SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
XX QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
4 Lakeside Drive South, Forked River, New Jersey, 08731
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(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 February 14, 2006.
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ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial Statements with Supplemental Information
For the Period Ending December 31, 2005 and 2004
Financial Statements:
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statement of Operations 4
Condensed Consolidated Statements of Stockholders'
Equity 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 12
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS 20
ITEM 3 DEFAULTS ON SENIOR SECURITIES 20
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 20
ITEM 5 OTHER INFORMATION 20
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURES 21
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ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
December 31, September
30,
2005 2005
(Unaudited) *
---------- ----------
Current Assets
Cash $ 854,317 $ 180,317
Accounts receivable
10,062,949 10,681,589
Prepaid expenses and
other current assets 215,061 317,991
Deferred tax asset -
current 184,982 184,982
---------- ----------
Total current assets 11,317,309 11,364,879
Property, plant and
equipment 1,858,017 1,598,231
Less: Accumulated
depreciation 1,034,885 999,189
---------- ----------
Net property, plant and
equipment 823,132 599,042
Goodwill, including
acquisition cost, net 535,108 535,108
Other assets
175,447 199,773
---------- ----------
Total assets $12,850,996 $12,698,802
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $7,244,793 $6,420,955
Accrued expenses 1,061,220 1,767,391
Short-term bank
borrowings 1,399,500 1,599,500
Notes/leases payable -
current portion 88,649 49,888
---------- ----------
Total current liabilities 9,794,162 9,837,734
Deferred tax liability -
non current 102,368 102,368
Long term portion of
notes/leases payable 2,457,397 2,385,015
Stockholders' equity
Common stock 3,251 3,251
Retained earnings 493,818 370,434
---------- ----------
Total stockholders'
equity 497,069 373,685
Total liabilities and
stockholders' equity $12,850,996 $12,698,802
========== ==========
* Condensed from audited financial statements.
The accompanying notes are an integral part of these
consolidated financial statements.
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ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended December
31,
2005 2004
---------- ----------
Revenues $19,491,819 $16,452,754
Cost of transportation 14,308,707 11,721,572
---------- ----------
Gross profit 5,183,112 4,731,182
Selling, general and
administrative expenses 4,978,493 4,575,609
---------- ----------
Income from operations 204,619 155,573
Other income (expense):
Interest, net (70,042) (56,022)
Other income 98,223
---------- ----------
Income before income tax
provision 232,800 99,551
Provision for income taxes 109,416 35,000
Net income $ 123,384 $ 64,551
========== ==========
Weighted average common
shares - basic 32,509,872 32,509,872
Net income per common
share - basic $ .00 $ .00
Weighted average common
shares - diluted 32,509,872 32,509,872
Net income per common
share - diluted $ .00 $ .00
The accompanying notes are an integral part of these
consolidated financial statements.
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ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock
Total
Number Par Retained Stockholder's
of Value Earnings Equity
Shares
Balance at
September 30, 2005 32,509,872 $ 3,251 $ 370,434 $373,685
Consolidated net
profit for the
three months ended 123,384 123,384
December 31, 2005 ---------- ------- -------- ---------
Balance at December
December 31, 2005 32,509,872 $ 3,251 $ 493,818 $497,069
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ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31,
2005 2004
Cash flows from operating
activities:
Net income $123,384 $ 64,551
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 35,695 32,655
Provision for doubtful
accounts 75,149 47,643
(Increase) decrease in assets:
Accounts receivable 543,492 (794,361)
Prepaid expenses and other
assets 107,669 (47,406)
Increase (decrease) in
liabilities:
Accounts payable and
accrued expenses 117,667 704,964
-------- --------
Net cash provided by
operating activities 1,003,056 8,046
Cash flows from investing
activities:
Purchase of equipment (259,786) (5,907)
Collection of principal on loan
to licensee 19,586
-------- --------
Net cash used for investing
activities (240,200) ( 5,907)
Cash flows from financing
activities:
Borrowings under capital leases 120,067
Repayments under capital leases (8,923)
Repayments under short term bank
borrowing (200,000) 0
-------- --------
Net cash used for financing
activities (88,856) 0
Net decrease in cash and cash
equivalents 674,000 2,139
Cash and cash equivalents,
beginning of year 180,317 114,363
-------- --------
Cash and cash equivalents,
end of period $854,317 $116,502
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
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ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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, 2005 (File No. 000-24991). In the
opinion of management, these interim financial statements
contain all adjustments necessary for a fair presentation of
the Company's financial position at December 31, 2005 and
September 30, 2005 and the results of operations for the
three months ended December 31, 2005 and 2004, respectively.
