SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
XX QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ______.
Commission file number 000-24991
____________________
ALLSTATES WORLDCARGO, INC.
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(Exact name of small business issuer as specified in its charter)
New Jersey 22-3487471
-------------- -------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
4 Lakeside Drive South, Forked River, New Jersey, 08731
----------------------------------------------------------
(Address of principal executive offices)
609-693-5950
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days)
Yes XX No
---- ----
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes No XX
---- ----
The Company had 32,509,872 shares of common stock, par value
$.0001 per share, outstanding as of August 11, 2005.
-1-
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial Statements with Supplemental Information
For the Period Ending June 30, 2005 and 2004
Financial Statements:
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statement of Operations 4
Condensed Consolidated Statements of Stockholders'
Equity (Deficit) 5
Condensed Consolidated Statement of Cash Flows 6
Notes to the Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS......... 8
ITEM 3. CONTROLS AND PROCEDURES................. 12
PART II. OTHER INFORMATION......................... 13
ITEM 1. LEGAL PROCEEDINGS....................... 13
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS.........14
ITEM 3 DEFAULTS ON SENIOR SECURITIES................ 14
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.... 14
ITEM 5 OTHER INFORMATION....................... 14
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K................ 14
SIGNATURES......................... 15
-2-
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
June 30, September
30,
2005 2004
(Unaudited) *
Current Assets
Cash $ 589,618 $ 114,363
Accounts receivable
9,736,531 8,073,391
Prepaid expenses and
other current assets 209,727 119,108
Deferred tax asset -
current 135,000 351,000
----------- -----------
Total current assets 10,670,876 8,657,862
Property, plant and
equipment 1,469,507 1,368,095
Less: Accumulated
depreciation 960,206 860,222
----------- -----------
Net property, plant and
equipment 509,301 507,873
Goodwill, including
acquisition cost, net 535,108 535,108
Other assets 223,401 86,224
----------- -----------
Total assets $ 11,938,686 $9,787,067
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current Liabilities
Accounts payable $6,315,971 $5,274,000
Accrued expenses 1,637,979 1,178,377
Short-term bank
borrowings 1,399,500 1,099,500
Income taxes payable 43,343
Notes payable 25,000 25,000
----------- -----------
Total current liabilities 9,421,793 7,576,877
Deferred tax liability -
non current 58,000 78,000
Long term portion of notes
payable 2,336,730 2,361,730
Stockholders'
equity (deficit)
Common stock 3,251 3,251
Retained earnings 118,912 (232,791)
----------- -----------
Total stockholders'
equity (deficit) 122,163 (229,540)
Total liabilities and
stockholders'
equity (deficit) $11,938,686 $9,787,067
=========== ===========
* Condensed from audited financial statements.
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
2005 2004 2005 2004
Revenues (net of
discounts) $18,662,615 $14,565,851 $50,502,337 $40,119,401
Cost of transportation 13,332,804 9,886,379 35,574,632 27,038,830
---------- ---------- ---------- ----------
Gross profit 5,329,811 4,679,472 14,927,705 13,080,571
Selling, general and
administrative expenses 4,952,378 4,287,461 14,086,262 12,377,372
---------- ---------- ---------- ----------
Income from operations 377,433 392,011 841,443 703,199
Other income (expense):
Interest, net (55,670) (54,636) (170,081) (162,321)
Gain/(loss) on sale of
assets 2,000 (1,587)
Other income 9,294 9,294
---------- ---------- ---------- ----------
Income before
income tax provision 321,763 348,669 671,362 548,585
Provision for income
taxes 157,000 184,000 319,659 305,000
---------- ---------- ---------- ----------
Net income $ 164,763 $ 164,669 $ 351,703 $ 243,585
Weighted average common
shares - basic 32,509,872 32,509,872 32,509,872 32,509,872
Net income per common
share - basic $ .01 $ .01 $ .01 $ .01
Weighted average common
shares - diluted 32,509,872 32,509,872 32,509,872 32,509,872
Net income per common
share - diluted $ .01 $ .01 $ .01 $ .01
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
Common Stock
Retained Total
Number Earnings Stockholders'
of Par (Deficit) Equity
Shares Value (Deficit)
