U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K
(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, 2007
[ ] 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 Rule 12b-2 of the Act. Yes [ ] No [x]
The number of shares of Common Stock outstanding as of December 27, 2007
was 32,509,872 shares.
At December 27, 2007, 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 21 offices throughout the
United States, including the corporate headquarters, and employs 93
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
affect certain cost savings.
Marketing and Licensing
Allstates markets its services through a network of 20 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 20 branch
locations, 14 are licensees operations, while 6 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.
Information Systems
A primary component of our business strategy is the continued
development of its information technology. We have invested
substantial management and financial resources to upgrade and improve
our information systems in an effort to provide leading edge
technology to customers and employees. Our initiatives include the
rollout of a new freight tracking and accounting system and the
implementation of a new warehouse management system.
Highlights of the new freight tracking system include:
.. Microsoft Windows(R)-based freight tracking system with the
infrastructure and functionality to process the most complex
processes as well as manage significant increases in
shipment count
.. Automatic service performance tracking and reporting
.. Advanced features for multi-station management, operations, and
accounting, providing real-time information for all users
.. 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 (Electronic Data Interchange) 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
The Company is rolling out the new system on a station-by-station
basis. Through the end of December 2007, all but three of the
Company's stations have converted to the new tracking system.
Management expects the full conversion to be completed by the end of
the second quarter of fiscal 2008.
The warehouse management system, which was placed in service during
the first quarter of fiscal 2008, provides Allstates with the ability
to keep track of and provide multiple customers with accurate, up to
the minute information on key inventory records, and to bill for those
services provided. It is a fully integrated system providing but not
limited to such features as client web access, EDI interface, and bar-
code interface.
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 2007, no customer accounted for more than 10% of
revenues. Over the 45 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 19, 2007, the Company employed a total of 93
individuals. Allstates Air Cargo, Inc. and subsidiaries accounted for
91 employees (of which 5 are part time), including 51 in operations
and customer service, 12 in sales, marketing and related activities, 3
in management information systems, and 25 in administration and
finance. Audiogenesis Systems, Inc. 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
2007, the maximum contribution allowed by the Code was the lesser of
100% of an employees' compensation, or $15,500. Participants who
attained age 50 prior to the close of the plan year are eligible to
make catch-up contributions of an additional $5,000, 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, 2007.
Audiogenesis Systems Inc.
Sales of Safety Equipment.
Audiogenesis Systems, Inc., a wholly owned subsidiary of
Allstates WorldCargo, Inc., 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. Company leased properties generally run for an
average term of three years and are scheduled to expire between fiscal
2008 and fiscal 2009. The total rent expense for company leased
facilities was approximately $611,000 during fiscal 2007. 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, 2007 were:
Los Angeles, California Nashville, Tennessee
Kenilworth, New Jersey Miami, Florida
St. Louis, Missouri Houston, Texas
Jacksonville, Florida Indianapolis, Indiana
Pittsburgh, Pennsylvania Detroit, Michigan
Philadelphia, Birmingham, Alabama
Pennsylvania
Atlanta, Georgia Raleigh, North Carolina
Boston, Massachusetts San Francisco, California
Chicago, Illinois San Diego, California
Kansas City, Missouri Wayne, New Jersey
ITEM 3. LEGAL PROCEEDINGS
Environmental matter
As previously reported, the Company has been involved in an
ongoing environmental proceeding pertaining to five underground
storage tanks and two above ground storage tanks that were removed
from a facility in which the Company leased office space at the time
prior to 1997. Also as previously reported, the Company performed
certain remedial work and monitoring as required by the New Jersey
Department of Environmental Protection (the "NJDEP"), and at the
NJDEP's request, the Company submitted proposal that no further action
was required. The NJDEP 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.
As previously reported, 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 indicated that the
monitoring wells were destroyed and that abandonment was not feasible.
In order to resolve the matter administratively with DEP,
Allstates was required to proceed through NJDEP's Notice of Non-
Compliance process for lost or destroyed wells. This process required
that the party demonstrate that it made an appropriate effort to find
and properly abandon the wells, but that abandonment was not possible.
Documentation was submitted by counsel to the NJDEP 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. We were successful in
proceeding through the NJDEP's Notice of Non-Compliance process. In
lieu of the proper abandonment, DEP assessed a penalty of $3,000
($1,000 per well), which amount has been paid by the site purchaser.
No further costs will be incurred to address this issue, which is now
fully resolved.
On March 21, 2007, DEP issued a letter requiring the submission
of a Biennial Certification concerning the groundwater Classification
Exception Area ("CEA") established for the site at the time of the
2002 No Further Action Letter. The CEA projected when remaining
groundwater contamination would naturally degrade and groundwater
would comply with DEP's groundwater cleanup standards. The request
was unexpected given DEP's prior indications that it would not require
Biennial Certifications on closed matters. The Biennial Certification
was submitted to DEP on September 14, 2007, and was approved by DEP,
but required that Allstates conduct groundwater sampling to
demonstrate that groundwater now complies with DEP's groundwater
cleanup standards.
Carpenter Environmental Associated, Inc. ("Carpenter") collected
groundwater samples on November 30, 2007 and anticipates receipt of
sample results by the end of the year. If the sample is clean, a
second sample will be collected in the first calendar quarter of 2008
to confirm the results, which will then be submitted to DEP with the
proposal that no further sampling be required. The estimated cost of
sampling and reporting is approximately $6,000 to $10,000, of which
$3,000 is to be reimbursed by the purchaser pursuant to the Agreement
of Sale which entitles Allstates to up to $3,000 per year for
reporting and monitoring costs associated with the CEA.
If the November 30, 2007 sampling results indicate that
contamination in groundwater has not reached DEP cleanup criteria, DEP
will require submission of a revised CEA projecting when contamination
will naturally degrade followed by sampling to confirm the accuracy of
the new projection and reporting of the data. The estimated costs of
the revised CEA, should it be required, and the associated sampling
and reporting, is approximately $15,000 to $25,000, up to $6,000 of
which is to be reimbursed by the purchaser pursuant to the Agreement
of Sale.
Should a revised CEA be required, Biennial Certifications will be
required to be submitted every two years at a cost of approximately
$2,500 to $4,000. Purchaser is obligated to reimburse Allstates up to
$3,000 per year of these costs unless otherwise exhausted. The number
of Biennial Certifications that may need to be submitted under those
circumstances cannot be predicted.
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 has responded to their requests
for information. Any costs incurred by Allstates in connection with
the current year issues will be pursued from its insurance carriers.
Company counsel will defer further settlement discussions with the
insurance carriers until groundwater is confirmed to meet DEP cleanup
standards.
Masterbrush, LLC and B&G Plastics, Inc. v. Allstates Logistics, Inc.
and T.H. Weiss, Inc.
As previously reported, 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 alleged 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 case settled in November 2006, and the Complaint was dismissed
without any admission of liability or payment of any money by the
Company.
Autosplice, Inc. v. Allstates WorldCargo, Inc.
On or about November 30, 2006, a complaint was filed against the
Company in the Superior Court of California, County of San Diego,
Docket No. GIC876245. In that case, the plaintiff alleged breach of
contract and tortious behavior in connection with a shipment of
equipment handled by the Company. The plaintiff alleged that it was
damaged in the amount of $139,378.96, which it sought to recover. The
plaintiff has reserved the right to seek punitive damages in the
amount of $400,000.