2. Net income per common share appearing in the statements
of operations for the three months ended December 31, 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.
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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 104 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, 14 are licensee operations, while 7 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 December 31,
2005 2004
-------- ---------
Revenues 100.0% 100.0%
Cost of transportation 73.4 71.2
-------- ---------
Gross profit 26.6 28.8
Operating expenses:
Personnel costs 9.3 10.1
License commissions and royalties 10.4 11.3
Other selling, general
and administrative expenses 5.9 6.5
-------- ---------
Total operating expenses 25.6 27.9
Operating income 1.0 0.9
Net interest expense (0.3) (0.3)
Other income 0.5 -
Net income before tax provision 1.2 0.6
Tax provision 0.6 0.2
-------- ---------
Net income 0.6% 0.4%
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Revenues
Revenues of the Company represents gross consolidated
sales less customer discounts. Total revenues for the
quarter ended December 31, 2005 increased by $3.0 million,
or 18.5%, to $19,492,000, over the quarter ended December
31, 2004, reflecting a higher volume of shipments and total
weight of cargo shipped. Domestic revenues increased by
approximately $2.0 million or 15.0%, to $15,771,000 during
the three-month period ended December 31, 2005 in comparison
to the same period in the previous year. The net growth in
domestic revenues can be traced to two customers that
accounted for approximately $2.3 million in incremental
sales in comparison to the previous year fiscal period.
International revenues increased by approximately $1.0
million or 35.8%, to $3,721,000, reflecting volume increases
at certain existing stations.
Gross Profit
Gross profit represents the difference between net
revenues and the cost of sales. The cost of sales is
composed primarily of amounts paid by the Company to
carriers and cartage agents for the transport of cargo.
Cost of sales as a percentage of revenues increased by 2.2%,
to 73.4%, for the three months ended December 31, 2005, 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 continued growth
of significant lower margin business that the Company first
attained during fiscal 2004. In absolute terms, the cost of
sales increased by approximately $2.6 million or 22.1%, to
$14,309,000 during the three months ended December 31, 2005
versus the comparative period in the prior year, reflecting
the increased sales volume. Gross margins decreased to
26.6% during the quarter ended December 31, 2005 from 28.8%
in the same quarter of the previous fiscal year. Gross
profit increased by approximately $452,000 to $5,183,000 for
the three months ended December 31, 2005 versus the same
three months of the prior year.
Selling, General and Administrative Expenses
As a percentage of sales, operating expenses decreased
by 2.3% for the three months ended December 31, 2005 in
comparison to the three months ended December 31, 2004,
reflecting the growth rate in sales in relation to fixed
operating expenses. In absolute terms, operating expenses
increased by approximately $403,000 or 8.8% during the three-
month period ended December 31, 2005 as compared to the same
period in the prior fiscal year. The comparative increase
in SG&A expenses primarily reflect a combination of higher
personnel costs and higher license commission and royalty
expense.
Personnel expenses increased for the fiscal year ended
September 30, 2005 by approximately $152,000 over the fiscal
year ended September 30, 2004, driven in part by an increase
in headcount of operations and corporate personnel,
necessary to sustain the growth in business volume.
Corporate salary expense was also higher as a result of new
employment agreements that were ratified during the third
quarter of fiscal 2005. In addition, the executive bonus
accrual increased by $53,000 over the amount accrued in the
comparative period of fiscal 2005.
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 $170,000 for the three-month period ended
December 31, 2005 in comparison to the same period in the
previous year, reflected by higher gross profits at some
existing licensee operations.
-9-
Expenses related to business travel and entertainment
increased by approximately $43,000 during the quarter ended
December 31, 2005 in comparison to the same period of the
prior year, reflecting the overall increase in business
volume. The initial fees paid to the Company's three newly
appointed Directors amounted to approximately $37,000, which
included compensation for the fourth quarter of fiscal 2005.
