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. ------------------------------------------------------------------- (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 ---------------------------------------------------------- (Address of principal executive offices) 609-693-5950 -------------------------------------------------- (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