On June 11, 2007, the parties entered into a written Settlement
Agreement pursuant to which the Company agreed to pay plaintiff the
sum of $10,600 in full settlement of its claim, while at the same time
the plaintiff agreed to pay the Company the sum of $5,362.02 for
outstanding freight charges, for a net recovery by plaintiff of
$5,237.98. The Company's insurance carrier paid the full amount of the
settlement payment ($10,600) to plaintiff (less the applicable $1,000
deductible).
On June 19, 2007, the Court dismissed the action, with prejudice,
pursuant to a Joint Stipulation of Dismissal.
Allstates Air Cargo, Inc. v. Dan Gustafson & C.A.S.S. Group, Inc.
On or about January 15, 2007, the Company's subsidiary Allstates Air
Cargo, Inc. ("AAC") received a letter from C.A.S.S. Group, Inc.
("C.A.S.S."), its licensee in Minnesota and parts of Wisconsin,
allegedly declaring AAC in default under the parties' September 20,
1999 Licensing Agreement. The letter alleged that AAC was wrongfully
competing with C.A.S.S. in its exclusive territory, that AAC had
failed to pay C.A.S.S. certain amounts said to be due under the
Licensing Agreement, that AAC had promised to pay for certain computer
equipment and had failed to, and that AAC had promised to make certain
sales materials and promotional items available to C.A.S.S. at AAC's
cost and had failed to. In the letter, C.A.S.S. stated that if AAC
failed to cure these alleged defaults by February 15, 2007, C.A.S.S.
would exercise its alleged right to terminate the Licensing Agreement.
On or about January 31, 2007, AAC commenced an arbitration proceeding
against C.A.S.S. and its principal, Dan Gustafson ("Gustafson"), under
the auspices of the American Arbitration Association, in East
Providence, RI, under Claim Number 14 125 00174 07 (the "Arbitration
Proceeding"), in which AAC sought a declaration that AAC was not in
default, that AAC had cured any existing default, and/or that any
existing default was immaterial and was not a basis for termination of
the Licensing Agreement.
By letter dated February 19, 2007, C.A.S.S. notified AAC that C.A.S.S.
considered AAC to have failed to cure the alleged defaults, and that
C.A.S.S. was exercising its purported right to terminate the Licensing
Agreement as of the close of business, February 19, 2007.
On or about February 20, 2007, C.A.S.S. and Gustafson interposed a
Counterclaim in the Arbitration Proceeding against AAC, and also
setting forth a Third-Party Claim against AAC's president, Sam
DiGiralomo ("DiGiralomo"), setting forth, in substance, the same
allegations as in the their letter.
On or about March 30, 2007, the parties settled their dispute pursuant
to a written Settlement Agreement, pursuant to which the Licensing
Agreement was terminated in return for a series of payments to the
Company over a period of three years.
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, 2007. 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)
2003 2004 2005 2006 2007
STATEMENT OF OPERATIONS DATA
Revenues $46,293 $54,705 $68,842 $71,217 $74,894
Income (loss) from operations (326) 727 1,086 449 886
Net income (loss) (582) 233 603 80 321
Basic net income (loss) per
common share ($.02) $.01 $.02 $.00 $.01
Diluted net income (loss) per
common share ($.02) $.01 $.02 $.00 $.01
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 $1,050 $1,081 $1,527 $ 1,369 1,732
Total assets 8,287 9,787 12,699 12,807 12,768
Liabilities - current 6,338 7,577 9,838 9,896 9,612
Liabilities - long term 2,412 2,440 2,487 2,457 2,381
Total stockholders' equity (462) (229) 374 454 775
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,
2007 2006 2005
--------------------------------
Revenues 100.0% 100.0% 100.0%
Cost of transportation 70.1 70.9 71.0
----- ----- -----
Gross profit 29.9 29.1 29.0
Operating expenses:
Personnel costs 9.2 9.7 9.8
License commissions and royalties 13.7 12.7 11.5
Other selling, general and
administrative expenses 5.8 6.1 6.1
----- ----- -----
Total operating expenses 28.7 28.5 27.4
Operating income 1.2 0.6 1.6
Interest expense, net (0.5) (0.4) (0.4)
Other income/(expense) 0.1 0.1 0.0
----- ----- -----
Net income before tax provision 0.8 0.3 1.2
Tax provision (0.4) (0.2) (0.3)
----- ----- -----
Net income 0.4% 0.1% 0.9%
REVENUES
Fiscal 2007 vs. fiscal 2006
The revenues of Allstates WorldCargo represent gross consolidated
sales less customer discounts. During the fiscal year ended September
30, 2007, sales increased by approximately $3.7 million, or 5.2%, to
74,894,000, over the previous fiscal year ended September 30, 2006,
reflecting an overall increase in volume of freight shipped. Domestic-
routed freight revenues increased by $1,175,000, or 2.1%, to
$57,354,000 over the previous fiscal year, while international freight
revenues increased by $2,502,000, or 16.6%, to $17,541,000 over that
earned in the prior fiscal year.
The increase in domestic revenues in fiscal 2007 compared to the
prior year reflects net incremental growth at our existing branch
locations as well as business derived from a new branch location that
began operations during the first quarter of fiscal 2007. Domestic
sales increased despite the adverse affect of Allstates' termination
of the contractual relationship with our Chicago and Minneapolis
branch licensees during the second quarter of fiscal 2006 and the
second quarter of fiscal 2007, respectively. During the twelve month
period ended September 30, 2007, the terminations of those contracts
accounted for a combined loss of domestic revenue of approximately
$3.2 million as compared to the same period ended September 30, 2006.
As well, the increase in international revenues was attained despite
an approximate loss of $1.2 million of sales resulting from the
terminations of those contracts, reflecting incremental growth at
existing stations.
Fiscal 2006 vs. fiscal 2005
Sales increased for the fiscal year ended September 30, 2006 by
approximately $2.4 million, or 3.5%, to 71,217,000, over the previous
fiscal year ended September 30, 2005, reflecting an overall increase
in volume of freight shipped. Domestically-routed freight revenues
increased by $1,337,000, or 2.4%, to $56,179,000 over the previous
fiscal year, and international freight revenues increased by
$1,038,000, or 7.4%, to $15,038,000 over that earned in the prior
fiscal year.
Domestic sales increased in fiscal 2006 compared to the prior
year despite the adverse affect of Allstates' termination of the
contractual relationship with our Chicago branch licensee during the
second quarter of the year. Although management determined that the
termination of the agreement was a necessary and prudent decision,
domestic revenue for that branch alone decreased from the previous
fiscal year by approximately $2,229,000. The growth in international
revenues primarily reflects an increase in air export business.
