 11,443,346
Research and development 25,000 - - 25,000
-------------- ------------- -------------
------------
Total operating expenses 422,411 11,317,580 (271,645) 11,468,346
-------------- ------------- -------------
------------
Income from operations 76,900 1,112,194 (58,355) 1,130,739
Other income (expense):
Interest income - 30,169 - 30,169
Interest expense (5,175) (53,622) (164,471)(C)
(223,268)
Loss on sale of assets (3,624)
(3,624)
Other income (loss) 149,880 90,135 - 240,015
-------------- ------------- -------------
------------
Income before income taxes 221,605 1,175,252 (222,826) 1,174,031
Income tax provision - 692,088 (85,443)(D) 606,645
-------------- ------------- -------------
------------
Net income (loss) $ 221,605 $ 483,164 $ (137,383) $ 567,386
============== ============= =============
============
Weighted average of common
shares outstanding 18,000,000 14,509,872 (E) 32,509,872
============== ============= =============
============
Net income per common share $ 0.03 $ 0.02
=============
============
</TABLE>
20
<PAGE>
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMPARATIVE
COMBINED STATEMENT OF OPERATIONS
For the Fiscal Year Ended September 30, 1999
A. Eliminates intercompany transactions.
B. Eliminates intercompany transactions and charges eleven
months of amortization of goodwill.
C. Represents interest on the assumed note payable of
$2,560,000 for eleven months at 7%.
D. Represents the tax adjustment for the additional interest
expense.
E. Recapitalizes Allstates' shares to 18,000,000, the
equivalent number of shares received in the transaction and shows
the shares retained by ASI's shareholders as issued for the
reverse acquisition.
21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
---- --- ---------
Joseph M. Guido 66 Chairman of the Board
Sam DiGiralomo 57 President, CEO, Director
Barton C. Theile 54 Executive Vice President, COO,
Director
Craig Stratton 49 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 2000 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.
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. Mr. Stratton had served as Chief Financial Officer for Allstates
Air Cargo, Inc. from November 1997. For the three years prior to joining
Allstates, 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
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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. 2000 311,082 27,540 108,600(1)
Guido, 1999 317,821 92,500(2) 202,597(3)
Chairman 1998 294,320 111,600(4)
of the
Board
Sam 2000 208,000 27,540 214,500(6) 98,000(8)
DiGiralomo, 1999 80,200(5) 143,253(6) 120,000(7)
President, 1998 65,000(5) 26,486(6)
CEO
B. Theile, 2000 207,922 27,540 9,833(9) 16,500(8)
COO, 1999 189,411 4,920(9) 20,000(7)
Exec. VP 1998 152,328
Craig
Stratton, 2000 110,734 6,500(8)
CFO, 1999 100,826 8,000(7)
Secretary, 1998 77,221
Treasurer
</TABLE>
____________
(1) Rental income from leasing of Newark branch location and Forked
River corporate office ($98,600), and proceeds of sale of
personal automobile to the Company ($10,000)
(2) Rental income from leasing of Newark branch location and Forked
River corporate office
(3) Proceeds from sale to Audiogenesis Systems, Inc. of one share
Allstates Air Cargo, Inc. stock
(4) Rental income from leasing of Newark branch location and Forked
River corporate office ($90,300), and interest paid in 1996 loan
to company ($21,300)
(5) Employed by Audiogenesis Systems, Inc. on part time basis at
$65,000 per year
(6) Commissions paid for consulting services in connection with site
licensing agreements
(7) Excess stock compensation valued at $.04 per share
(8) Reimbursement for income taxes due the IRS in connection with
excess stock compensation
(9) Commission paid for management services to GTD Logistics, Inc.
