UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ______.
Commission file number 000-24991
____________________
ALLSTATES WORLDCARGO, INC.
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(Exact name of small business issuer as specified in its charter)
New Jersey 22-3487471
-------------- -------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
4 Lakeside Drive South, Forked River, New Jersey, 08731
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(Address of principal executive offices)
7 Doig Road, Suite 3, Wayne, New Jersey 07470
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(Former address of principal executive offices)
609-693-5950
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days)
Yes XX No
---- ----
The Company had 32,509,872 shares of common stock, par value $.0001 per
share, outstanding as of January 31, 2000.
1
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ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
INDEX
PAGE
PART 1. FINANCIAL INFORMATION ----
ITEM 1. FINANCIAL STATEMENTS
Financial Statements with Supplemental Information
For the Period Ending December 31, 1999 and 1998
Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity (Deficit) 5
Consolidated Statements of Cash Flows 6
Notes to the Financial Statements 7
Supplemental Information: 8
Unaudited Pro Forma Combined Statements of Operations
For the Period Ended December 31, 1998 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS........................10
PART II. OTHER INFORMATION.............................................17
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K...........................18
SIGNATURES........................................................19
2
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ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
ASSETS
December 31 September 30
1999 1999
---- ----
(Unaudited) *
Current Assets
Cash $540,274 $406,842
Accounts Receivable 3,481,968 3,920,495
Inventory 37,268 39,139
Prepaid Expenses and
Other Current Assets 225,417 100,006
Deferred Income Taxes -
Current Portion 116,400 128,028
---------- ---------
Total Current Assets 4,401,327 4,594,510
---------- ---------
Property, Plant and Equipment 1,459,274 1,394,998
Less: Accumulated Depreciation 900,712 869,945
---------- ---------
Net Property, Plant and Equipment 558,562 525,053
Goodwill 615,430 631,347
Other Assets 156,810 318,754
---------- ---------
Total Assets $5,732,129 $6,069,664
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $2,142,405 $2,408,239
Accrued Expenses 1,023,149 755,177
Short-Term Bank Borrowings 400,000 -
Income taxes payable - 526,873
Shareholder Loan Payable - 5,000
Notes payable 103,952 116,245
--------- ---------
Total Current Liabilities 3,669,506 3,811,534
Long-Term Portion of Notes Payable 2,547,914 2,564,064
Stockholders' Equity (Deficit)
Common Stock 3,251 3,251
Foreign currency
translation adjustments (8,862) (14,323)
Retained Earnings (Deficit) (479,680) (294,862)
--------- ---------
Total Stockholders' Equity (Deficit) (485,291) (305,934)
--------- ---------
Total Liabilities and
Stockholders' Equity (Deficit) $5,732,129 $6,069,664
========== ==========
*Condensed from audited financial statements
The accompanying notes are an integral part of these consolidated
financial statements
3
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ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended December 31,
1999 1998
---- ----
Revenues (Net of Discounts) $7,659,481 $8,485,269
Cost of transportation 4,594,798 5,168,615
---------- ----------
Gross Profit 3,064,683 3,316,654
Selling, General and Administrative Expenses 3,192,887 2,753,905
---------- ----------
Income from Operations (128,204) 562,749
Other Income (Expense)
Interest, net (45,495) (15,799)
Other income 3,881 47,316
---------- ----------
Income Before Income Tax Provision (169,818) 594,266
Provision for Income Taxes 15,000 304,156
---------- ----------
Net Income ($184,818) $290,110
========== ==========
Weighted average common shares - basic 32,509,872 32,509,872
Net income per common share - basic ($0.01) $0.01
Weighted average common shares - diluted 32,522,872 32,522,872
Net income per common share - diluted ($0.01) $0.01
The accompanying notes are an integral part of these consolidated
financial statements.