NET REVENUES
Fiscal 2007 vs. fiscal 2006
Net revenues represents the Company's revenue 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. In terms of percentage of
revenues, the total cost of transportation decreased by 0.8%, to 70.1%
of sales for the fiscal year ended September 30, 2007 in comparison to
the fiscal year ended September 30, 2006. The cost of transportation
percentage on domestic-routed freight decreased by 1.0%, primarily due
to a combination of improved margins on selected distribution
business, as well as the elimination of low margin business that
resulted from the termination of the contractual relationship with our
Chicago and Minneapolis branch licensees. The cost percentage on
international shipments decreased by 0.7% of sales primarily due to
growth in higher margin air export business that was attained during
the first and second quarters of the fiscal year. In absolute terms,
cost of transportation increased by $2,040,000, or 4.0%, to
$52,534,000 for the fiscal year ended September 30, 2007 compared to
the prior fiscal year, reflecting the increase in sales. Gross
margins, which are stated as a percentage of net revenues to gross
sales, increased to 29.9% of sales for fiscal 2007. Net revenues
increased by $1,637,000, or 7.9%, to $22,360,000 in fiscal 2007 versus
fiscal 2006.
Fiscal 2006 vs. fiscal 2005
As a percentage of revenues, the total cost of
transportation was stable for the fiscal year ended September 30, 2006
in comparison to the fiscal year ended September 30, 2005, decreasing
by 0.1%, to 70.9% of sales. The cost of transportation percentage on
international shipments decreased by 1.4% primarily reflecting growth
in higher margin air export freight, while the cost percentage on
domestic shipments increased slightly by 0.2% of sales primarily due
to the continued growth in selected lower margin distribution
business. In absolute terms, cost of transportation increased by
$1,636,000, or 3.3%, to $50,494,000 for the fiscal year ended
September 30, 2006 compared to the prior fiscal year, reflecting the
increase in sales. Gross margins, which are stated as a percentage of
net revenues to gross sales, increased to 29.1% of sales for fiscal
2006. Net revenues increased by $740,000, or 3.7%, to $20,723,000 in
fiscal 2006 versus fiscal 2005.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Fiscal 2007 vs. fiscal 2006
Selling, general and administrative expenses include personnel
costs, licensee commissions and other costs necessary to operate our
business. SG&A expenses increased as a percentage of revenues by
0.2%, to 28.7%, for the fiscal year ended September 30, 2007 when
compared to the prior fiscal year ended September 30, 2006. In
absolute terms, operating expenses increased by approximately
$1,200,000, or 5.9%, to $21,474,000. The increase in operating cost
expenditures primarily reflects higher licensee commissions, bad debt
and cargo insurance expense, offset by reduced legal fees and computer-
related expenses.
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 $1,131,000 in fiscal 2007 over fiscal 2006.
The higher expense primarily reflects the full year effect of the
change in status of our Newark, NJ branch from a company-owned branch
location to a licensee operated station effective April 1, 2006.
When a company-owned station changes status to that of a licensee
operated station, the commission expense that is incurred is offset in
part by savings realized from the elimination of normal operating
expenses, such as personnel and facilities costs. As a percentage of
revenues, licensee commissions and royalties increased by 1.0%, to
13.7% of sales, in fiscal 2007.
Bad debt expense increased by approximately $238,000 for the
fiscal year ended September 30, 2007 in comparison to the prior fiscal
year. This increase reflects a balance write-off of approximately
$328,000 for an international customer who filed for bankruptcy during
the fourth quarter of the fiscal year.
Cargo insurance increased by approximately $102,000 during the
twelve months ended September 30, 2007, as compared to the same period
of the previous year. Cargo insurance expense, which is based on the
amount of revenue, shipment weight and declared value for the
comparative periods, was higher due to increases in those variables.
Legal fees decreased for the fiscal year ended September 30, 2007
by approximately $179,000 in comparison to the prior year period ended
September 30, 2006, reflecting a reduced requirement for services from
outside counsel during the year in support of Company issues.
MIS fees decreased by approximately $95,000 for the fiscal year
ended September 30, 2007 in comparison to the prior year period. The
Company has been transitioning to a new computer system during the
year, and with less dependence on the older system, our maintenance
requirements on that computer system, which are serviced by an outside
tech firm, have been reduced. Expenditures against the new system
have primarily been for long-term enhancements and are capitalized on
our balance sheet. In addition, many of the maintenance issues on the
new system are handled by our in-house IT staff.
Salary expense for sales and operations personnel decreased by
approximately $144,000 during the fiscal year ended September 30, 2007
in comparison to the fiscal year ended September 30, 2006. While
Allstates realized savings of approximately $580,000 in salary expense
as a result of the Newark branch becoming a licensee-operated location
at April 1, 2006, those savings were offset by increased salary
expense at other company stations in order to sustain growth at those
locations. Sales commission expense increased by approximately
$92,000 during the fiscal year, reflecting higher revenue at company
stations.
Fiscal 2006 vs. fiscal 2005
SG&A expenses increased as a percentage of revenues by 1.1%, to
28.5%, for the fiscal year ended September 30, 2006 when compared to
the prior fiscal year ended September 30, 2005. In absolute terms,
operating expenses increased by approximately $1,376,000, or 7.3%, to
$20,274,000. The increase in operating cost expenditures can be
primarily attributed to a combination of higher licensee commission,
personnel and facilities costs.
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 $1,207,000 in fiscal 2006 over fiscal 2005.
The higher expense is primarily due to the change in status of our
Newark, NJ branch from a company-owned branch location to a licensee
operated station effective April 1, 2006. While licensee commissions
and royalties expensed to that station totaled approximately
$1,054,000 in fiscal 2006, the Company realized comparative savings of
approximately $830,000 from fiscal 2005 due to the elimination of
normal operating expenses at that branch, primarily in personnel and
facilities related costs. A net increase in gross profits at our
other licensee locations accounts for the balance of the increase in
licensee commissions. As a percentage of revenues, licensee
commissions and royalties increased by 1.2%, to 12.7% of sales, in
fiscal 2006.
Personnel costs increased overall by approximately $157,000
during the fiscal year ended September 30, 2006, despite a savings in
personnel costs at our Newark station of approximately $551,000. The
increase primarily reflected higher salary and related expenses for
operations and corporate personnel. During the year, Allstates added
to headcount of operations personnel at other company stations, as
well as corporate personnel, necessary to sustain the growth in
business volume and support the Company's infrastructure. Corporate
salary expense was also higher due to the full year effect of new
employment agreements that were ratified during the third quarter of
fiscal 2005.
Rent expense increased approximately $85,000 over the previous
fiscal year, net of a comparative decrease in rent at the Newark
station of approximately $78,000. The increase was driven by new
warehouse leases at two of our company stations.
Expenses related to business travel and entertainment increased
by approximately $76,000 during the fiscal year ended September 30,
2006 in comparison to the same period of the prior year, primarily
reflecting the increased business volume.
Fees accrued on behalf of the Company's three Directors that were
appointed during the fourth quarter of fiscal 2005 amounted to $75,000
for the fiscal year. Those Directors were dismissed by majority vote
prior to the end of the 2006 fiscal year.
Bad debt expense increased for the fiscal year ended September
30, 2006 in comparison to the previous fiscal year by approximately
$108,000. This increase is due in part to a negotiated settlement
payment of $45,000 the Company made during the fiscal year for the
return of funds received from a customer who had filed for Chapter 11
bankruptcy status in 2005, as well as a $25,000 downward adjustment
made to the reserve account during the second quarter of fiscal 2005.
