ITEM 1
DESCRIPTION OF BUSINESS
HISTORY
The Company was originally incorporated in the state of Nevada on April 6, 1983.
Universal Express, Inc. (USXP) has evolved into a conglomerate of supportive companies centered on its private postal network the UniversalPost(TM) Network.
Its principal businesses include the UniversalPost Network, Universal Express Logistics, Inc., which includes UniversalPost(TM) International Courier Service, Virtual Bellhop(R) and Luggage Express(TM), and Universal Express Capital Corp (which includes the Universal Cash Express division).
Its association of independent and franchise nationwide postal stores (UniversalPost) continues to evolve into a sophisticated buying service trade association, and market penetration vehicle.
UniversalPost International Courier Service when developed should earn revenues from selling discounted envelopes and services to the postal stores.
Luggage Express(TM) will enable consumers to have their baggage picked up at their home by a local UniversalPost member store and delivered to the consumers' destination.
Virtual Bellhop(R) is a premier door-to-door luggage transportation service.
Universal Express Capital Corp. is a full service asset based transportation/equipment leasing company. Its Universal Cash Express division provides stored value cards of all types to consumers.
USXP continues to mature as an accepted participant within the shipping and postal store industry.
The web site for the company and its businesses is http://www.usxp.com.
THE BUSINESS OF THE CORPORATION
Universal Express, Inc. (USXP) has evolved into a conglomerate of supportive companies and divisions centered around its private postal system.
The Company's principal subsidiaries and divisions are: UniversalPost Private Postal Network UniversalPost International Courier Service Virtual Bellhop(TM) Luggage Express(TM) Universal Express Capital Corp. Universal Cash Express MARKETPLACE
A challenging global economy has grown over the past decade. Internet, catalog and retail sales continue to mandate an inexpensive and responsive final mile Domestic and International delivery network. That innovative and outsourced final mile network continues to be addressed by Universal Express, Inc.
Universal Express has continues major expansion in the last decade. Strong strategic relationships are currently being established with companies and manufacturers, thus strengthening the UniversalPost private postal network.
Members of the UniversalPost private postal network provide the public with a complement to the U.S. Post Office for many retail and business postal services. In addition, these Postal Service Centers offer individuals and business customers an additional variety of personal business services and merchandise.
Our private postal and business service centers form a highly fragmented cottage industry. Universal Express believes that since this industry generates over $8 billion in sales and presently consists of more than 20,000 independent operators, there is a market opportunity for the development of an association with the goal of unifying and organizing the independent and franchised postal stores nationwide.
Our company believes that an affordable outsourced distribution system is needed to suit consumers' needs. Universal Express believes it has positioned itself to be a contender in the global economy for the next decade with the development of its complementary subsidiaries.
USXP is now positioned as a significant player in the international shipping and transportation industries. By building its divisions through classic outsourcing techniques, USXP's future revenue growth will not be offset by increased overhead.
In just the past few years, USXP has identified more than 8,000 private postal centers in a network called UniversalPost that produces growing revenue streams for both its members and USXP. USXP offers its UniversalPost Network members discounted services from some of the country's largest vendors, as well as innovative new luggage services that resonate in the world's present security-conscious travel climate.
USXP's business strategy is far more than the sum of today's parts. The company's three highly synergistic divisions position the company to create an entirely new industry paradigm by offering the private postal industry and consumers value-added services and products, logistical services, equipment leasing and cost-effective delivery of goods and services worldwide.
UniversalPost(TM) Network, the name for USXP's private postal network, taps the purchasing power of over 20,000 privately owned and operated postal stores to create the nation's first truly organized and funded private postal system.
USXP's Web-based CRM software system empowers swift delivery of business products and services to the network: commercial mail receiving; office products and supplies; packaging and shipping; copying, imaging, photo finishing and digital services; home office boutique items; and even concierge services.
Universal Express Logistics, Inc. joins the company's visionary Luggage Express(TM) service offered through the UniversalPost Network and its Internet-based Virtual Bellhop(R) luggage pickup and delivery service to free travelers from the stress of dealing with their luggage as they travel across the country and around the world. USXP charges an average of $70 per piece to deliver dropped-off luggage to a traveler's final destination. The target customer is the upscale traveler planning extended stays at destination resorts, but the service is equally appealing to any traveler who prefers not to pay extra airline fees or struggle with heavy and awkward baggage at either end of their trip. When you consider that by 2005 domestic airline luggage is expected to exceed 3 billion pieces annually, USXP's revenue potential is substantial as acceptance of luggage transportation services reaches critical mass with further branding and advertising.
Universal Express Capital Corp. is a full-service, asset-based transportation and leasing service that provides capital acquisition funding for the business sector. USXP has established strategic alliances with a number of major manufacturing firms in the limousine, livery, small fleet, vehicle rental, delivery truck and van, bus and aircraft industries. The company projects minimum annual lease originations of $24 million. USXP recently entered into a management contract with Go Commercial Leasing Corp., which has a well-established customer base in the commercial transportation industry.
USXP Platinum(TM) Card is its answer to the millions of people who regularly send money overseas to their families. The USXP prepaid, FDIC insured ATM card provides an instant, secure method of money transfer across international borders. USXP Platinum Card also targets the 30% of the U.S. population with no checking accounts or credit and, with over 9,000 retail locations--a distribution plan that is creatively affordable.
UNIVERSALPOST(TM) - THE PRIVATE POSTAL NETWORK
UniversalPost, a private postal network, is an association formed to create a very much needed partnership between previously unconnected shipping and packaging store owners. This concept has been accomplished many times before in American industries, most notably by FTD's maturation of the independent florists across America and Interflora's unification and development of florists in Europe. UniversalPost provides independent store owners with a variety of cost effective services and products to help increase their profitability, while they are still able to maintain their local or franchised identities.
INDIVIDUAL SERVICES AND PRODUCTS
o Flowers/Gift Baskets o Money Transfer Services o Corrugated & Packaging o Lamination and Photo ID's o Customized Rubber Stamps o Equipment Leasing o Moving Supplies o Car Rental o Customized Corrugated o Business and Office Supplies o Parcel Insurance o Credit Card Processing o Check Processing o Payroll and Tax Processing o Prepaid Debit Card Load Stations o Visa - MasterCard o Discounted Supplies o Joint Promotions o Mailing Lists o Video Tape to DVD Conversion o Fingerprinting o Income Tax Preparation o Recycling o International Cell Phone Rental o Credit Union o Message On Hold o Retail Items o Health Care Coverage o Gift Cards o Passport & Visa Expediting o Retail Products o Sign Making
On July 19, 2004, the Company announced a Visa and Passport processing program with CIBT.
On August 12, 2004, the Company announced a partnership with Premier Companies/Hold Plus to offer custom audio productions.