___________ ______ _________ _________
Balance at 32,509,872 $ 3,251 $(232,791) $(229,540)
September 30, 2004
Consolidated net
profit for the nine
months ended June 351,703 351,703
30, 2005
___________ ______ _________ _________
Balance at
June 30, 2005 32,509,872 $ 3,251 $118,912 $ 122,163
=========== ====== ========= =========
-5-
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 30,
2005 2004
Cash flows from operating
activities:
Net income $ 351,703 $ 243,585
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 99,983 122,478
Provision for doubtful
accounts 113,331 116,113
(Gain)/loss on sale of assets 0 1,587
Deferred income taxes 196,000 249,000
(Increase) decrease in assets:
Accounts receivable (1,776,470) (1,201,483)
Prepaid expenses and other
assets 1,370 (813)
Increase (decrease) in
liabilities:
Accounts payable and
accrued expenses 1,501,574 346,015
Income taxes payable 43,343 0
--------- ---------
Net cash provided by/(used for)
operating activities 530,834 (123,518)
Cash flows from investing
activities:
Purchase of equipment (101,412) (382,014)
Proceeds from sale of property
and equipment 0 20,150
Loan to licensee (250,000) 0
Collection of loan principal 20,689 0
Deposits 144 3,200
--------- ---------
Net cash used for investing
activities (330,579) (358,664)
Cash flows from financing
activities:
Repayments under notes payable (25,000) (28,836)
Repayments under short-term
bank borrowings (800,000) (100,000)
Borrowing under short-term bank
borrowings 1,100,000 200,000
--------- ---------
Net cash provided by financing
activities 275,000 71,164
Net increase (decrease) in cash
and cash equivalents 475,255 (411,018)
Cash at beginning of year
114,363 516,639
--------- ---------
Cash and cash equivalents, end of
period $589,618 $105,621
========== =========
The accompanying notes are an integral part of
these consolidated financial statements.
-6-
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
1. The accompanying unaudited condensed consolidated
financial statements have been prepared by Allstates
WorldCargo, Inc. (the "Company") in accordance with the
rules and regulations of the Securities and Exchange
Commission (the "SEC") for interim financial statements and
accordingly do not include all information and footnotes
required under generally accepted accounting principles for
complete financial statements. The financial statements
have been prepared in conformity with the accounting
principles and practices disclosed in, and should be read in
conjunction with, the annual financial statements of the
Company included in the Company's Fiscal year 2004 Form 10-K
filing dated December 29, 2004 (File No. 000-24991). In the
opinion of management, these interim financial statements
contain all adjustments necessary for a fair presentation of
the Company's financial position at June 30, 2005 and
September 30, 2004 and the results of operations for the
three and nine months ended June 30, 2005 and 2004,
respectively.
2. Net income per common share appearing in the statements
of operations for the three and nine months ended June 30,
2005 and 2004, respectively have been prepared in accordance
with Statement of Financial Accounting Standards No. 128
("SFAS No. 128"). SFAS No. 128 establishes standards for
computing and presenting earnings per share ("EPS") and
requires the presentation of both basic and diluted EPS. As
a result primary and fully diluted EPS have been replaced by
basic and diluted EPS. Such amounts have been computed
based on the profit or (loss) for the respective periods
divided by the weighted average number of common shares
outstanding during the related periods.
-7-
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General Overview
Allstates WorldCargo, Inc. (the "Company" or
Allstates") is a New Jersey Corporation formed on January
14, 1997 as Audiogenesis Systems, Inc. (Audiogenesis"),
pursuant to a corporate reorganization of Genesis Safety
Systems, Inc. On August 24, 1999, Audiogenesis acquired 100
percent of the common stock of Allstates Air Cargo, Inc. in
a reverse acquisition, and on November 30, 1999, changed its
name to Allstates WorldCargo, Inc. 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 98 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. The Company is a party to several
site licensing agreements in which those licensees have
contracted with Allstates to provide exclusive freight
forwarding services, including sales and operating
functions, under the Allstates name. Of the 21 domestic
locations, 13 are licensee operations, while 8 are company
owned and staffed operations.