MIS fees increased by approximately $94,000 for the fiscal year
ended September 30, 2006 in comparison to the prior year period, which
is primarily a result of our using two computer systems during the
transition from our older system to the new system. Such costs
include fees for training, troubleshooting and system enhancement on
the new Air-Trak computer system, in addition to costs associated with
the maintenance of our current system.
Depreciation expense increased by approximately $73,000 in fiscal
2006 versus fiscal 2005 primarily due to Allstates purchase of the Air-
Trak related software and hardware.
Legal fees decreased by approximately $374,000 during the fiscal
year ended September 30, 2006 as compared to fiscal 2005. During
fiscal 2005, legal fees were driven to a higher level as a result of
Allstates defense and settlement effort related to an action commenced
by a majority shareholder against the Company.
OPERATING INCOME
Income from operations increased by approximately $437,000 for
the fiscal year ended September 30, 2007, to $886,000, versus the
fiscal year ended September 30, 2006, primarily reflecting the
increase in sales volume. The operating margin increased by 0.6%,
to 1.2% of total revenue during fiscal year 2007.
Income from operations decreased by approximately ($637,000) for
the fiscal year ended September 30, 2006, to $449,000, versus the
fiscal year ended September 30, 2005, primarily reflecting the
increase in operating expenses. The operating margin decreased by
(1.0%) during fiscal year 2006, also reflecting the increase in
operating expenses as a percent of revenues.
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 our bank. Interest on the note was
approximately $163,000 and $164,000 during fiscal 2007 and fiscal
2006, respectively.
Net interest expense increased by approximately $23,000 during
the fiscal year ended September 30, 2007, to $346,000 in comparison to
the prior year, reflecting an increased borrowing rate applied to
higher average outstanding borrowings. Net
interest expense increased by approximately $90,000 during the fiscal
year ended September 30, 2006, to $323,000 in comparison to the
previous year, reflecting the rise in interest rates during the year
applied to higher average outstanding borrowings.
OTHER INCOME
Other income totaled approximately $81,000 during the fiscal year
ended September 30, 2007. Included were weekly payments received from
a terminated licensee as part of the separation agreement, totaling
$52,000. Other income totaled approximately $94,000 in fiscal 2006,
primarily representing funds received during the year from the final
distribution settlement of the Q Logistics Chapter 11 filing that took
place in February 2001.
NET INCOME
Net income before taxes increased by approximately $410,000, to
$606,000 for the fiscal year ended September 30, 2007, compared to the
previous fiscal year then ended. The Company recorded a tax provision
of approximately $285,000 for fiscal 2007. Net income after taxes for
fiscal 2007 was approximately $321,000 versus net income of $80,000 in
the previous fiscal year.
Net income before taxes decreased by approximately $656,000, to
$196,000 for the fiscal year ended September 30, 2006, compared to the
previous fiscal year then ended. The Company recorded a tax provision
of approximately $116,000 for fiscal 2006. Net income after taxes for
fiscal 2006 was approximately $80,000 versus net income of $603,000 in
the previous fiscal year.
Liquidity and Capital Resources
Net cash provided by operating activities was approximately
$542,000 for the fiscal year ended September 30, 2007 compared to net
cash used for operations of approximately $368,000 for the fiscal year
ended September 30, 2006. In fiscal 2007, cash was provided primarily
by approximately $1,108,000 of income net of non-cash charges, as well
as an increase of approximately $154,000 of income tax payable and a
decrease in prepaid income taxes of approximately $52,000, offset by
an increase in accounts receivable of approximately $513,000, in
addition to an increase in prepaid assets of approximately $245,000
and a net decrease in accounts payable and accrued expenses of
approximately $36,000. The increase in accounts receivable relates
primarily to the increase in revenue in fiscal 2007 over fiscal 2006.
The decrease in accounts payable primarily reflects an accelerated
cycle of payments.
Net cash used for operating activities was approximately $368,000
for the fiscal year ended September 30, 2006 compared to net cash used
for operations of approximately $44,000 for the fiscal year ended
September 30, 2005. In fiscal 2006, cash was used primarily to
satisfy the Company's accounts payable obligations, resulting in a
decrease in accounts payable and accrued expenses of approximately
$687,000, as well as to finance the approximately $303,000 increase
in accounts receivable, offset by approximately $585,000 of income net
of non-cash charges. The increase in accounts receivable relates
primarily to the increase in revenue in fiscal 2006 over fiscal 2005.
The decrease in accounts payable primarily reflects an accelerated
cycle of payments.
At September 30, 2007, the Company had cash of approximately
$42,000 and net working capital of $1,732,000, compared with cash of
$112,000 and net working capital of $1,369,000 respectively, at
September 30, 2006. The increase in working capital at September 30,
2007 compared to September 30, 2006 is primarily attributable to the
Company's net income, before depreciation expense, of approximately
$574,000, offset by capital expenditures of approximately $203,000
made during the year.
At September 30, 2006, the Company had cash of $112,000 and net
working capital of $1,369,000, compared with cash of $180,000 and net
working capital of $1,527,000 respectively, at September 30, 2005. The
decrease in working capital at September 30, 2006 compared to
September 30, 2005 is primarily attributable to capital expenditures
made during the year, offset by the Company's net income as well as
the collection of loan proceeds.
The Company's investing activities during the fiscal year ended
September 30, 2007 were primarily comprised of expenditures made for a
new computer system, primarily representing long term enhancements and
improvements to the basic system. Total capital expenditures amounted
to approximately $203,000 during the fiscal year ended September 30,
2007, of which approximately $143,000 represented purchases made for
the benefit of the new system. During the fiscal year ended September
30, 2006, total capital expenditures amounted to approximately
$531,000. Included in that amount was approximately $356,000 in
purchases toward the new system, primarily comprised of system
software and peripheral hardware. Allstates financed approximately
$120,000 of the computer system related purchases through a three year
leasing arrangement. In addition, during the third and fourth
quarters of fiscal 2006, Allstates paid a sum of approximately
$147,000 to the Newark, NJ licensee as a start-up fee. Allstates has
capitalized this expenditure as a leasehold improvement and
depreciates it over a fifteen year period.
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.
During fiscal 2007, Allstates collected $86,194 of principal on the
loan, and collected $79,996 during fiscal 2006. At September 30,
2007, the remaining balance on the loan was $42,237.00.
The Company has a commercial line of credit with a bank, pursuant
to which the Company may borrow up to $3,000,000, based on a maximum
of 70% of eligible accounts receivable. Per the agreement, which
expires February 28, 2008, interest on outstanding borrowings accrues
at the banks prime rate of interest (7.75% at September 30, 2007).
During the fiscal year ended September 30, 2007, Allstates borrowed
$1,900,000 from the bank credit line and repaid $2,300,000.
Outstanding borrowings on the line of credit at September 30, 2007 and
2006 were $1,900,000 and $2,300,000, 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, 2007
Contractual Obligations (dollars in thousands)
Payments Due by Fiscal Year
Total 2008 2009 2010 Thereafter
Long-term Debt (1) 2,312 25 25 25 2,237
Interest on long-term debt (1) 7,481 161 159 157 7,004
Line of Credit (2) 93 93
Capital Lease Obligations (3) 72 72
Operating Leases (4) 720 599 121
------ ---- --- --- -----
Total 10,678 950 305 182 9,241
(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 $3,000,000 borrowing against revolving
line of credit facility, expiring February 28, 2007.