4
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ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Stock Other Total
------------ Comprehensive Retained Stockholders'
Number of Income Earnings Equity
Shares Par Value (Loss) (Deficit) (Deficit)
--------- --------- ---------- ---------- ------------
Balance at September 30, 1999 32,509,872 $3,251 $(14,323) ($294,862) $(305,934)
Other Comprehensive Income
(Currency translation adjustment)
for the three months ended
December 31, 1999 5,461 5,461
Consolidated net loss for the three
months ended December 31, 1999 (184,818) ( 184,818)
---------- --------- ---------- ---------- ---------
Balance, December 31, 1999 32,509,872 $3,251 $ (8,862) $ (479,680) ($485,291)
========== ========= ========== ========== =========
</TABLE>
5
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ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended December 31,
1999 1998
---- ----
Cash flows from operating activities:
Net Income $(184,818) $290,110
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 47,326 35,472
Amortization 17,082 -
Provision for doubtful account 18,575 41,373
(Gain) Loss on sale of assets ( 332) (108)
Deferred income taxes 11,808 (20,508)
(Increase) decrease in assets:
Accounts receivable 419,952 (27,980)
Prepaid expenses and other assets (41,463) (151,378)
Security deposits (4,404) 22,024
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (2,862) (435,076)
Income tax payable (526,873) 322,389
--------- ---------
Net cash used for/provided by
operating activities (163,083) 76,408
Cash flows from investing activities:
Purchase of equipment (84,503) (44,350)
Proceed from sale of equipment (4,000) 8,971
--------- ---------
Net cash used in investing activities (80,503) (35,379)
Cash flows from financing activities:
Repayments under notes payable (28,443) (33,441)
Repayments under short-term bank borrowings - (40,000)
Borrowing under short-term bank borrowings 400,000 70,000
Deferred financing costs - 60,000
--------- ---------
Net cash provided by financing activities 371,557 56,559
--------- ---------
Net increase in cash
and cash equivalents 127,971 97,588
Currency translation adjustments 5,461 7,248
Cash and cash equivalents, beginning of year 406,842 175,673
--------- ---------
Cash and cash equivalents, end of period $540,274 $280,509
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
6
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ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. The accompanying unaudited condensed consolidated financial statements
have been prepared by Allstates WorldCargo, Inc. (the "Company") in accordance
with the rules and regulations of the Securities and Exchange Commission (the
"SEC") for interim financial statements and accordingly do not include all
information and footnotes required under generally accepted accounting
principles for complete financial statements. The financial statements have
been prepared in conformity with the accounting principles and practices
disclosed in, and should be read in conjunction with, the annual financial
statements of the Company included in the Company's fiscal year 1999 Form 10-
KSB filing dated January 12, 2000 (File No. 000-24991). In the opinion of
management, these interim financial statements contain all adjustments
necessary for a fair presentation of the Company's financial position at
December 31, 1999 and the results of operations for the three months ended
December 31, 1999 and 1998.
2. Net income per common share appearing in the statements of operations
for the three months ended December 31, 1999 and 1998 have been prepared in
accordance with Statement of Financial Accounting Standards No. 128 ("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. Such amounts have been computed based on the profit or
(loss) for the respective periods divided by the weighted average number of
common shares outstanding during the related periods. As a result of the
reverse acquisition in which the sole shareholder of Allstates Air Cargo, Inc.
acquired a controlling interest in Audiogenesis Systems, Inc., the shares
issued during the fiscal year ended September 30, 1999 are treated as being
outstanding for each fiscal quarter presented.
3. Selling, general and administrative expenses for the three months ended
December 31, 1999 include total payments of $27,095.85 made to three Company
officers and two related employees for unused accrued vacation time during
calendar year 1999. While this practice was accepted to a limited extent in
years prior to public status, it is not provided for in the Employment
Agreements of two of the Company officers. The error was discovered
subsequent to the end of the first quarter of Fiscal 2000 and the amounts,
with interest at 8.5%, have been paid back to the Company by each individual
and recorded in the second quarter of Fiscal 2000.