Legal fees, which had increased significantly during the
prior year fiscal quarter ended December 31, 2004 as a
result of Allstates defense and settlement effort related to
an action commenced by a majority shareholder against the
Company, decreased during the three months ended December
31, 2005 in comparison to that period by approximately
$74,000.
SG&A expenses presented for the three months ended
December 31, 2005 and 2004 are inclusive of expenditures to
related parties totaling $505,395 and $483,906,
respectively.
Income From Operations
Operating income increased during the three months
ended December 31, 2005 by approximately $49,000, to
$205,000, compared to the same three month period in the
previous year, for the reasons indicated above. In
comparison to the respective period ended December 31, 2004,
the operating margin for the three month period ended
December 31, 2005 increased by 0.1%, to 1.0% of sales.
Net Interest Expense
Net interest expense increased by approximately $14,000
for the three months ended December 31, 2005 as compared to
the same period in the previous year, reflecting higher
interest rates on higher average outstanding borrowings.
Other income
Other income represents funds received during the
period from the final distribution settlement of the Q
Logistics Chapter 11 filing from February 2001.
Net Income
Income before income taxes increased to $233,000 during
the quarter ended December 31, 2005, versus $100,000 during
the same period in the prior year. The Company recorded a
tax provision of approximately $109,000 for the quarter
ended December 31, 2005 as compared to a tax provision of
$35,000 for quarter ended December 31, 2004. Net income
after tax amounted to approximately $123,000 or 0.6% of
revenues during the first quarter of Fiscal 2006 versus net
income of approximately $65,000 or 0.4% of revenues in the
first quarter of Fiscal 2005.
Liquidity and Capital Resources
Net cash provided by operating activities was
approximately $1,003,000 for the three months ended December
31, 2005, compared to cash provided by operations of
approximately $8,000 for the three months ended December 31,
2004. For the three months ended December 31, 2005, cash
was primarily provided by a decrease in accounts receivable
as well as the net income of the company. For the three
months ended December 31, 2004, cash was provided by the net
income of the company, offset by the net effect of increases
in accounts receivable and accounts payable that reflect the
growth in sales volume during the period as compared to the
same period of the previous year.
-10-
At December 31, 2005, the Company had cash of $854,000
and net working capital of $1,523,000, compared with cash of
$117,000 and net working capital of $1,176,000 respectively,
at December 31, 2004. The change in working capital at
December 31, 2005 over December 31, 2004 is primarily
attributable to the Company's net income during the
preceding twelve months, offset by a combination of the long
term portion of a loan made to a licensee during the second
quarter of fiscal 2005, as well as expenditures made toward
the purchase of a new computer system.
During March 2005, Allstates extended a $250,000 loan
to a licensee to finance their expansion effort. The loan
is being paid back with weekly payments over three years
including interest, at the same rate the Company pays on its
line of credit with the bank. The loan is secured by the
personal guarantees of the licensee principals. Allstates
collected $19,586 of principal on the loan during the
quarter ended December 31, 2005.
The Company's investing activities during the three
months ended December 31, 2005 were primarily comprised of
expenditures for capital equipment, primarily representing
purchases of computer hardware for the new computer system.
For the three months ended December 31, 2005, capital
expenditures amounted to approximately $260,000, of which
approximately $120,000 is financed by a three year leasing
arrangement, while capital expenditures amounted to
approximately $6,000 for the three months ended
December 31, 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 31,
2007, interest on outstanding borrowings accrues at the Wall
Street Journal's prime rate of interest (7.25% at December
31, 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 $1,100,000 at December 31, 2005 and 2004,
respectively.
