U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K/A
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 0R 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT FOR THE TRANSITION PERIOD FROM ________ TO ________
ALLSTATES WORLDCARGO, INC.
(Exact Name of Registrant as Specified In Its Charter)
New Jersey 22-3487471
(State or Other Jurisdiction of (I.R.S. Identification
Incorporation or Organization) Number)
4 Lakeside Drive South, Forked River, New Jersey 08731
(Address of Principal Executive Offices) (Zip Code)
(609) 693-5950
(Issuer's Telephone Number)
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock $.0001 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in part III
of this Form 10-K or any amendment to this Form 10-K [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rile 12b-2 of the Act. Yes [ ] No [x]
The number of shares of Common Stock outstanding as of December 29, 2005
was 32,509,872 shares.
At December 29, 2005, the voting stock of the registrant had not been
publicly quoted.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General Overview
Allstates WorldCargo, Inc. (the "Company" or "Allstates") is a
New Jersey Corporation formed in 1997 as Audiogenesis Systems, Inc.
("Audiogenesis"), pursuant to a corporate reorganization of Genesis
Safety Systems, Inc. ("Genesis"). On August 24, 1999, Audiogenesis
acquired 100 percent of the common stock of Allstates Air Cargo, Inc.
in a reverse acquisition, and on November 30, 1999, changed its name
to Allstates WorldCargo, Inc. Allstates is principally engaged in the
business of providing global freight forwarding and other
transportation and logistics services for its customers. 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 1,700 customers
utilizing ground transportation, commercial air carriers, and ocean
vessels. Allstates supplements its freight forwarding services to
include truck brokerage, warehousing and distribution, and other
logistics services. Allstates operates 22 offices throughout the
United States, including the corporate headquarters, and employs 97
people.
Allstates has agreements with domestic and international
strategic partners and a network of agents throughout the world, and
continues to pursue opportunities to forge additional strategic
alliances in order to increase its global market share. Allstates
currently has strategic alliance agreements with agents in the United
Kingdom, European, South American and Far East markets.
Allstates neither owns nor operates any aircraft or ships. By
not owning or operating its own equipment, Allstates believes it is
able to provide more flexible delivery schedules and shipment size.
In addition, by eliminating the substantial fixed expenses associated
with the ownership of such equipment, Allstates has been able to
effect certain cost savings.
Marketing and Licensing
Allstates markets its services through a network of 21 domestic
branch offices, its strategic alliances, and selected agents
throughout the world. Allstates is a party to several site licensing
agreements in which those licensees have contracted with the Company
to provide exclusive freight forwarding services, including sales and
operating functions, under the Allstates name. Of the 21 branch
locations, 14 are licensees operations, while 7 are company owned and
staffed operations.
Allstates utilizes a combination of professionally prepared
advertising materials, highly trained sales and operations/customer
services professionals, direct mail, assorted promotional items, and
audio/visual presentations. Allstates employs 16 full time sales and
marketing personnel operating from the 7 company-owned offices.
Information Systems
A primary component of Allstates's business strategy is the continued
development of its information systems. Allstates has invested
substantial management and financial resources in an effort to provide
leading edge technology to customers and employees. Allstates
continues to upgrade its information systems. Highlights of the
current system are:
. Centralized system located in Forked River, New Jersey, with
terminals in each office
. Real-time customer service, operations, and accounting
information available to employees and customers
. Customers can track shipments and collect POD information via the
Company's firewall-protected website
. Tracks shipments from pickup order to delivery, confirms "on-
board" and "out for delivery" status
. Produces the following daily, monthly, and yearly reports:
- Operations (inbound, outbound and on-hand reports)
- Sales (revenue, customer client list)
- Customer (POD and shipping history reports)
- Accounting (P&L reports)
. Auto rates revenues and costs
. Supports transactions via EDI (Electronic Data Interchange)
. Customized reports to meet customer needs
. Bar-code capable
. Qualified customers can create airway bills via the Company
website, which are then uploaded into the operating system for
processing
. Produces shipping labels and computerized airbills and airline
bills
During the first half of 2006, Allstates will complete testing and
begin the rollout of a new freight tracking system that provides all
the features of the current system and adds new features such as:
. Microsoft Windows(R)-based freight tracking system with the
infrastructure and functionality to process the most complex processes
and well as manage significant increases in shipment count
. Automatic service performance tracking and reporting
. Advanced features for multi-station management, operations, and
accounting
. Automated event-driven tracking with detailed information about
shipments as they pass through the system
. Extensive reporting capabilities
. Full Internet functionality for customers including web-based
tracking, tracing, and shipment entry
. Enhanced EDI capabilities
. Automatic notifications to operations and sales personnel
regarding shipment status
. Automatic document distribution to customers via fax and/or email
. Electronic forms generation for transmission to customers,
carriers, stations, and agents
Licensing and Government Regulation
The Company's subsidiary, Allstates Logistics, is the holder of
Ocean Transportation Intermediary License No. 15364NF, and must be in
compliance with the regulations governing such certification. Also,
Allstates must be in compliance with the regulations of the Federal
Aviation Administration that apply to the business of Allstates.
Allstates believes that it has the resources, expertise and experience
to continue its compliance with all Federal agencies and regulations.
Allstates relies primarily on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and
contractual provisions to protect its proprietary technology. For
example, Allstates licenses its software pursuant to signed license
agreements, which impose certain restrictions on the licensees'
ability to utilize the software. In addition, Allstates seeks to avoid
disclosure of its trade secrets, including requiring those persons
with access to Allstates's proprietary information to execute
confidentiality agreements with Allstates and restricting access to
Allstates's source code. Allstates seeks to protect its software,
documentation and other written materials under trade secret and
copyright laws, which afford only limited protection.
Despite Allstates's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of Allstates's
products or to obtain and use information that Allstates regards as
proprietary. Policing unauthorized use of Allstates's products is
difficult, and, while Allstates is unable to determine the extent to
which piracy of its software products exists, software piracy can be
expected to be a persistent problem. In addition, the laws of many
countries do not protect Allstates's proprietary rights to as great an
extent as do the laws of the United States. There can be no assurance
that Allstates's means of protecting its proprietary rights will be
adequate or that Allstates's competitors will not independently
develop similar technology.
To date, Allstates has not been notified that Allstates's
products infringe the proprietary rights of third parties, but there
can be no assurance that third parties will not claim infringement by
Allstates with respect to current or future products. Allstates
expects that software product developers will increasingly be subject
to infringement claims as the number of products and competitors in
Allstates's industry segment grows and the functionality of products
in different industry segments overlaps. Any such claims, with or
without merit, could be time-consuming, result in costly litigation,
cause product shipment delays or require Allstates to enter into
royalty or licensing agreements. Such royalty or licensing agreements,
if required, may not be available on terms acceptable to Allstates or
at all, which could have a material adverse effect upon Allstates's
business, operating results and financial condition.
Competition
Allstates competes with other companies in the same business,
some of which are much larger and have substantially greater
resources. There are approximately 1,500 direct competitors of
various sizes throughout the country. The methods by which Allstates
chooses to compete include highly skilled and experienced upper and
middle management, a proprietary site-licensing program, cost control,
professional sales representation, highly trained operations and
customer service personnel, employee and customer premium awards
program, and a wide range of enhanced services. In addition, the
integration of Audiogenesis' experience and expertise with respect to
its applications for inventory control provides the Company with added
benefits for its customers. Allstates also owns its proprietary and
customized computer software and advanced hardware. Allstates's
website is functional, providing for cargo tracking, customer
communication, and entry of house airway bills to qualifying
customers.
Allstates's major competitors nationwide are Federal Express,
BAX, EGL Inc., and United Parcel Service. At each of Allstates's
locations, there are regional carriers who have strength in the local
marketplace. They, for the most part, all provide air, sea and ground
services. Service levels and pricing vary substantially based upon
geographic and customer volume criteria.
In order to remain competitive, Allstates negotiates with its
vendors to meet the appropriate service and pricing levels in its
markets. In addition to competitive pricing, Allstates strives to
provide its customers, with excellent service, highly trained inside
operations personnel, and state of the art computer services.
Customers
Allstates has a diverse customer base, with approximately 1,700
accounts. In fiscal 2006, no customer accounted for more than 10% of
revenues. Over the 44 years of its operations, Allstates has done
business with over 25,000 customers. Some of Allstates's major
customers over the years have been J.B. Williams, Raytheon, Giorgio
Perfume, Cosmair, Ashton Tate, Merisel Corporation, Budd Corporation,
Home Box Office (a division of Time-Warner), Sensormatic, AT&T, and
Polaris.
Employees
As of December 20, 2005, the Company employed a total of 97
individuals. Allstates Air Cargo, Inc. and subsidiaries accounted for
95 employees (of which 10 are part time), including 52 in operations
and customer service, 16 in sales, marketing and related activities,
and 27 in administration and finance. The Audiogenesis Systems
division has 2 full-time employees. Allstates's success is highly
dependent on its ability to attract and retain qualified employees.
The loss of any of the Company's senior management or other key sales
and marketing personnel could have a material adverse effect on
Allstates's business, operating results and financial condition.
Pension Plan
Effective May 1994, the Company adopted a discretionary non-
standardized 401(k) profit sharing plan. The terms of the plan
provide for eligible employees ("participants") who have met certain
age and service requirements to participate by electing to contribute
up to the maximum percentage allowable not to exceed the limits of
Internal Revenue Code Section 401(k), 404 and 415 (the "Code"). For
2005, the maximum contribution allowed by the Code was the lesser of
100% of an employees' compensation, or $14,000. Participants who
attained age 50 prior to the close of the plan year are eligible to
make catch-up contributions of an additional $3,000, after the maximum
contribution has been made. The Company may make matching
contributions equal to a discretionary percentage, as determined by
the Company, up to 6% of a participants' salary. Company
contributions vest at the rate of 20% of the balance at each
employees' third, fourth, fifth, sixth, and seventh anniversary of
employment. The employees' contributions are 100% vested at the time
of deferral. The plan also allows employer discretionary
contributions allocated in accordance with participants' compensation.
The Company did not make any discretionary contributions to the plan
for the year ended September 30, 2005.
Audiogenesis Systems Division
Sales of Safety Equipment.
Allstates, trading as Audiogenesis Systems, operates a store
which distributes safety equipment under the service mark
SafeTvend(sm) at a major pharmaceutical corporation in the New York
area. Audiogenesis's safety store is located on the customer's
premises, and sells respirators, hard hats, safety glasses, protective
clothing, and other similar products which are used or worn by the
customer's employees to help protect them from industrial accidents
and injuries.
Competition
Audiogenesis's SafeTvend(sm) store is subject to competition not
only from companies which would offer similar services on-site at the
customer's premises, but also from direct distributors and
manufacturers of the products which would sell directly to such
company. Virtually all of the competitors have greater financial,
technological, marketing and sales resources than Audiogenesis. There
are numerous organizations of varying sizes that engage in the
business of customized audio-visual presentations, most of these being
advertising agencies and organizations of similar nature. There is
intense competition for such business from a variety of organizations
who have greater financial, technical, marketing and sales resources
than Audiogenesis.
ITEM 2. DESCRIPTION OF PROPERTY
Allstates occupies approximately 7,000 square feet of space in
Forked River, New Jersey for its principal administrative, sales and
marketing support and product development facility under a ten year
lease which is due to expire in fiscal 2009. The Company's branch
locations, which are located in the vicinity of major metropolitan
airports, occupy approximately 1,000 to 51,000 square feet. All such
branch locations are company leased properties or properties leased by
licensee owners. Terms for company leased properties generally run
from one to seven years and are scheduled to expire between fiscal
2006 and fiscal 2009. The total rent expense for company leased
facilities was approximately $552,000 during fiscal 2005. Allstates
believes that its existing facilities are adequate to support its
activities for the foreseeable future.
The Company's branch locations as of September 30, 2005 were:
Los Angeles, California Nashville, Tennessee
Kenilworth, New Jersey Miami, Florida
St. Louis, Missouri Houston, Texas
Jacksonville, Florida Indianapolis, Indiana
Pittsburgh, Pennsylvania Minneapolis, Minnesota
Philadelphia, Pennsylvania Raleigh, North Carolina
Atlanta, Georgia San Francisco, California
Baltimore, Maryland San Diego, California
Boston, Massachusetts Wayne, New Jersey
Chicago, Illinois Dallas, Texas
Detroit, Michigan
ITEM 3. LEGAL PROCEEDINGS
Environmental matter
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 leased office space at the time. Post-excavation sampling
results confirmed that certain soil contamination remained present
after the removals at the location of two of the UST's. Also, at the
time of the removals, free-floating groundwater contamination was
observed in the area of these two former UST's. During 1999, the
Company engaged Carpenter Environmental Associates ("Carpenter")to
prepare a Preliminary Assessment/Site Investigation Report ("PA/SI
Report"). Carpenter's PA/SI Report stated that the chlorinated
groundwater contamination is emanating from an off-site source. The
New Jersey Department of Environmental Protection approved Carpenter's
PA/SI Report and agreed that no further investigation of the
chlorinated solvents in the groundwater was needed. A Remedial
Investigation Work Plan was submitted in November 1999. The NJDEP
approved the work plan on November 24, 1999. The approved work was
performed by Carpenter in December 1999, as set forth in Carpenter's
report dated March 13, 2000. The Carpenter report indicated that
benzene contamination was delineated and proposed the installation of
one additional monitoring well and natural remediation and monitoring
of remaining groundwater contamination. The NJDEP approved the
additional work and Carpenter installed and sampled the additional
well, the results of which confirmed complete delineation of the
benzene contamination. Concentrations of benzene in MW-3, a separate
well that Carpenter also sampled, indicated an increase from the prior
sampling event. The NJDEP suggested that the increase may be due to
sediments collected with the groundwater sample, and recommended that
the sampling be repeated. Carpenter conducted two additional sampling
events to confirm groundwater concentrations of benzene in Monitoring
Well 3 ("MW-3"). The sampling results indicated that concentrations
of benzene had sufficiently decreased to allow case closure with the
institution of a Classification Exception Area ("CEA"). Counsel for
Allstates confirmed with the New Jersey Department of Environmental
Protection ("DEP") that the sampling results satisfactorily
demonstrate a decreasing trend in benzene concentrations. At the
DEP's request, Carpenter prepared a CEA proposal, which was submitted
to the DEP on October 11, 2001. In the CEA proposal, Carpenter
proposed no further action for the groundwater. The DEP subsequently
issued a No Further Action ("NFA") letter for the soil and
groundwater. Pursuant to the NFA, Allstates was to seal the
monitoring wells at the site.