Results of Operations
The following table sets forth for the periods
indicated certain financial information derived from the
Company's consolidated statement of operations expressed as
a percentage of net sales:
Three Months Ended Nine Months Ended
June 30, June 30,
2005 2004 2005 2004
---- ---- ---- ----
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of transportation 71.4 67.9 70.4 67.4
---- ---- ---- ----
Gross profit 28.6 32.1 29.6 32.6
Operating expenses:
Personnel costs 9.0 11.2 9.9 12.0
License commissions 11.6 12.0 11.7 11.8
and royalties
Other selling,
general and
administrative
expenses 6.0 6.2 6.3 7.0
---- ---- ---- ----
Total operating
expenses 26.6 29.4 27.9 30.8
Operating income 2.0 2.7 1.7 1.8
Interest expense, net (0.3) (0.4) (0.4) (0.4)
Other income (expense) (0.0) 0.1 (0.0) (0.0)
Net income before
tax provision 1.7 2.4 1.3 1.4
---- ---- ---- ----
Tax provision 0.8% 1.3% (0.6)% (0.8)%
Net income 0.9% 1.1% 0.7% 0.6%
8
Revenues
Revenues of the Company represents gross consolidated
sales less customer discounts. Total revenues for the
quarter ended June 30, 2005 increased by approximately $4.1
million, or 28.1%, to $18,663,000, over the quarter ended
June 30, 2004, reflecting a higher volume of shipments and
total weight of cargo shipped. Sales for the nine month
period ended June 30, 2005 increased by approximately $10.4
million, or 25.9%, to $50,502,000 compared to the nine month
period ended June 30, 2004, for the same reasons. The
increase in revenues during the three and nine month
comparative periods primarily reflects the growth in volume
at our existing stations through newly acquired business, as
well as new volume generated by the addition of a licensee
operation in the second quarter of fiscal 2004.
Domestic revenues increased by approximately $2.3
million or 19.2%, to $14,489,000 during the three-month
period ended June 30, 2005 in comparison to the same period
in the previous year, reflecting higher shipping volume for
the reasons mentioned above. During the nine months ended
June 30, 2005, domestic revenues increased by approximately
$7.9 million or 24.3%, to $40,168,000 compared to the same
period in the prior year. International revenues increased
by approximately $1.8 million or 72.8%, to $4,174,000,
during the three months ended June 30, 2005 in comparison to
the prior year period. During the nine months ended June
30, 2005, international sales increased comparatively by
approximately $2.5 million or 32.4%, to $10,334,000.
Gross Profit
Gross profit represents the difference between net
revenues and the cost of sales. The cost of sales is
composed primarily of amounts paid by the Company to
carriers and cartage agents for the transport of cargo.
Cost of sales as a percentage of revenues increased by 3.5%,
to 71.4%, for the three months ended June 30, 2005, and
increased by 3.0%, to 70.4% for the nine months then ended,
in comparison to the same period in the previous year. This
higher cost of sales percentage can be attributed to a
combination of factors, including the effect of increases in
fuel costs as they affect carrier rates, an increase in
deferred shipments versus priority, and the growth of
significant lower margin business that the Company first attained
during fiscal 2004. In absolute terms, the cost of sales
increased by approximately $3.4 million or 34.9%, to
$13,333,000 during the three months ended June 30, 2005 over
the previous year period. During the nine months ended June
30, 2005, cost of sales increased by approximately $8.5
million or 31.6%, to $35,575,000 versus the comparative
period in the prior year, reflecting the increased sales
volume. Gross margins decreased to 28.6% during the quarter
ended June 30, 2005 from 32.1% in the same quarter of the
previous fiscal year, and decreased for the nine month
comparative period then ended to 29.6% from 32.6% in the
prior year period. Gross profit increased by approximately
$650,000, to $5,330,000 for the three months ended June 30,
2005 versus the same three months of the prior year, and
increased by approximately $1,847,000, to 14,928,000 for the
nine month comparative period then ended, reflecting the
increases in sales volume.
Selling, General and Administrative Expenses
As a percentage of sales, operating expenses decreased
by 2.8% for the three months ended June 30, 2005, to 26.6%,
in comparison to the three months ended June 30, 2004,
reflecting the growth rate in sales in relation to fixed
operating expenses, primarily those related to personnel and
company facilities. During the nine months ended June 30,
2005, operating expenses decreased by 2.9% in comparison to
the same period of the previous year, to 27.9% of sales, for
the same reason. In absolute terms, operating expenses
increased by approximately $665,000 or 15.5% during the
three-month period ended June 30, 2005 as compared to the
same period in the prior fiscal year. Operating expenses
increased by approximately $1,709,000, or 13.8% during the
nine months ended June 30, 2005 over the prior year period.