(3) Capital lease obligation represents principal and interest on
purchase of Air-Trak computer system. Value of financed equipment is
approximately $211,000. 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, Pittsburgh, PA, 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
As of September 30, 2007 and 2006 and for the Years
Ended September 30, 2007, 2006 and 2005
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
As of September 30, 2007 and 2006 and for the Years
Ended September 30, 2007, 2006 and 2005
CONTENTS
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2 -3
Consolidated Statements of Net Income 4
Consolidated Statements of
Stockholders' Equity (Deficit) 5
Consolidated Statements of Cash Flows 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7- 19
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, 2007
and 2006, and the related consolidated statements of
net income, stockholders' equity (deficit), and cash flows
for each of the years in the three-year period ended
September 30, 2007. 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 audits in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). These standards require that we
plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial
statements are free of material misstatement. The
Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing
audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal
control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements,
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 audits provide 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,
2007 and 2006, and the results of its consolidated
operations and consolidated cash flows for each of the
years ended in the three-year period ended September
30, 2007 in conformity with accounting principles
generally accepted in the United States of America.
Cowan, Gunteski & Co., P.A.
Toms River, New Jersey
December 20, 2007
1
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2007 and 2006
ASSETS 2007 2006
----------- -----------
CURRENT ASSETS
Cash and Cash Equivalents $ 42,328 $ 111,630
Accounts Receivable, net of allowance for doubtful accounts 10,706,418 10,707,363
Inventories 20,231 18,421
Prepaid Expenses and Other Assets 374,310 129,335
Prepaid Income Taxes - 52,297
Loans Receivable - Licensee - Current Portion 42,237 86,190
Deferred Tax Asset - Current Portion 157,959 159,859
----------- -----------
Total Current Assets 11,343,483 11,265,095
PROPERTY AND EQUIPMENT, net of accumulated depreciation 840,687 892,274
----------- -----------
INTANGIBLE AND OTHER ASSETS
Deposits 38,537 46,511
Loans Receivable - Licensee - 42,241
Other Receivables 9,799 25,346
Goodwill, including related acquisition costs,
net of accumulated amortization 535,108 535,108
----------- -----------
Total Intangible and Other Assets 583,444 649,206
----------- -----------
Total Assets $12,767,614 $12,806,575
=========== ===========
See Accompanying Notes and Report of Independent
Registered Public Accounting Firm
2
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2006 and 2005
LIABILITIES AND STOCKHOLDERS' EQUITY 2006 2005
----------- -----------
CURRENT LIABILITIES
Accounts Payable $ 5,538,842 $ 5,810,199
Accrued Expenses 1,926,083 1,690,800
Income taxes payable 154,005 -
Short-Term Borrowings Under Line of Credit 1,900,000 2,300,000
Current Portion of Obligations Under Capital Leases 67,676 69,624
Current Portion of Long-Term Debt 25,000 25,000
----------- -----------
Total Current Liabilities 9,611,606 9,895,623
LONG-TERM LIABILITIES
Deferred Tax Liability - Non-Current Portion 94,768 77,869
Obligations Under Capital Leases, less current portion - 67,677
Long-Term Debt, less current portion 2,286,730 2,311,730
----------- -----------
Total Long-Term Liabilities 2,381,498 2,457,276
----------- -----------
Total Liabilities 11,993,104 12,352,899
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, $.0001 par value, 50,000,000 shares
Authorized, 32,509,872 Shares Issued and Outstanding 3,251 3,251
Retained Earnings 771,259 450,425
----------- -----------
Total Stockholders' Equity 774,510 453,676
Total Liabilities and Stockholders' Equity $12,767,614 $12,806,575
=========== ===========
See Accompanying Notes and Report of Independent
Registered Public Accounting Firm
3
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET INCOME
For the Years Ended September 30, 2006, 2005 and 2004
2007 2006 2005
---------- ---------- ----------
REVENUES $74,894,070 $71,217,029 $68,841,843
COST OF TRANSPORTATION 52,534,475 50,494,182 48,858,589
---------- ---------- ----------
NET REVENUES 22,359,595 20,722,847 19,983,254
OPERATING EXPENSES
Personnel Costs 6,901,352 6,896,263 6,739,203
Licensee Commissions and Royalties 10,257,031 9,125,963 7,918,505
Independent Sales Agent Commissions 70,773 108,766 201,498
Selling, General and Administrative Expenses 4,244,463 4,143,080 4,037,984
---------- ---------- ----------
Total Operating Expenses 21,473,619 20,274,072 18,897,190
---------- ---------- ----------
Income from Operations 885,976 448,775 1,086,064
---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest Income 6,593 12,571 7,694
Interest Expense (352,930) (336,060) (241,526)
Loss on Sale of Equipment ( 1,375) (15,360) -
Loss on Foreign Exchange (13,560) ( 7,672) -
Other Income 81,130 93,606 -
---------- ---------- ----------
Total Other Income (Expense) (280,142) (252,915) (233,832)
---------- ---------- ----------
Income Before Provision for Income Tax Expense 605,834 195,860 852,232
Provision for Income Taxes 285,000 115,869 249,007
---------- ---------- ----------
Net Income Applicable to Common Shareholders' $ 320,834 $ 79,991 $ 603,225
========== ========== ==========
Weighted Average Common Shares - Basic 32,509,872 32,509,872 32,509,872
Net Income per Common Share - Basic $ 0.01 $ 0.00 $ 0.02
Weighted Average Common Shares - Diluted 32,509,872 32,509,872 32,509,872
Net Income per Common Share - Diluted $ 0.01 $ 0.00 $ 0.02
See Accompanying Notes and Report of Independent
Registered Public Accounting Firm
4
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 2007, 2006 and 2005
Common Stock
Retained Total
Number of Earnings Stockholders'
Shares Par Value (Deficit) Equity (Deficit)
--------- --------- ---------- ----------------
Balance at
September 30, 2004 32,509,872 $3,251 $(232,791) $( 229,540)
Consolidated net income
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
Consolidated net income
for the fiscal year
ended September 30, 2006 - - 79,991 79,991
---------- --------- ---------- -------------
Balance at
September 30, 2006 32,509,872 $3,251 $ 450,425 $ 453,676
Consolidated net income
for the fiscal year
ended September 30, 2007 - - 320,834 320,834
---------- --------- ---------- -------------
Balance at
September 30, 2007 32,509,872 $3,251 $ 771,259 $ 774,510
========== ========= =========== =============
See Accompanying Notes and Report of Independent
Registered Public Accounting Firm
5
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 2007, 2006 and 2005
2007 2006 2005
------------ ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income Applicable to Common Shareholders $ 320,834 $ 79,991 $ 603,225
Adjustments to reconcile net income
to net cash provided from
(used by) operating activities:
Depreciation and Amortization 253,331 211,847 138,968
Provision for Bad Debts 514,004 277,282 169,347
Loss (Gain) on Sale of Equipment 1,375 15,360 -
Deferred taxes 18,799 624 190,386
(Increase) Decrease in:
Accounts Receivable (513,059) (303,055) (2,777,545)
Inventories (1,810) 11,220 386
Prepaid Expenses and Other Assets (244,975) 11,376 (24,121)
Prepaid Income Taxes 52,297 28,117 (80,415)
Deposits 7,974 (13,285) 144
Other receivables 15,547 - -
Increase (Decrease) in:
Accounts Payable (271,357) (610,756) 1,146,956
Accrued Expenses 235,283 (76,591) 589,013
Income taxes payable 154,005 - -
------------ ------------- --------------
Net Cash Provided from (Used by)
Operating Activities 542,248 (367,870) (43,656)
------------ ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (203,119) (530,940) (230,137)
Proceeds from Sale of Equipment - 10,500 -
Loans to Licensee - - (250,000)
Payments from Licensee Loans 86,194 79,996 41,573
------------ ------------- --------------
Net Cash Used by Investing Activities (116,925) (440,444) (438,564)
------------ ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
New Borrowings:
Short-Term 1,900,000 1,411,860 1,400,000
Long-Term - 120,067 73,174
Debt Reduction:
Short-Term (2,300,000) (711,360) (900,000)
Long-Term (94,625) (80,940) (25,000)
------------ ------------- --------------
Net Cash Provided from (Used by)
Financing Activities (494,625) 739,627 548,174
------------ ------------- --------------
Net Increase (Decrease) in Cash
and Cash Equivalents (69,302) (68,687) 65,954
Cash and Cash Equivalents, Beginning of Year 111,630 180,317 114,363
------------ ------------- --------------
Cash and Cash Equivalents, End of Year $ 42,328 $ 111,630 $ 180,317
============ ============= ==============
See Accompanying Notes and Report of Independent
Registered Public Accounting Firm
6
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007 and 2006 and for the Years
Ended September 30, 2007, 2006 and 2005
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.