The work was unable to be completed due to site improvements installed
by the current property owner that rendered the monitoring wells
inaccessible. While the property owner agreed to fund the additional
costs necessary to access the wells for abandonment, information
provided by the owner indicates that the monitoring wells were likely
destroyed and that abandonment is not feasible.
In order to resolve the matter administratively with DEP,
Allstates must proceed through DEP's Notice of Non-Compliance process
for lost or destroyed wells. This process requires that the party
demonstrate that it made an appropriate effort to find and properly
abandon the wells, but that abandonment is not possible.
Documentation of this is required with the DEP, and counsel for
Allstates is currently gathering information to demonstrate that when
the site improvements were installed, the contractors excavated to a
depth such that the wells would have been destroyed beyond the ability
to be properly abandoned. If DEP accepts the argument, DEP will
assess a fine and issue a notice that the wells have been abandoned in
non-compliance with the regulations governing well abandonment.
Allstates counsel has received written confirmation from the property
owner that it would assume the cost of the fine, conservatively
estimated at $2,500 to $5,000, as well as the costs to perform the
remaining work concerning the well closure issue and the legal fees to
resolve the matter.
In March 1997, Allstates made claims against liability insurance
carriers for coverage. The Company's counsel submitted invoices to
the carriers in September 2003, and continues to respond to their
requests for information. The Company's counsel is in the process of
arranging to meet with the carriers to discuss settlement
Joseph M. Guido v. Allstates WorldCargo, Inc., Sam DiGiralomo, Barton
C. Theile, and Craig D. Stratton.
On October 14, 2004, Joseph M. Guido, the majority shareholder of
the Company, who is also employed by the Company as its Chairman,
commenced an action against the Company and three of the Company's
directors, entitled "Joseph M. Guido v. Allstates WorldCargo, Inc.,
Sam DiGiralomo, Barton C. Theile, and Craig D. Stratton," in the
Superior Court of New Jersey, Chancery Division, Ocean County (the
"First Action"). Messrs. DiGiralomo, Theile and Stratton are also
employed by the Company as its President and Chief Executive Officer,
Executive Vice President and Chief Operating Officer, and Chief
Financial Officer, respectively.
Mr. Guido alleged that on August 16, 2004, he delivered to the
Company's Secretary (1) an executed Written Consent in Lieu of a
Special Meeting of the Stockholders of Allstates WorldCargo, Inc.
dated August 16, 2004 (the "Guido Consent"), (2) Amended and Restated
Bylaws of the Company adopted pursuant to the Guido Consent, and (3) a
draft Information Statement pursuant to Section 14(c) of the
Securities Exchange Act of 1934 (the "1934 Act"). Mr. Guido alleged
that, pursuant to the Guido Consent, he had amended the Company's
bylaws to (among other things) expand its Board of Directors from four
to seven members, and had appointed three persons (alleged to be
independent) to fill the newly created seats. He alleged that the
Company was required by law to comply with his demand to notify its
shareholders of his action. He also alleged that the three individual
defendants, both as directors and officers, owed the Company and its
shareholders certain fiduciary duties to direct that appropriate steps
be taken by the Company to allegedly comply with applicable law in
response to the Guido Consent. Mr. Guido demanded relief enjoining a
scheduled special Board of Directors meeting pending Company's
performance of acts allegedly required by New Jersey law and by the
1934 Act. Mr. Guido also sought a permanent injunction requiring the
Company and its Secretary to prepare and distribute to the Company's
shareholders all notices allegedly required by state and federal law
in connection with the Guido Consent. Finally, he sought entry of an
order requiring the Company to file and serve upon him, within seven
days after entry of a permanent injunction, a written report setting
forth the manner and form in which the Company complied with the
injunctions.
The Company (and the three individual defendants) opposed the
application for relief upon the grounds that subsequent to his
execution of the Guido Consent, Mr. Guido advised one of the
individual defendants that he had decided not to proceed with his
amendment of the Bylaws or his expansion of the Board of Directors.
The Defendants also alleged that Mr. Guido's actions were not in the
best interest of the Company, and motivated by self-interest, that
because of such concerns, the Company needed time to determine its
obligations under the law, and that the purpose of the Special Board
Meeting (among others) was to consider issues pertaining to the
request by Mr. Guido to file the Schedule 14C presented to the
Secretary of the Corporation.
On October 28, 2004, Mr. Guido, by his counsel, filed a Notice of
Voluntary Dismissal Without Prejudice, dismissing the First Action.
The parties agreed, subject to the terms of definitive settlement
agreements, to settle the issue raised in the First Action upon the
following terms: (1) the Company's Board of Directors would not be
expanded except by unanimous consent, (2) Mr. Guido and the individual
defendants would enter into a voting agreement pursuant to which each
would agree to vote his respective shares in the Company for the
others as directors of the Company, (3) the Company would enter into
new employment agreements with the individual defendants (the existing
employment agreements being due to expire on December 31, 2004), (4)
the parties would exchange general releases and (5) the Company would,
to the extent lawfully required by Mr. Guido's existing employment
agreement, reimburse him for the attorneys fees he incurred in
connection with the action. It was anticipated that the complete
terms of a settlement would be agreed upon, and that formal settlement
documents would be prepared and executed. Such formal documentation
was prepared and delivered to Mr. Guido's counsel on December 27,
2004.
Mr. Guido refused to execute formal settlement documentation, and
commenced a second action, in the same court and entitled in the same
style, seeking the same relief (the "Second Action"). The Defendants
answered, denying the allegations, and asserting counterclaims against
Mr. Guido and his wife, Teresa Guido.
On April 5, 2005, the parties agreed to a full and final
settlement of the Second Action, the terms of which were placed on the
record in court, and the parties acknowledged to the court, under
oath, their obligation to be bound thereby. The material terms of
that agreement (referred to as the "Settlement Agreement") were:
(1) the Company's Board of Directors would be expanded from four to
seven members, and the Court would appoint the three new directors,
(2) vacancies thereafter would be filled by vote of the remaining
Board members, and in the event of a tie or deadlock in filling any
vacancy, the vacancy would be filled by an arbitrator chosen by the
Board, (3) Mr. Guido and the individual defendants would enter into a
voting agreement pursuant to which each would agree to vote his
respective shares of the Company for the others as directors of the
Company, (4) the Company would enter into new employment agreements
with Mr. Guido and the individual defendants, (5) the parties would
exchange general releases and (6) the Company would, to the extent
lawfully required by Mr. Guido's previous employment agreement,
reimburse him for the attorneys fees he incurred in connection with
the action.
On May 27, 2005, a final judgment was ordered, granted and
entered by the court in accordance with the settlement terms agreed to
by the parties on April 5, 2005. Finally, on June 6, 2005, Court
declared the new employment agreements, the voting agreement, and the
mutual general release to be effective as of April 5, 2005,
notwithstanding any lack of signatures. Pursuant to the mutual
general release, the Company and each of Mr. Guido, his wife, and
Messrs. DiGiralomo, Theile and Stratton each released and forever
discharged each and all of the others from any and all causes of
actions, known and unknown, then existing.
Pursuant to the terms of the settlement, on June 6, 2005, the Company
and Messrs. Guido, DiGiralomo, Theile and Stratton (collectively, for
purposes of this section, the "Voters") entered into a Voting
Agreement whereby each of the Voters agreed to vote all of the capital
stock of the Company that each Voter is entitled to vote, for each
other as directors of the Company. Further, pursuant to the terms of
the Voting Agreement, any action taken to expand or in any way modify
the composition of the Board of Directors of the Company from its
present constitution shall require the unanimous consent of all of the
Voters. Additionally, in the event that shareholder action is taken
to alter or amend the Certificate of Incorporation or Bylaws of the
Company, the Voters agree to vote all of their shares unanimously in
the same manner. If the Voters are unable to reach a unanimous
decision, then the proposed change shall be rejected. The Voting
Agreement terminates when each of Messrs. Guido, DiGiralomo, Theile
and Stratton no longer own, control or hold any shares of capital
stock of the Company.
For so long as the Voting Agreement remains in effect, the Voters
also agreed, with a certain agreed-to exception, not to transfer any
of the shares of capital stock of the Company they hold without the
prior written consent of all of the Voters, unless the other party to
any such transaction agrees in writing to join and be bound by all of
the terms of the Voting Agreement. To that end, the Voters agreed to
the placement of an additional restrictive legend on all of their
shares (including subsequently acquired shares), which restrictive
legend shall read:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER, VOTING AND OTHER RESTRICTIONS PURSUANT TO A
VOTING AGREEMENT ENTERED INTO BY THE COMPANY, THE HOLDER OF THIS
CERTIFICATE AND CERTAIN OTHER STOCKHOLDERS OF THE COMPANY, A COPY OF
WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICES OF THE SECRETARY OF
THE COMPANY."
Finally, during the term of the Voting Agreement, the Voters
agreed not to enter into any agreements that would be inconsistent
with any of the provisions therein.
Also pursuant to the terms of the settlement, on June 6, 2005 the
Company and Allstates Air Cargo, Inc., its wholly owned subsidiary,
(together, the Employer) entered into individual employment agreements
with each of Messrs. DiGiralomo (as President and Chief Executive
Officer), Guido (as Chairman), Theile (as Executive Vice President and
Chief Operating Officer) and Stratton (as Chief Financial Officer).
Messrs. DiGiralomo, Guido, Theile and Stratton are collectively
referred to herein as Executives. Each of the employment agreements
is effective as of April 5, 2005, and expires on December 31, 2009,
but may be extended if agreed to in writing by the parties. Per each
of the employment agreements, Mr. DiGiralomo's annual salary shall be
$250,000; Mr. Guido's annual salary shall be $370,000; Mr. Theile's
annual salary shall be $250,000; and Mr. Stratton's annual salary
shall be $185,000. Each of these salaries is subject to an annual
increase at the discretion of the Company's Board of Directors.
Additionally, each of Messrs. DiGiralomo, Guido and Theile shall
receive an annual bonus payment equal to 3% of the increase of the net
profits of the Employer from fiscal year end 2003 to the fiscal year
end 2004. Each of Messrs. DiGiralomo, Guido, Theile and Stratton
remains eligible to participate in the Employer's stock option plan,
401(k) retirement plan and insurance plans.
Excluding the above-described salary and bonus information, the
material terms of each of the Executives' employment agreements are
substantially the same. In the event any Executive dies during the
term of his respective employment agreement, then for the longer of
the remaining term of the employment agreement or three years, the
Employer shall continue to pay the Executive's then current base
salary to the Executive's designated beneficiary or estate and will
also pay for insurance for any Executive's surviving immediate family.
If, within twenty-four months following a "Change of Control" of the
Employer, as defined in each of the employment agreements, the
Executive voluntarily resigns or retires, the Employer shall pay to
the Executive all compensation and benefits due to him up to the date
of his termination, including, but not limited to, base salary and any
expense reimbursement, and within one month of termination, a lump-sum
payment equal to 299% of the Executive's then current base salary,
bonus for the fiscal year end 2004 (if applicable), and of the amount
reimbursed to the Executive for business-related expenses for the
calendar year preceding the termination. Additionally, any options
and/or restricted stock granted to the Executive shall become fully
vested and registered as of the date of the termination. The
Executive shall have the right to exercise all of his options for a
period of five years from the date of the termination. Additionally,
all then-existing life and health insurance benefits shall continue
for the Executive and his immediate family for a period of five years
from the date of termination. In the event of a "For Cause"
termination, as defined in each of the employment agreements, the
Employer shall pay to the Executive all compensation and benefits due
to him up to the date of his termination, including but not limited to
base salary and expense reimbursement. At any time after 180 days have
elapsed from the date of his respective employment agreement, each
Executive shall have the right to terminate his employment agreement
on 90 days written notice to the Employer. In the event of such
termination, the Executive shall be entitled to such compensation that
is equal to the "For Cause" termination compensation described above.
A termination that is neither a Change of Control termination, a For
Cause termination, is due to the Executive's death, nor a termination
by the Executive as provided above, is a "Without Cause" Termination.
In the event of a Without Cause termination, the Executive shall be
entitled to such compensation that is equal to the Change of Control
termination compensation described above. Finally, if the Employer
breaches any material term of each respective employment agreement or
reduces the Executive's respective title or responsibilities, the
Executive may, at his option, elect to leave the Employer, in which
case he shall be entitled to all of the Change of Control termination
compensation described above, except that the lump sum payment to be
paid to the Executive would be limited to 100% of the Executive's base
salary and bonus (if applicable).
