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, 2001
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, 2002.
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,
2001 2001
(Unaudited) *
Current Assets
Cash and cash
cash equivalents $471,701 $ 623,925
Accounts Receivable 3,726,052 4,164,432
Prepaid taxes 138,377 48,977
Prepaid expenses and
other current assets 790,147 774,129
Deferred income taxes 118,038 118,038
Loan receivable -
related party 200,000 200,000
---------- ---------
Total current assets 5,444,315 5,929,501
Property, plant and
equipment 1,434,482 1,452,999
Less: Accumulated
depreciation 900,167 857,592
---------- ---------
Net property, plant and
equipment 534,315 595,407
Goodwill 504,016 504,016
Other assets 61,508 65,753
---------- ---------
Total assets $6,544,154 $7,094,677
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $2,260,302 $2,562,260
Accrued expenses 776,777 1,016,270
Short-term bank
borrowings 900,000 900,000
Notes payable 125,646 131,325
Deferred tax liability 4,038 4,038
---------- ---------
Total current liabilities 4,066,763 4,613,893
Long term portion of notes
payable 2,473,808 2,496,904
Stockholders' equity
(deficit)
Common stock 3,251 3,251
Retained earnings
(deficit) 332 (19,371)
---------- ---------
Total stockholders' equity 3,583 (16,120)
Total liabilities and
stockholders' equity $6,544,154 $7,094,677
========== ==========
* 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,
2001 2000
Revenues (net of
discounts) $8,351,228 $12,221,031
Cost of transportation 5,102,242 7,187,933
---------- -----------
Gross profit 3,248,986 5,033,098
Selling, general and
administrative expenses 3,160,149 4,580,654
---------- -----------
Income from operations 88,837 452,444
Other income (expense):
Interest, net (53,539) (59,980)
Other income (1,095) 13,282
---------- -----------
Income before income tax
provision 34,203 405,746
Provision for income taxes 14,500 189,382
Net income $19,703 $216,364
========== ===========
Weighted average common
shares - basic 32,509,872 32,509,872
Net income per common
share - basic $ .00 $ .01
Weighted average common
shares - diluted 32,509,872 32,511,731
Net income per common
share - diluted $ .00 $ .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)
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DEFICIT)
(Unaudited)
<c> <c> <c> <c> <c>
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 $(19,371) $(16,120)
September 30, 2001
Consolidated net
income for the
three months ended
December 31, 2001 19,703 19,703
___________ ______ _________ _________ _________
Balance at December
31, 2001 32,509,872 3,251 $ 0 $ 332 $ 3,583
=========== ====== ========= ========= =========
5
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31,
2001 2000
Cash flows from operating
activities:
Net income $19,703 $216,364
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 56,134 57,478
Amortization 1,166 17,083
Provision for doubtful
accounts 32,620 40,347
(Gain)/loss on sale of assets 2,511 (2,300)
(Increase) decrease in assets:
Accounts receivable 405,760 (112,678)
Prepaid expenses and other
assets (105,418) (211,892)
Increase (decrease) in
liabilities:
Accounts payable and
accrued expenses (541,452) (7,994)
Income tax payable 0 21,208
--------- ---------
Net cash used for/provided by
operating activities (128,976) 17,616
Cash flows from investing
activities:
Purchase of equipment (853) (9,190)
Proceeds from sale of property
and equipment 3,300 2,300
Security deposits 3,080 (4,102)
--------- ---------
Net cash provided by/used for
investing activities 5,527 (10,992)
Cash flows from financing
activities:
Repayments under notes payable (28,775) (37,565)
Repayments under short-term
bank borrowings 0 0
Borrowing under short-term bank
borrowings 0 0
--------- ---------
Net cash used for financing
activities (28,775) (37,565)
Net (decrease) in cash
and cash equivalents (152,224) (30,941)
Currency translation adjustments (6,849)
Cash and cash equivalents,
beginning of year 623,925 115,736
--------- ---------
Cash and cash equivalents, end of
period 471,701 77,946
========= =========
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, 2001
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 2001 Form 10-K
filing dated December 28, 2001 (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, 2001 and
September 30, 2001 and the results of operations for the
three months ended December 31, 2001 and 2000, respectively.
2. Net income per common share appearing in the statements
of operations for the three months ended December 31, 2001
and 2000, 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.
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 and the distribution and
sales of safety equipment. 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 1,500 customers utilizing ground
transportation, commercial air carriers, and ocean vessels.
Allstates operates 19 offices throughout the United States,
and employs 79 people.
Allstates has agreements with domestic and
international strategic partners and a network of agents
throughout the world. Allstates plans to increase its
global market share by forming additional strategic
alliances and effecting selective acquisitions.