was 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.
7
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007 and 2006 and for the Years
Ended September 30, 2007, 2006 and 2005
NOTE 1 ORGANIZATION AND NATURE OF
BUSINESS (Continued)
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.
Audiogenesis Systems, Inc. Audiogenesis
Systems, Inc. was incorporated in the State of New
Jersey on September 28, 2006. Audiogenesis
Systems, Inc. was established to take over the
operations of the Audiogenesis Systems division of
Allstates WorldCargo, Inc.
Regulatory Compliance Resources, Inc.
Regulatory Compliance Resources, Inc. was
incorporated in the State of New Jersey on August
28, 2007. Regulatory Compliance Resources, Inc.
is a wholly owned subsidiary of Allstates
WorldCargo, Inc.
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,
2007 and 2006. The consolidated statements of net
income include the income and expenses of Allstates Air
Cargo, Inc. and its subsidiaries for the years ended
September 30, 2007, 2006, and 2005. All material
intercompany payables, receivables, revenues and
expenses have been eliminated for purposes of this
consolidation.
Basis of Accounting
The Company prepares its consolidated financial
statements on the accrual method of accounting,
recognizing income when earned and expenses when
incurred.
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 consolidated financial
statements and accompanying notes. Actual results
could differ from those estimates.
8
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007 and 2006 and for the Years
Ended September 30, 2007, 2006 and 2005
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Cash and 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.
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.
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.
Inventory
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.
Property and Equipment and Depreciation
Property and equipment are recorded at cost and
depreciated using the straight-line method over the
estimated useful lives of the assets, which ranges
between 3 and 15 years, for financial reporting
purposes. Depreciation expense for the years ended
September 30, 2007, 2006 and 2005 is $253,331,
$211,847, and $138,968, respectively. Repair and
maintenance expenditures which do not extend the
useful lives of the related assets are expensed as
incurred. Losses on the disposal of equipment are
reflected in the consolidated statements of net income.
9
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007 and 2006 and for the Years
Ended September 30, 2007, 2006 and 2005
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
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 consolidated 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, 2007, 2006 and 2005 were $35,286,
$29,930, and $32,993, 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.
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.
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's use of reasonable collection efforts are
written off through a charge to the valuation allowance
and a credit to trade accounts receivable. During the
fiscal years ended September 30, 2007, 2006 and 2005,
the Company had direct write offs of trade receivables of
$514,004, $277,282 and $169,347. The valuation
allowance for accounts receivable at September 30,
2007 and 2006 was $364,137 and $314,731,
respectively.
10
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007 and 2006 and for the Years
Ended September 30, 2007, 2006 and 2005
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
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. Management
estimates the allowance for doubtful accounts based on
prior years' experience. Bad debt recoveries are
charged against the allowance account as realized. Bad
debt expense for the years ended September 30, 2007,
2006 and 2005 was $514,004, $277,282 and $169,347,
respectively.
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment are summarized by major
classifications as follows:
2007 2006
Leasehold Improvement $462,989 $462,989
Vehicles 13,374 13,374
Equipment, Sofware and Furniture 1,474,843 1,482,457
--------- ----------
1,951,206 1,958,820
Less: Accumulated Depreciation 1,110,519 1,066,546
--------- ----------
$840,687 $892,274
========= ==========
Computer equipment with a cost of $210,515 is held
under capital lease.
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 loan include the payment of the
$250,000 loan, with payments due weekly, which
commenced on March 21, 2005 and will continue 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
11
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007 and 2006 and for the Years
Ended September 30, 2007, 2006 and 2005
NOTE 4 LOANS AND OTHER RECEIVABLES
(Continued)
Loans Receivable Licensee (Continued)
event the interest rate paid by Allstates on its line of
credit is increased or decreased, the interest rate upon
the loan 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 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 in a timely basis thus far.
NOTE 5 AMORTIZATION OF GOODWILL AND
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,
2007, 2006 and 2005, no write-off of the carrying value
was 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.
There is no amortization expense for the years ended
September 30, 2007, 2006 and 2005.
12
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007 and 2006 and for the Years
Ended September 30, 2007, 2006 and 2005
NOTE 6 OBLIGATIONS UNDER CAPITAL LEASES
2007 2006
Lease payable to VAResources, Inc.,
due in monthly installments of $2,662
including interest at 11.37%,
due June 2008, secured by computer equipment. $20,414 $48,285
Lease payable to US Express Leasing,
due in monthly installments of $1,742
including interest at 11.85%,
due September 2008,
secured by computer equipment. 21,170 39,986
Lease payable to GE Capital,
due in monthly installments of $2,180
including interest at 12.96%,
due in September 2008,
secured by computer equipment. 26,092 49,030
--------- ----------
67,676 137,301
Less: Current Portion 67,676 69,624
--------- ----------
$ - $67,677
========= ==========
Future minimum payments under capital leases as of
September 30, 2007 are as follows:
Minimum Lease Payments 71,809
Amount Representing Interest 4,133
--------
$ 67,676
========
NOTE 7 LONG-TERM DEBT
The Company's notes payable balance at September
30, 2007 and 2006 consist of the following:
Notes 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. 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
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. $2,311,730 $2,336,730
Less: Current Portion 25,000 25,000
---------- ----------
$2,286,730 $2,311,730
13
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007 and 2006 and for the Years
Ended September 30, 2007, 2006 and 2005
NOTE 7 LONG-TERM DEBT (Continued)
Future maturities for long-term debt as of September 30,
2007 are as follows:
2008 25,000
2009 25,000
2010 25,000
2011 25,000
2012 $25,000
Thereafter 2,186,730
---------
$2,311,730
=========
NOTE 8 LINE OF CREDIT
At September 30, 2007 and 2006, Allstates Air Cargo,
Inc. had a line of credit with PNC Bank for advances up
to $3,000,000 with interest at the Bank's prime rate,
which approximated 7.75% and 8.25% at September 30,
2007 and 2006, respectively. The interest rate is
predicated upon the Company maintaining their primary
depository account with the bank. If the Company fails
to comply with this agreement, the interest rate would
increase to the Bank's prime rate plus 1%. The loan is
collateralized by all of the assets of the Company. The
outstanding balance on the line of credit at September
30, 2007 and 2006 was $1,900,000 and $2,300,000,
respectively.