On July 6, 2005, to effectuate part of the settlement of the
Second Action, the Court entered an Order (the "July 6 Order") that
expanded the Company's Board of Directors, effective immediately, from
four members to seven. The July 6 Order also appointed, effective
immediately, Messrs. Joseph Buckelew, Alan E. Meyer, and Charles F.
Starkey, to the Board.
On August 24, 2005, upon the Company's Motion for
Reconsideration, the Court entered and order amending the July 6 Order
(the "First August 24 Order"). Instead of declaring the Board
expanded, and appointing Messrs. Buckelew, Meyer, and Starkey to the
Board, the July 6 Order was amended to show that the parties agreed
that a Unanimous Written Consent of the Directors of Allstates
WorldCargo, Inc. (attached to the First August 24 Order, and referred
to as the "Directors' Consent") was consistent with the Settlement
Agreement, and shall be deemed signed by Messrs. DiGiralomo, Theile,
Stratton, and Guido.
Pursuant to the Directors' Consent, the Board of Directors
amended Section 3.02 of the Bylaws to provide that the Board of
Directors shall consist of seven members. Prior to the amendment,
Section 3.02 of the Bylaws provided that the Board of Directors shall
consist of not less than one nor more than ten Directors. The precise
number of Directors within this range was to be fixed by the Board
each year before the annual meeting of shareholders. The number of
Directors prior to the amendment was four.
Pursuant to the Directors' Consent, the Board of Directors appointed
Joseph Buckelew, Alan E. Meyer, C.P.A., and Charles F. Starkey, Esq.
to fill the vacancies created by the expansion of the Board, to serve
in accordance with the Settlement Agreement.
Pursuant to the Directors' Consent, the Board of Directors also
amended Sections 3.12(b) and 3.12(c) of the Bylaws. Prior to the
amendment described herein, Section 3.12(b) provided that vacancies in
the Board may be filled by the affirmative vote of a majority of the
remaining Directors then in office, even if their number is
insufficient to constitute a quorum. A director so elected was to
hold office until a successor is elected and qualified at the next
annual meeting of the shareholder. As amended, Section 3.12(b)
provides that any vacancy shall be filled in the manner provided
therein, and that in the event of a deadlock, or a three-to-three
vote, with respect to filling any vacancy, an independent arbitrator
appointed by the Board shall select the person to fill the vacancy.
The amended Bylaw also provides that any director so appointed
pursuant to Section 3.12(b) shall also hold office in accordance with
the Settlement Agreement.
Prior to the amendment described herein, Section 3.12(c) provided
that if a director resigns from the Board effective at some future
date, the future vacancy may be filled by the affirmative vote of a
majority of the directors then in office, including the director who
has resigned, even if their number is insufficient to constitute a
quorum. The term of the newly elected director would begin when the
resignation becomes effective. A director so elected was to hold
office from the effective date of the predecessor's resignation until
a successor is elected and qualified at the next annual or special
meeting of the shareholders. As amended, Section 3.12(c) provides
that any future vacancy shall be filled in the manner provided
therein, and that in the event of a deadlock, or a three-to-three
vote, with respect to filling any vacancy, an independent arbitrator
appointed by the Board shall select the person to fill the vacancy.
The amended By-Law also provides that any director so appointed
pursuant to Section 3.12(c) shall also hold office in accordance with
the Settlement Agreement.
In order to ensure that Messrs. Buckelew, Meyer, and Starkey (or
their successors duly appointed pursuant to the Bylaws) continue to
serve pursuant to the terms of the Settlement Agreement, and not at
the pleasure of the majority shareholder, the Court entered a second
order on August 24, 2005 (the "Second August 24 Order"), which
provides that the parties are required by the Settlement Agreement to
nominate and vote for, as Directors, Messrs. Buckelew, Starkey, and
Meyer (or their duly appointed successors) at future meetings of the
Company's shareholders at which directors are to be chosen.
On November 7, 2005, the Court entered a Consent Order pursuant
to which Mr. and Mrs. Guido waived any and all rights they might have
to pursue reimbursement from the Company and the individual defendants
for any and all counsel fees paid or incurred in connection with the
matter.
Accordingly, there are no issues left outstanding in the matter,
and it has been finally concluded.
Liberty Mutual Insurance Company v. Lightning Freight Inc., GTD
Logistics, Inc., and Gilberto Cordova.
The Company's subsidiary, GTD Logistics, Inc. ("GTD") is a
defendant in an action pending in Los Angeles Superior Court, Docket
No. 326868, brought by Liberty Mutual Insurance Company ("Liberty"),
regarding freight brokerage services that GTD provided for a shipment
that was allegedly stolen. The tractor trailer hauling the shipment
allegedy contained several million dollars of hard disk drives. After
the truck and trailer were allegedly stolen, the owner of the contents
of the trailer made a claim against UPS Supply Chain Solutions, the
shipper, who then made a claim against its insurance company, Liberty.
Liberty is seeking to recover from GTD and also the carrier and truck
driver the amount that is expended to cover the loss suffered by its
insured, the owner of the contents of the trailer. The Complaint
requests damages of not less than $1,400,000.
Liberty alleges that when GTD agreed to provide brokerage
services for the shipment of the cargo, GTD also promised to select a
motor carrier with no less than $1 million in cargo insurance
coverage, and to select a carrier that would follow certain asset
protection rules. Liberty alleges breach of contract and negligence
against GTD for failure to comply with these alleged promises. GTD
and Lightning Freight, Inc. the carrier, filed Cross-Complains against
each other and Gilberto Cordova, the truck driver. Gilberto Cordova
never appeared in the matter and the Court entered a default against
him.
The parties have reached a settlement of the action, pursuant to
which GTD will pay the sum of ten thousand dollars ($10,000) in full
and complete settlement of all claims. On March 6, 2006 the Court
granted the parties' Application for Determination of Good Faith
Settlement Pursuant California Code of Civil Procedure, which would
bars any other joint tortfeasor or co-obligor from any further claims
against GTD arising out of the transaction. The entry of that March 6
Order finalized the settlement of the action, and on March 8 GTD
submitted the settlement payment, thus completing its obligations
under the settlement.
Jeffrey H. Mims, Chapter 7 Trustee v. Allstates WorldCargo, Inc.
The Company is presently the defendant in an Adversary Proceeding
against Allstates WorldCargo, Inc. in the bankruptcy case of Mosaic
Group US., Inc. The lawsuit is for the recovery of an alleged
preferential transfer under 11 U.S.C. Sec. 547 in the sum of
approximately $191,000, and a post-petition transfer under 11 U.S.C.
Sec 549, in the sum of approximately $18,000. The matter is in its
initial stages.
Masterbrush, LLC and B&G Plastics, Inc. v. Allstates Logistics, Inc.
and T.H. Weiss, Inc.
On or about December 5, 2005, Masterbrush, LLC ("Masterbrush")
and B&G Plastics, Inc. ("B&G") commenced an action against the
Company's wholly-owned subsidiary Allstates Logistics, Inc. ("ALI")
and T.H. Weiss, Inc. ("Weiss"), alleging various causes of action
arising out of the importation by Masterbrush of a quantity of natural
bristle paintbrushes produced in China (the "Brushes").
The Complaint alleges that plaintiffs retained ALI to expedite
the importation of the Brushes into the United States, that ALI
wrongfully failed to advise plaintiffs that the Brushes were subject
to federal antidumping duties of 351.92 percent (the "Antidumping
Duty") in addition to the 4 percent normal duty, and that by reason of
ALI's (alleged) failure to so advise plaintiffs, plaintiffs were
required by U.S. Customs to pay the Antidumping Duty, in the amount of
$422,281.64. The plaintiffs seek to recover compensatory and
consequential damages.
The action is only recently commenced, and has not progressed
past the service of the Summons and Complaint. The ALI intends to
contest the matter. We have not yet formed an opinion of the
likelihood of a favorable or unfavorable outcome, or the amount or
range of potential loss.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted, during the Fourth Quarter of the Fiscal
Year covered by this report, to a vote of security holders through
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has not yet been publicly traded. The
Company anticipates that its common stock will be listed for quotation
on the NASD OTC Bulletin Board in the near future.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth, selected consolidated financial data
for the Company for the five years ended September 30, 2005. The
selected consolidated financial data for the five years are derived
from the Company's audited consolidated financial statements. The
consolidated financial data set forth below should be read in
conjunction with the Company's Consolidated Financial Statements and
related Notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained herein.
YEAR ENDED SEPTEMBER 30,
(in thousands, except per share data)
2001 2002 2003 2004 2005
STATEMENT OF OPERATIONS DATA
Net sales $41,239 $36,403 $46,293 $54,705 $68,842
Income (loss) from operations 744 534 (326) 727 1,086
Net income (loss) 408 136 (582) 233 603
Basic net income (loss) per
common share $.01 $.00 ($.02) $.01 $.02
Diluted net income (loss) per
common share $.01 $.00 ($.02) $.01 $.02
Weighted average
Common shares outstanding
- basic 32,510 32,510 32,510 32,510 32,510
Weighted average
Common shares outstanding
- diluted 32,510 32,510 32,510 32,510 32,510
BALANCE SHEET DATA:
Working capital $1,316 $1,534 $1,050 $1,081 $1,527
Total assets 7,095 8,050 8,287 9,787 12,699
Liabilities - current 4,614 5,477 6,338 7,577 9,838
Liabilities - long term 2,497 2,453 2,412 2,440 2,487
Total stockholders' equity (16) 120 (462) (229) 374
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The public may read and copy any materials we have filed with SEC
at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an internet site that contains reports, proxy
and information statements, and other information regarding issuers
that file electronically with the SEC. The address of the internet
site is http://www.sec.gov. The public can also contact Mr. Craig
Stratton at Allstates WorldCargo, Inc., 4 Lakeside Drive South, Forked
River, New Jersey, 08731, or through the internet web address
http://www.allstatesair.com.
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 total revenues:
Fiscal Year Ended September 30,
2005 2004 2003
------- -------- -------
Revenues 100.0% 100.0% 100.0%
Cost of transportation 71.0 67.7 65.0
------- -------- -------
Gross profit 29.0 32.3 35.0
Operating expenses:
Personnel costs 9.8 11.9 14.1
License commissions and royalties 11.5 12.0 13.5
Other selling, general and
administrative expenses 6.1 7.1 8.1
------- -------- -------
Total operating expenses 27.4 31.0 35.7
Operating income 1.6 1.3 (0.7)
Interest expense, net (0.4) (0.4) (0.5)
Other income/(expense) 0.0 0.0 (0.9)
------- -------- -------
Net income before tax provision 1.2 0.9 (2.1)
Tax provision (0.3) (0.5) (0.8)
------- -------- -------
Net income/(loss) 0.9% 0.4% (1.3)%
REVENUES
Fiscal 2005 vs. fiscal 2004
The revenues of Allstates WorldCargo represent gross consolidated
sales less customer discounts. Sales for the fiscal year ended
September 30, 2005 increased $14.1 million, or 25.8%, to $68,842,000,
over revenues earned during the prior fiscal year ended September 30,
2004, reflecting a higher volume of freight shipped. Revenues earned
from domestic-routed freight increased $10.5 million, or 23.8%, to
$54,842,000, and international freight revenues increased from the
previous fiscal year by $3.6 million, or 34.5%, to $14,000,000.
The increase in domestic sales, which accounted for 79.7% of
total revenues for fiscal 2005, primarily reflected incremental growth
in freight business at certain existing branches, including the full
year effect of sales generated from one branch location that was added
midway though the previous fiscal year. The growth in domestic
freight business was further augmented by the addition one new
customer during the fiscal year that accounted for 2.8% of sales
during the year. International sales showed positive growth in a
majority of our branch locations during fiscal 2005 as compared to
fiscal 2004.
Fiscal 2004 vs. fiscal 2003
Sales for the fiscal year ended September 30, 2004 increased
$8,412,000, or 18.2%, to $54,705,000, over revenues earned during the
prior fiscal year ended September 30, 2003, reflecting a higher volume
of freight shipped. Revenues earned from domestic-routed freight
increased $9,434,000, or 27.1%, to $44,296,000, while international
freight revenues decreased from the previous fiscal year by
$1,022,000, or (8.9%), to $10,409,000.
The increase in domestic revenues earned in fiscal 2004 over
fiscal 2003 primarily reflects incremental increases in freight
business at certain existing branches, an increase during the year in
the number of branch locations, and the addition of a new large
customer. Furthermore, growth within the Allstates truck brokerage
operation also fueled the increase in domestic sales.
The decrease in international revenues in fiscal 2004 from the
previous year primarily reflects the approximately $1.8 million in
billing in fiscal 2003 to one customer for the arrangement of
international chartered aircraft. The Company was asked to make these
arrangements by its customer as an emergency response to the backlog
of ocean freight deliveries that resulted from the lock out of West
Coast ports during the first quarter of fiscal 2003. After
discounting the billing for that charter service in fiscal 2003,
international revenues would have increased by approximately $766,000.