UNIVERSALPOST(TM) - INTERNATIONAL COURIER SERVICE
UniversalPost, the International Courier Service, is an alliance of independently owned and operated express courier services operating in 268 cities in 120 countries. UniversalPost provides global delivery and services to international firms. This network currently delivers over 650,000 packages per month and is part of the world's largest independently owned courier network. It is the 5th largest express courier network in the world behind the integrated United States express carriers such as FedEx, UPS and DHL.
Unlike the major integrators who operate their own aircraft and thus offer rigid pick up and delivery schedule, UniversalPost members offer flexible, customized International services to meet a client's specific distribution needs. Instead of operating our own costly fleet, UniversalPost offers express International air courier service and expedited air cargo through regularly scheduled commercial airlines to transport time-sensitive documents, parcels, freight and mail.
According to industry estimates, private postal stores alone ship $600,000,000 annually in International packages and without UniversalPost are totally dependent upon their suppliers' shipping. The obvious synergy between UniversalPost, the International Courier Service and UniversalPost, the private postal network, enhances our unusual position in the shipping service industry.
Now UniversalPost Network members can offer an in-house solution for international deliveries at a higher profit margin for themselves and increase the value of international delivery service to their customers rather than the more expensive traditional carriers. The UniversalPost Networks' use of the UniversalPost envelope for their international shipping method instead of outsourced options strengthens the local postal stores' position as an international delivery solution.
LUGGAGE EXPRESS(TM) AND VIRTUAL BELLHOP
Luggage Express and its premier service, the Virtual Bellhop, facilitate and manage the movement of baggage door to door for leisure and business travelers.
With many years of logistical corporate and entrepreneurial experience in relevant core businesses, Universal Express has created a powerful logistical business model driven by multi-channel distribution and multi-market demand. We have established relationships with travel service providers and distribution partners.
There are significant market opportunities not limited to the abundance of checked bags presently being moved each year. Making travel easier and more enjoyable through luggage free travel is the goal of our two companies.
Whether it be through partners like hotels, airlines, cruise lines, credit card companies, airline or travel agencies, or simply our neighborhood postal store, we continue to introduce Americans to luggage-free travel.
With over 1.5 billion suitcases presently being checked by domestic passengers, our companies offer significant benefits to the airlines. Customer satisfaction, easier check-in, a secure alternative to curb-side check-in, less congestion in the departure hall and minimizing departure delays, defines our service. The FAA expects the number of airline passengers to double by 2005, making domestic luggage to exceed 3 billion suitcases. Luggage Express and Virtual Bellhop are indeed poised for luggage free travel.
On August 30, 2004, the Company announced a luggage program with the Ritz-Carlton Philadelphia Hotel.
On September 23, 2004, the Company announced that Luggage Express has been selected by the Virtuoso Town and Country Travel Magazine.
On September 28, 2004, the Company announced an agreement with Points.com to introduce its Luggage Express service and gift card programs to the loyalty industry.
UNIVERSAL EXPRESS CAPITAL CORP.
The Universal Express family of companies has broadened the nature of its core business by entering the financial services industry via the subsidiary of Universal Express Capital Corp. A full service, asset based transportation and equipment lessor, Universal Express Capital Corp. provides capital acquisition funding, in the form of lease financing, to the national business community as well as within the framework of Universal Express' other affiliates and subsidiaries.
On September 7, 2004, the Company announced a letter of understanding with Capitallance for the sale of 80% of Universal Express Capital Corp.
UNIVERSAL CASH EXPRESS
Universal Cash Express further exhibits its product diversification by providing the USXP Platinum(TM) stored value card to consumers nationwide. With a growing percentage of the population needing a simple and inexpensive alternative to traditional bank accounts combined with the continuing technological advancements of a "cash-less" society, Universal Cash Express now provides consumers with the banking services they want without the banking hassles. Universal Cash Express has launched its newest product line, Branded Gift Card Programs, such as the FTD Gift Card and the Luggage Express Rewards Program.
Distributing this product through the UniversalPost(TM) Network exposes the USXP Platinum stored value card to the wide range of consumers patronizing the 20,000 postal stores nationwide while enhancing store owners revenue via sales, fund loading, payroll and recurring usage fee structures associated with the card. A myriad of credit, finance, and marketing applications will be offered to USXP Platinum cardholders.
On March 16, 2004, the Company announced a floral gift card distribution agreement with InComm, Inc.
On July 1, 2004, the Company announced a dual cash debit card program.
On August 20, 2004, the Company announced an electronic payment service providing instant debit card load stations and bill payment services with Transaction Management LLC.
COMPETITION
The company believes that the maturation of the Private Postal Network (UniversalPost) will strengthen the profitable atmosphere of this cottage private postal industry. Lack of financial strength and market penetration have prevented some excellent franchisors and independent stores from properly promoting their services. The ability of UniversalPost to create a nationally accepted private postal industry that the American public will embrace and trust should recreate a viable industry. The Company feels it can convince through financial discounts the independent and nationwide franchisors that they must self-regulate for consumer acceptance and seize this opportunity to become part of this new cooperative partnership and private postal network.
INDUSTRY BACKGROUND
The future of the industry lies predominately in the international business community and domestic acceptance of private postal stores as a natural cohesive industry. As the world moves towards a Global Economy and trade tariffs begin to break down, the Company believes that new shipping markets and small business opportunities will be developed and the key ingredients underlying these developments will be transportation and outlets for carriers as well as final mile fulfillment for direct marketing products.
The opportunities to expand our corporate scope are limitless due to shipping, logistical distribution needs and growth of services through the world.
The transportation industry has already developed the necessary infrastructure and continues to grow. The Company believes that the missing ingredients needed to make this industry improve are packaging, logistics and inexpensive residential locations.
The Company believes that a nationwide organized domestic fulfillment network with an affordable International Delivery System can become a key player in the Global Economy. The Company has positioned itself to be that public player in this lucrative market.
Members of UniversalPost provide the public with a complement to U.S. Post Offices for many retail postal services. In addition, our Service Centers offer individuals and business customers a variety of personal, business and communications services and merchandise.
MANAGEMENT
Mr. Richard A. Altomare has been President and CEO of Universal Express since May 1992, upon appointment by the reorganization court for Packaging Plus Services (predecessor of Universal Express) during Packaging's reorganization, completed in May, 1994. Mr. Altomare directs the Company, and is continuing to build a multi-faceted Company foundation for future growth in the global marketplace. He envisions a synergistic company capable of creating a profitable partnership between packaging store owners and their carriers, as well as building innovative businesses in the logistics, commercial vehicles capital funding and leasing and transportation fields.
