UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
XX QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000
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
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(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)
609-693-5950
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 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 February 12, 2001.
1
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, 2000 and 1999
Financial Statements:
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statement of Operations 4
Condensed Consolidated Statements of
Stockholders' Equity (Deficit) 5
Condensed Consolidated Statement of Cash Flows 6
Notes to the Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS........................8
PART II. OTHER INFORMATION.............................................12
ITEM 1 LEGAL PROCEEDINGS..........................................12
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS..................12
ITEM 3 DEFAULTS ON SENIOR SECURITIES..............................12
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........12
ITEM 5 OTHER INFORMATION..........................................12
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K...........................13
SIGNATURES........................................................14
2
PART 1 - FINANCIAL INFORMATION
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
December 31, September
30,
2000 2000
(Unaudited) *
Current Assets
Cash and cash
equivalents $77,946 $115,736
Accounts receivable 5,829,535 5,757,204
Inventory 28,402 30,684
Prepaid expenses and
other current assets 499,231 285,057
Deferred income taxes 103,840 103,840
--------- ---------
Total current assets 6,538,954 6,292,521
Property, plant and
equipment 1,627,395 1,671,254
Less: Accumulated
depreciation 934,913 950,258
--------- ---------
Net property, plant and
equipment 692,482 720,996
Goodwill 551,765 567,681
Other assets 313,937 311,002
--------- ---------
Total assets $8,097,138 $7,892,200
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $3,343,909 $3,206,463
Accrued expenses 1,259,781 1,405,221
Short-term bank
borrowings 900,000 900,000
Income taxes payable 41,688 20,480
Notes payable 163,406 162,843
--------- ---------
Total current liabilities 5,708,784 5,695,007
Long term portion of notes
payable 2,606,176 2,624,530
Stockholders' equity
(deficit)
Common stock 3,251 3,251
Foreign currency
translation adjustment (10,500) (3,651)
Retained earnings
(deficit) (210,573) (426,937)
--------- ---------
Total stockholders' equity (217,822) (427,337)
Total liabilities and
stockholders' equity $8,097,138 $7,892,200
* Condensed from audited financial statements.
The accompanying notes are an integral part of these
consolidated financial statements.
3
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended December
31,
2000 1999
Revenues (net of
discounts) $12,221,031 $7,659,481
Cost of transportation 7,187,933 4,594,798
----------- ----------
Gross profit 5,033,098 3,064,683
Selling, general and
administrative expenses 4,580,654 3,192,887
----------- ----------
Income from operations 452,444 (128,204)
Other income (expense):
Interest, net (59,980) (45,495)
Other income 13,282 3,881
----------- ----------
Income before income tax
provision 405,746 (169,818)
Provision for income taxes 189,382 15,000
Net income $216,364 ($184,818)
=========== ==========
Weighted average common
shares - basic 32,509,872 32,509,872
Net income per common
share - basic $ .01 $ (.01)
Weighted average common
shares - diluted 32,511,731 32,522,872
Net income per common
share - diluted $ .01 $ (.01)
The accompanying notes are an integral part of these
consolidated financial statements.
4
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DEFICIT)
(Unaudited)
Common Stock
Other Retained Total
Number Comprehen Earnings Stockholders'
of Par sive (Deficit) Equity
Shares Value Income (Deficit)
(Loss)
Balance at 32,509,872 3,251 (3,651) (426,937) (427,337)
September 30, 2000
Other Comprehensive
Income (Currency
translation
adjustment) for the
three months ended
December 31, 2000 (6,849) (6,849)
Consolidated net
income for the
three months ended
December 31, 2000 216,364 216,364
___________ ______ _________ _________ _________
Balance at December
31, 2000 32,509,872 3,251 (10,500) (210,573) (217,822)
=========== ====== ========= ========= =========
5
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31,
2000 1999
Cash flows from operating
activities:
Net income $ 216,364 $ (184,818)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 57,478 47,326
Amortization 17,083 17,082
Provision for doubtful
accounts 40,347 18,575
(Gain)/loss on sale of assets (2,300) (332)
Deferred income taxes 11,808
(Increase) decrease in assets:
Accounts receivable (112,678) 419,952
Prepaid expenses and other
assets (211,892) 41,463
Increase (decrease) in
liabilities:
Accounts payable and
accrued expenses (7,994) (2,862)
Income tax payable 21,208 (526,873)
-------- --------
Net cash provided by/used for
operating activities 17,616 (158,679)
Cash flows from investing
activities:
Purchase of equipment (9,190) (84,503)
Proceeds from sale of equipment 2,300 4,000
Security deposits (4,102) (4,404)
-------- --------
Net cash used for investing
activities (10,992) (84,907)
Cash flows from financing
activities:
Repayments under notes payable (37,565) (28,443)
Borrowing under short-term bank
borrowings 400,000
-------- --------
Net cash used for/provided by
financing activities (37,565) 371,557
Net (decrease)/increase in cash
and cash equivalents (30,941) 127,971
Currency translation adjustments (6,849) 5,461
Cash and cash equivalents,
beginning of year 115,736 406,842
-------- --------
Cash and cash equivalents, end of
period $ 77,946 $540,274
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
6
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
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 2000 Form 10-K
filing dated December 28, 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, 2000 and
September 30, 2000 and the results of operations for the three
months ended December 31, 2000 and 1999, respectively.