NET REVENUES
Fiscal 2005 vs. fiscal 2004
Net revenues represents the revenues of the Company after
subtracting the cost of arranging transportation services to our
customers, which we refer to as cost of transportation. The cost of
transportation is composed primarily of amounts paid by the Company to
carriers and cartage agents for the transport of cargo. As a
percentage of revenues, cost of transportation increased by 3.2%, to
71.0%, for the fiscal year ended September 30, 2005 in comparison to
the fiscal year ended September 30, 2004. The higher percentage of
transportation costs to revenues primarily reflects increases in fuel
costs as they affect carrier rates, an increase in deferred shipments
versus priority, and the addition of and growth in existing lower
margin business that represents a significant portion of the Company's
revenue growth over the previous fiscal year. In absolute terms, cost
of transportation increased by $11.8 million, or 31.8%, to $48,859,000
for the fiscal year ended September 30, 2005 compared to the prior
fiscal year, reflecting the increase in sales. Gross margins, which
are stated as a percentage of net revenues to revenues, decreased to
29.0% of sales for fiscal 2005. Net revenues increased by $2.3
million, or 13.3%, to $19,983,000 in fiscal 2005 versus fiscal 2004.
Fiscal 2004 vs. fiscal 2003
Cost of transportation increased as a percentage of revenues by
2.7%, to 67.7%, for the fiscal year ended September 30, 2004 in
comparison to the fiscal year ended September 30, 2003. The higher
percentage of transportation costs to revenues primarily reflects
increases in fuel costs as they affect carrier rates, an increase in
deferred shipments versus priority, and the addition of new lower
margin business that the Company attained during fiscal 2004. In
absolute terms, cost of transportation increased by $6,971,000, or
23.2%, to $37,060,000 for the fiscal year ended September 30, 2004
compared to the prior fiscal year, reflecting the increase in sales.
Gross margins decreased to 32.3% of sales for fiscal 2004. Net
revenues increased by $1,441,000, or 8.9%, to $17,645,000 in fiscal
2004 versus fiscal 2003.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Fiscal 2005 vs. fiscal 2004
Selling, general and administrative expenses include personnel
costs, licensee commissions and other costs necessary to operate our
business. As a percentage of revenues, SG&A expenses decreased by
3.6%, to 27.4%, for the fiscal year ended September 30, 2005 as
compared to the fiscal year ended September 30, 2004, reflecting the
increase in revenues in relation to fixed operating expenses. In
absolute terms, SG&A expenses increased by approximately $1,980,000,
or 11.7%, to $18,898,000 in fiscal 2005 in comparison to fiscal 2004,
primarily reflecting higher expense for licensee commissions and legal
fees.
Allstates pays commissions to licensees and independent sales
agents as compensation for generating profits for the Company.
Licensee commissions and royalties pursuant to licensee agreements
increased by approximately $1,379,000 in fiscal 2005 over fiscal 2004,
primarily reflecting higher gross profits at our licensee locations.
As a percentage of revenues, licensee commissions and royalties
decreased by 0.5%, to 11.5% of sales, in fiscal 2005.
Legal fees increased during the fiscal year ended September 30,
2005 in comparison to the same period of the prior year by
approximately $564,000. The increased expense primarily reflects
Allstates defense and settlement effort related to an action commenced
by the majority shareholder against the Company during the fourth
quarter of fiscal 2004.
Personnel expenses increased for the fiscal year ended September
30, 2005 by approximately $202,000 over the fiscal year ended
September 30, 2004. This increase primarily reflects higher
operations personnel salaries necessary to sustain the growth in
business volume. In addition, corporate salary expense was higher,
primarily the result of new employment agreements that were ratified
during the third quarter of fiscal 2005, as well as the full year
effect of the addition of a Director of MIS during the third quarter
of fiscal 2004. Salesperson salaries decreased from the prior fiscal
year due to a reduction in sales headcount, but were offset by an
increase in sales commissions due to increased volume at company owned
stations.
Cargo insurance increased by approximately $94,000 in fiscal 2005
over the previous fiscal year as a reflection of the increased freight
volume. Accounting fees declined by approximately $91,000 in
comparison to the prior fiscal year, in which the Company had recorded
additional expense to catch up with under-accruals of previous year
audit fees. Telephone and communications expense decreased by
approximately $113,000 from the previous year, primarily reflecting
reduced rates for long distance and frame relay service.
Fiscal 2004 vs. fiscal 2003
As a percentage of revenues, SG&A expenses decreased by 4.7%, to
31.0%, for the fiscal year ended September 30, 2004 as compared to the
fiscal year ended September 30, 2003, reflecting the increase in
revenues in relation to fixed operating expenses. In absolute terms,
SG&A expenses increased by approximately $389,000, or 2.4%, to
$16,918,000 in fiscal 2004 in comparison to fiscal 2003, primarily
reflecting higher licensee commission expense.
Allstates pays commissions to licensees and independent sales
agents as compensation for generating profits for the Company.
Licensee commissions and royalties pursuant to licensee agreements
increased by approximately $260,000 in fiscal 2004 over the fiscal
2003 expense. This primarily reflects the addition of two new
licensee branch locations and the conversion of one company-owned
branch to a licensee during the year, offset by lower gross profits at
existing licensee branches. Licensee commissions and royalties as a
percentage of revenues decreased by 1.5%, to 12.0% of sales, in fiscal
2004.
Personnel costs as a percentage of sales decreased by 2.2% in
fiscal 2004, to 11.9% of revenues. In absolute terms, total personnel
related expenses in fiscal 2004 approximated fiscal 2003 costs.
Salaries and employee benefits decreased by approximately $228,000 in
fiscal 2004 as compared to the previous year, primarily due to the
reduction in headcount that took place during the last six months of
fiscal 2003 as well as the transfer of a company-owned station to a
licensee operation in February 2004. This was offset by increases in
salesperson commissions and executive bonus expense in fiscal 2004 as
a result of the increase in profit from the prior fiscal year.
Accounting fees increased by approximately $97,000 for fiscal 2004
over fiscal 2003, primarily based on an under accrual of fees as they
related to previous years audits. Liability insurance expenses
increased by approximately $48,000 for fiscal 2004 as compared to
fiscal 2003, primarily relating to the Directors and Officers
liability policy that the Company initiated in the fourth quarter of
fiscal 2003.
OPERATING INCOME/(LOSS)
Income from operations increased by approximately $358,000 for
the fiscal year ended September 30, 2005, to $1,085,000, versus the
fiscal year ended September 30, 2004, primarily reflecting the
increase in sales volume, offset by higher costs of transportation as
a percent of revenues. The operating margin increased by 0.3% during
fiscal year 2005.
Income from operations increased by approximately $1,052,000 for
the fiscal year ended September 30, 2004, to $727,000, versus the
fiscal year ended September 30, 2003, due to the increase in sales
volume and the reduction of operating expenses as a percentage of
revenues. The operating margin increased by 2.0% during fiscal year
2004.
NET INTEREST EXPENSE
Allstate's interest expense obligation consists primarily of the
note payable to the Estate of A.G. Hoffman, Jr. that the Company
assumed from Joseph M. Guido as provided in the terms of the August
24, 1999 reverse acquisition, as well as on borrowings against the
line of credit established with the bank. Interest on the note was
approximately $166,000 and $168,000 during fiscal 2005 and fiscal
2004, respectively.
Net interest expense increased by approximately $16,000 during
the fiscal year ended September 30, 2005 in comparison to the prior
year, reflecting a higher average borrowing rate applied to higher
average outstanding borrowings. Interest expense during the fiscal
year ended September 30, 2004 decreased by approximately $9,000 from
the previous fiscal year, reflecting a lower average borrowing rate.
NET INCOME/(LOSS)
Net income before taxes increased by approximately $331,000, to
$852,000 for the fiscal year ended September 30, 2005, compared to the
previous fiscal year then ended. The Company recorded a tax provision
of approximately $249,000 for fiscal 2005. Net income for fiscal 2005
was $603,000 versus net income of $233,000 in the previous fiscal
year.
Net income before taxes increased by approximately $1,472,000, to
$522,000 for the fiscal year ended September 30, 2004, compared to the
previous fiscal year then ended. The Company recorded a tax provision
of approximately $289,000 for fiscal 2004. Net income for fiscal 2004
was $233,000 versus a net loss of ($582,000) in the prior year.
Liquidity and Capital Resources
Net cash used for operating activities was approximately $44,000
for the fiscal year ended September 30, 2005 compared to net cash
provided by operations of approximately $18,000 for the fiscal year
ended September 30, 2004. In fiscal 2005, cash was used to finance
the $2.8 million increase in accounts receivable, offset by the
related $1.7 million increase in accounts payable and accrued
expenses, and the $0.9 million of income net of non-cash charges of
the Company. The increase in accounts receivable relates primarily to
the increase in revenue. The increase in accounts payable is
primarily due to the increase in sales volume and our normal cycle of
payments. In fiscal 2004, cash was provided by $0.6 million from
income net of non-cash charges, and a $1.3 million increase in
accounts payable and accrued expenses, offset by a $2.0 million
increase in accounts receivable. The increases in accounts receivable
and accounts payable reflect the increase in sales volume from the
previous year.
At September 30, 2005, the Company had cash of $180,000 and net
working capital of $1,527,000, compared with cash of $114,000 and net
working capital of $1,081,000 respectively, at September 30, 2004.
The increase in working capital at September 30, 2005 over September
30, 2004 is primarily attributable to the Company's net income during
the fiscal year, offset by a combination of the long term portion of a
loan made to a licensee during the second quarter of fiscal 2005, as
well as expenditures made toward the purchase of a new computer
system.
During March 2005, Allstates extended a $250,000 loan to a
licensee to finance their expansion effort. The loan is being paid
back with weekly payments over three years including interest, at the
same rate the Company pays on its line of credit with the bank. The
loan is secured by the personal guarantees of the licensee principals.
Through September 30, 2005, Allstates has collected $41,573. of
principal on the loan.
In addition to aforementioned loan, the Company's other investing
activities were primarily comprised of expenditures for capital
equipment, primarily representing purchases of computer hardware and
software. During the fourth quarter of fiscal 2005, Allstates
initiated the purchase and implementation of a new computer system.
Through September 30, 2005, the Company has made approximately
$174,000 in purchases toward the new system. Total capital
expenditures amounted to approximately $230,000 during the fiscal year
ended September 30, 2005. For the fiscal year ended September 30,
2004, capital expenditures totaled approximately $95,000. Proceeds
from the sale of fixed assets, primarily of company-owned automobiles,
amounted to approximately $49,000.
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 (6.75% at September 30, 2005). The interest rate is
predicated on the Company maintaining an average compensating account
balance in a non-interest bearing account equal to at least $230,000.
If such average compensating balances are not maintained, the interest
rate will increase by 1% over the rate currently accruing.
Outstanding borrowings on the line of credit at September 30, 2005 and
2004 were $1,600,000 and $1,100,000, respectively.
The Company's current and anticipated use of cash is and will
continue to be to fund working capital and capital expenditures.
Allstates believes that cash flows from collections of accounts
receivable and the line of credit with its bank will be sufficient to
fund the Company's working capital and cash requirements for at least
the next 12 months. We will pursue increased borrowing availability
from lending institutions to meet our long-term cash requirements, and
believe that the Company has a sufficient borrowing base to accomplish
that.
The following table summarizes our significant contractual obligations
as of September 30, 2005
Contractual Obligations (dollars in thousands)
Payments Due by Fiscal Year
Total 2006 2007 2008 Thereafter
------ ---- ---- ---- ----------
Long-term Debt (1) 2,362 25 25 25 2,287
Interest on long-term debt (1) 7,796 164 163 161 7,308
Line of Credit (2) 185 135 50
Capital Lease Obligations (3) 228 74 82 72
Operating Leases (4) 1,971 669 704 598
------ ---- ---- ---- ----------
Total 12,542 1,067 1,024 856 9,595
(1) Long term debt represents a note payable from Joseph M. Guido to
the Estate of A.G. Hoffman Jr, assumed by the Company, in the
aggregate total of $2,511,730, with repayment over 101 years at annual
principal payments of $25,000 plus interest at 7% per year. Allstates
assumed this obligation as part of the consideration paid to Mr. Guido
in the August 24, 1999 reverse acquisition in which Allstates (then
known as Audiogenesis Sytems, Inc.) acquired from Mr. Guido 100
percent of the stock of Allstates Air Cargo, Inc ("AAC"). The debt
owed by Mr. Guido to the Hoffman estate arose from the buy/sell
agreement between Mr. Guido and his former partner in AAC, A.G.
Hoffman, and represents the amount that Mr. Guido was required to pay
the Hoffman estate upon Mr. Hoffman's death for Mr. Hoffman's share in
AAC.
(2) Assumes 7.5% interest on $2,000,000 borrowing against revolving
line of credit facility, expiring January 28, 2007
(3) Capital lease obligation represents principal and interest on
purchase of Air-Trak computer system. Value of financed equipment is
approximately $197,000. Lease interest ranges from 11.37% to 12.96%.
(4) Operating leases primarily relates to the lease of space used for
our operations in Forked River, NJ., Kenilworth, NJ, Baltimore, MD,
Pittsburgh, PA, Wayne, NJ, Jacksonville, FL, Miami, FL, and St. Louis,
MO.