Forward Looking Statements
The Company is making this statement in order to
satisfy the "safe harbor" provisions contained in the
Private Securities Litigation Reform Act of 1995. The
statements contained in all parts of this document
(including the portion, if any, appended to the Form 10-K)
including, but not limited to, those relating to the
availability of cargo space; the Company's plans for,
effects, results and expansion of international operations
and agreements for international cargo; future international
revenue and international market growth; the future
expansion and results of the Company's terminal network;
plans for local delivery services and truck brokerage;
future improvements in the Company's information systems and
logistic systems and services; technological advancements;
future marketing results; the effect of litigation; future
costs of transportation; future operating expenses; future
margins; any seasonality of the Company's business; future
acquisitions and the effects, benefits, results, terms or
other aspects of any acquisition; Ocean Transportation
Intermediary License; ability to continue growth and
implement growth and business strategy; the ability of
expected sources of liquidity to support working capital and
capital expenditure requirements; future expectations; and
any other statements regarding future growth, future cash
needs, future terminals, future operations, business plans,
future financial results, financial targets and goals; and
any other statements which are not historical facts are
forward-looking statements. When used in this document, the
words "anticipate," "estimate," "expect," "may," "plans,"
"project" and similar expressions are intended to be among
the statements that identify forward-looking statements.
Such statements involve risks and uncertainties, including,
but not limited to, those relating to the Company's
dependence on its ability to attract and retain skilled
managers and other personnel; the intense competition within
the freight industry; the uncertainty of the Company's
ability to manage and continue its growth and implement its
business strategy; the Company's dependence on the
availability of cargo space to serve its
-11-
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.
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, Joseph M. Guido, the majority
shareholder of the Company, who is also employed by the
Company as its Chairman, commenced an action against the
Company and three of the Company's directors, entitled
"Joseph M. Guido v. Allstates WorldCargo, Inc., Sam
DiGiralomo, Barton C. Theile, and Craig D. Stratton," in the
Superior Court of New Jersey, Chancery Division, Ocean
County (the "First Action"). Messrs. DiGiralomo, Theile and
Stratton are also employed by the Company as its President
and Chief Executive Officer, Executive Vice President and
Chief Operating Officer, and Chief Financial Officer,
respectively.
Mr. Guido alleged that on August 16, 2004, he delivered to
the Company's Secretary (1) an executed Written Consent in
Lieu of a Special Meeting of the Stockholders of Allstates
WorldCargo, Inc. dated August 16, 2004 (the "Guido
Consent"), (2) Amended and Restated Bylaws of the Company
adopted pursuant to the Guido Consent, and (3) a draft
Information Statement pursuant to Section 14(c) of the
Securities Exchange Act of 1934 (the "1934 Act"). Mr. Guido
alleged that, pursuant to the Guido Consent, he had amended
the Company's bylaws to (among other things) expand its
Board of Directors from four to seven members, and had
appointed three persons (alleged to be independent) to fill
the newly created seats. He alleged that the Company was
required by law to comply with his demand to notify its
shareholders of his action. He also alleged that the three
individual defendants, both as directors and officers, owed
the Company and its shareholders certain fiduciary duties to
direct that appropriate steps be taken by the Company to
allegedly comply with applicable law in response to the
Guido Consent. Mr. Guido demanded relief enjoining a
scheduled special Board of Directors meeting pending
Company's performance of acts allegedly required by New
Jersey law and by the 1934 Act. Mr. Guido also sought a
permanent injunction requiring the Company and its Secretary
to prepare and distribute to the Company's shareholders all
notices allegedly required by state and federal law in
connection with the Guido Consent. Finally, he sought entry
of an order requiring the Company to file and serve upon
him, within seven days after entry of a permanent
injunction, a written report setting forth the manner and
form in which the Company complied with the injunctions.
-12-
The Company (and the three individual defendants) opposed
the application for relief upon the grounds that subsequent
to his execution of the Guido Consent, Mr. Guido advised one
of the individual defendants that he had decided not to
proceed with his amendment of the Bylaws or his expansion of
the Board of Directors. The Defendants also alleged that
Mr. Guido's actions were not in the best interest of the
Company, and motivated by self-interest, that because of
such concerns, the Company needed time to determine its
obligations under the law, and that the purpose of the
Special Board Meeting (among others) was to consider issues
pertaining to the request by Mr. Guido to file the Schedule
14C presented to the Secretary of the Corporation.