TRADE MARKS AND SERVICE MARKS
The Company is the owner of tradenames, trademarks and service marks for the names and marks Universal Express(TM), Private Postal Network(TM), USXP Capital(TM), USXP Cash Express(TM), UniversalPost(TM), Luggage Express(TM), Virtual Bellhop(R), USXP Logistics(TM) and USXP Transportation(TM).
EMPLOYEES
As of June 30, 2004, the Company employed 25 individuals. The Company has not experienced any work stoppages and considers its relations with its employees to be excellent. To facilitate its UniversalPost Network, USXP Capital, Luggage Express and UniversalPost International Delivery expansion plans, management expects to engage in significant hiring of management, sales, operational and support personnel during 2004 and beyond.
ITEM 2
ITEM 2
DESCRIPTION OF PROPERTIES
USXP's present corporate headquarters is located at 1230 Avenue of the Americas, New York, New York, with administrative offices at 5295 Town Center Road, Boca Raton, Florida. UniversalPost Network has a branch office in Centereach, New York.
ITEM 3
ITEM 3
LEGAL PROCEEDINGS
The Company filed a lawsuit in New York in January 2004 against North American Airlines and its principal for $168,000,000 plus punitive damages.
The Company was awarded a $389 million dollar damage verdict by a jury in Dade County, Florida, upon which judgment was entered, against Select Capital, Ronald G. Williams and Walter Kolker. On April 21, 2003, the Company was awarded an additional $137,000,000 judgment upon a verdict after trial by a different jury in Dade County, Florida, against two other parties to this matter, Sheldon Taiger and South Beach Financial. Both cases involved "naked shorting" of the Company's shares and other matters. We believe that the judgments, which are non-appealable, are substantially collectable.
On March 2, 2004, the Company brought an action against the SEC in federal court in Florida on damages from the "naked shorting" of its shares and other matters. Thereafter, on March 23, 2004 the SEC brought an action in federal court in New York against certain officers of the Company. Both suits are pending.
The Company is involved in several lawsuits with vendors, suppliers, and professionals. These claims are all disputed by the Company. The Company believes that disposition of these matters will not have a material adverse effect on the Company's financial position.
ITEM 4
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No meeting of shareholders was held during the year.
PART II
ITEM 5
ITEM 5
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock has been trading under the symbol "USXP" on the automated quotation system maintained by the National Quotation Bureau, Inc., (the "Bulletin Board").
The following table sets forth the range of high and low bid quotations on the Bulletin Board for the Common Stock during the quarterly periods of the Current Period. The source of these quotations is the National Quotations Bureau. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not represent actual transactions.
Bid --- Quarter Ended Low High ------------- --- ----
9/30/03 $0.030 $0.109 12/31/03 $0.048 $0.112 3/31/04 $0.011 $0.078 6/30/04 $0.011 $0.031
As of June 30, 2004, there were over 10,000 holders of record of the Company's Common Stock.
The Transfer Agent and Registrar of the Company's Common Stock is OTC Corporate Transfer Service Co.
ITEM 6
ITEM 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Included in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations reflected in such forward-looking statements will prove to be correct. The Company's actual results could differ materially from those anticipated in the forward- looking statements as a result of certain factors, including sales levels, distribution and competition trends and other market factors.
OVERVIEW:
Management is continually concentrating on raising new capital to further develop the UniversalPostNetwork, its multi-faceted national private postal business centers nationwide connected through the World Wide Web, and for future acquisitions.
Management views this year as a period of growth based upon its decision to concentrate on core business development through the UniversalPost Network, Virtual Bellhop(R), Luggage Express(TM), UniversalPost International Delivery and USXP Capital(TM).
LIQUIDITY AND CAPITAL RESOURCES
During the twelve-month period ended June 30, 2004, the Company's financing activities provided $4,382,923 while $4,524,922 was used in its operating and investing activities.
The Company's working capital deficiency for fiscal 2004 was $2,601,215 compared with $2,015,902 in fiscal 2003.
The Company's net loss for fiscal 2004 was $9,061,293 compared with $6,523,324 in fiscal 2003.
Until the UniversalPost Network, Virtual Bellhop, Luggage Express, USXP Capital and UniversalPost International Delivery are fully developed, the Company will continue to rely on equity and debt raises to fund its operations. Management is continuing efforts to raise cash by arranging lines of credit, and obtaining additional equity capital. The Company's future business operations will require additional capital.
Management is presently exploring methods to increase available credit lines as well as methods to increase working capital through both traditional and non-traditional debt services.
ITEM 7
ITEM 7
FINANCIAL STATEMENTS
The Company's audited financial statements for the Current Period are found on the next succeeding pages of this Report on Form 10-KSB.
Independent Auditor's Reports ..............................................F-2
Consolidated Balance Sheets.................................................F-4
Consolidated Statements of Operations and Comprehensive Income (Loss).......F-5
Consolidated Statements of Stockholders' Equity (Deficiency)................F-6
Consolidated Statements of Cash Flows.......................................F-8
Notes to Consolidated Financial Statements..................................F-9
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders Universal Express, Inc.
We have audited the accompanying consolidated balance sheet of Universal Express, Inc., (the "Company") as of June 30, 2004 and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity (deficiency) and cash flows for the year in the period ended June 30, 2004. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2004 and the results of its operations and its cash flows for the year in the period ended June 30, 2004, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has experienced net losses since inception. The Company's financial position and operating results raise substantial doubt about its ability to continue as a going concern. Management's plans with regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Durland & Company, CPAs, P.A.
Palm Beach, Florida October 6, 2004
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders Universal Express, Inc.
We have audited the accompanying consolidated statements of operations and comprehensive income (loss), stockholders' equity and cash flows of Universal Express, Inc.,and Subsidiaries for the year ended June 30, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of their operations and their cash flows for the year ended June 30, 2003, of Universal Express, Inc. And Subsidiaries as of June 30, 2003, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the notes to the Consolidated Financial Statements, the Company incurred an operating loss of $6,531,815 for the year ended June 30, 2003 and had a working capital deficiency of $2,015,902 at June 30, 2003. These conditions raise substantial doubt about the Company's ability to continue as a going concern without the raising of additional debt and/or equity financing to fund operations. Management's plans in regard to these matters are described in the notes to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Rosenberg Rich Baker Berman & Company.
Bridgewater, New Jersey August 28, 2003
UNIVERSAL EXPRESS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES Nature of Organization Universal Express, Inc. ("USXP" or "the Company") was incorporated in the state of Nevada on April 6, 1983 and is an integrated business to business services company centered around the private postal and international shipping industries. Its principal subsidiaries include Universal Express Capital Corp. and Universal Express Logistics, Inc. (which includes Virtual Bellhop, LLC, Luggage Express and Worldpost, its international shipping divisions), and Private Postal Center Network.com (PPN Network) and its division Postal Business Center Network.com ("PBC Network").