Forward Looking Statements
The Company is making this statement in order to satisfy the "safe
harbor" provisions contained in the Private Securities Litigation
Reform Act of 1995. The statements contained in all parts of this
document (including the portion, if any, appended to the Form 10-K)
including, but not limited to, those relating to the availability of
cargo space; the Company's 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; the
effect of litigation; future costs of transportation; future operating
expenses; future margins; any seasonality of the Company's business;
future acquisitions and the effects, benefits, results, terms or other
aspects of any acquisition; Ocean Transportation Intermediary License;
ability to continue growth and implement growth and business strategy;
the ability of expected sources of liquidity to support working
capital and capital expenditure requirements; future expectations; and
any other statements regarding future growth, future cash needs,
future terminals, future operations, business plans, future financial
results, financial targets and goals; and any other statements which
are not historical facts are forward-looking statements. When used in
this document, the words "anticipate," "estimate," "expect," "may,"
"plans," "project" and similar expressions are intended to be among
the statements that identify forward-looking statements. Such
statements involve risks and uncertainties, including, but not limited
to, those relating to the Company's dependence on its ability to
attract and retain skilled managers and other personnel; the intense
competition within the freight industry; the uncertainty of the
Company's ability to manage and continue its growth and implement its
business strategy; the Company's dependence on the availability of
cargo space to serve its customers; the effects of regulation; results
of litigation; the Company's vulnerability to general economic
conditions; the control by the Company's principal shareholder; risks
of international operations; risks relating to acquisitions; the
Company's future financial and operating results, cash needs and
demand for its services; and the Company's ability to maintain and
comply with permits and licenses, as well as other factors detailed in
this document and the Company's other filings with the Securities and
Exchange Commission. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove
incorrect, actual outcomes may vary materially from those indicated.
The Company undertakes no responsibility to update for changes related
to these or any other factors that may occur subsequent to this
filing.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
For the Years Ended September 30, 2005, 2004 and 2003
CONTENTS
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2 -3
Consolidated Statements of Net Income (Loss) 4
Consolidated Statements of
Stockholders' Equity (Deficit) 5
Consolidated Statements of Cash Flows 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7- 17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Allstates WorldCargo, Inc. and Subsidiaries
Lacey, New Jersey
We have audited the accompanying consolidated balance sheets of
Allstates WorldCargo, Inc. and Subsidiaries (a corporation), as of
September 30, 2005 and 2004, and the related consolidated statements
of net income (loss), stockholders' equity (deficit), and cash flows
for the years ended September 30, 2005, 2004 and 2003. These
consolidated financial statements (see Note 2) are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Allstates WorldCargo, Inc. and Subsidiaries, as
of September 30, 2005 and 2004, and the results of their operations
and cash flows for the years ended September 30, 2005, 2004 and 2003
in conformity with accounting principles generally accepted in the
United States of America.
/s/ COWAN, GUNTESKI & CO., PA
Toms River, New Jersey
February 27, 2006
F-1
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2005 and 2004
ASSETS 2005 2004
----------- -----------
CURRENT ASSETS
Cash and Cash Equivalents $ 180,317 $ 114,363
Accounts Receivable, net of allowance for doubtful account 10,681,589 8,073,391
Inventories 29,641 30,027
Prepaid Expenses and Other Assets 127,550 89,081
Prepaid Income Taxes 80,415 -
Loans Receivable - Licensee - Current Portion 80,385 -
Deferred Tax Asset - Current Portion 184,982 351,000
----------- -----------
Total Current Assets 11,364,879 8,657,862
----------- -----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation 599,042 507,873
----------- -----------
INTANGIBLE AND OTHER ASSETS
Deposits 33,227 33,371
Loans Receivable - Licensee 128,042 -
Other Receivables 38,504 52,853
Goodwill, including related acquisition costs,
net of accumulated amortization 535,108 535,108
----------- -----------
Total Intangible and Other Assets 734.881 621,332
----------- -----------
Total Assets $12,698,802 $ 9,787,067
=========== ===========
See accompanying Notes and Report of Independent Registered Public
Accounting Firm
F2
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2005 and 2004
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 2005 2004
----------- -----------
CURRENT LIABILITIES
Accounts Payable $ 6,420,955 $ 5,274,000
Accrued Expenses 1,767,391 1,178,377
Short-Term Borrowings Under Line of Credit 1,599,500 1,099,500
Current Portion of Obligations Under Capital Leases 24,888 -
Current Portion of Long-Term Debt 25,000 25,000
----------- -----------
Total Current Liabilities 9,837,734 7,576,877
----------- -----------
LONG-TERM LIABILITIES
Deferred Tax Liability - Non-Current Portion 102,368 78,000
Obligations Under Capital Leases, less current portion 48,285 -
Long-Term Debt, less current portion 2,336,730 2,361,730
----------- -----------
Total Long-Term Liabilities 2,487,383 2,439,730
----------- -----------
Total Liabilities 12,325,117 10,016,607
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock, $.0001 par value, 50,000,000 shares
Authorized, 32,509,872 Shares Issued and Outstanding 3,251 3,251
Retained Earnings (Deficit) 370,434 (232,791)
----------- -----------
Total Stockholders' Equity (Deficit) 373,685 (229,540)
----------- -----------
Total Liabilities and Stockholders' Equity (Deficit) $12,698,802 $ 9,787,067
=========== ===========
See accompanying Notes and Report of Independent Registered Public
Accounting Firm
F3
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET INCOME (LOSS)
For the Years Ended September 30, 2005, 2004 and 2003
2005 2004 2003
---------- ---------- ----------
REVENUES $ 68,841,843 $ 54,705,311 $ 46,293,052
Cost of Transportation 48,858,589 37,060,406 30,089,183
---------- ---------- ----------
Net Revenues 19,983,254 17,644,905 16,203,869
OPERATING EXPENSES
Personnel Costs 6,739,203 6,536,983 6,544,154
Licensee Commissions and Royalties 7,918,505 6,539,285 6,279,002
Independent Sales Agent Commissions 201,498 247,398 261,743
Selling, General and Administrative Expenses 4,037,984 3,594,389 3,444,543
---------- ---------- ----------
Total Operating Expenses 18,897,190 16,918,055 16,529,442
---------- ---------- ----------
Income (Loss) from Operations 1,086,064 726,850 (325,573)
---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest Income 7,694 - 613
Interest Expense (241,526) (217,367) (226,714)
Loss on Sale of Equipment - 3,071 ( 26,534)
Other Income (Expense) - 9,093 (371,916)
---------- ---------- ----------
Total Other Income (Expense) (233,832) (205,203) (624,551)
Income (Loss) Before Tax Provision 852,232 521,647 (950,124)
Provision for Income Tax (Benefit) Expense 249,007 288,749 (367,833)
---------- ---------- ----------
Net Income (Loss) Applicable to Common Shareholders $ 603,225 $ 232,898 $ (582,291)
========== ========== ==========
Weighted Average Common Shares - Basic 32,509,872 32,509,872 32,509,872
Net Income (Loss) per Common Share - Basic $ 0.02 $ 0.01 $ (0.02)
Weighted Average Common Shares - Diluted 32,509,872 32,509,872 32,509,872
Net Income (Loss) per Common Share - Diluted $ 0.02 $ 0.01 $ (0.02)
See accompanying Notes and Report of Independent Registered Public
Accounting Firm
F4
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
For the Fiscal Years Ended September 30, 2005, 2004 and 2003
Common Stock
Retained Total
Number of Earnings Stockholders'
Shares Par Value (Deficit) Equity (Deficit)
--------- --------- ---------- ----------------
Balance at
October 1, 2002 32,509,872 $3,251 $ 116,602 $ 119,853
Consolidated net loss
for the fiscal year
ended September 30, 2003 (582,291) (582,291)
---------- --------- ---------- -------------
Balance at
September 30, 2003 32,509,872 $3,251 $(465,689) $( 462,438)
Consolidated net gain
for the fiscal year
ended September 30, 2004 232,898 232,898
---------- --------- ---------- -------------
Balance at
September 30, 2004 32,509,872 $3,251 $(232,791) $( 229,540)
Consolidated net gain
for the fiscal year
ended September 30, 2005 603,225 603,225
---------- --------- ---------- -------------
Balance at
September 30, 2005 32,509,872 $3,251 $ 370,434 $ 373,685
========== ========= =========== =============
See accompanying Notes and Report of Independent Registered Public
Accounting Firm
F5
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 2005 and 2004
2005 2004 2003
------------ ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income Applicable to Common Shareholders $ 603,225 $ 232,898 $ (582,291)
Adjustments to reconcile net income
to net cash provided from
operating activities:
Depreciation and amortization 138,968 167,202 186,894
Provision for Bad Debts 169,347 187,999 182,379
Loss on Sale of Equipment - (3,071) 26,534
(Increase) Decrease in:
Accounts Receivable (2,777,545) (2,035,182) (655,856)
Inventories 386 (1,383) (4,432)
Prepaid Expenses and Other Assets (24,121) (15,386) 852,366
Prepaid Income Taxes (80,415) - -
Deferred Tax Asset - Current Portion 166,018 139,000 (420,001)
Increase (Decrease) in:
Accounts Payable 1,146,956 937,377 1,186,058
Accrued Expenses 589,013 355,348 (23,146)
Deferred Tax Liability - Non-Current Portion 24,368 53,000 -
------------ ------------- --------------
Net Cash Provided from
(Used by) Operating Activities (43,800) 17,802 748,505
------------ ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (230,137) (395,292) (106,344)
Proceeds from Sale of Equipment - 48,850 36,732
Loans to Licensees (250,000) - -
Payments from Licensees Loans 41,573 - -
Deposits 144 5,200 (3,693)
------------ ------------- --------------
Net Cash Used by Investing Activities (438,420) (341,242) (73,305)
------------ ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
New Borrowings:
Short-Term 1,400,000 200,000 999,500
Long-Term 73,174 - -
Debt Reduction:
Short-Term (900,000) (250,000) (1,250,000)
Long-Term (25,000) (28,836) (81,338)
------------ ------------- --------------
Net Cash Provided from
(Used by) Financing Activities 548,174 (78,836) (331,838)
------------ ------------- --------------
Net Increase (Decrease) in
Cash and Cash Equivalents 65,954 (402,276) 343,362
Cash and Cash Equivalents, Beginning of Year 114,363 516,639 173,277
------------ ------------- --------------
Cash and Cash Equivalents, End of Year $ 180,317 $ 114,363 $ 516,639
============= ============== ==============
See accompanying Notes and Report of Independent Registered Public
Accounting Firm
F6
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005, 2004 and 2003
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
Nature of Operations
On August 24, 1999, Audiogenesis Systems, Inc. (Audiogenesis),
entered into a reverse acquisition with Allstates Air Cargo, Inc.
and its subsidiaries (Allstates). On August 24, 1999, Allstates
Air Cargo, Inc. became a wholly owned subsidiary of Audiogenesis.
On November 4, 1999, Audiogenesis Systems, Inc. filed a
Certificate of Amendment to the Certificate of Incorporation,
officially changing its name to Allstates WorldCargo, Inc.
(WorldCargo). As a result of this transaction, the sole
shareholder of Allstates Air Cargo, Inc. became a 55.37%
shareholder of WorldCargo. Management has elected to utilize the
new name (Allstates WorldCargo, Inc. and Subsidiaries) for
purposes of these consolidated financial statements. The
entities that are included in these consolidated financial
statements are as follows:
Allstates WorldCargo, Inc. (formerly Audiogenesis Systems, Inc.)
- WorldCargo was incorporated in the State of New Jersey on
January 14, 1997, as the result of a reverse acquisition by
Genesis Safety Systems, Inc. The Company's operations include
sales and distribution of safety equipment, development of audio-
visual products, including safety training program and sales and
marketing presentations, development of a device to treat
tinnitus, and development of an echolocation device to assist
sighted persons in conditions of low visibility and the blind.
The Company intends to defer any further development of the
tinnitus device, but continues to pursue opportunities concerning
the device. The Company has ceased all efforts concerning the
echolocation device, and has terminated its license for the
intellectual property underlying the device.
Biowaste Technologies Systems, Inc. - Biowaste Technologies
Systems, Inc. is a wholly owned subsidiary of WorldCargo.
Biowaste was formed on July 1, 1988 for the purpose of engaging
in the business of the management of infectious waste. Biowaste
is in the developmental stage, and no revenues have been produced
to date. Presently, such subsidiary is inactive, and the Company
does not anticipate that it will become active in the near
future.
Allstates Air Cargo, Inc. - Allstates Air Cargo, Inc. was
incorporated in the state of New Jersey on October 3, 1962. The
Company provides domestic and international airfreight forwarding
services. Allstates maintains operating facilities throughout
the United States and has agents in Europe and South America.
Allstates Allcargo (US), Inc. - Allstates Allcargo (US), Inc. is
a wholly owned subsidiary of Allstates Air Cargo, Inc. Allstates
Allcargo (US), Inc. owned 100% of Allstates Allcargo (UK), Ltd.,
a corporation organized under the laws of England prior to the
dissolution of Allstates Allcargo (UK), Ltd. during the year
ended September 30, 2000. All appropriate foreign currency
translation adjustments have been made for purposes of these
financial statements. During the fiscal year ended September 30,
2005, management unanimously determined that the stock of
Allstates Allcargo (US), Inc. is worthless and no future business
activities will be conducted through this entity. Consequently,
Allstates Allcargo (US), Inc. will be statutorily merged into
Allstates Air Cargo, Inc. during the year ended September 30,
2006.
Allstates Logistics, Inc. - Allstates Logistics, Inc. is also a
wholly owned subsidiary of Allstates Air Cargo, Inc. Allstates
Logistics was incorporated in the State of New Jersey in December
1997 and provides ocean freight services to its customers.
GTD Logistics, Inc. - GTD Logistics, Inc. was incorporated in the
State of New Jersey on October 27, 1998. GTD Logistics is a
wholly owned subsidiary of Allstates Air Cargo, Inc. GTD
Logistics is also in the business of freight forwarding.
e-tail Logistics, Inc. - e-tail Logistics, Inc. was incorporated
in the State of New Jersey on February 11, 2000. e-tail
Logistics is a majority owned subsidiary of WorldCargo.