2. Net income per common share appearing in the statements
of operations for the three months ended December 31, 2000
and 1999, respectively 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.
3. On September 15, 2000, the Company discontinued freight
operations at its UK branch location, Allstates Allcargo
(UK) Ltd. During the quarter ended December 31, 2000, the
Company continued to collect accounts receivable and sold
the remaining fixed assets. Comparisons of profit and loss
activity between the three month periods ended December 31,
2000 and December 31, 1999, respectively, are impacted.
7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
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 21offices throughout the United States,
including Hawaii, and employs 96 people.
Allstates has agreements with domestic and
international strategic partners and a network of agents
throughout the world. In September, 2000, the Company
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 had decided to discontinue
freight operations at its branch office prior to the end of
its September 30, 2000 fiscal year end.
In September, 2000, Allstates entered in to an
agreement with an unrelated freight and warehousing company
to provide services to them which primarily include customer
invoicing and transportation vendor disbursements on
business that they provide to the Company. Allstates
pays a commission to this company based on the invoiced amount
less deductions for the estimated transportation cost and a
fee for providing the service.
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,
2000 1999
---- ----
Revenues 100.0% 100.0%
Cost of transportation 58.8 60.0
---- ----
Gross profit 41.2 40.0
Selling, general and
administrative expenses 37.5 41.7
---- ----
Operating income 3.7 (1.7)
==== ====
Net income 1.8% (2.4)%
Revenues
Revenues of the Company represents gross consolidated
sales less customer discounts. For the quarter ended
December 31, 2000, revenues increased by $4,562,000, or
59.6%, to $12,221,000, over the quarter ended December 31,
1999, reflecting an increase in the number of shipments and
the total weight of cargo shipped. A significant portion
of this increase is attributable to domestic and
international sales generated from one customer that
accounted for 21.9% of consolidated revenues for the three
months ended December 31,2000. Although Allstates is
confident in its ability to continue providing freight
services to this customer, there is no contractual agreement
in place, and therefore the Company can not guarantee that
8
this business will continue indefinitely. On a pro forma
basis, after discounting revenues earned from this
significant customer during the three months ended December
31, 2000, sales increased by 24.7% over the comparative
period in the prior fiscal year.
Domestic revenues increased by approximately $3.0
million or 48.3%, to $9,066,000 during the three-month
comparative period. In addition to revenues earned from the
significant customer, the growth in domestic sales is
primarily attributable to the new business derived from the
Company's service agreement with an unrelated freight and
warehouse services company as previously described.
International sales increased by approximately $1.6 million
or 104.3%, to $3,155,000, despite the closing of the
Company's UK branch in September, 2000. Net sales generated
from the UK branch totaled approximately $177,000 during the
three months ended December 31, 1999. Sales to
international customers accounted for 25.8% of total sales
during the three months ended December 31, 2000 as compared
to 20.2% of total sales during the three months ended
December 31, 1999.
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.
Cost of sales as a percentage of revenues decreased by 1.2%
for the three months ended December 31, 2000, in comparison
to the same period in the previous year. This net decrease
is attributable to the new business derived from the Company's
aforementioned service agreement with an unrelated freight
and warehouse services company, as billing for the warehouse
services portion of this business does not carry a related
cost of sales.
In absolute terms, the cost of sales increased by
approximately $2.6 million or 56.4%, to $7,188,000 during
the three months ended December 31, 2000 versus the
comparative period in the prior year, reflecting the
increased sales volume. Gross margins increased for the
three months ended December 31, 2000 to 41.2% from 40.0%
during the same period of the previous year. Gross profit
increased by $1,968,000 to $5,033,000 for the three months
ended December 31, 2000 in comparison to the prior year
periods.
Selling, General and Administrative Expenses
SG&A expenses decreased as a percentage of sales by
4.2% for the three months ended December 31, 2000 compared
to the three months ended December 31, 1999, to 37.5%. The
decrease in the percentage of operating expenses to sales
reflects the savings realized from the discontinuation of
freight operations at the Company's UK branch in September,
2000, as well as the effect of certain isolated expenses that were
recorded in the first quarter of fiscal 2000 related to the
Company's restructuring. Operating expenses increased by
$1,388,000 or 43.5% during the three-month period ended
December 31, 2000 as compared to the same period in the
prior fiscal year. The increase in SG&A expenses reflects the
growth in revenues and gross profits, represented primarily by
higher commissions expense.