The PPN Network is an association with the goal of unifying and organizing independent and franchised postal stores nationwide.
Universal Express Capital Corp. is a full service asset based transportation/equipment leasing brokerage company.
Virtual Bellhop, Inc. and Luggage Express are door to door luggage transportation services with established unique strategic relationships with well known travel service providers and distribution partners.
On January 2, 2001, USXP sold its 51% interest in SkyWorld International Couriers, Inc. ("SkyNet") in exchange for $400,000, a non-exclusive license to sublicense the SkyNet name in connection with an international courier service in the United States, and delivery service credits of $700,000 provided that USXP shall not use more than $50,000 in credits in any one month, unless authorized by SkyNet. Through June 30, 2003, the Company has used $20,177 of the aforementioned credits.
On May 11, 2001 USXP sold all of the assets of its subsidiary Downtown Theater Ticket Agency, Inc. ("DTTA") for $50,000 and a promissory note of approximately $392,000 payable over approximately 33 years. The present value of this note using a 9% discount rate is $119,402. Due to the uncertainty of collectability and the non-recourse nature of this long-term note the Company has recorded a reserve of $111,702, resulting in an unreserved other receivable of $7,700, representing approximately 1 year of payments. The Company did not receive any payments on this note after July 2001, and filed a lawsuit to collect. This suit was settled after June 30, 2004, and the Company received an initial payment under the settlement of $60,000, and another $55,000 to be paid $1,833 per month for 30 months.
In addition, USXP owns several other subsidiaries with little or no activity and seeks new acquisitions which will complement the PBC Network. Hereinafter, all of the aforementioned companies are collectively referred to as the "Company".
Going concern The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company incurred losses from operations of $9,061,293 and $6,523,324 for the years ended June 30, 2004 and 2003, respectively, and had a working capital deficiency of $2,601,215 at June 30, 2004. These conditions raise substantial doubt about the Company's ability to continue as a going concern without the raising of additional debt and/or equity financing to fund operations. Management is actively pursuing new debt and/or equity financing and is continually evaluating the Company's operations, however, any results of their plans and actions cannot be assured. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
UNIVERSAL EXPRESS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, Continued
Principles of Consolidation The accompanying financial statements consolidate the accounts of USXP and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Revenue Recognition For the luggage transportation operations, revenue is recognized upon delivery of the luggage.
For the transportation/equipment leasing brokerage company, revenue is recognized upon delivery of the transportation/equipment to the end user.
Shipping and Handling Costs Shipping and handling costs for the luggage transportation operations are charged to costs of goods sold as incurred.
Advertising Costs Advertising costs are charged to operations when incurred. Advertising expense was $131,802 and $67,578 for the years ended June 30, 2004 and 2003, respectively.
Goodwill Goodwill represents the excess of the purchase price of companies acquired over the fair market value of their net assets at the date of acquisition. The Company tests goodwill for impairment on an annual basis, relying on a number of factors including operating results, business plans and future cash flows. If the carrying value of the goodwill of a reporting unit exceeds the fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. At June 30, 2004, the Company believes that there has been no impairment of goodwill.
Property and Equipment Property and equipment are stated at cost. Depreciation and amortization are provided on a straight-line basis over the estimated useful life of the respective assets, ranging from five to ten years.
Deferred Service Costs Deferred service costs are recorded in connection with common stock issued to advisors for future services and are amortized over the period of the agreement, ranging from six months to ten years.
Stock Based Compensation Financial Accounting Statement No. 123 ("SFAS No. 123), Accounting for Stock Based Compensation, encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. The Company has adopted the "disclosure only" alternative described in SFAS 123 and SFAS 148, which require pro forma disclosures of net income and earnings per share as if the fair value method of accounting had been applied.
UNIVERSAL EXPRESS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, Continued
As required by Statement No. 123 the Company accounts for stock issued for services to non-employees by reference to the fair market value of the Company's stock on the date of issuance.
Basic Loss Per Common Share Net loss per common share is calculated utilizing the weighted average number of common shares outstanding during the period. The number of shares used in the computations were 624,964,652 and 353,208,736 for the years ended June 30, 2004 and 2003, respectively. Common stock equivalents and contingently issuable shares have not been included in the computation since the effect would be anti-dilutive.
Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes The Company recognizes deferred tax assets and liabilities based on the difference between the financial statements carrying amount and the tax basis of assets and liabilities using the effective tax rates in the years in which the differences are expected to reverse. A valuation allowance related to deferred tax assets is also recorded when it is probable that some or all of the deferred tax assets will not be realized.
Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. At June 30, 2003, the Company believes that there has been no impairment of its long-lived assets.
Marketable Securities Investments in marketable securities are classified as available-for-sale and are recorded at fair value with any unrealized holding gains or losses included in unrealized loss on marketable securities, which is a component of accumulated other comprehensive income (loss) in stockholders' equity.
Segment Disclosure The Company uses the "management approach" model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance.
As such, the Company has three major segments for the year ended June 30, 2004: Logistics and International Shipping, Transportation/Equipment Leasing Brokerage and Parent (other). Logistics and International Shipping includes Virtual Bellhop, LLC, Luggage Express, Worldpost, and Private Postal Center Network.com. Transportation/Equipment Leasing Brokerage includes Universal Express Capital Corp.
UNIVERSAL EXPRESS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, Continued
Comprehensive Income The Company has adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income". Comprehensive income is comprised of net income (loss) and all changes to the statements of stockholders' equity, except those due to investments by stockholders, changes in paid-in capital and distributions.
NOTE 2 - CONCENTRATION OF CREDIT RISK
The Company places its cash in what it believes to be credit-worthy financial institutions. However, cash balances may exceed FDIC insured levels at various times during the year.
NOTE 3 - LOAN TO OFFICER
Prior to the enactment of the Sarbanes-Oxley act, the Company's Chief Executive Officer, in accordance with the such officer' employment contract was entitled to secure loans from the Company in an amount not to exceed $950,000. The board agreed to forgive 10% per year (2.5% quarterly) of the outstanding balance of the Company loans to such officer, commencing January 2, 2001. These loans bear interest at the applicable federal rate, which approximated 6% during the year ended June 30, 2004. As of June 30, 2004 the amount owed under such loan is $785,595.
NOTE 4 - RELATED PARTY RECEIVABLES
As of June 30, 2004, the Company has advanced $906,000 to the spouse of the Chief Executive Officer, who is also an employee of the Company. The repayment terms of such advances have not yet been determined.