NOTE 9 PROVISION FOR INCOME TAXES
A reconciliation of income tax at the statutory rate to the
Company's effective rate is as follows:
2007 2006 2005
-------- -------- -------
Expected Federal statutory rate 39.000% 39.000% 0.000%*
Expected State statutory rates (average) 6.975% 6.975% 8.893%
-------- -------- -------
Total expected statutory rate 45.975% 45.975% 6.975%
State Franchise Tax and Miscellaneous
Book to Tax Adjustments -2.035% 12.866% -0.096%
Deferred income tax expense (benefit):
Federal -1.031% -7.805% 17.664%
State 4.134% 8.124% 4.676%
-------- -------- -------
Income Tax Expense (Benefit) - Effective Tax Rate 47.043% 59.160% 29.219%
* Due to the net operating carryforwards available for the
year ended September 20, 2005, the expected Federal
statutory rate is deemed to be 0%.
14
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007 and 2006 and for the Years
Ended September 30, 2007, 2006 and 2005
NOTE 9 PROVISION FOR INCOME TAXES
(Continued)
The Company's provision for income taxes for 2007,
2006 and 2005 consist of the following:
2007 2006 2005
------- ------- -------
Current:
Federal $206,897 $61,000 $17,850
State 59,304 54,245 40,768
Deferred:
Federal ( 6,248) (15,287) 150,541
State 25,047 15,911 39,848
------- ------- -------
$285,000 $115,869 $249,007
======= ======= =======
The Company's total deferred tax asset (liability) and
deferred tax asset (liability) valuation allowances at
September 30, 2007 and 2006 are as follows:
2007 2006
Deferred Tax Asset - Current:
Bad Debt Allowance $156,579 $135,335
Net Operating Losses 1,380 24,524
-------- --------
$157,959 $159,859
======== ========
Deferred Tax Liabilities - Noncurrent:
Depreciable and Amortizable Assets $94,768 $77,869
======== ========
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. were 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. treated
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 for the year ended
September 30, 2005. There were no gains or losses
subsequent to the fiscal year 2002 since the foreign
entity, Allstates Allcargo (UK), LTD., was dissolved.
15
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007 and 2006 and for the Years
Ended September 30, 2007, 2006 and 2005
NOTE 11 PENSION PLAN
The Company has a 401(k) plan available to all
employees. It is subject to the provisions of the
Employee Retirement Income Security Act of 1974
(ERISA). Employees of the Company who have one
year of service (during which the employee completed
1,000 hours of service) and are 21 years of age or older
are eligible to participate in the Plan. Each year
participants may contribute to the Plan up to the Internal
Revenue Service allowable limits. Participants may also
rollover or transfer amounts that represent distributions
from other qualified defined benefit or contribution plans.
The Company may make matching contributions equal
to a discretionary percentage, as determined by the
Company, up to 6% of a participants' salary. The
expense associated with these contributions for the
years ended September 30, 2007, 2006 and 2005 were
$49,602, $41,242, and $50,426, respectively.
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 this lease totaled
$73,200, $79,500 and $81,600 for the years ended
September 30, 2007, 2006 and 2005, 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, 2007, 2006 and 2005
totaled $703,517, $585,731 and $566,281 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 Emeritus $370,000 3% of fiscal year Yes
increase in net profits
President/Chief Executive Yes
Officer $250,000 3% of fiscal year
increase in net profits
Executive Vice President/ Yes
Chief Operating Officer $250,000 3% of fiscal year
increase in net profits
Chief Financial Officer $210,000 Discretionary Yes
16
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007 and 2006 and for the Years
Ended September 30, 2007, 2006 and 2005
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, 2007, 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 two years. These operating leases
provide the Company with the option to renew the
leases at the fair rental value at the end of the lease
terms. 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 as of September 30, 2007 are as follows:
2008 599,069
2009 120,680
----------
$ 719,749
Rent expense under operating lease for the years ended
September 30, 2007, 2006 and 2005 was $611,064,
$636,443 and $551,749, respectively.
NOTE 15 SUPPLEMENTAL CASH FLOW
INFORMATION
Cash was expended for interest in the amounts of
$353,808, $418,947 and $242,403 in 2007, 2006 and
2005, respectively. Cash was expended for income
taxes in the amounts of $59,899, $87,127 and $138,429
in 2007, 2006 and 2005, respectively.
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 paint brushes 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.
17
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007 and 2006 and for the Years
Ended September 30, 2007, 2006 and 2005
NOTE 16 LITIGATION (Continued)
In November 2006, the case was settled and the
Complaint was dismissed without any admission of
liability or payment of any money by the Company.
Autosplice, Inc. v. Allstates Worldcargo, Inc.
On or about November 30, 2006, a complaint was
filed about the Company. In the case, the plaintiff
alleges breach of contract and tortuous behavior in
connection with a shipment of equipment handled
by the Company. The plaintiff alleges that it was
damaged in the amount of $139,379, which it
seeks to recover. The plaintiff has reserved the
right to seek punitive damages in the amount of
$400,000.
On June 11, 2007, the parties entered into a
written Settlement Agreement pursuant to which
the Company agreed to pay the plaintiff the sum of
$10,600 in full settlement of its claim, while at the
same time the plaintiff agreed to pay the Company
the sum of $5,362 for outstanding freight charges,
for a net recovery of $5,238. The Company's
insurance carrier paid the full amount of the
settlement payment ($10,600) to the plaintiff (less
the applicable $1,000 deductible).
On June 19, 2007, the Court dismissed the action,
with prejudice, pursuant to a Joint Stipulation of
Dismissal.
Allstates Air Cargo, Inc. v. Dan Gustafson and
C.A.S.S. Group, Inc.
On or about January 15, 2007, the Company's
subsidiary Allstates Air Cargo, Inc. ("AAC")
received a letter from C.A.S.S. Group, Inc.
("C.A.S.S."), its licensee in Minnesota and parts of
Wisconsin, allegedly declaring AAC in default
under the parties' September 20, 1999 Licensing
Agreement. The letter alleged that AAC was
wrongfully competing with C.A.S.S. in its exclusive
territory, that AAC had failed to pay C.A.S.S.
certain amounts said to be due under the Licensing
Agreement, that AAC had promised to pay for
certain computer equipment and had failed to, and
that AAC had promised to make certain sales
materials and promotional items available to
C.A.S.S. at AAC's cost and had failed to. In the
letter, C.A.S.S. stated that if AAC failed to cure
these alleged defaults by February 15, 2007,
C.A.S.S. would exercise its alleged right to
terminate the Licensing Agreement.