On October 28, 2004, Mr. Guido, by his counsel, filed a
Notice of Voluntary Dismissal Without Prejudice, dismissing
the First Action. The parties agreed, subject to the terms
of definitive settlement agreements, to settle the issue
raised in the First Action upon the following terms: (1) the
Company's Board of Directors would not be expanded except by
unanimous consent, (2) Mr. Guido and the individual
defendants would enter into a voting agreement pursuant to
which each would agree to vote his respective shares in the
Company for the others as directors of the Company, (3) the
Company would enter into new employment agreements with the
individual defendants (the existing employment agreements
being due to expire on December 31, 2004), (4) the parties
would exchange general releases and (5) the Company would,
to the extent lawfully required by Mr. Guido's existing
employment agreement, reimburse him for the attorneys fees
he incurred in connection with the action. It was
anticipated that the complete terms of a settlement would be
agreed upon, and that formal settlement documents would be
prepared and executed. Such formal documentation was
prepared and delivered to Mr. Guido's counsel on December
27, 2004.
Mr. Guido refused to execute formal settlement
documentation, and commenced a second action, in the same
court and entitled in the same style, seeking the same
relief (the "Second Action"). The Defendants answered,
denying the allegations, and asserting counterclaims against
Mr. Guido and his wife, Teresa Guido.
On April 5, 2005, the parties agreed to a full and final
settlement of the Second Action, the terms of which were
placed on the record in court, and the parties acknowledged
to the court, under oath, their obligation to be bound
thereby. The material terms of that agreement (referred to
as the "Settlement Agreement") were:
-13-
(1) the Company's Board of Directors would be expanded from
four to seven members, and the Court would appoint the three
new directors, (2) vacancies thereafter would be filled by
vote of the remaining Board members, and in the event of a
tie or deadlock in filling any vacancy, the vacancy would be
filled by an arbitrator chosen by the Board, (3) Mr. Guido
and the individual defendants would enter into a voting
agreement pursuant to which each would agree to vote his
respective shares of the Company for the others as directors
of the Company, (4) the Company would enter into new
employment agreements with Mr. Guido and the individual
defendants, (5) the parties would exchange general releases
and (6) the Company would, to the extent lawfully required
by Mr. Guido's previous employment agreement, reimburse him
for the attorneys fees he incurred in connection with the
action.
On May 27, 2005, a final judgment was ordered, granted and
entered by the court in accordance with the settlement terms
agreed to by the parties on April 5, 2005. Finally, on June
6, 2005, Court declared the new employment agreements, the
voting agreement, and the mutual general release to be
effective as of April 5, 2005, notwithstanding any lack of
signatures. Pursuant to the mutual general release, the
Company and each of Mr. Guido, his wife, and Messrs.
DiGiralomo, Theile and Stratton each released and forever
discharged each and all of the others from any and all
causes of actions, known and unknown, then existing.
Pursuant to the terms of the settlement, on June 6, 2005,
the Company and Messrs. Guido, DiGiralomo, Theile and
Stratton (collectively, for purposes of this section, the
"Voters") entered into a Voting Agreement whereby each of
the Voters agreed to vote all of the capital stock of the
Company that each Voter is entitled to vote, for each other
as directors of the Company. Further, pursuant to the terms
of the Voting Agreement, any action taken to expand or in
any way modify the composition of the Board of Directors of
the Company from its present constitution shall require the
unanimous consent of all of the Voters. Additionally, in
the event that shareholder action is taken to alter or amend
the Certificate of Incorporation or Bylaws of the Company,
the Voters agree to vote all of their shares unanimously in
the same manner. If the Voters are unable to reach a
unanimous decision, then the proposed change shall be
rejected. The Voting Agreement terminates when each of
Messrs. Guido, DiGiralomo, Theile and Stratton no longer
own, control or hold any shares of capital stock of the
Company.
For so long as the Voting Agreement remains in effect, the
Voters also agreed, with a certain agreed-to exception, not
to transfer any of the shares of capital stock of the
Company they hold without the prior written consent of all
of the Voters, unless the other party to any such
transaction agrees in writing to join and be bound by all of
the terms of the Voting Agreement. To that end, the Voters
agreed to the placement of an additional restrictive legend
on all of their shares (including subsequently acquired
shares), which restrictive legend shall read:
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"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO RESTRICTIONS ON TRANSFER, VOTING AND OTHER RESTRICTIONS
PURSUANT TO A VOTING AGREEMENT ENTERED INTO BY THE COMPANY,
THE HOLDER OF THIS CERTIFICATE AND CERTAIN OTHER
STOCKHOLDERS OF THE COMPANY, A COPY OF WHICH IS AVAILABLE
FOR INSPECTION AT THE OFFICES OF THE SECRETARY OF THE
COMPANY."