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SUPPLEMENTAL INFORMATION
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
BASIS OF PRESENTATION TO UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS
For the Quarter Ended December 31, 1998
The Unaudited Pro Forma Combined Statement of Operations gives effect to the
merger of Audiogenesis Systems, Inc. and Allstates Air Cargo, Inc. as a
recapitalization of Allstates with Allstates as the acquiror (reverse
acquisition). This event has been presented as if it had occurred at the
beginning of the quarter. The Unaudited Pro Forma Combined Statement of
Operations gives effect to the merger under the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16. In the opinion of
management, all significant adjustments necessary to reflect the effects of the
merger have been made.
The Unaudited Pro Forma Combined Statement of Operations is presented for
comparative purposes only and is not necessarily indicative of what the actual
combined financial position of 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 into the 10-QSB.
8
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ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For Three Months Ended December 31, 1998
Allstates
Allstates Air Audiogenesis Pro Forma WorldCargo
Cargo, Inc. Systems Inc Merger Pro Forma
Historical Historical Adjustments Combined
----------- ----------- ---------- ------------
Revenues $8,485,269 $ 108,723 $ 8,593,992
Cost of transportation 5,168,615 45,664 5,214,279
--------- ----------- ---------- ------------
Gross profit 3,316,654 63,059 3,379,713
--------- ----------- ---------- ------------
Operating expenses:
Selling, general
and administrative 2,753,905 107,521 17,082(A) 2,878,508
--------- ----------- ---------- ------------
Income from operations 562,749 (44,462) ( 17,082) 501,205
Other income (expense):
Interest, net (15,799) (1,600) ( 44,758)(B) (62,157)
Other income 47,316 51,619 98,935
--------- ----------- ---------- ------------
Income before income taxes 594,266 5,557 (61,840) 537,983
Provision for income taxes 304,156 - ( 21,036)(C) 283,120
--------- ----------- ---------- ------------
Net income $290,110 $ 5,557 $( 40,804) $ 254,863
========= =========== ========== ============
Weighted average of
common shares
- basic 18,000,000 14,522,872 32,509,872
========== =========== ========== ============
Net income per common
share - basic $ 0.02 $ 0.00 $ 0.01
========== =========== ========== ============
Weighted average of
common shares
- diluted 18,000,000 14,522,872 32,522,872
========== =========== ========== ============
Net income per common
share - diluted $ 0.02 $ 0.00 $ 0.01
========== =========== ========== ============
(A) Charges three months of amortization of goodwill
(B) Represents interest on the assumed note payable of $2,536,730 for
3 months at 7%
(C) Represents the tax adjustment for the additional interest expense
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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. 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 opened its first terminal 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
21 offices throughout the United States, including Hawaii, and employs 101
people. In addition, Allstates has a European branch office located in London,
England that does business as Allstates Allcargo (UK), Ltd.
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:
Three Months Ended December 31,
1999 1998
---- ----
Revenues 100.0% 100.0%
Cost of transportation 60.0 60.9
------ ------
Gross profit 40.0 39.1
Selling, general and administrative expenses 41.7 32.5
------ ------
Operating income (1.7) 6.6
====== ======
Net income (2.4)% 3.4%
10
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Revenues
Revenues of the Company represents gross consolidated sales less customer
discounts. Revenues decreased by $826,000 or 9.7%, to $7,659,000 for the three
months ended December 31, 1999 as compared to the three month period ended
December 31, 1998. The decrease in the comparable periods is due to a lower
number of shipments and the total weight of cargo shipped, and primarily
reflects the effect of the loss of a significant customer account during the
quarter, due to circumstances beyond the Company's control. That customer
accounted for approximately 9.4% of total revenues during the quarter ended
December 31, 1998, compared to approximately 1.0% of total revenues during the
quarter ended December 31, 1999. 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.