In September, 2000, Allstates entered in to an
agreement with an unrelated freight and warehousing company
to provide them services which primarily include customer
invoicing and transportation vendor disbursements on
business that they provide to the Company. Per the
agreement, Allstates paid a commission to this company based
on the invoiced amount, less deductions for transportation
cost and a fee for providing the service. In May, 2001, the
assets of that company were purchased by another company
unrelated to Allstates WorldCargo, Inc., and consequently
the service agreement was terminated.
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,
2001 2000
---- ----
Revenues 100.0% 100.0%
Cost of transportation 61.1 58.8
---- ----
Gross profit 38.9 41.2
Selling, general and
administrative expenses 37.8 37.5
---- ----
Operating income 1.1 3.7
==== ====
Net income 0.2% 1.8%
Revenues
Revenues of the Company represents gross consolidated
sales less customer discounts. For the quarter ended
December 31, 2001, revenues decreased by $3,870,000, or
31.7%, to $8,351,000, from the quarter ended December 31,
2000, reflecting a reduced volume of shipments and total
weight of cargo shipped.
Comparative sales from the quarter ended December 31,
2000 included domestic and international revenues that were
generated from one customer that accounted for 21.9% of
total sales during that period. Effective October 1, 2001,
that customer, in an effort to minimize their operating
8
costs, began utilizing a larger alternate freight forwarder
to service its international import freight requirements.
Import sales to that customer amounted to approximately $1.1
million during the three month period ended December 31,
2000. Allstates continues to provide domestic freight
forwarding services to this customer. Notwithstanding the
loss of the international business from this customer, the
remaining domestic sales that Allstates generates from this
customer continues to be significant, accounting for 11.5%
of total revenues of the Company during the quarter ended
December 31, 2001. 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
this business will continue indefinitely.
Domestic revenues decreased by approximately $2.8
million or 31.3%, to $6,225,000 during the three-month
comparative period ended December 31, 2001. Comparative
sales for the three month period ended December 31, 2000
included approximately $1.1 million in new business that was
derived from the Company's service agreement with an
unrelated freight and warehouse services company. That
agreement was terminated in May 2001 pursuant to the sale of
the assets of that company to another unrelated company.
International sales decreased during the three months ended
December 31, 2001 by approximately $1.0 million or 32.6%, to
$2,127,000, reflecting the loss of import business from the
significant customer as previously mentioned. Sales to
international customers accounted for 25.5% of total sales
during the three months ended December 31, 2001 as compared
to 25.8% of total sales during the three months ended
December 31, 2001.
In addition to the specific reasons that have been
mentioned for the comparative decrease in revenues between
the three months periods ended December 31, 2001 and 2000,
respectively, the Company's sales volume during the quarter
was adverseley affected by the catastrophic events that took
place on September 11, 2001.
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 increased by 2.3%
for the three months ended December 31, 2001, in comparison
to the same period in the previous year. The comparatively
lower percentage cost of sales for the three months ended
December 31, 2000 is primarily due to the effect of the
business that was derived from the Company's aforementioned
service agreement with an unrelated freight and warehouse
services company, for which their was no related cost of
sales on the warehousing portion of that billing. As
previously indicated, that agreement was terminated in May
2001. In absolute terms, the cost of sales decreased by
approximately $2.1 million or 29.0%, to $5,102,000 during
the three months ended December 31, 2001 versus the
comparative period in the prior year, reflecting the reduced
sales volume. Gross margins decreased to 38.9% during the
quarter ended December 31, 2001 from 41.2% in the same
quarter of the previous fiscal year. Gross profit decreased
by approximately $1,784,000 to $3,249,000 for the three
months ended December 31, 2001 versus the same three months
of the prior year.
Selling, General and Administrative Expenses
SG&A expenses increased as a percentage of sales by
0.3% for the three months ended December 31, 2001 compared
to the three months ended December 31, 2000, to 37.8%. This
slight increase in the SG&A percentage reflects the
combination of lower sales volume in relation to fixed
operating costs during the current fiscal quarter as
compared to the prior years respective quarter, offset by
lower commissions expense as a percent of revenues during
the period. In absolute terms, operating expenses decreased
by $1,421,000 or 31.0% during the three-month period ended
December 31, 2001 as compared to the same period in the
prior fiscal year. The decrease in SG&A expenses primarily
reflects the lower volume of revenues and gross profit
during the quarter, represented by lower commissions
expense, as well as the effect of certain cost saving
initiatives executed by the Company.
Commissions paid to licensees decreased by
approximately $361,000 for the three-month period ended
December 31, 2001 in comparison to the same period in the
previous year, reflecting the reduced level of gross profits
at certain licensee operations. During the comparative
three month period ended December 31, 2000 the Company paid
approximately $753,000 in commissions to an unrelated
freight and warehousing services company pursuant to an
agreement made between them and Allstates. That agreement
was subsequently terminated in May 2001. Further, during
9
the fourth quarter of fiscal 2001, Allstates took steps to
lower operating expenses by reducing headcount at two
locations and consolidating the operations of one of its
offices with another station. The Company realized cost
savings of approximately $130,000 during the quarter ended
December 31, 2001 as a result of these initiatives.