The increases in SG&A expenses for the three and nine month
comparative periods primarily reflects higher license
commission and royalty expense as well as higher legal
expense.
9
Allstates pays commissions to licensees as compensation
for generating profits to the Company. Licensee commissions
and royalties paid pursuant to licensee agreements increased
by approximately $435,000 for the three-month period ended
June 30, 2005 in comparison to the same period in the
previous year, and increased for the nine months then ended
over the previous year period by approximately $1,203,000.
The increases in licensee commissions and royalties is
reflected by higher gross profits at some existing licensee
operations as well as the addition of one licensee operation
during the second quarter of fiscal 2004.
Legal fees increased during the three months ended June
30, 2005 in comparison to the same period of the prior year
by approximately $193,000, and increased for the nine months
ended June 30, 2005 by approximately $428,000. The
increased expense primarily reflects Allstates defense and
settlement effort related to an action commenced by the
majority shareholder against the Company during the fourth
quarter of fiscal 2004.
Personnel expenses increased for the three and nine
month periods ended June 30, 2005 by approximately $44,000
and $198,000, respectively, over the previous year
comparative periods. This increase primarily reflects
higher operations personnel salaries necessary to sustain
the growth in business volume, and higher corporate salary
expense resulting from new employment agreements that were
ratified during the third quarter of fiscal 2005 as well as
the addition of a Director of MIS during the third quarter
of fiscal 2004.
SG&A expenses presented for the three months ended June
30, 2005 and 2004 are inclusive of expenditures to related
parties totaling $445,779 and $392,495, respectively. SG&A
expenses presented for the nine months ended June 30 , 2005
and 2004 are inclusive of expenditures to related parties
totaling $1,212,519 and $1,141,830, respectively.
Income from Operations
Operating income decreased during the three months
ended June 30, 2005 by approximately $15,000, to $377,000,
from $392,000 in the same three month period in the previous
year, for the reasons indicated above. During the nine
month period ended June 30, 2005, operating income increased
by approximately $138,000, to $841,000 compared to the same
nine month period in the prior year. The operating margin
decreased for the three months ended June 30, 2005 by 0.7%,
to 2.0% of sales compared to the prior fiscal year period.
In comparison to the respective period ended June 30, 2004,
the operating margin for the nine month period ended June
30, 2005 decreased by 0.1%, to 1.7% of sales.
Interest Expense, net
Interest expense increased for the three and nine
months ended June 30, 2005 by approximately $1,000 and
$8,000 respectively, as compared to the same periods in the
previous year, reflecting higher interest rates on borrowed
funds.
Net Income
Income before income taxes decreased to $322,000 during
the quarter ended June 30, 2005, versus $349,000 during the
same period in the prior year. The Company recorded a tax
provision of $157,000 for the quarter ended June 30, 2005 as
compared to a tax provision of $184,000 for the quarter
ended June 30, 2004. Net income after tax amounted to
approximately $165,000 or 0.9% of revenues during the third
quarter of Fiscal 2005 versus $165,000 or 1.1% of revenues
in the third quarter of Fiscal 2004.
10
Income before income taxes increased to $671,000 during
the nine months ended June 30, 2005, from $549,000 during
the same period in the prior year. The Company recorded a
tax provision of $320,000 for the nine months ended June 30,
2005 as compared to a tax provision of $305,000 for nine
months ended June 30, 2004. Net income after tax amounted
to approximately $352,000 or 0.7% of revenues during the
first three quarters of Fiscal 2005 versus $244,000 or 0.6%
of revenues during the first three quarters of Fiscal 2004.
Liquidity and Capital Resources
Net cash provided by operating activities was
approximately $531,000 for the nine months ended June 30,
2005, compared to cash used for operations of approximately
$124,000 for the nine months ended June 30, 2004. For the
nine months ended June 30, 2005, cash was provided by the
net income of the company as well as an increase in accounts
payable, offset by a related increase in accounts
receivable. For the nine months ended June 30, 2004, cash
was used to finance an increase in accounts receivable,
offset by the Company's profit during the period as well as
an increase in accounts payable.
At June 30, 2005, the Company had cash of $590,000 and
net working capital of $1,249,000, compared with cash of
$106,000 and net working capital of $1,013,000 respectively,
at June 30, 2004. The change in working capital at June 30,
2005 over June 30, 2004 is primarily attributable to the
Company's net income during the preceding twelve months,
offset by the long term portion of a loan made to a licensee
during the second quarter of fiscal 2005, as well as a
payment made in connection with a licensee agreement that
Allstates entered in to in fiscal 2004.