Sales of the quarter ended December 31, 1999 include approximately $97,000
generated by the Company's Audiogenesis Systems division that was added as a
result of the reverse acquisition of August 24, 1999. For comparative purposes,
a supplemental pro forma statement of operations is provided which gives effect
to the merger as if it took place at the beginning of the prior fiscal year
quarter ended December 31,1998.
Gross Profit
Gross profit represents the difference between net revenues and the cost of
sales. The cost of sales is composed primarily of amounts paid by the Company
to carriers and cartage agents for the transport of cargo. For the three months
ended December 31, 1999, as a percentage of revenues the cost of sales decreased
by 0.9% to 60.0% from 60.9% in the prior comparable fiscal period. This decrease
is primarily due to the incremental effect of the higher margins attained from
the Company's Audiogenesis Systems division during the quarter. Margins may be
affected in the future by increased fuel costs that are passed on to the Company
by its carriers. The Company has been notified recently by some of its carriers
of their intent to impose surcharges to cover the higher cost of fuel, and
intends to pass all or a portion of those surcharges to its customers. In
absolute terms, the cost of sales decreased by $574,000 to $4,595,000 during the
three months ended December 31, 1999 versus the comparative period in the prior
year as a result of the lower sales volume. Gross margins increased to 40.0%
during the first quarter of fiscal 2000 from 39.1% during the same period of the
previous year. Gross profit decreased by $252,000 to $3,065,000 between the two
fiscal periods.
11
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Selling, General and Administrative Expenses
SG&A expenses increased by $439,000 or 15.9% for the three months ended
December 31, 1999 as compared to the same period in 1998, primarily reflecting
isolated costs incurred by the Company in connection with the reverse
acquisition of Allstates Air Cargo, Inc by Audiogenesis Systems, Inc. on
August 24, 1999. During the first quarter of fiscal 2000, the Company recorded
$140,500 in additional expense 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 (see financial statement note #11 included in Fiscal 1999
Form 10KSB). This amount was paid to those individuals in January 2000.
Normal operating expenses incurred by the Audiogenesis Systems subsidiary
during the three months ended December 31, 1999 totaled approximately
$57,000, and are fully incremental as compared to the three months ended
December 31, 1998. 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 accrued for approximately $82,000. This amount was paid
to the three stockholders within 30 days of the issuance of the Fiscal 1999
audited financial statements, in accordance with the employment agreements.
Administrative personnel expenses were also higher during the quarter ended
December 31, 1999 versus the comparable quarter in the previous year,
reflecting the Company's efforts to build its corporate infrastructure and
support its future growth plans. Licensee commissions increased by
approximately $219,000 during the first quarter of Fiscal 2000 as compared
to the same quarter in the prior fiscal year, primarily resulting from
higher gross profits generated by a significant licensee, as well as the
incremental effect of the addition of two licensee operations during the
fourth quarter of Fiscal 1999. Those licensee operations replaced existing
company locations in their local markets. When comparing the three month
periods ended December 31, 1999 and 1998, the Company has realized
an offsetting operating cost savings of approximately $190,000 with the
replacement of these company locations with licensee operations, primarily due
to the related reduction of personnel and facilities costs.
Operating loss
Income from operations decreased by approximately $691,000 to an operating
loss of $128,000 during the three months ended December 31, 1999 as compared to
the same three month period in the previous year for the reasons indicated
above. Operating margins decreased by 8.3% to -1.7% of revenues as a
result of the higher selling general and administrative expenses as a
percentage of revenues as described above.
Interest Expense and Income
Net interest expense increased for the three months ended December 31, 1999
by approximately $30,000 compared to the same period in the previous 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 reverse
acquisition. Interest expense on the note was approximately $44,000 for the
quarter.
<PAGE>
12
Net Loss
Income before income taxes decreased to a loss of ($170,000) during the
quarter ended December 31, 1999 from a profit of $594,000 during the same period
in the prior year. The Company recorded a provision for income taxes of $15,000
for the quarter ended December 31, 1999 as compared to a provision for income
taxes of $304,000 for quarter ended December 31, 1998. The net loss amounted to
($185,000) in the first quarter of fiscal 2000 versus a net profit of $290,000
in the first quarter of fiscal 1999.