Finally, during the term of the Voting Agreement, the Voters
agreed not to enter into any agreements that would be
inconsistent with any of the provisions therein.
Also pursuant to the terms of the settlement, on June 6,
2005 the Company and Allstates Air Cargo, Inc., its wholly
owned subsidiary, (together, the Employer) entered into
individual employment agreements with each of Messrs.
DiGiralomo (as President and Chief Executive Officer), Guido
(as Chairman), Theile (as Executive Vice President and Chief
Operating Officer) and Stratton (as Chief Financial
Officer). Messrs. DiGiralomo, Guido, Theile and Stratton
are collectively referred to herein as Executives. Each of
the employment agreements is effective as of April 5, 2005,
and expires on December 31, 2009, but may be extended if
agreed to in writing by the parties. Per each of the
employment agreements, Mr. DiGiralomo's annual salary shall
be $250,000; Mr. Guido's annual salary shall be $370,000;
Mr. Theile's annual salary shall be $250,000; and Mr.
Stratton's annual salary shall be $185,000. Each of these
salaries is subject to an annual increase at the discretion
of the Company's Board of Directors. Additionally, each of
Messrs. DiGiralomo, Guido and Theile shall receive an annual
bonus payment equal to 3% of the increase of the net profits
of the Employer from the fiscal year end 2003 to the fiscal
year end 2004. Each of Messrs. DiGiralomo, Guido, Theile
and Stratton remains eligible to participate in the
Employer's stock option plan, 401(k) retirement plan and
insurance plans.
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Excluding the above-described salary and bonus information,
the material terms of each of the Executives' employment
agreements are substantially the same. In the event any
Executive dies during the term of his respective employment
agreement, then for the longer of the remaining term of the
employment agreement or three years, the Employer shall
continue to pay the Executive's then current base salary to
the Executive's designated beneficiary or estate and will
also pay for insurance for any Executive's surviving
immediate family. If, within twenty-four months following a
"Change of Control" of the Employer, as defined in each of
the employment agreements, the Executive voluntarily resigns
or retires, the Employer shall pay to the Executive all
compensation and benefits due to him up to the date of his
termination, including, but not limited to, base salary and
any expense reimbursement, and within one month of
termination, a lump-sum payment equal to 299% of the
Executive's then current base salary, bonus for the fiscal
year end 2004, and of the amount reimbursed to the Executive
for business-related expenses for the calendar year
preceding the termination. Additionally, any options and/or
restricted stock granted to the Executive shall become fully
vested and registered as of the date of the termination.
The Executive shall have the right to exercise all of his
options for a period of five years from the date of the
termination. Additionally, all then-existing life and
health insurance benefits shall continue for the Executive
and his immediate family for a period of five years from the
date of termination. In the event of a "For Cause"
termination, as defined in each of the employment
agreements, the Employer shall pay to the Executive all
compensation and benefits due to him up to the date of his
termination, including but not limited to base salary and
expense reimbursement. At any time after 180 days have
elapsed from the date of his respective employment
agreement, each Executive shall have the right to terminate
his employment agreement on 90 days written notice to the
Employer. In the event of such termination, the Executive
shall be entitled to such compensation that is equal to the
"For Cause" termination compensation described above. A
termination that is neither a Change of Control termination,
a For Cause termination, is due to the Executive's death,
nor a termination by the Executive as provided above, is a
"Without Cause" Termination. In the event of a Without
Cause termination, the Executive shall be entitled to such
compensation that is equal to the Change of Control
termination compensation described above. Finally, if the
Employer breaches any material term of each respective
employment agreement or reduces the Executive's respective
title or responsibilities, the Executive may, at his option,
elect to leave the Employer, in which case he shall be
entitled to all of the Change of Control termination
compensation described above, except that the lump sum
payment to be paid to the Executive would be limited to 100%
of the Executive's base salary and bonus (if applicable).