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS (Continued)
Reverse Acquisition
For purposes of these consolidated financial statements, the
purchase of Allstates Air Cargo, Inc. by Allstates WorldCargo,
Inc. is treated as a reverse acquisition under the purchase
method of accounting, as outlined in Accounting Principles Board
Opinion No. 16. For accounting purposes, Allstates Air Cargo,
Inc. is considered the acquirer in the reverse acquisition.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
For purposes of the accompanying consolidated financial
statements, Allstates Air Cargo, Inc. is considered the
accounting "Parent" company and Allstates WorldCargo, Inc. is
considered a subsidiary. Therefore, these consolidated financial
statements include the combined assets and liabilities of
Allstates Air Cargo, Inc. and its subsidiaries as of September
30, 2005, 2004 and 2003. The consolidated statements of net
income (loss) include the income and expenses of Allstates Air
Cargo, Inc. and its subsidiaries for the years ended September
30, 2005, 2004 and 2003. All material intercompany payables,
receivables, revenues and expenses have been eliminated for
purposes of this consolidation.
Use of Estimates
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
Concentration of Credit Risk
The Company maintains cash balances at several banks. Accounts
at each institution are insured by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000. At various times during the
years ended September 30, 2005, 2004 and 2003, the Company had a
cash balance on deposit with one bank that exceeded the $100,000
balance insured by the FDIC.
Cash Equivalents
For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fair Value of Consolidated Financial Statements
Current Assets and Liabilities
The carrying values of cash, accounts receivable, accounts
payable, accrued expenses, taxes payable, notes payable and
other current liabilities approximates fair value because of
the relatively short maturity of these instruments.
Non-Current Assets and Liabilities
Loan Receivable - Licensee and Other Receivables
The fair value of the Loan Receivable - Licensee and Other
Receivables is estimated by discounting the future cash
flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings and for the
same remaining maturities. The estimated fair value of the
Loan Receivable approximates its book value.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Consolidated Financial Statements (Continued)
Deposits
The fair value of deposits is the amount payable on demand
at the reporting date.
Long-Term Debt
Rates currently available to financial institutions for debt
with similar terms and remaining maturities are used to
estimate fair value of existing debt. The estimated fair
value of the long-term debt approximates book value.
Inventories
For both financial reporting and income tax purposes, inventory
is stated on the cost basis. Cost is determined using the first-
in, first-out method.
Depreciation
Property, plant and equipment consist principally of building and
improvements, vehicles, computers and software, office equipment,
and furniture and fixtures which are stated at historical cost.
Depreciation is provided on the straight-line method over the
estimated useful lives of the assets, which are generally three
to fifteen years. Expenditures for maintenance and repairs,
which do not extend the economic useful life of the related
assets, are charged to operations as incurred. Gains or losses
on disposal of equipment are reflected in the statements of
income. Depreciation expense for the years ended September 30,
2005, 2004 and 2003 was $138,968, $167,202 and $185,728,
respectively.
Income Taxes
The Company follows the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events
that have been included in the financial statements or tax
returns. Under this method, deferred tax liabilities and assets
are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are
expected to reverse.
Advertising
The Company expenses advertising costs as they are incurred.
Advertising expenses for the years ended September 30, 2005, 2004
and 2003 were $32,993, $41,217 and $28,121, respectively.
Revenue Recognition
Revenues and the associated freight transportation costs are
recognized at the time the freight departs the terminal of origin
for domestic shipments. International air revenues and freight
consolidation costs are recognized when shipments are tendered to
a carrier for transport to a foreign destination. This method is
permissible under Emerging Issues Task Force Issue No. 91-9,
"Revenue and Expense Recognition for Freight Services in
Progress". Ocean freight consolidation revenues are recognized
when the shipment reaches its destination. Revenues of the
Audiogenesis Systems division, which involves the sale of safety
equipment over the counter, are recognized at point of sale.
Trade Receivables
Accounts receivable are uncollateralized customer obligations due
under normal trade terms generally requiring payment within 30
days from the invoice date. Follow-up correspondence is made if
unpaid accounts receivable go beyond 30 days.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Trade Receivables (Continued)
Payments of accounts receivable are allocated to the specific
invoices identified on the customers remittance advice or, if
unspecified, are applied to the earliest unpaid invoices.
Trade accounts receivable are stated at the amount management
expects to collect from outstanding balances. The carrying
amounts of accounts receivable are reduced by a valuation
allowance that reflects management's best estimate of the amounts
that will not be collected. Management individually reviews all
accounts receivable balances that exceed the due date by several
days and based on an assessment of current creditworthiness,
estimates the portion, if any, of the balance that will not be
collected. Management provides for probable uncollectible
amounts through a charge to earnings and a credit to a valuation
allowance based on its assessment of the current status of
individual accounts. Balances that are still outstanding after
management has used reasonable collection efforts are written off
through a charge to the valuation allowance and a credit to trade
accounts receivable. Changes in the valuation allowance have not
been material to the financial statements. The valuation
allowance for accounts receivable at September 30, 2005, 2004 and
2003 was $263,202, $250,394 and $229,364, respectively.
Earnings per Share
The Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share" (SFAS No. 128) which 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. EPS is calculated by dividing net income
by the weighted-average number of outstanding shares of Common
Stock for each year.
Bad Debts
The Company uses the allowance method to account for
uncollectible accounts receivable. The allowance for doubtful
accounts is based on prior years' experience and is estimated by
management. Bad debt recoveries are charged against the
allowance account as realized. Bad debt expense for the years
ended September 30, 2005, 2004 and 2003 was $169,347, $187,999
and $182,379, respectively.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are summarized by major classifications as
follows:
2005 2004 2003
---------- --------- ----------
Leasehold
Equipment $368,112 $ 361,835 $ 48,062
Vehicles 56,525 56,525 315,789
Equipment and
Software 1,126,053 902,192 857,239
Furniture and
Fixtures 47,542 47,542 47,542
---------- --------- ----------
1,598,232 1,368,094 1,268,632
Less Accumulated
Depreciation 999,190 860,221 943,070
---------- --------- ----------
$ 599,042 $ 507,873 $ 325,562
========== ========= ==========
Computer equipment with a cost of $88,808 is held under a capital
lease and depreciation of the assets will commence in the first
quarter of fiscal year 2006.
NOTE 4 - LOANS AND OTHER RECEIVABLES
Loans Receivable - Licensee
In March 2005, the Company extended a $250,000 loan to a
licensee. The purpose of the loan was to expand the operations
of the licensee, with the intended impact of increasing the
revenue and profits of the Company. In the past, Allstates has
occasionally provided prepaid advances against earned commissions
of some of its licensees to help with their short term needs.
Such advances, which are considerably smaller in amount, are
deducted from their weekly commission payment and are fully
recouped within three to six months. However, because of the
larger dollar amount involved and the payoff period of three
years, the Company required that the licensee's principals
execute a promissory note as well as their personal guarantees.
The terms of the Note include the payment of the $250,000 loan,
with payments due weekly, commencing on March 21, 2005 and
continuing for a three year period with successive payments each
Monday thereafter, together with interest at the rate charged to
Allstates for its bank line of credit. In the event the interest
rate paid by Allstates on its line of credit is increased or
decreased, the interest rate upon the Note shall increase or
decrease by an equal amount and be effective on the first Monday
following the date of change. Such loan payments due from the
licensee are deducted from the amounts due from Allstates to the
licensee for earned commissions. Because that licensee
consistently generates sufficient commission monies each week to
cover the payments, as well as the personal guarantees of the
principals, the collectibility of the loan receivable at the
balance sheet date is assured. Therefore, management does not
deem an allowance against the loan receivable to be necessary.
Other Receivables
On May 6, 2004, Allstates filed a complaint in Superior Court
against a third party freight brokerage company and its principal
owner for accounts receivable monies due them. On May 27, 2004,
a Stipulation of Settlement was executed whereby the parties
agreed on a settlement in which the defendants, jointly and
severally, agreed to pay Allstates the full sum of $71,763 in
sixty equal monthly installments of $1,196 each. The payment
schedule is interest-free, provided checks are received in a
timely manner. The schedule called for the first payment to
become due on July 15, 2004, with subsequent payments to be due
on the fifteenth day of the remaining months. All scheduled
payments have been received on a timely basis thus far.
NOTE 5 - AMORTIZATION OF GOODWILL AND RELATED ACQUISITION COSTS
Commencing with the fiscal year beginning October 1, 2001, the
Company implemented Statement of Financial Accounting Standards
Statement No. 142, "Accounting for Goodwill and Intangible
Assets", which no longer allows for the amortization of goodwill.
The new statement requires the Company to conduct an annual
goodwill impairment test and write off any decrease in the fair
value of the goodwill in the period of such declined value.
Pursuant to the Company's impairment tests conducted for the
years ended September 30, 2005, 2004 and 2003, no write off of
the carrying value is deemed necessary.
Effective January 1, 2003, the Company ceased amortizing the
costs associated with the acquisition of Audiogenesis by
Allstates and will include such costs in its annual goodwill
impairment test as discussed above. Amortization expense for the
years ended September 30, 2005, 2004 and 2003 were $-0-, $-0- and
$1,166, respectively.
NOTE 6 - OBLIGATIONS UNDER CAPITAL LEASES
Lease payable to VAResources, Inc., due in 2005 2004 2003
monthly installments of $2,662 including ------ ------ ------
interest at 11.37%, due June 2008, $ 73,173 $ - $ -
secured by computer equipment
Less current portion 24,888 - -
------- ------ ------
$ 48,285 $ - $ -
Future minimum payments under capital leases as of
September 30, 2005 are as follows:
2006 $ 31,940
2007 31,940
2008 21,293
----------
Total minimum lease payments 85,173
Less amount representing interest 12,000
----------
$ 73,173
==========
NOTE 7 - LONG-TERM DEBT
The Company's notes payable balance at September 30, 2005 and 2004
consist of the following:
2005 2004 2003
Notes payable from Joseph M. Guido to
the Estate of
A.G. Hoffman, Jr., assumed by the
Company, in the
aggregate originally totaled
$2,511,730, with repayment
over 101 years at annual principal
payments of
$25,000 plus interest at 7% per year.
All or any
of the notes may be paid at any time
before maturity
without any prepayment penalty. In
the event of a
default under the notes by the
Company, Joseph M.
Guido remains personally liable for
the notes, and
the 101 shares of Allstates Air
Cargo, Inc. common
stock held as security under the
notes (representing
48.1% of the issued and outstanding
common stock
of Allstates Air Cargo, Inc.) may be
sold at public or
private sale. Allstates assumed this
obligation as part of the consideration
paid to Mr. Guido in the August 24, 1999
reverse acquisition in which Allstates
(then known as Audiogenesis Systems,
Inc.) acquired from Mr. Guido 100 percent
of the stock of Allstates Air Cargo,
Inc. ("AAC"). The debt owed by Mr.
Guido to the Hoffman estate arose
from the buy/sell agreement between
Mr. Guido and his former partner in
AAC, A.G. Hoffman, and represents the
amount that Mr. Guido was required to pay
the Hoffman estate upon Mr. Hoffman's
death for Mr. Hoffman's share in AAC. $2,361,730 $2,386,730 $2,411,730
Notes Payable to Bank of America in
the aggregate originally totaled $76,903,
with repayment over 36 months with monthly
payments inclusive of interest ranging from
7.90% and 8.50%. These loans are secured
by the vehicles which they relate. - - 3,836
Less: Current Portion 25,000 25,000 25,000
----------- ---------- ----------
$2,336,730 $2,361,730 $2,390,566
=========== =========== ==========
Future maturities for long-term debt as of September
30, 2005 is as follows:
For the fiscal years ended September 30, 2006 25,000
2007 25,000
2008 25,000
2009 25,000
2010 25,000
Thereafter 2,236,730
_________
Total $2,361,730
=========
NOTE 8 - LINE OF CREDIT
Allstates Air Cargo, Inc. has a $2,000,000 line of credit
agreement with a bank, which expires January 28, 2007. Interest
on outstanding borrowings currently accrues at the Wall Street
Journal's (WSJ) prime rate of interest per annum (6.75% as of
September 30, 2005). The interest rate is predicated upon the
Company maintaining a compensating account balance in a non-
interest bearing account equal to at least 10% of the outstanding
principal balance. If, at any time, the Company fails to
maintain the compensating balance, the interest rate will
increase by 1% over the WSJ's prime rate at the time of failure.
The balance outstanding on the line of credit as of September 30,
2005, 2004 and 2003 was $1,599,500, $1,099,500 and $1,149,500,
respectively.
Loan collateral includes the Company's accounts receivable and
the unlimited, unconditional guarantees of Joseph M. Guido,
Teresa Guido and Allstates Allcargo (US), Inc.
NOTE 9 - PROVISION FOR INCOME TAXES
A reconciliation of income tax at the statutory rate to the
Company's effective rate is as follows:
2005 2004 2003
---- ---- ----
Expected Federal
statutory rate 0.00%* 0.000% 0.000%
Expected State statutory
rates (average) 6.975% 8.893% 8.893%
------- ------- ------
Total expected 6.975% 8.893% 8.893%
statutory rate
State Franchise Tax and
Miscellaneous Book to Tax
Adjustments -0.096% 9.654% -2.253%
Deferred income tax
expense (benefit):
Federal 17.664% 29.138% -35.040%
State 4.676% 7.668% -10.310%
------- ------- -------
Income Tax Expense (Benefit) -
Effective Tax Rate 29.219% 55.353% -38.710%
* Due to the net operating loss generated for the year ended
September 30, 2003 and the corresponding carryforwards in
September 30, 2005 and 2004, the expected Federal statutory
rate is deemed to be 0%.