During the quarter ended December 31, 2003, Allstates
entered into a licensee agreement with another party that
would result in that party owning the rights to three
licensee operations commencing January 31, 2004. As part of
the agreement, Allstates WorldCargo paid in installments a
sum of $300,000 to the licensees as a start- up fee.
Installment payments commenced during the first quarter of
fiscal 2004 and continued through the second quarter, with
the final payment of $75,000 made during the third quarter
of that year. Allstates has capitalized this expenditure as
a leasehold improvement and is depreciating it over the ten-
year life of the contract. In addition, during the month of
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.
In addition to the leasehold improvement payment and
the aforementioned loan, the Company's investing activities
were comprised of expenditures for capital equipment,
primarily representing purchases of computer hardware and
software. For the nine months ended June 30, 2005, capital
expenditures amounted to approximately $101,000, while
capital expenditures amounted to approximately $82,000 for
the nine months ended June 30, 2004.
The Company has a commercial line of credit with a
bank, pursuant to which the Company may borrow up to
$2,000,000, based on a maximum of 70% of eligible accounts
receivable. Per the agreement, which expires January 29,
2006, interest on outstanding borrowings accrues at the Wall
Street Journal's prime rate of interest (6.00% at June 30,
2005). The interest rate is predicated on the Company
maintaining a compensating account balance in a non-interest
bearing account equal to at least $230,000. If such average
compensating balances are not maintained, the interest rate
will increase by 1% over the rate currently accruing.
Outstanding borrowings on the line of credit totaled
$1,400,000 and $1,250,000 at June 30, 2005 and 2004,
respectively.
11
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;
construction of the new facilities; the effect of
litigation; future costs of transportation; future operating
expenses; future margins; any seasonality of the Company's
business; future dividend plans; future acquisitions and the
effects, benefits, results, terms or other aspects of any
acquisition; 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 3 CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The
Company's principal executive officer and principal
financial officer, based on their evaluation of the
Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) as of a date within 90
days prior to the filing of this Quarterly Report on Form
10Q, concluded that the Company's disclosure controls and
procedures are adequate and effective for the purposes set
forth in the definition in the Exchange Act rules.
(b) Changes in Internal Controls. There were no significant
changes in the Company's internal controls or in other
factors that could significantly affect the Company's
internal controls subsequent to the date of the evaluation.
12
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Joseph M. Guido, v. Allstates WorldCargo, Inc., Sam DiGiralomo,
Barton C. Theile, and Craig D. Stratton
On October 14, 2004, the 56.91% majority shareholder of the
Company (the "Shareholder") (also employed by the Company as its
Chairman) commenced an action against the Company and three of the
Company's directors, entitled "Joseph M. Guido v. Allstates
WorldCargo, Inc., Sam DiGiralomo, Barton C. Theile, and Craig D.
Stratton," in the Superior Court of New Jersey, Chancery Division,
Ocean County, bearing Docket No. OCN- C -305-04. (Messrs.
DiGiralomo, Theile, and Stratton are also employed by the Company
as its President and Chief Executive Officer, its Executive Vice
President and Chief Operating Officer, and its Chief Financial
Officer.) The Shareholder alleged that in accordance with state
law, on August 16, 2004, he had delivered to the Company's
Secretary (1) an executed Written Consent in Lieu of a Special
Meeting of the Stockholders of Allstates WorldCargo, Inc. dated
August 16, 2004 (the "Written Consent"), (2) Amended and Restated
Bylaws of the Company adopted pursuant to the Written Consent (the
"A&R Bylaws"), and (3) a draft Information Statement pursuant to
Section 14(c) of the 1934 Act (the "Draft Information Statement").
(Some time after the commencement of the action, the majority
shareholder acquired beneficial ownership of additional shares,
bringing his total ownership to 58.47%)
The Shareholder alleged that pursuant to the Written Consent, he
had amended the Company's bylaws to (among other things) expand
the Board of Directors from four members to seven members, and
appointed three persons (alleged to be independent) to fill the
newly created board seats. He alleged that the Company was
required by law to comply with his demand to notify the
shareholders of his action, and that the Company's failure to do
so was a violation of the law. He also alleged that the three
individual defendants, both as directors and officers, owed the
Company and it shareholders certain fiduciary duties and duty of
loyalty to direct that "appropriate steps" be taken by the Company
to allegedly comply with New Jersey state law "and other
applicable law" in response to the Written Consent.