NOTE 5 - MARKETABLE INVESTMENT SECURITIES
Cost and fair value of the Company's investment in available for sale equity securities as of June 30, 2004 are as follows:
AMORTIZED COSTS GROSS UNRELATED LOSS FAIR VALUE --------------- -------------------- ---------- $ 120,000 $ (119,700) $ 300
NOTE 6 -PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2004 consists of the following: Leasehold improvements $ 47,028 Office equipment 64,140 Furniture and fixtures 83,319 ---------- 194,487 Less accumulated depreciation and amortization 92,272 ---------- Net property and equipment $ 102,215 ==========
UNIVERSAL EXPRESS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - OTHER CURRENT ASSETS
Other current assets as of June 30, 2004 consist of the following:
Prepaid legal fees $ 124,000 Employee advance 19,800 Commission advances 0 ---------- $ 143,800 ==========
NOTE 8 - NOTES PAYABLE
Notes payable at June 30, 2004 consist of the following:
Note payable, due upon demand, bearing interest at rate of 18% per annum $ 25,000 Note payable, due upon demand, bearing interest at rate of 18% per annum 400,000 Notes payable, due upon demand, bearing interest at a rate of 18% per annum 39,000 ---------- $ 464,000 ==========
NOTE 9 - BANK LINE OF CREDIT
The Company has a line of credit under which the bank has agreed to make loans up to $70,000 at 1.75% above the prime interest rate. At June 30, 2004, the outstanding balance on the line of credit was $25,128.
NOTE 10 - LONG-TERM DEBT
Long-term debt at June 30, 2004, is comprised of the following:
Installment note arising from settlement agreement due in monthly installments of $1,185 including interest through December 2004. This note bears interest at 12.5% $ 12,589
Promissory note to bank payable in equal monthly installments of $2,167 plus interest through October 2006. The note bears interest at the rate of 2% over the then prevailing prime rate. The note is secured by substantially all the Company's assets. 62,487
Loans payable to former owners of Virtual Bellhop, LLC, payable in monthly installments of $3,333 plus interest at 4% through May 2005 81,998 --------
Total 157,074 Less current maturities 120,591 -------- Long-Term Debt, Net of Current Maturities $ 36,483 ========
UNIVERSAL EXPRESS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - LONG-TERM DEBT, Continued
Total maturities of long-term debt are as follows:
Year ended June 30, 2005 $ 120,591 2006 26,004 2007 10,479 --------- $ 157,074 =========
NOTE 11 - CONVERTIBLE DEBENTURE
The Company issued a $100,000 convertible debenture in 1997. Such debenture is still outstanding and bears interest at 18% per annum. Any payment or conversion of this debenture is disputed by the Company.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company leases certain office space and equipment under operating lease agreements with unrelated parties. The base rent under these agreements aggregates approximately $12,030 per month. The related leases expire between July 2004 and 2007.
The following is a schedule of future minimum rental payments (exclusive of common area charges) required under operating operating leases that have remaining non-cancelable lease terms in excess of one year as of June 30, 2004.
Year ended June 30,
2005 $ 107,486 2006 100,615 2007 80,000 --------- $ 288,101 =========
Rent expense charged to operations was $227,882 and $228,715 for the years ended June 30, 2004 and 2003, respectively.
The leases also contain provisions for contingent rental payments based upon increases in taxes, insurance and common area maintenance expenses as well as renewal options.
The employment agreement with the Company's Chief Executive Officer provides for an annual base salary of $500,000 per annum. As of June 30, 2004 the Company has accrued $978,315 of salary due to such officer.
The Company is involved in various lawsuits and claims in the normal course of business. The Company believes that the disposition of these matters will not have a material adverse effect on the Company's financial position.
UNIVERSAL EXPRESS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - COMMITMENTS AND CONTINGENCIES, Continued
On July 5, 2001, the Company was awarded a $389 million judgment by a jury in Dade County, Florida against the Company's former investment banker. On April 23, 2003, the Company was awarded an additional $137 million judgment against two other parties related to this matter. The Company is currently pursuing collection of the judgments. At this time, however, no estimate can be made as to the time or amount of collection.
NOTE 13 - INCOME TAXES
At June 30, 2004 the Company had approximately $49,000,000 of net operating loss carry forwards expiring beginning in 2009 through 2024. A substantial amount of the carry forwards are subject to annual limitations pursuant to provisions contained in the Internal Revenue Code which become effective when an "ownership change", such as the ownership change effected pursuant to the Plan of Reorganization, occurs. To the extent that such net operating losses are not utilized in a particular year, such amounts become available to increase the following year's limitations.
Deferred tax assets in the amount of approximately $19,600,000 (resulting from the benefit of the aforementioned net operating losses), have been fully offset by a valuation allowance since realization of the benefit of the net operating losses is not assured.
Significant components of the deferred tax assets as of June 30, 2004 were from net operating losses. The deferred tax assets have been presented in the Company's financial statements as follows:
Total deferred tax assets $ 19,600,000 Less: valuation allowance (19,600,000) ------------ Net deferred tax assets $ 0 ============
The increase in the valuation allowance of $4,800,000 during the year ended 2004 was due to the additional allowance provided for the 2004 net operating loss.
The provision for income taxes differ from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes as follows:
JUNE 30, 2004 2003 ---- ---- Benefit computed at the statutory rate $ 4,873,000 $ 2,217,930 Losses for which no benefit recognized (4,873,000) (2,217,930) ----------- ----------- Benefit recorded $ 0 $ 0 ============ ===========
UNIVERSAL EXPRESS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - STOCKHOLDERS' EQUITY
The Company's Class B common shares (of which 3,000,000 shares have been authorized) provide for one and one-third votes per share. If the Company's current Chief Executive Officer exercises any stock options pursuant to the Company's stock option plan, or if the officer receives other shares of common stock pursuant to his employment agreement with the Company in lieu of stock options, the aggregate number of votes to which the initial 1,500,000 Class B shares issuable to such officer is entitled shall be reduced by one vote for each additional share which is received by the officer.
During the year ended June 30, 2004, the Company issued 232,017,737 shares of common stock and cancelled 5,000,000 shares of common stock. Of such shares issued, 1,579,000 shares were issued in exchange for advisory services rendered, 16,000,000 shares were issued to investors for stock rights, 20,400,000 shares were issued in exchange for cash and 95,819 shares were issued in exchange for warrants. 5,000,000 shares were issued in conjunction with the acquisition of Subcontracting Concepts, Inc., (SCI). Upon the resale of SCI to its original owners, these shares were returned to the Company and cancelled.
During the year ended June 30, 2004, advisory fees were prepaid to consultants retained by the Company to provide certain advisory services via the issuance of 148,942,918 common shares. The common shares were valued at their approximate fair market value on the dates of issuance and are being amortized over their respective contract periods.
During the year ended June 30, 2003, the Company issued 267,371,063 shares of common stock. Of such shares issued, 3,958,000 shares were issued in exchange for advisory services rendered and 10,264,063 shares were issued to investors for stock rights.