The Company's provision for income taxes as of
September 30, 2005, 2004 and 2003 consist of the following:
2005 2004 2003
---- ---- ----
Current Income Tax Expense
Federal $ 17,850 $ (6,318) $ -
State 40,768 103,067 62,980
------- ------- -------
Total - Current 58,618 96,749 62,980
------- ------- -------
Deferred Income Tax (Benefit) Expense
Federal 150,541 152,000 (332,901)
State 39,848 40,000 ( 97,912)
------ ------ -------
Total - Deferred 190,389 192,000 (430,813)
------ ------- -------
TOTALS $249,007 $288,749 $(367,833)
======== ======= =======
NOTE 9 - PROVISION FOR INCOME TAXES (Continued)
The tax effect of temporary differences that make up the
significant components of the deferred tax asset for financial
reporting purposes at September 30, 2005, 2004 and 2003 are as
follows:
2005 2004 2003
---- ---- ----
Deferred Tax Assets
--------------------
Accounts Receivable $ 113,177 $ 107,500 $ 101,000
Defferred Payable 15,050 43,900 -
Net operating loss 56,755 199,600 389,000
-------- -------- --------
Totals $ 184,982 $ 351,000 $ 490,000
------ ======== ======== ========
Deferred Tax Liabilities
------------------------
Depreciable and
amortizable assets $102,368 $ 78,000 $ 25,000
======== ======== ========
At September 30, 2004 and 2003, the Company had a future income
tax benefit for net write offs of its investment account in one
of its Subsidiaries (Allstates Allcargo (U.S.) Inc.). The
estimated future income tax benefit of this transaction was
approximately $127,000. For consolidated financial statement
purposes, a 100% valuation allowance was recorded by management
in the amount of $127,000 as of September 30, 2004 and 2003, and
therefore, this future estimated tax benefit is not reflected in
these consolidated financial statements.
As of September 30, 2005, the Company will write off its
investment in Allstates Allcargo (US), Inc. for income tax
purposes. The current income tax benefit of this transaction is
approximately $136,000 and is reflected in the current year tax
accrual.
NOTE 10 - NET OPERATING LOSS CARRYFORWARD
Allstates WorldCargo, Inc. (formerly known as Audiogenesis
System, Inc.) generated net operating losses prior to its
acquisition of Allstates Air Cargo, Inc. As a result of the
reverse acquisition, the ownership structure of Worldcargo
changed as of August 24, 1999; thereby limiting and reducing the
future utilization of the Worldcargo net operating loss
carryforwards. These pre-reverse acquisition net operating loss
carryforwards will be limited and reduced based upon the Federal
and New Jersey change in ownership net operating loss
carryforward rules. Any net operating loss carryforwards to
future tax years after limitation and reduction will generally be
available to offset future taxable income of WorldCargo only, and
will not be available to offset any future income of Allstates
Air Cargo, Inc. or any other affiliated corporation. The income
tax provisions do not include any of these pre-reverse
acquisition net operating losses.
Pursuant to a ruling received by the Internal Revenue Service,
effective October 1, 1999, the operating losses incurred by
Allstates Allcargo (UK), LTD. may be offset against taxable
income of Allstates WorldCargo, Inc. in the consolidated filing
of its Federal income tax returns. For tax purposes only,
Allstates Allcargo US Inc. will treat the foreign subsidiary
Allstates Allcargo (UK), LTD. as a disregarded entity and not as
a subsidiary. Therefore, the tax provisions included in these
consolidated financial statements utilize the operating loss for
the fiscal year 2001 incurred by Allstates Allcargo (UK), Ltd. in
calculating the Federal tax liability. There are no gains or
losses in fiscal year 2002 since the foreign entity, Allstates
Allcargo (UK), LTD., was dissolved.
NOTE 11 - PENSION PLAN
Effective May 1994, the Company adopted a discretionary non-
standardized 401(k) profit sharing plan. The terms of the plan
provide for eligible employees who have met certain age and
service requirements to participate by electing to contribute up
to the lesser of 100% of an employees' qualified compensation or
$14,000, $13,000 and $12,000 for the calendar years ended 2005,
2004 and 2003, respectively. The Company may make matching
contributions equal to a discretionary percentage, as determined
by the Company, up to 6% of a participant's salary.
Contributions to the plan for the years ended September 30, 2005,
2004 and 2003 totaled $50,426, $43,493 and $31,378, respectively.
The plan also allows employer discretionary contributions
allocated in accordance with participants' compensation. The
Company did not make any discretionary contributions to the plan
for the years ended September 30, 2005, 2004 and 2003.
NOTE 12 - RELATED PARTY TRANSACTIONS
Allstates Air Cargo, Inc. leases office space located in Forked
River, New Jersey from a majority stockholder of the Company.
Rent expense under these leases totaled $81,600, $81,600 and
$81,600 for the years ended September 30, 2005, 2004 and 2003,
respectively.
The Company has entered into royalty agreements for selected
licensee locations with an officer and director of the Company,
whereby the Company agrees to pay the officer a royalty equal to
5% of the gross profit per the contract. Royalty payments to
this individual for the years ended September 30, 2005, 2004 and
2003 totaled $566,281, $454,607 and $431,789, respectively.
The Company entered into Employment Agreements with four of the
Company's stockholders. The Employment Agreements are effective
through December 31, 2009. The following is a summary of the
terms of these agreements:
Annual Stock
Position Salary Bonus Options
-------- -------- ------ --------
Chairman of the $370,000 3% of fiscal Yes
Board year increase
in net profits of
fiscal year 2004
over fiscal year
2003
President/Chief $250,000 3% of fiscal Yes
Executive year increase
Officer in net profits of
fiscal year 2004
over fiscal year
2003
Executive Vice $250,000 3% of fiscal Yes
President/ year increase
Chief Operating in net profits of
Officer fiscal year 2004
over fiscal year
2003
Chief Financial $185,000 Discretionary Yes
Officer
NOTE 13 - STOCK OPTION PLAN
On October 16, 2000, the Company filed a Form S-8 registration
statement with the Securities and Exchange Commission,
registering 4,500,000 shares of common stock with a $.0001 par
value. The shares are registered on behalf of the Company, and
will be issued pursuant to the Company's "2000 Stock Option and
Stock Issuance Plan". As of September 30, 2005, no stock options
have been issued.
NOTE 14 - DESCRIPTION OF LEASING ARRANGEMENTS
The Company leases certain terminal facilities and its corporate
headquarters under operating leases that expire over the next
four years. These operating leases provide the Company with the
option to renew its lease at the fair rental value at the end of
the lease term. Management expects that leases will be renewed
or replaced by other leases in the normal course of business.
Future minimum lease payments under all leases with initial or
remaining noncancellable lease terms in excess of one year are as
follows as of September 30, 2005:
Years Ending
September 30,
--------------------
2006 585,627
2007 575,967
2008 465,549
2009 78,703
Thereafter -
--------
Total $1,705,846
==========
Rent expense under operating leases for the years ended September
30, 2005, 2004 and 2003 was $551,749, $554,321 and $462,284,
respectively.
NOTE 15 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for: 2005 2004 2003
-------------- ----- ----- -----
Income Taxes $138,429 $ 52,355 $115,091
======== ======== ========
Interest $242,403 $217,367 $226,714
======== ======== ========
NOTE 16 - LITIGATION
The following lawsuits exist between the Company, its
Subsidiaries and other third parties:
Masterbrush, LLC and B&G Plastics, Inc. v. Allstates Logistics,
Inc., and T.H. Weiss, Inc.
On or about December 5, 2005, Masterbrush, LLC ("Masterbrush")
and B&G Plastics, Inc. ("B&G") commenced an action against the
Company's wholly-owned subsidiary Allstates Logistics, Inc.
("ALI") and T.H. Weiss, Inc. ("Weiss"), alleging various causes
of action arising out of the importation by Masterbrush of a
quantity of natural bristle paintbrushes produced in China (the
"Brushes").
The Complaint alleges that plaintiffs retained ALI to expedite
the importation of the Brushes into the United States, that ALI
wrongfully failed to advise plaintiffs that the Brushes were
subject to federal antidumping duties of 351.92 percent (the
"Antidumping Duty") in addition to the 4 percent normal duty, and
that by reason of ALI's (alleged) failure to so advise
plaintiffs, plaintiffs were required by U.S. Customs to pay the
Antidumping Duty, in the amount of $422,282. The plaintiffs seek
to recover compensatory and consequential damages.
NOTE 16 - LITIGATION (Continued)
The action is only recently commenced, and has not progressed
past the service of the Summons and Complaint. The ALI intends
to contest the matter. As of the date of these financial
statements, an opinion of the likelihood of a favorable or
unfavorable outcome, or the amount or range of potential loss has
not been formed.
Liberty Mutual Insurance Company v. Lightning Freight Inc., GTD
Logistics, Inc. and Gilberto Cordova
GTD Logistics ("GTD") is being represented in a matter involving
claims by Liberty Mutual Insurance Company ("Liberty") regarding
freight brokerage services that GTD provided for a shipment that
was stolen. The tractor trailer hauling the shipment allegedly
contained several million dollars of hard disk drives. After the
truck and trailer were stolen, the owner of the contents of the
trailer made a claim against UPS Supply Chain Solutions, the
shipper, who then made a claim against its insurance company, the
plaintiff in this case. Liberty is seeking to recover from GTD
and also the carrier and truck driver the amount that it expended
to cover the loss suffered by its insured, the owner of the
contents of the trailer. The Complaint requests damages of not
less than $1,400,000.
Liberty alleges that when GTD agreed to provide brokerage
services for the shipment of the cargo, GTD also promised to
select a motor carrier with no less than $1 million in cargo
insurance coverage, and to select a carrier that would follow
certain asset protection rules. Plaintiff alleges breach of
contract and negligence against GTD for failure to comply with
these alleged promises. GTD and Lightning Freight, Inc., the
carrier, filed Cross-Complaints against each other and Gilberto
Cordova, the truck driver. Gilberto Cordova never appeared in
the matter and the Court entered a default against him.
The parties have reached a settlement of the action, pursuant to
which GTD will pay the sum of ten thousand dollars ($10,000) in
full and complete settlement of all claims. On March 6, 2006 the
Court granted the parties' Application for Determination of Good
Faith Settlement Pursuant California Code of Civil Procedure,
which would bars any other joint tortfeasor or co-obligor from
any further claims against GTD arising out of the transaction.
The entry of that March 6 Order finalized the settlement of the
action, and on March 8 GTD submitted the settlement payment, thus
completing its obligations under the settlement.
Note 17 - QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following table presents summarized quarterly results for the
fiscal year ended September 30, 2005:
(dollars in thousands)
Q1 Q2 Q3 Q4
Revenues 16,453 15,387 18,663 18,340
Net revenues (after
transportation costs) 4,731 4,867 5,330 5,056
Net income after taxes 65 122 165 252
Basic net income per common
share 0.00 0.00 .01 .01
Diluted net income per common
share 0.00 0.00 .01 .01
The following table presents summarized quarterly results for the
fiscal year ended September 30, 2004:
Q1 Q2 Q3 Q4
Revenues 13,458 12,096 14,566 14,586
Net revenues (after
transportation costs) 4,431 3,970 4,679 4,564
Net income after taxes 155 (76) 165 (11)
Basic net income per common
share 0.00 (0.00) .01 (0.00)
Diluted net income per common
share 0.00 (0.00) .01 (0.00)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
- -------------------- ------- ------------------
Joseph M. Guido 71 Chairman of the Board
Sam DiGiralomo 62 President, CEO, Director
Barton C. Theile 59 Executive Vice President,
COO, Director
Craig Stratton 54 CFO, Secretary,
Treasurer, Director
Joseph Buckelew 76 Director
Alan Meyer 61 Director
Charles F. Starkey 70 Director
None of the above persons is related to any other of the above-named
persons by blood or marriage.
Based upon a review of filings with the Securities and Exchange
Commission and written representations that no other reports were
required, the Company believes that all of the Company's directors
and executive officers complied during fiscal 2005 with the reporting
requirements of Section 16(a) of the Securities Exchange Acts of
1934.
JOSEPH M. GUIDO, Chairman of the Board, is the founder of Allstates
Air Cargo, Inc., having served as its President and CEO from 1961 to
August 1999. Mr. Guido became Chairman of the Board of the Company
upon the acquisition of Allstates Air Cargo, Inc. on August 24, 1999.
Prior to forming Allstates Air Cargo, Inc., Mr. Guido served as a
freight supervisor with American Airlines, and as a sales and station
manager for Air Cargo Consolidators.
SAM DIGIRALOMO, became President, CEO and a director of the Company
upon the acquisition of Allstates Air Cargo, Inc. on August 24, 1999.
Prior to such acquisition, Mr. DiGiralomo had served as the President,
Treasurer, CEO and a director of Audiogenesis Systems, Inc. since it
was formed in January, 1997. From July 1981 through January 1997, Mr.
DiGiralomo had been the President of the predecessor of Audiogenesis
Systems, Inc., Genesis Safety Systems, Inc. Mr. DiGiralomo has more
than 20 years of management and marketing experience. He has
lectured at various trade associations and universities, and designed
and authored several employee training programs.