The Majority Shareholder demanded temporary, preliminary, and
injunctive relief enjoining a scheduled special Board of Directors
meeting (the "Special Board Meeting") pending Company's
performance of acts allegedly required by New Jersey law and by
the 1934 Act. The Majority Shareholder also sought a permanent
injunction requiring the Company and its Secretary to prepare and
distribute to the Company's shareholders all notices allegedly
required by state and federal law in connection with the Written
Consent. Finally, he sought entry of an Order requiring the
Company to file and serve upon him, within seven days after entry
of a permanent injunction, a written report setting forth the
manner and form in which the Company complied with the
injunctions.
The Company (and the three individual defendants) opposed the
application for temporary relief upon the grounds that subsequent
to his execution of the Written Consent, the Majority Shareholder
advised one of the individual defendants that he had decided not
to proceed with his amendment of the Bylaws or his expansion of
the Board of Directors. Defendants also alleged that the Majority
Shareholder's actions were not in the best interest of the
Company, and were motivated by self-interest, that because of such
concerns, the Company needed time to determine its obligations
under the law, and that the purpose of the Special Board Meeting
(among others) was to consider "issues pertaining to the request
by [the Majority Shareholder] to file the Schedule 14C presented
to the Secretary of the Corporation."
On October 28, 2004, the parties reached an agreement with regard
to some essential terms of a settlement, pursuant to which (1) the
Company's Board of Directors would not be expanded except by
unanimous consent, (2) the Majority Shareholder and the individual
defendants would enter into a voting agreement
13
pursuant to which each would agree to vote his respective shares
in the Company for the others as directors
of the Company, (3) the Company would enter into new employment
agreements (the precise terms of which were to be agreed upon)
with the individual defendants (the existing employment agreements
being due to expire on December 31, 2004), (4) the parties would
exchange general releases, and (5) the Company would, to the
extent lawfully required by the Majority Shareholder's existing
employment agreement, reimburse him for the attorneys fees he
incurred in connection with the action. It was anticipated that
the complete terms of a Settlement would be agreed upon, and that
formal settlement documents would be prepared and executed. Such
formal documentation was prepared and delivered to the
Shareholder's counsel on December 27, 2004.
The Majority Shareholder refused to execute formal settlement
documentation, and commenced a second action, under Docket No. OCN-
C-048-05, seeking the same relief. The Company answered, denying
the allegations, and asserting counterclaims against the Majority
Shareholder and his wife. On April 5, 2005, a final settlement was
placed on the record in court. The material terms of that
settlement are (1) the Company's Board of Directors will be
expanded from four to seven members, and the Court will appoint
the three new directors, (2) the Majority Shareholder and the
individual defendants would enter into a Voting Agreement (the
precise terms of which have already been agreed upon) pursuant to
which each agrees to vote his respective shares in the Company for
the others as directors of the Company, (3) the Company would
enter into new employment agreements with the individual
defendants (the precise terms of which have already been agreed
upon), (4) the parties would exchange general releases, and (5)
the Company would, to the extent lawfully required by the Majority
Shareholder's existing employment agreement, reimburse him for the
attorneys fees he incurred in connection with the action.
On May 27, 2005, the Court entered an Order for Judgment, entering
a Final Judgment in accordance with the terms of the settlement
read into the record on April 5, 2005. On June 6, 2005, the Court
entered an Order reconfirming the May 27, 2005 Order, and
recognizing the Employment Agreements, the Voting Agreement, and
the General Release attached thereto to be binding on the parties,
notwithstanding the lack of signatures.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
NONE
ITEM 3 DEFAULTS ON SENIOR SECURITIES
NONE
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5 OTHER INFORMATION
NONE
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
14
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934,
the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALLSTATES WORLDCARGO, INC.
BY: /s/ SAM DIGIRALOMO DATED: August 12, 2005
Sam DiGiralomo, President and CEO
BY: /s/ Craig D. Stratton DATED: August 12, 2005
Craig D. Stratton, CFO,Secretary,
Treasurer and Principal Financial Officer
15