On August 24, 1999, the Company entered into Employment Agreements
with three of the Company's stockholders. The Employment Agreements
are effective for the term beginning August 24, 1999 through December
31, 2004. The following is a summary of the terms of these
agreements:
Annual
Name/Position Salary Bonus
Joseph M. Guido,
Chairman of
The Board $308,000 3% of fiscal year
Increase in net profits
Sam DiGiralomo,
President/Chief
Executive Officer $208,000 3% of fiscal year
Increase in net profits
Barton M. Theile,
Executive Vice President/
Chief Operating Officer $207,922 3% of fiscal year
Increase in net profits
Under the terms of their respective employment agreements, Mr. Guido,
Mr. DiGiralomo and Mr. Theile have agreed to work full time. The
agreements also provide for health and life insurance benefits,
participation in the Company's 401(k) plan, disability benefits,
expense reimbursements, indemnification from civil or criminal actions
arising out of the Executive's employment, financial and tax advice,
tax "gross-up" provisions, severance pay (equal to 100% of
compensation for a period of five years), and payments in the event of
a change of control.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the beneficial ownership of the
Common Stock of the Company as of February 28, 1999 by each person
who was known by the Company to beneficially own more than 5% of the
common stock, by each director and executive officer who owns shares
of common stock and by all directors and executive officers as a
group:
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 15,
2000.
(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 following shares have been reserved to be issued to certain
non-affiliate holders of options which remained outstanding after a
reverse acquisition transaction by Genesis Safety Systems, Inc.
(predecessor of Audiogenesis Systems, Inc.) pursuant to the anti-
dilution provisions of such options. Such shares will be issued, at
no cost to the option holders, only in the event that such option
holders exercise their options in the Company's predecessor.
# Options Terminates
--------- ----------
3,000 11/27/00
On June 22, 1998 and June 29, 1998, the Company borrowed $12,000
and $1,500, respectively, from Sam DiGiralomo, President of the
Company, under promissory notes bearing interest at 8% per annum.
Such notes have been satisfied in full.
On September 18, 1998, the Company entered into an agreement with
Allstates Air Cargo, Inc. to develop customized audio-visual products.
The controlling shareholder of Allstates Air Cargo, Inc. was Joseph
Guido, Chairman of the Board of the Company. The Company believes
that the terms of such agreement were the same as would be negotiated
through arms-length bargaining with an unaffiliated purchaser. The
Company has fulfilled its obligations under such agreement.
The Company's $1,350,000 line of credit, which expires December
31, 2000, is personally guaranteed by Joseph M. Guido, Chairman of the
Board of the Company, and Teresa Guido, his wife.
The Company leases real estate in two locations from Joseph M.
Guido. Rent expense under these leases totaled $98,600 for the year
ended September 30, 2000. The Company believes that such leases are
commensurate with the terms which could be obtained from an
unaffiliated third party.
Prior to his becoming President, CEO and a director of the
Company, the Company entered into royalty agreements for its Los
Angeles and Chicago licensee locations with Sam DiGiralomo, whereby
the Company agreed to pay Mr. DiGiralomo a royalty equal to 5% of the
gross profit per the contract. During fiscal 2000, a similar royalty
agreement was made for its Minneapolis licensee location. Royalty
payments to Mr. DiGiralomo for the year ended September 30, 2000
totaled $214,500.
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 DiGiralomo. The loan, which is backed by a
promissory note, is payable after twenty four months, with quarterly
interest payments at the Company's prevailing bank loan rate.
The Company's legal counsel, Stephen M. Robinson, Esq.,
beneficially owns 1,200,000 shares of common stock.
ITEM 14. 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* Echolocation 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
21.01* List of Subsidiaries of Registrant, filed as an
exhibit to Registrant's Registration Statement on
Form 10-SB, filed October 1, 1999
27.01+ Financial Data Schedule
__________________
* 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.
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: /s/ Sam DiGiralomo
Sam DiGiralomo, President and CEO
DATED: December 28, 2000
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
Signature Title Date
By: /s/ Joseph M. Guido
Joseph M. Guido Chairman of the Board of December 28, 2000
Directors
By: /s/ Sam DiGiralomo
Sam DiGiralomo President, CEO and December 28, 2000
Director
By: /s/ Barton C. Theile Executive Vice President,
Barton C. Theile COO and Director December 28, 2000
Secretary, Treasurer, and
Chief Financial Officer
By: /s/ Craig D. Stratton (Principal Financial
Craig D. Stratton Officer and Principal December 28, 2000
Accounting Officer)