BARTON C. THEILE, became Executive Vice President, COO and a director
of the Company upon the acquisition of Allstates Air Cargo, Inc. on
August 24, 1999. Prior to such acquisition, Mr. Theile had served
Allstates Air Cargo, Inc., as a sales representative, operations
manager, Executive Vice President and COO over a period of 19 years.
In addition to his experience at Allstates, Mr. Theile was President
of Cargo Logistics Group, LLC. Mr. Theile has been involved in sales,
marketing operations and administration in the transportation industry
for over 25 years.
CRAIG STRATTON, became CFO, Secretary, Treasurer and a director of the
Company upon the acquisition of Allstates Air Cargo, Inc. on August
24, 1999. Prior to such acquisition, Mr. Stratton served as Chief
Financial Officer for Allstates Air Cargo, Inc. since November 1997.
Before joining Allstates, for three years, Mr. Stratton held the
position of Corporate Controller for Programmer's Paradise, Inc. a
cataloger and distributor of technical software. From 1990 through
1994, he was Controller for Baronet Corporation, an importer and
distributor of leather goods accessories. From 1981 through 1990, he
was employed by the finance department of Contel IPC, a specialty
telephone systems manufacturer and service provider, where he held
various positions of increasing responsibility in corporate
accounting, including an appointment to Assistant Controller in 1987.
In 1973, Mr. Stratton received his B.S. in accounting, and in 1980 he
earned his MBA. Mr. Stratton has been a CPA since 1986.
JOSEPH BUCKELEW, became a director on July 6, 2005. Mr. Buckelew is
presently the President of Commerce Bank/Shore Division and Vice
Chairman of Commerce insurance Services. He is also currently Vice
Chairman of the New Jersey Sports and Exposition Authority. Mr.
Buckelew is presently on the Board of Directors of Commerce
Bank/Shore, N.A. and a former Vice Chairman of the Board of Directors
of Jersey Shore Savings & Loan Association. He is the former Chairman
of the Ocean County Board of Elections and of the Ocean County
Pollution Control Financing Authority. He is also Chairman of the
Ocean County College Foundation and a Member of the Committee and Vice
Chairman of the Kimball Medical Center Foundation, Inc. Mr. Buckelew
served as Chairman of the New Jersey highway Authority for seven
years. He is also on the Board of Trustees of Saint Barnabas Health
Care System.
ALAN MEYER, became a director on July 6, 2005. Mr. Meyer is a
certified public accountant, and has for the past five years, been a
principal in the firm of Hutchins Farrell, Meyer & Allison PA,
Certified Public Accountants.
CHARLES F. STARKEY, became a director on July 6, 2005. Mr. Starkey is
a partner in the law firm of Starkey, Kelly, Bauer & Kenneally. In
1961 he received his J.D. degree from Seton Hall University, and was
an assistant prosecutor of Ocean County from 1964 to 1967. He served
as a Commissioner, New Jersey Highway Authority from 1976 to 1986. He
also served as Special Counsel for the Township of Lakewood and as
Township Attorney for Brick Township.
Audit Committee and Code of Ethics
The Company does not presently have an audit committee, nor a Code of
Ethics for its principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions, because the Company is not a listed
company, and therefore is not required to do so.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
EXECUTIVE COMPENSATION
Summary Compensation Table
Annual Compensation Long term compensation
----------------------- --------------------------
Name and Year Salary Bonus Other Awards All
Principal ($) ($) Annual Restrict- Options/ LTIP Other
Position Compen- ed Stock SARs(#) Pay- Compensa-
sation ($) ($) outs($) tion ($)
- ---------- ---- ------- ----- --------- --------- --------- ------ --------
J. 2005 339,233 44,153 88,200(2)
Guido, 2004 329,811 81,600(1)
Chairman 2003 311,818 81,600(1)
of the
Board
Sam 2005 228,677 44,153 566,281(3)
DiGiralomo, 2004 216,000 526,957(4)
President, 2003 208,000 413,864(3)
CEO
B. Theile, 2005 227,674 44,153 23,023(7)
COO, 2004 213,948 23,013(6)
Exec. VP 2003 206,316 9,271(5)
Craig
Stratton, 2005 169,262 7,500(8)
CFO, 2004 148,077 7,800(8)
Secretary, 2003 129,039 7,800(8)
Treasurer
(1) Rental income from leasing of Forked River corporate office
(2) Rental income from leasing of Forked River corporate office
($81,600), and car allowance for use of personal vehicle ($6,600)
(3) Royalties paid in connection with site licensing agreements
(4) Royalties paid in connection with site licensing agreements
($454,607), and reimbursement of income taxes due IRS in connection
with insurance settlement ($72,350).
(5) Car allowance for use of personal auto ($7,800) and commission
paid for management services to GTD Logistics, Inc. ($1,471)
(6) Car allowance for use of personal auto ($7,800) and commission
paid for management services to GTD Logistics, Inc. ($15,213)
(7) Car allowance for use of personal auto ($7,500) and commission
paid for management services to GTD Logistics, Inc. ($15,523)
(8) Car allowance for use of personal auto
On June 6, 2005, the Company entered into individual employment
agreements with each of the Executives. The employment agreements are
effective as of April 5, 2005, and expire on December 31, 2009, but
may be extended if agreed to in writing by the parties. The
following is a summary of the terms of these agreements:
Annual
Name/Position Salary Bonus
Joseph M. Guido, $370,000 3% of fiscal year
Chairman of increase in net profits
The Board from fiscal year end 2003
to fiscal year end 2004
Sam DiGiralomo, $250,000 3% of fiscal year
President/Chief increase in net profits
Executive Officer from fiscal year end 2003
to fiscal year end 2004
Barton M. Theile, $250,000 3% of fiscal year
Executive Vice President/ increase in net profits
Chief Operating Officer from fiscal year end 2003
to fiscal year end 2004
Craig D. Stratton, $185,000 At the discretion of
Chief Financial Officer the Board of Directors
Under the terms of their respective employment agreements, each
individual has agreed to work full time. The agreements also provide
for health and life insurance benefits, participation in the Company's
401(k) plan, disability benefits, expense reimbursements,
indemnification from civil or criminal actions arising out of the
Executive's employment, financial and tax advice, tax "gross-up"
provisions, severance pay, and payments in the event of a change of
control.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the beneficial ownership of the
Common Stock of the Company as of December 20, 2005 by each person who
was known by the Company to beneficially own more than 5% of the
common stock, by each director and executive officer who owns shares
of common stock and by all directors and executive officers as a
group:
No. of Shares
Title Name and Address and Percent
of of Beneficial Owner Nature of of
Class Beneficial Class(1)
Ownership
Common Joseph M. Guido 19,010,000(2) 58.47%
4 Lakeside Drive South
Forked River, NJ 08731
Common Sam DiGiralomo 3,850,000 11.84%
7 Doig Road, Suite 3
Wayne, NJ 07470
Common Barton C. Theile 500,000 1.54%
4 Lakeside Drive South
Forked River, NJ 08731
Common Craig D. Stratton 200,000 0.61%
4 Lakeside Drive South
Forked River, NJ 08731
All Officers and Directors as a Group 24,050,000 72.46%
__________________
(1) Based upon 32,509,872 shares outstanding as of December 28,
2005.
(2) Comprised of 18,250,000 shares owned by Joseph Guido and 760,000
shares owned by Teresa Guido, wife of Joseph Guido.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's $2,000,000 line of credit, which expires January
31, 2006, is personally guaranteed by Joseph M. Guido, Chairman of the
Board of the Company, and Teresa Guido, his wife.
The Company leased real estate in one location from Joseph M.
Guido during Fiscal 2005. Rent expense under this lease totaled
$81,600 for the year ended September 30, 2005. The Company believes
that this lease is commensurate with the terms which could be obtained
from an unaffiliated third party.
Prior to his becoming President, CEO and a director of the
Company, the Company entered into royalty agreements for its Los
Angeles and Chicago licensee locations with Sam DiGiralomo, whereby
the Company agreed to pay Mr. DiGiralomo a royalty equal to 5% of the
gross profit per the contract. Similar royalty agreements have since
been executed and are active which encompass its Minneapolis, San
Francisco, Indianapolis, Philadelphia, Boston, Dallas, Atlanta,
Raleigh, Detroit and Nashville licensee locations. Royalty payments
to Mr. DiGiralomo for the year ended September 30, 2005 totaled
$566,281.
Pursuant to the Stock Purchase Agreement and Plan of
Reorganization between Audiogenesis Systems, Inc. and Allstates Air
Cargo, Inc., the Company assumed 101 Notes payable from Joseph M.
Guido to the Estate of A.G. Hoffman, Jr., aggregating $2,511,730 in
principal, with repayment over 101 years at annual principal payments
of $25,000 plus interest at 7% per year. All or any of the notes may
be paid at any time before maturity without any prepayment penalty. In
the event of a default under the notes by the Company, Joseph M. Guido
remains personally liable for the notes and the 101 shares of
Allstates Air Cargo, Inc. common stock held as security under the
notes (representing 48.1% of the issued and outstanding common stock
of Allstates Air Cargo, Inc.) may be sold at public or private sale.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Our independent auditing firm during the fiscal years ended
September 30, 2005 and September 30, 2004 was Cowan, Gunteski and Co.,
who have audited our financial statements since fiscal 1999. All
audit and permissible non-audit services provided by Cowan, Gunteski
and Co. are pre-approved by the Allstates Board of Directors, as the
Company is not required to have an audit committee at the present
time. The fees of Cowan, Gunteski and Co. billed to the Company for
each of the last two fiscal years for audit services and other
services are shown below:
Audit fees. Cowan, Gunteski and Co. billed us an aggregate of $80,167
and $102,824 during fiscal 2005 and 2004 for professional services
rendered for the audit of the Company's financial statements and the
review of the interim financial statements included in the Company's
quarterly reports.
Audit-related fees. During the fiscal years ended September 30, 2005
and 2004, Cowan, Gunteski and Co. did not provide or bill for any
audit-related services that were not covered under audit fees.
Tax fees. The aggregate fees billed during fiscal 2005 and 2004 for
tax services rendered by Cowan, Gunteski and Co. were $24,723 and
$24,599, respectively.
All other fees. During the fiscal years ended September 30, 2005 and
2004, Cowan, Gunteski and Co. did not provide or bill for other
services that were not included above.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) The following exhibits are filed pursuant to Item 601 of
Regulation S-K.
Exhibit Description
No.
3.01* Articles of Incorporation of Audiogenesis Systems,
Inc. dated January 14, 1997 filed as an exhibit to
Registrant's Registration Statement on Form 10-SB,
filed October 23, 1998
3.02* By-laws of Registrant, filed as an exhibit to
Registrant's Registration Statement on Form 10-SB,
filed October 23, 1998
10.01* Echlocation Technology License Agreements, filed as
an exhibit to Registrant's Registration Statement on
Form 10-SB, filed October 23, 1998
10.02* Agreement with Allstates Air Cargo, Inc. dated
9/18/98, filed as an exhibit to Registrant's
Registration Statement on Form 10-SB, filed October
23, 1998
10.03* Promissory Note to Marshall E. Levine Ph.D. Profit
Sharing Plan, filed as an exhibit to Registrant's
Registration Statement on Form 10-SB, filed October
23, 1998
10.04* Genesis Safety Systems, Inc. Stock Option Plan, filed
as an exhibit to Amendment No. 1 to Registrant's
Registration Statement on Form 10-SB, filed March 11,
1999
10.05* Stock Purchase Agreement and Plan of Reorganization
dated June 30, 1999, filed as an exhibit to
Registrant's Form 8-K filed July 12, 1999
10.06* Employment Agreement with Joseph M. Guido, , filed as
an exhibit to Registrant's Form 8-K filed September
9, 1999
10.07* Employment Agreement with Sam DiGiralomo, filed as an
exhibit to Registrant's Form 8-K filed September 9,
1999
10.08* Employment Agreement with Barton C. Theile, filed as
an exhibit to Registrant's Form 8-K filed September
9, 1999
10.09* Certificate of Amendment to the Certificate of
Incorporation of Registrant changing the name of the
corporation from Audiogenesis Systems, Inc. to
Allstates WorldCargo, Inc., filed as an exhibit to
Registrant's Form 8-K filed December 1, 1999
11.01+ Statement re: Computation of Earnings per Share
21.01* List of Subsidiaries of Registrant, filed as an
exhibit to Registrant's Registration Statement on
Form 10-SB, filed October 1, 1999
31.1+ Certification of Registrant's Chief Executive
Officer, Sam DiGiralomo, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2+ Certification of Registrant's Chief Financial
Officer, Craig D. Stratton, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1+ Certification of Registrant's Chief Executive
Officer, Sam DiGiralomo, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2+ Certification of Registrant's Chief Financial
Officer, Craig D. Stratton, pursuant to Section 906of
the Sarbanes-Oxley Act of 2002.
* Filed previously, incorporated herein by reference
+Filed herewith
(b) Reports on Form 8-K: No reports on Form 8-K were filed during
the last quarter of the period covered by this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALLSTATES WORLDCARGO, INC.
BY: /s/ Sam DiGiralomo
President and CEO
DATED: May 17, 2006
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
Signature Title Date
By: /s/ Joseph M. Guido Chairman of the Board of May 17,
Directors 2006
By: /s/ Sam DiGiralomo President, CEO and May 17,
Director 2006
By: /s/ Barton C. Theile Executive Vice President, May 17,
COO and Director 2006
By: /s/ Craig D. Secretary, Treasurer, and May 17,
Stratton Chief Financial Officer 2006
(Principal Financial
Officer and Principal
Accounting Officer)