During the year ended June 30, 2003, advisory fees were prepaid to consultants retained by the Company to provide certain advisory services via the issuance of 253,149,000 common shares. The common shares were valued at their approximate fair market value on the dates of issuance and are being amortized over their respective contract periods.
During the year ended June 30, 2002, the Company issued 4,402,999 shares of common stock and 940,000 warrants to purchase shares of common stock for the acquisition of Virtual Bellhop, Inc.
NOTE 15 - TREASURY STOCK
The Company has bought an aggregate 50,000 shares from one investor for $18,000. Treasury stock is recorded at cost. The Company has a verbal agreement with such investor to repurchase an additional 200,000 shares at $.60 per share under certain circumstances. During the years ended June 30, 2004 and 2003 the Company retired 0 and 10,000 shares of treasury stock, respectively.
NOTE 16 - STOCK RIGHTS
Stock rights represent amounts received from investors for their future rights to purchase shares of stock of the Company at a discount of 20% to 30% of the market value of the stock at the date of exercise subject to the Company's right of redemption at a premium not to exceed 20% of the face amount of the right.
UNIVERSAL EXPRESS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - WARRANTS
On October 17, 2002, the Company announced a 4% dividend of four warrants payable to stockholders of record on the close of business November 1, 2002. The dividend consisted of a set of four warrants for every 25 shares held on the record date as follows: one 'A' Warrant, one 'B' Warrant, one 'C' Warrant and one 'D' Warrant. On January 31, 2003, the Company issued 12,566,505 of each type of warrant for a total of 50,266,020 warrants to be exercised as follows: The 'A' Warrant will entitle the holder to purchase one restricted share of USXP @ $0.10 per share for a term of twelve months; the 'B' Warrant will also be for one restricted share @ $0.25 for a term of twelve months; the 'C' Warrant will be for one restricted share @ $0.50 for a term of eighteen months; and the 'D' Warrant will also be for one restricted share @ $1.00 for eighteen months. At June 30, 2004, all unexercised warrants have expired.
On November 2, 2001, the Company issued 940,000 warrants to purchase common stock of the Company as part of the acquisition of Virtual Bellhop, LLC. These warrants entitled the holder to purchase 470,000 shares at $.15 per share and 470,000 shares at $.70 per share. These warrants expired on March 22, 2003.
NOTE 18 - STOCK OPTION PLAN
The Company's "1994 Stock Option Plan" provides for the issuance of up to 104,167 shares of common stock. The purchase price per share of common stock under each option shall not be less than the fair market value of the common stock on the date such option is granted. No options have been granted under the plan as of June 30, 2004. Per the plan document, the plan will terminate in 2004.
NOTE 19 - SEGMENT INFORMATION
Year ended June 30, 2004:
TRANSPORTATION/ LOGISTICS & EQUIPMENT INTERNATIONAL LEASING PARENT SHIPPING BROKERAGE (OTHER) CONSOLIDATED -------- --------- ------- ------------ Revenue $ 287,706 $ 2,487,630 $ -- $ 2775,336
Operating Loss $ (782,208) $ (498,519) $(7,054,930) $ (8,335,657)
Year ended June 30, 2003:
TRANSPORTATION/ LOGISTICS & EQUIPMENT INTERNATIONAL LEASING PARENT SHIPPING BROKERAGE (OTHER) CONSOLIDATED -------- --------- ------- ------------ Revenue $ 150,433 $ 2,285,107 $ 0 $ 2,435,540
Operating Loss $ (257,378) $ (290,694) $(5,983,743) $(6,531,815)
Assets of the segment groups are not relevant for management of the businesses, nor for disclosure.
UNIVERSAL EXPRESS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash, receivables, accounts payable, notes payable, convertible debt and accrued expenses approximate fair value based on the short-term maturity of these instruments.
NOTE 21 - NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets to be Disposed of, and provides guidance on classification and accounting for such assets when held for sale or abandonment. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 did not have a significant impact on the Company's results of operations or financial position.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This statement rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that statement, SFAS No. 44, Accounting for Intangible Assets of Motor Carriers, and SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This statement amends SFAS No. 13, Accounting for Leases, to eliminate inconsistencies between the required accounting for sales-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sales-leaseback transactions. Also, this statement amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. Provisions of SFAS No. 145 related to the rescissions of SFAS No. 4 were effective for the Company on November 1, 2002 and provisions affecting SFAS No. 13 were effective for transactions occurring after May 15, 2002. The adoption of SFAS No. 145 did not have a significant impact on the Company's results of operations or financial position.
In June 2003, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement covers restructuring type activities beginning with plans initiated after December 31, 2002. Activities covered by this standard that are entered into after that date will be recorded in accordance with provisions of SFAS No. 146. The adoption of SFAS No. 146 did not have a significant impact on the Company's results of operations or financial position.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, which provides alternative methods of transition for a voluntary change to fair value based method of accounting for stock-based employee compensation as prescribed in SFAS 123, Accounting for Stock-Based Compensation. Additionally, SFAS No. 148 required more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The provisions of this Statement are effective for fiscal years ending after December 15, 2002. The adoption of this statement is not expected to have a significant impact on the Company's results of operations of financial position.
UNIVERSAL EXPRESS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 - NEW ACCOUNTING PRONOUNCEMENTS, Continued
In April 2003, the FASB issued SFAS Statement No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities", which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. This Statement is effective for contracts entered into or modified after June 30, 2003, except for certain hedging relationships designated after June 30, 2003. Most provisions of this Statement should be applied prospectively. The adoption of this statement is not expected to have a significant impact on the Company's results of operations or financial position.
In May 2003, the FASB issued SFAS Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities, if applicable. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. The adoption of this statement is not expected to have a significant impact on the Company's results of operations or financial position.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires a company, at the time it issues a guarantee, to recognize an initial liability for the fair value of obligations assumed under the guarantees and elaborates on existing disclosure requirements related to guarantees and warranties. The initial recognition requirements are effective for the Company during the third quarter ending March 31, 2003. The adoption of FIN 45 did not have a significant impact on the Company's results of operations or financial position.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The adoption of FIN 46 did not have a significant impact on the Company' results of operations or financial position.
UNIVERSAL EXPRESS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23 - DISCONTINUED OPERATIONS
On March 30, 2004, the Company sold Bags to Go, Inc., (BTG), to its former owner. BTG was purchased by the Company on January 22, 2004. The Company decided to sell BTG as a result of its decision to lower its long-term debt. The purchase price consisted of (a) $179,500, with $25,000 paid at closing and 24 equal monthly payments of $6,437.50, (b) $129,275, with $25,000 paid at closing and 24 equal monthly payments of $4,344.83 and (c) the cancellation of the note due to the former owner of BTG, of which, the balance at closing was $424,666.