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On July 6, 2005, to effectuate part of the settlement of the
Second Action, the Court entered an Order (the "July 6
Order") that expanded the Company's Board of Directors,
effective immediately, from four members to seven. The July
6 Order also appointed, effective immediately, Messrs.
Joseph Buckelew, Alan E. Meyer, and Charles F. Starkey, to
the Board.
On August 24, 2005, upon the Company's Motion for
Reconsideration, the Court entered and order amending the
July 6 Order (the "First August 24 Order"). Instead of
declaring the Board expanded, and appointing Messrs.
Buckelew, Meyer, and Starkey to the Board, the July 6 Order
was amended to show that the parties agreed that a Unanimous
Written Consent of the Directors of Allstates WorldCargo,
Inc. (attached to the First August 24 Order, and referred to
as the "Directors' Consent") was consistent with the
Settlement Agreement, and shall be deemed signed by Messrs.
DiGiralomo, Theile, Stratton, and Guido.
Pursuant to the Directors' Consent, the Board of Directors
amended Section 3.02 of the Bylaws to provide that the Board
of Directors shall consist of seven members. Prior to the
amendment, Section 3.02 of the Bylaws provided that the
Board of Directors shall consist of not less than one nor
more than ten Directors. The precise number of Directors
within this range was to be fixed by the Board each year
before the annual meeting of shareholders. The number of
Directors prior to the amendment was four.
Pursuant to the Directors' Consent, the Board of Directors
appointed Joseph Buckelew, Alan E. Meyer, C.P.A., and
Charles F. Starkey, Esq. to fill the vacancies created by
the expansion of the Board, to serve in accordance with the
Settlement Agreement.
Pursuant to the Directors' Consent, the Board of Directors
also amended Sections 3.12(b) and 3.12(c) of the Bylaws.
Prior to the amendment described herein, Section 3.12(b)
provided that vacancies in the Board may be filled by the
affirmative vote of a majority of the remaining Directors
then in office, even if their number is insufficient to
constitute a quorum. A director so elected was to hold
office until a successor is elected and qualified at the
next annual meeting of the shareholder. As amended, Section
3.12(b) provides that any vacancy shall be filled in the
manner provided therein, and that in the event of a
deadlock, or a three-to-three vote, with respect to filling
any vacancy, an independent arbitrator appointed by the
Board shall select the person to fill the vacancy. The
amended Bylaw also provides that any director so appointed
pursuant to Section 3.12(b) shall also hold office in
accordance with the Settlement Agreement.
-17-
Prior to the amendment described herein, Section 3.12(c)
provided that if a director resigns from the Board effective
at some future date, the future vacancy may be filled by the
affirmative vote of a majority of the directors then in
office, including the director who has resigned, even if
their number is insufficient to constitute a quorum. The
term of the newly elected director would begin when the
resignation becomes effective. A director so elected was to
hold office from the effective date of the predecessor's
resignation until a successor is elected and qualified at
the next annual or special meeting of the shareholders. As
amended, Section 3.12(c) provides that any future vacancy
shall be filled in the manner provided therein, and that in
the event of a deadlock, or a three-to-three vote, with
respect to filling any vacancy, an independent arbitrator
appointed by the Board shall select the person to fill the
vacancy. The amended By-Law also provides that any director
so appointed pursuant to Section 3.12(c) shall also hold
office in accordance with the Settlement Agreement.
In order to ensure that Messrs. Buckelew, Meyer, and Starkey
(or their successors duly appointed pursuant to the Bylaws)
continue to serve pursuant to the terms of the Settlement
Agreement, and not at the pleasure of the majority
shareholder, the Court entered a second order on August 24,
2005 (the "Second August 24 Order"), which provides that the
parties are required by the Settlement Agreement to nominate
and vote for, as Directors, Messrs. Buckelew, Starkey, and
Meyer (or their duly appointed successors) at future
meetings of the Company's shareholders at which directors
are to be chosen.
On November 7, 2005, the Court entered a Consent Order
pursuant to which Mr. and Mrs. Guido waived their right to
pursue reimbursement from the defendants of any and all
counsel fees paid or incurred in connection with the matter.