Liquidity and Capital Resources
Cash used for operating activities was approximately $163,000 for the three
months ended December 31, 1999, compared to cash flow provided from operations
of approximately $76,000 for the three months ended December 31, 1998. During
the first quarter of fiscal 2000, cash was used primarily to satisfy income tax
obligations from fiscal 1999, offset by a decrease in accounts receivable. For
the first quarter of Fiscal 1999, cash flow was primarily provided by the net
income of the Company, offset by a decrease in accounts payable.
At December 31, 1999, the Company had cash and cash equivalents of $540,000
and net working capital of $732,000, compared with cash and cash equivalents of
$281,000 and net working capital of $790,000 respectively, at December 31,
1998. The decrease in working capital at December 31, 1999 over the
respective period in 1999 is primarily attributable to the loss for the
quarter then ended.
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 three months ended December 31, 1999, cash used to
purchase capital equipment amounted to approximately $85,000. For the three
months ended December 31, 1998, capital expenditures amounted to
approximately $44,000, of which approximately $19,000 were acquired through
notes payable.
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 (8.25% at December 31, 1999). 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 December 31, 1999,
$350,000 of the line of credit was restricted as collateral for a letter of
credit opened in support of a duty deferment guarantee and overdraft facility
for the Company's UK branch. As of December 31, 1999, there were $400,000
of outstanding borrowings on the line of credit.
13
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The Company's branch location in the United Kingdom relies primarily on its
ultimate parent company, Allstates WorldCargo, Inc., for its financial support.
In the past, the parent company has provided cash advances in the form of loans
to the UK branch to support its working capital needs and purchase computer
equipment. As of December 31, 1999, the UK branch had L269,000 in loans payable
to the parent (the equivalent of approximately $435,000). In April 1997, the
parent company deposited $165,000 (the US$ equivalent of L100,000) 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 is a requirement
to guarantee the payment of VAT and excise taxes to UK Customs on cargo imports,
which the Company collects from its customers. On September 27, 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 to replace the guarantee
provided by the original bank. The agreement is effective through March 31,
2000, and allows the UK branch to draw to a maximum of L100,000 (the
equivalent of approximately $162,000 at December, 1999). Interest is
calculated on the cleared daily balance of the account, and is payable on
the amount owing up to the limit at 3% per annum over the bank's base rate
(8.5% at December 31, 1999). The overdraft facility and HM Customs
guarantee is collateralized by a $350,000 letter of credit opened at the
Company's US bank. During the first quarter of Fiscal 2000, the guarantee
funds on deposit at the original bank were released by HM Customs
and Excise and applied against the overdraft facility at the new bank. As of
December 31, 1999, the bank overdraft totaled L66,479 (the equivalent of
approximately $107,000).
Year 2000 Compliance
Allstates addressed the issue of the potential effect that the transition from
the year 1999 to 2000 might have had on its critical information systems. This
issue relates to the inability of certain software programs, as well as the
hardware they run on, to properly process date sensitive data for the year 2000
and thereafter. Computer systems that are not corrected may experience system
failure or a disruption of normal business activities. Except for a few minor
inconveniences that were quickly rectified, the Company did not experience any
significant malfunctions in its computer systems with the transition to the year
2000. The Company continues to monitor its computer systems for potential
malfunctions related to the transition, but does not anticipate that it will
incur any significant future costs in this process.
The Company took several measures to improve its overall data processing
capabilities in the last two years, while preparing for a successful transition
to the Year 2000. In 1998, the Company purchased, as part of its capital
additions budget, an NCR WorldMark 4300 Enterprise Server, which was confirmed
by the manufacturer as Year 2000 compliant. The Company's SCO UNIX operating
system was upgraded to the most up-to-date release during 1999 and was reported
by the product manufacturer to be Year 2000 ready. In September 1999, the most
recent version of the underlying database manager, filepro RDBMS 4.8 was
installed and was confirmed by its manufacturer that it would not produce errors
in processing date data in connection with the year change.