SG&A expenses presented for the three months ended
December 31, 2001 and 2000 are inclusive of expenditures to
related parties totaling $113,607 and $192,646,
respectively.
Income/(Loss) From Operations
Income from operations decreased during the three
months ended December 31, 2001 by approximately $364,000, to
$89,000, as compared to the same three month period in the
previous year for the reasons indicated above. In
comparison to the respective period in fiscal 2001, the
operating margin for the three month period ended December
31, 2001 decreased by 2.6%, to 1.1% of sales.
Interest Expense and Income
Net interest expense decreased for the three months
ended December 31, 2001 by approximately $6,000 as compared
to the same period in the previous year, reflecting the
effect of comparatively lower interest rates on the
Company's bank line of credit.
Net Income/(Loss)
Income before income taxes decreased to $34,000 during
the quarter ended December 31, 2001 from $406,000 during the
same period in the prior year. The Company recorded a
provision for taxes of $14,500 for the quarter ended
December 31, 2001 as compared to a tax provision of $189,000
for quarter ended December 31, 2000. The net profit
amounted to approximately $20,000 or 0.2% of revenues during
the first quarter of Fiscal 2002 versus a net profit of
$216,000 or 1.8% of revenues in the first quarter of Fiscal
2001.
Liquidity and Capital Resources
Net cash used for operating activities was
approximately $129,000 for the three months ended December
31, 2001, compared to cash flow provided by operations of
approximately $18,000 for the three months ended December
31, 2000. During the three months ended December 31, 2001,
cash was primarily used to satisfy trade accounts payable
and income tax obligations, offset by a decrease in accounts
receivable as well as the net income of the Company. For
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.
At December 31, 2001, the Company had cash and cash
equivalents of $472,000 and net working capital of
$1,378,000, compared with cash and cash equivalents of
$78,000 and net working capital of $830,000 respectively, at
December 31, 2000. The increase in working capital at
December 31, 2001 over December 31, 2000 is primarily
attributable to the net income of the Company during the
prior twelve month period. In addition, the sale of company
owned property during the second quarter of Fiscal 2001 had
a positive effect on working capital.
The Company's investing activities were comprised of
expenditures for capital equipment, primarily representing
purchases of computer hardware and software. For the three
months ended December 31, 2001, capital expenditures
amounted to approximately $1,000. 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.
The Company has a commercial line of credit with a
bank, pursuant to which the Company may borrow up to
$2,000,000, based on a maximum of 70% of eligible accounts
receivable. Per the agreement, interest on outstanding
borrowings accrues at the Wall Street Journal's prime rate
of interest (4.75% at December 31, 2001). The interest rate
10
is predicated on the Company maintaining a compensating
account balance in a non-interest bearing account equal to
at least 10% of the outstanding principal balance. If such
average compensating balances are not maintained, the
interest rate will increase by 1% over the rate currently
accruing. As of December 31, 2001, 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,
Q Logistics Solutions, Inc. ("QLS"), as part of an agreement
that the Company entered into to provide customer invoicing
and vendor disbursement services. The loan was secured by a
$750,000 promissory note signed by the borrower, and for
which a Form UCC-1 financing statement was filed. In
February 2001, QLS filed for Chapter 11 protection under the
U.S. bankruptcy laws. Pursuant to the bankruptcy
proceedings, another company, unrelated to Allstates
WorldCargo, Inc., purchased the assets of QLS in May 2001.
Allstates had outstanding loan advances of approximately
$702,000 to QLS prior to the purchase. As a contingency of
that purchase, Allstates entered in to an agreement with the
other company whereby Allstates assigned the Form UCC-1
filing to them in exchange for their promissory note,
secured by a personal guarantee made by an officer of that
company, to pay the full loan amount of approximately
$702,000, plus 9% interest over six months, beginning in
April 2001. The other company subsequently defaulted on the
loan and as of the date of this filing has not made any
payments to Allstates. Allstates has filed suit against the
other company for breach of contract, and will continue to
pursue the matter. No assurance can be made at this time
with respect to the recoverability of any or all funds due
to Allstates.
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, 2001, and
such information is incorporated herein by reference.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
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 14, 2002
--------------------------------- -----------------
Sam DiGiralomo, President and CEO
BY: /s/ Craig D. Stratton DATED: February 14, 2002
--------------------------------- -----------------
Craig D. Stratton, CFO, Secretary,
Treasurer and Principal Financial Officer
14