Accordingly, there are no issues left outstanding in the
matter, and it has been finally concluded.
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Liberty Mutual Insurance Company v. Lightning Freight Inc.,
GTD Logistics, Inc., and Gilberto Cordova.
The Company's subsidiary, GTD Logistics, Inc. ("GTD") is a
defendant in an action pending in Los Angeles Superior
Court, Docket No. 326868, brought by Liberty Mutual
Insurance Company ("Liberty"), regarding freight brokerage
services that GTD provided for a shipment that was allegedly
stolen. The tractor trailer hauling the shipment allegedy
contained several million dollars of hard disk drives.
After the truck and trailer were allegedly stolen, the owner
of the contents of the trailer made a claim against UPS
Supply Chain Solutions, the shipper, who then made a claim
against its insurance company, Liberty. Liberty is seeking
to recover from GTD and also the carrier and truck driver
the amount that is expended to cover the loss suffered by
its insured, the owner of the contents of the trailer. The
Complaint requests damages of not less than $1,400,000.
Liberty alleges that when GTD agreed to provide brokerage
services for the shipment of the cargo, GTD also promised to
select a motor carrier with no less than $1 million in cargo
insurance coverage, and to select a carrier that would
follow certain asset protection rules. Liberty alleges
breach of contract and negligence against GTD for failure to
comply with these alleged promises. GTD and Lightning
Freight, Inc. the carrier, filed Cross-Complains against
each other and Gilberto Cordova, the truck driver. Gilberto
Cordova never appeared in the matter and the Court entered a
default against him.
The parties have reached a settlement of the action,
pursuant to which GTD will pay the sum of ten thousand
dollars ($10,000) in full and complete settlement of all
claims. Lightning Freight, Inc. has agreed to pay the sum
of ten thousand dollars ($10,000) in full and complete
settlement of all claims against it, as well. The
settlement is conditioned upon the Court's granting the
parties' Application for Determination of Good Faith
Settlement Pursuant California Code of Civil Procedure,
which would bar any other joint tortfeasor (wrong-doer) or
co-obligor from any further claims against GTD and/or
Lightning Freight arising out of the transaction.
Jeffrey H. Mims, Chapter 7 Trustee v. Allstates WorldCargo,
Inc.
The Company is presently the defendant in an Adversary
Proceeding against Allstates WorldCargo, Inc. in the
bankruptcy case of Mosaic Group US., Inc. The lawsuit is
for the recovery of an alleged preferential transfer under
11 U.S.C. Sec. 547 in the sum of approximately $191,000, and
a post-petition transfer under 11 U.S.C. Sec 549, in the sum
of approximately $18,000. The matter is still in its
initial stages.
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Masterbrush, LLC and B&G Plastics, Inc. v. Allstates
Logistics, Inc. and T.H. Weiss, Inc.
On or about December 5, 2005, Masterbrush, LLC
("Masterbrush") and B&G Plastics, Inc. ("B&G")
commenced an action against the Company's
wholly-owned subsidiary Allstates Logistics, Inc. ("ALI")
and T.H. Weiss, Inc. ("Weiss"), alleging various causes of
action arising out of the importation by Masterbrush of a
quantity of natural bristle paintbrushes produced in China
(the "Brushes").
The Complaint alleges that plaintiffs retained ALI to
expedite the importation of the Brushes into the United
States, that ALI wrongfully failed to advise plaintiffs that
the Brushes were subject to federal antidumping duties of
351.92 percent (the "Antidumping Duty") in addition to the 4
percent normal duty, and that by reason of ALI's (alleged)
failure to so advise plaintiffs, plaintiffs were required by
U.S. Customs to pay the Antidumping Duty, in the amount of
$422,281.64. The plaintiffs seek to recover compensatory
and consequential damages.
The action is in its initial discovery stage.
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
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SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934,
the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALLSTATES WORLDCARGO, INC.
BY: /s/ SAM DIGIRALOMO DATED: February 14, 2006
Sam DiGiralomo,
President and CEO
BY: /s/ Craig D. Stratton DATED: February 14, 2006
Craig D. Stratton, CFO,
Secretary,
Treasurer and
Principal Financial Officer
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