In the fourth fiscal quarter, the Company sold Subcontracting Concepts, Inc., (SCI), to its former owners. SCI was purchased by the Company on November 28, 2003. The decision to sell SCI was based on the concern and apprehension voiced by SCI's insurance carriers, financial institutions and clients regarding the recent SEC public complaint filed against the Company. The purchase price consisted of (a) $91,667 paid at closing, (b) $458,333 payable in five equal monthly payments of $91,666.60, (c) the surrender of 5,000,000 shares of the Company's common stock, (which have since been cancelled), and (d) the cancellation of the note due to the former owners of SCI, of which, the balance at closing was $6,850,000. The Company recorded a gain of $50,000 as a result of this transaction.
On October 12, 2003, the Company signed a contract to purchase North American Airlines, (NAA). This contract required the Company to place a $1,000,000 deposit at the signing of the agreement, which it did. On November 24, 2003, the Company announced that this transaction would not close. The Company received $500,000 of the initial deposit back. During the third fiscal quarter the Company filed a lawsuit against NAA and its principal stockholder. In the fourth fiscal quarter, the Company wrote off the remaining $500,000 of the initial deposit, as it is now the subject of the lawsuit and the return of it is in question as to amount and timing.
On December 16, 2003, the Company acquired a portfolio of automotive leases from Go Automotive Leasing Corp. of Bohemia, NY. The purchase price was (a) $200,000 in cash at closing, which was paid, (b) a $50,000 deposit with Sovereign Bank as security deposit for future leases, which was paid and (c) the assumption of existing debt directly related to the lease portfolio, which at closing amounted to $2,237,405. Subsequent to year end the Company discovered that Go Leasing had repossessed the lease portfolio during the fourth fiscal quarter. Therefore the Company wrote off the portfolio resulting in the recording a loss of $284,409. Go Leasing has refused to return the Company's $200,000 payment and Sovereign as so far refused to return the $50,000 security deposit. The Company is currently evaluating its options in this matter.
NOTE 24 - SUBSEQUENT EVENTS
Subsequent to the year ended June 30, 2004, the Company entered into a settlement agreement with the Purchasers of Downtown Theatre Ticket Agency, Inc. These purchasers had stopped paying their promissory note for the purchase in 2001. The Company had reserved for all but $7,700 of this note. The settlement agreement called for a payment of $60,000 at signing and payments of $1,833 per month for 30 months. The Company has received the $60,000 initial payment.
ITEM 8
ITEM 8
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On July 29, 2004, Rosenberg Rich Baker Berman & Company resigned as the Company's independent accountant. On September 22, 2004, the Company engaged Durland & Company as the Company's independent accountant.
PART III
ITEM 9
ITEM 9
MANAGEMENT OF THE COMPANY; COMPLIANCE WITH SECTION 16(a)
A. DIRECTORS
Pursuant the Company's Bylaws, the authorized number of directors of the Board of Directors of the Company is five (5), The sole Director of the Company at present is Richard A. Altomare, whose biographical information is set forth below.
B. EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons who will serve as Executive Officers of the Company or certain of its subsidiaries. Each such person shall serve at the pleasure of the Board of Directors of the Company.
NAME AGE POSITION - ---- --- --------
Richard A. Altomare 56 Chairman and CEO
RICHARD A. ALTOMARE. Mr. Altomare, is the Chairman and Chief Executive Officer of Universal Express (USXP). Universal, with its wholly owned subsidiary the UniversalPost Network is a leader of the $7 billion private postal industry. Its division, the UniversalPost International Courier System is engaged in international shipping. Prior to Universal Express, Mr. Altomare was an investment banker specializing in real estate, bankruptcy reorganizations and equipment transactions. Mr. Altomare also owned and operated professional sports teams. He served in the U.S. Marine Corps. and U.S. Army specializing in communications and intelligence. Mr. Altomare attended Adelphi and Hofstra University and has been a political candidate for U.S. Congress and served on numerous corporate Boards.
C. COMPLIANCE WITH SECTION 16(a)
Based on a review of forms submitted to the Company during and with respect to the current Period, the Company is not aware of any Director, Officer, or Beneficial Owner of more than 10% of any class of equity securities of the Company that failed to file on a timely basis the reports required by Section 16(a) of the Exchange Act of 1934 during the Current Period.
ITEM 10
ITEM 10
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
A. COMPENSATION OF EXECUTIVE OFFICERS.
The following table sets forth information, as required by Section 228.402 of Regulation S-B, 17 C.F.R. Section 228.402, as currently in effect, concerning the annual and long-term compensation of the Company's Chief Executive Officer and other individuals acting in a similar capacity for the past five fiscal years. No other information is included regarding compensation paid to other Executive Officers during such five year period because no such Executive Officer earned annual or long-term compensation in excess of $100,000. Except as set forth in the tables following, no bonus, other annual compensation, long-term compensation (in the form of restricted stock awards, options, stock appreciation rights, long-term incentive plans, or otherwise), or other forms of compensation were paid to the Company's Chief Executive Officer, any other individuals acting in a similar capacity, or any other Executive Officer of the Company at any time during such periods as are reflected in the tables (and accompanying notes) set forth below. Accordingly, as permitted by Item 402 (a) (5) of Regulation S-B, tables or columns otherwise required have been omitted from this Registration Statement where there has been no compensation awarded to, earned by, or paid to any of the named executives required to be reported in that table or column in any fiscal period covered by that table.
SUMMARY COMPENSATION TABLE Long-Term Annual Compensation Compensation Awards
(a) (b) (c) (d) (e) (f) OTHER NAME & PRINCIPAL FISCAL ANNUAL ANNUAL ANNUAL # OF POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
Richard A. Altomare 2000 300,000 $ 0 $ 0 0 Chairman & CEO 2001 300,000 $ 0 $ 0 0 2002 300,000 $ 0 $ 0 0 2003 300,000 $ 0 $ 0 0 2004 500,000 $ 0 $ 0 0
During the Company's reorganization commencing in 1991 until June 30, 2002, Mr. Altomare received no cash compensation under his employment agreement approved by the Reorganization Court. Such agreement currently entitles him to an annual base salary of at least $500,000. For fiscal year ended June 30, 2004, Mr. Altomare received $621,154 in cash compensation under his employment agreement. Mr. Altomare's Accrued salary as of June 30, 2004 is $978,315.