Licensee commissions increased by approximately
$715,000 for the three-month period, as compared to the same
period in the prior fiscal year, driven by a higher level of
gross profits at certain licensee operations, much of that
derived from revenues generated from the significant
customer that was mentioned previously. The Company also paid
approximately $753,000 in commissions to an unrelated freight
and warehousing services company pursuant to an agreement made
between them and Allstates.
SG&A expenses presented for the three months ended December
31, 2000 and 1999 are inclusive of expenditures to related parties
totaling $192,646 and $274,800, respectively.
Income/(Loss) From Operations
Income from operations increased during the quarter
ended December 31, 2000 by approximately $581,000, to
$452,000, as compared to the same three month period in the
previous year for the reasons indicated above. Operating
margins for the three month period ended December 31, 2000
increased by 5.4%, to 3.7%, in comparison to the same period
in the prior year.
9
Interest Expense
Net interest expense increased for the three months
ended December 31, 2000 by approximately $14,000, compared
to the same periods in the previous year, reflecting the
increased level of borrowing on the Company's bank line of
credit.
Net Income/(Loss)
Income before income taxes increased to $406,000 during
the quarter ended December 31, 2000 from a loss of $170,000
during the same period in the prior year. The Company
recorded a tax provision of $189,000 for the quarter ended
December 31, 2000 as compared to a tax provision of $15,000
for quarter ended December 31, 1999. Net income amounted to
$216,000 or 1.8% of revenues in the first quarter of Fiscal
2001 versus a net loss of $185,000 or (2.4)% of revenues in
the first quarter of Fiscal 2000.
Liquidity and Capital Resources
Cash provided by operating activities was approximately
$18,000 for the three months ended December 31, 2000,
compared to cash flow used for operations of approximately
$159,000 for the three months ended December 31, 1999.
During the three months ended December 31, 2000, cash was
primarily provided by the net income of the Company, offset
by a short term loan that was extended to an unrelated freight and
warehouse services company. For the three months ended
December 31, 1999, cash was used primarily to satisfy income
tax obligations from fiscal 1999, offset by a decrease in
accounts receivable. Operating cash flows for the three
months ended December 31, 1999 was negatively impacted by
losses generated by the Company's UK subsidiary, Allstates
Allcargo, (UK) Ltd.
At December 31, 2000, the Company had cash and cash
equivalents of $78,000 and net working capital of $830,000,
compared with cash and cash equivalents of $540,000 and net
working capital of $732,000 respectively, at December 31,
1999. The increase in working capital at December 31, 2000
over the respective period in 1999 is primarily attributable
to the net income of the Company during the prior twelve
month period, augmented by the discontinuation of freight
operations at the Company's UK branch.
The Company's investing activities were 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, 2000, capital
expenditures amounted to approximately $29,000, of which
approximately $20,000 was acquired through notes payable.
For the three months ended December 31, 1999, capital
expenditures amounted to approximately $85,000.
The Company has a commercial line of
credit with a bank, pursuant to which the Company may borrow
up to $2,000,000, based on a maximum of 70% of eligible
accounts receivable. Per the agreement, interest on
outstanding borrowings accrues at the Wall Street Journal's
prime rate of interest less .25% per annum (9.25% at
December 31, 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. As of December 31,
2000, there was $900,000 of outstanding borrowings on the
line of credit.
In September, 2000, Allstates extended an operating
loan to an unrelated freight and warehouse services company
as part of an agreement that the Company entered into to
provide customer invoicing and vendor disbursement services.
The loan is backed by a $750,000 secured promissory note
signed by the borrower, and for which a Form UCC-1 financing
statement was filed. At December 31, 2000, Allstates had
advanced approximately $404,000 to this company.
10
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 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.
11
PART II
OTHER INFORMATION
- ------------------
ITEM 1 LEGAL PROCEEDINGS
There have been no material developments concerning the
Company's involvement in an ongoing environmental proceeding as set forth
in the Company's Form 10-K dated September 30, 2000, and
such information is incorporated herein by reference.
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
12
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
13
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ALLSTATES WORLDCARGO, INC.
BY: /s/ SAM DIGIRALOMO DATED: February 13, 2001
--------------------------------- -----------------
Sam DiGiralomo, President and CEO
BY: /s/ Craig D. Stratton DATED: February 13, 2001
--------------------------------- -----------------
Craig D. Stratton, CFO, Secretary,
Treasurer and Principal Financial Officer
14