On or about January 31, 2007, AAC commenced
an arbitration proceeding against C.A.S.S. and its
principal, Dan Gustafson, in which AAC sought a
declaration that AAC was not in default, that AAC
had cured any existing default, and/or that any
existing default was immaterial and was not a basis
for termination of the Licensing Agreement.
By letter dated February 19, 2007, C.A.S.S.
notified ACC that C.A.S.S. considered AAC to have
failed to cure the alleged defaults, and that
C.A.S.S. was exercising its purported right to
terminate the Licensing Agreement as of the close
of business, February 19, 2007.
On or about February 20, 2007, C.A.S.S. and
Gustafson interposed a Counterclaim in the
Arbitration Proceeding against AAC, and also
setting forth a Third-Party Claim against AAC's
president, Sam DiGiralomo, setting forth, in
substance, the same allegations as in their letter.
18
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007 and 2006 and for the Years
Ended September 30, 2007, 2006 and 2005
NOTE 16 LITIGATION (Continued)
On or about March 30, 2007, the parties settled
their dispute pursuant to a written Settlement
Agreement, pursuant to which a Licensing
Agreement was terminated in return for a series of
payments to the Company over a period of three
years.
NOTE 17 QUARTERLY RESULTS OF OPERATIONS
(Unaudited)
The following table presents summarized quarterly
results for the fiscal year ended September 30, 2007:
Q1 Q2 Q3 Q4
(dollars in thousands)
Revenues $22,731 $17,335 $17,119 $17,709
Net Revenues (after
Transportation Costs) 6,946 5,025 5,089 5,299
Net Income after Taxes 341 (20) 10 (11)
Basic Net Income per
Common Share $0.01 ($0.00) ($0.00) $0.00
Diluted Net Income per
Common Share $0.01 ($0.00) ($0.00) $0.00
The following table presents summarized quarterly
results for the fiscal year ended September 30, 2006:
Q1 Q2 Q3 Q4
(dollars in thousands)
Revenues $19,492 $16,903 $16,970 $17,852
Net Revenues (after
transportation costs) 5,183 4,810 5,106 5,624
Net Income (Loss)
After Taxes 123 (66) (77) 100
Basic Net Income per
Common Share $0.00 ($0.00) ($0.00) $0.00
Diluted Net Income per
Common Share $0.00 ($0.00) ($0.00) $0.00
The following table presents summarized quarterly
results for the fiscal year ended September 30, 2005:
Q1 Q2 Q3 Q4
(dollars in thousands)
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 $0.01 $0.01
Diluted Net Income per
Common Share $0.00 $0.00 $0.01 $0.01
19
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 73 Chairman
Emeritus, Director
Sam DiGiralomo 64 President,
CEO, Director
Barton C. Theile 61 Executive Vice President, COO,
Director
Craig Stratton 56 CFO,
Secretary, Treasurer, 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 2006 with the reporting
requirements of Section 16(a) of the Securities Exchange Acts of
1934.
JOSEPH M. GUIDO, Chairman Emeritus, and a director of the Company, 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. On June 27, 2006, the office of
Chairman of the Board was eliminated, the title of Chairman Emeritus
was created, and Mr. Guido was appointed that title. 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.
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 ($)
- ---------- ---- ------- ----- --------- --------- --------- ------ --------
Joseph 2007 370,000 44,153 80,400(1)
M. 2006 370,000 44,153 86,700(2)
Guido, 2005 339,233 44,153 88,200(3)
Chairman
Emeritus
Sam 2007 250,000 44,153 703,517(4)
DiGiralomo 2006 250,000 44,153 585,731(4)
President, 2005 228,677 44,153 566,281(4)
Barton 2007 250,000 44,153 31,798(5)
Theile, 2006 250,000 44,153 7,631(6)
COO, 2005 227,674 44,153 23,023(7)
Exec. VP
Craig 2007 202,307 20,000 7,200(8)
Stratton, 2006 185,000 7,200(8)
CFO, 2005 169,262 7,500(8)
Secretary,
Treasurer
(1) Rental income from leasing of Forked River corporate office
($73,200), and car allowance for use of personal vehicle ($7,200)
(2) Rental income from leasing of Forked River corporate office
($79,500), and car allowance for use of personal vehicle ($7,200)
(3) Rental income from leasing of Forked River corporate office
($81,600), and car allowance for use of personal vehicle ($6,600)
(4) Royalties paid in connection with site licensing agreements
(5) Car allowance for use of personal auto ($7,200) and commission
paid for management services to GTD Logistics, Inc. ($24,598)
(6) Car allowance for use of personal auto ($7,200) and commission
paid for management services to GTD Logistics, Inc. ($431)
(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
Chairman increase in net profits from
Emeritus fiscal year end 2003
to fiscal year end 2004
Sam DiGiralomo, $250,000 3% of
President/Chief increase in net profits from
Executive Officer fiscal year end 2003
to fiscal year end 2004
Barton C. Theile, $250,000 3% of
Executive VP/ increase in net profits from
Chief Operating Officer fiscal year end 2003
to fiscal year end 2004
Craig D. Stratton, $210,000 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 27, 2007 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 23,560,000 72.46%
__________________
(1) Based upon 32,509,872 shares outstanding as of December 27,
2007.
(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 leased real estate in one location from Joseph M.
Guido during Fiscal 2007. Rent expense under this lease totaled
$73,200 for the year ended September 30, 2007. 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 San Francisco, San
Diego, Indianapolis, Philadelphia, Boston, Atlanta, Raleigh,
Nashville, Birmingham and Newark licensee locations. Royalty payments
to Mr. DiGiralomo for the year ended September 30, 2007 totaled
$703,517.
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, 2007 and September 30, 2006 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 $66,048
and $75,555 during fiscal 2007 and 2006 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, 2007
and 2006, 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 2007 and 2006 for
tax services rendered by Cowan, Gunteski and Co. were $41,009 and
$31,040, respectively.
All other fees. The aggregate fees billed during fiscal 2007 and 2006
for all other services rendered by Cowan, Gunteski and Co. were $6,190
and $10,196, respectively, for professional services rendered for the
audit of the Allstates WorldCargo 401(k) Savings Plan.
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
Form 10-K filed December 29, 2006
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 (The
Company's SEC file number reference is Commission
File No. 000-24991)
10.06* Employment Agreement with Joseph M. Guido, filed as an
exhibit to Registrant's Form 10-K filed December 29, 2006
10.07* Employment Agreement with Sam DiGiralomo, filed as an
exhibit to Registrant's Form 10-K filed December 29, 2006
10.08* Employment Agreement with Barton C. Theile, filed as an
exhibit to Registrant's Form 10-K filed December 29, 2006
10.09* Employment Agreement with Craig D. Stratton, filed as an
exhibit to Registrant's Form 10-K filed December 29, 2006
10.10* 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 (The
Company's SEC file number reference is Commission
File No. 000-24991)
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
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: December 27, 2007
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 Emeritus and December 27,
Director 2007
By: /s/ Sam DiGiralomo President, CEO and December 27,
Director 2007
By: /s/ Barton C. Theile Executive Vice President, December 27,
COO and Director 2007
By: /s/ Craig D. Stratton Secretary, Treasurer, and December 27,
Chief Financial Officer 2007
(Principal Financial
Officer and Principal
Accounting Officer)