OPTION GRANTS IN CURRENT PERIOD
Individual Grants
- -------------------------------------------------------------------------------- (a) (b) (c) (d) (e)
% of Total Options Granted Options to Employees Exercise Expiration Name Granted in Current Period Price Date - --------------------------------------------------------------------------------
Richard A. Altomare Chairman. & CEO 0 0 0 0
AGGREGATED OPTION EXERCISES IN CURRENT PERIOD AND FY-END OPTION VALUES
- -------------------------------------------------------------------------------- (a) (b) (c) (d) (e)
value of unexercised # of unexercised in-the-money options at options at FY-end(#) FY-end($)
Shares acquired on Value Exercisable/ Exercisable/ Name Exercise (#) Realized ($) Unexercisable Unexercisable - --------------------------------------------------------------------------------
Richard A. Altomare Chairman. & CEO 0 0 0/0 0/0
B. COMPENSATION OF DIRECTORS
In the Company's Current Period, there were no arrangements pursuant to which any director of the Company was compensated for any service provided as a Director.
C. EMPLOYMENT CONTRACTS AND RELATED MATTERS
The Company has an employment contract with Mr. Altomare that was approved by the Reorganization Court as part of the Company's Reorganization Plan, which currently provides an annual base salary of $500,000. The employment agreement with Mr. Altomare provides that in the event Mr. Altomare's employment is terminated at any time within nine months following a "change of control event", as defined therein and generally described below, (i) his salary benefits for the remaining term of the agreement shall be accelerated and (ii) he shall receive shares of Class A Common Stock equal to 10% of all outstanding shares of Class A and Class B Common Stock of the Company, assuming all unexercised and outstanding warrants had been exercised. For purposes of the employment agreement with Mr. Altomare, a "change of control event" shall be deemed to have occurred in the event of (A) a merger or consolidation involving the Company in which the Company is not the surviving corporation, (B) the sale of all or substantially all of the assets of the Company, or (C) the acquisition by any individual, entity or group not affiliated with Mr. Altomare directly or indirectly becoming the beneficial owner of 20% or more of the combined voting power of the then outstanding voting securities of the Company. Mr. Altomare's employment agreement further grants to Mr. Altomare the right under the Court-approved 1994 Stock Option Plan to purchase not less than 500,000 shares of the Company's Class A Common Stock at the fair market price of the stock as of the Plan Effective Date. The employment agreement further provides certain restrictive covenants and nondisclosure obligations upon Mr. Altomare during the term of the agreement.
The board agreed to forgive 10% per year of the outstanding balance of the Company loans to such officer, commencing January 2, 2001 as long as the officer continues in the service of the Company. Such loan had a balance of $785,595 as of June 30, 2004.
ITEM 11
ITEM 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below lists each stockholder known to the Company that beneficially owns as of June 30, 2004 more than five percent of the Class A Common Stock of the Company. This information is based on 718,265,969 shares of Class A Common Stock issued and outstanding as of June 30, 2004. For purposes of this section, it is assumed that all 1.28 million shares of Class B Common Stock, each share of which is convertible into one share of Class A Common Stock under certain circumstances as set forth in the Company's Articles of Incorporation, have been so converted.
NAME AND ADDRESS OF AMOUNT AND NATURE % OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP COMMON STOCK - --------------------------------------------------------------------------------
None
B. SECURITY OWNERSHIP OF MANAGEMENT
The table below sets forth information with respect to the number of shares of the Company's Class A Common Stock that are beneficially owned by each director and executive officer of the Company and by all directors and offices of the Company as a group as of June 30, 2004. This information is based on 718,265,969 shares of Class A Common Stock issued and outstanding as of June 30, 2004. For purposes of this section, it is assumed that all 1.28 million shares of Class B Common Stock (par value $.005), which are convertible into Class A Common Stock under certain circumstances as set forth in the Company's Articles of Incorporation, have been so converted.
NAME AND ADDRESS OF AMOUNT AND NATURE % OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP COMMON STOCK - --------------------------------------------------------------------------------
Richard A. Altomare 5295 Town Center Rd. Boca Raton, FL 33486 14,490,173 shares 2%
ITEM 12
ITEM 12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Richard A. Altomare, the Company's Chairman and Chief Executive Officer, served from 1991 until May 11, 1994 as advisor and reorganization consultant to the Company and the Reorganization Court during the Company's Reorganization case. The Reorganization Court and the Company appointed Mr. Altomare as Chairman and President through a long- term employment agreement, approved by the Reorganization Court as part of the Company's Reorganization Plan, a position he has continually occupied thereafter.
During the Company's reorganization commencing in 1991 until June 30, 2002, Mr. Altomare received no cash compensation under his employment agreement approved by the Reorganization Court. Such agreement currently entitles him to an annual base salary of at least $500,000. For fiscal year ended June 30, 2004, Mr. Altomare received $621,154 in cash compensation under his employment agreement. Mr. Altomare's accrued salary as of June 30, 2004 is $978,315.
Mr. Altomare's outstanding loan balance under his employment agreement as of June 30, 2004 is $785,595.
As of June 30, 2004, The Company has advanced $906,000 to the spouse of the Chief Executive Officer, who is also an employee of the Company.
ITEM 13
ITEM 13
EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
2.1* Order, dated February 18, 1994. Confirming First Amended Plan of Reorganization of Packaging Plus Services, Inc., including confirmed Reorganization Plan and other exhibits.
3.1* Amended and Restated Articles of Incorporation of Packaging Plus Services, Inc.
3.2** Certificate of Amendment to Change the Number of Authorized Shares of Stock of Packaging Plus Services, Inc.
3.3** Certificate of Amendment of the Certificate of Incorporation to Change the Name of Packaging Plus Services, Inc. to Universal Express, Inc.
3.4* Amended and Restated By-Laws of Packaging Plus Services, Inc.
4.1* Specimen Class A Common Stock Certificate.
4.2* Specimen Class B Common Stock Certificate.
4.3** Specimen Class A Warrant Certificate.
4.4** Specimen Class B Warrant Certificate.
10.1* Employment Agreement of Richard A. Altomare.
10.2* 1994 Stock Option Plan.
21.1** List of Subsidiaries of Registrant.
* Incorporated herein by reference to the Registrant's Transition Report on Form 10-KSB for the Transition Period from January 1, 1994 through June 30, 1994 (as filed December 12, 1994)
** Incorporated herein by reference to the Registrant's Annual Report, as amended, on Form 10-KSB/A for the Annual Period ended June 30, 1999 (as filed January 20, 2000).
(B) Reports on Form 8-K -
Current Report filed on Form 8-K dated February 12, 2004. Current Report filed on Form 8-K dated August 23, 2004. Current Report filed on Form 8K dated September 27, 2004.
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company's report on Form 10-KSB has been signed below by the following person on behalf of the registrant and in the capacities and on the dates indicated.
UNIVERSAL EXPRESS, INC.
Date: October 13, 2004 /s/ Richard A. Altomare ----------------------- Richard A. Altomare, President and Chairman of the Board