14
<PAGE>
The Company contracted with a third party computer services provider to perform
an analysis of its filepro software and underlying filepro applications to
determine where any risk of failure existed and to make corrective adjustments.
Those modifications were tested in a simulated Year 2000 environment in
September 1999 and revealed no notable issues.
Additionally, the Company's e-mail system and faxing software used in system
applications were upgraded to the most current versions, and were confirmed as
Year 2000 compliant by the respective manufacturers. Allstates relies on these
systems for the timely communication of information to its network of agents and
business partners.
Throughout 1999, the Company contacted its significant vendors and service
providers as well as its largest customers to access their state of readiness
with the Year 2000 issue. While the Company cannot verify the results of its
inquiries of third parties, it has not received any information that would
suggest any significant issues with its material vendors or customers. However,
there can be no guarantee that the systems of other companies on which the
Company's business relies will be timely converted or that failure to convert by
another company would not have a material adverse effect on the Company and its
operations.
Allstates does not consider the cost of Year 2000 compliance to be material to
its financial position, cash flow or results of operations. The cost of
software upgrades and testing for Year 2000 compliance have been less than
$40,000, and the Company does not expect any future costs to be material.
Forward Looking Statements
The statements contained in all parts of this document 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
15
<PAGE>
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.
16
<PAGE>
PART II
OTHER INFORMATION
- ------------------
ITEM 1 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 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. A Remedial Action Workplan was
submitted in November 1999. The Company is awaiting approval from the NJDEP.
The Company has made claims against their liability insurance carriers for
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 2 CHANGES IN SECURITIES
NONE
ITEM 3 DEFAULTS ON SENIOR SECURITIES
NONE
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5 OTHER INFORMATION
NONE
17
<PAGE>
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27FDS - Financial Data Schedule
(b) Reports on Form 8-K
Report on Form 8-K filed December 1, 1999, date of earliest event
November 30, 1999, with respect to the change of name from
Audiogenesis Systems, Inc. to Allstates WorldCargo, Inc.
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ALLSTATES WORLDCARGO, INC.
BY: /s/ SAM DIGIRALOMO DATED: February 14, 2000
--------------------------------- --------------------
Sam DiGiralomo, President and CEO
BY: /s/ Craig D. Stratton DATED: February 14, 2000
--------------------------------- --------------------
Craig D. Stratton, CFO, Secretary,
Treasurer and Principal Financial Officer
19
[ARTICLE] 5
[CIK] 0001072293
[NAME] ALLSTATES WORLDCARGO INC.
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] SEP-30-2000
[PERIOD-END] DEC-31-1999
[CASH] 540,274
[SECURITIES] 0
[RECEIVABLES] 3,772,869
[ALLOWANCES] 290,901
[INVENTORY] 37,268
[CURRENT-ASSETS] 4,401,327
[PP&E] 1,459,274
[DEPRECIATION] 900,712
[TOTAL-ASSETS] 5,732,129
[CURRENT-LIABILITIES] 3,669,506
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 3,251
[OTHER-SE] (488,542)
[TOTAL-LIABILITY-AND-EQUITY] 5,732,149
[SALES] 7,659,481
[TOTAL-REVENUES] 7,659,481
[CGS] 4,594,798
[TOTAL-COSTS] 3,192,887
[OTHER-EXPENSES] (3,000)
[LOSS-PROVISION] (881)
[INTEREST-EXPENSE] 45,495
[INCOME-PRETAX] (169,818)
[INCOME-TAX] 15,000
[INCOME-CONTINUING] (184,818)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (184,818)
[EPS-BASIC] (.01)
[EPS-DILUTED] (.01)
</TABLE>
