SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED DECEMBER 31, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM _____ TO _____.
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
----------------------------------------------------------
(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 X No _
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).
Yes _ No X
The Company had 32,509,872 shares of common stock, par value
$.0001 per share, outstanding as of February 14, 2007.
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, 2006 and 2005
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 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
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ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
December 31, September 30,
2006 2005
(Unaudited) *
---------- ----------
Current Assets
Cash $ 137,899 $ 111,630
Accounts receivable
14,806,640 10,707,363
Prepaid expenses and
other current assets 231,512 286,243
Deferred tax asset -
current 159,859 159,859
---------- ----------
Total current assets 15,335,910 11,265,095
Property, plant and
equipment 2,005,325 1,958,820
Less: Accumulated
depreciation 1,124,400 1,066,546
---------- ----------
Net property, plant and
equipment 880,925 892,274
Goodwill, including
acquisition cost, net 535,108 535,108
Other assets 84,870 114,098
---------- ----------
Total assets 16,836,813 12,806,575
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 7,335,355 $ 5,810,199
Accrued expenses 3,538,283 1,690,800
Short-term bank 2,400,000 2,300,000
borrowings
Income taxes payable 230,976
Notes/leases payable -
current portion 96,738 94,624
---------- ----------
Total current liabilities 13,601,352 9,895,623
Deferred tax liability -
non current 77,869 77,869
Long term portion of
notes/leases payable 2,362,905 2,379,407
Stockholders' equity
Common stock 3,251 3,251
Retained earnings 791,436 450,425
---------- ----------
Total stockholders' equity 794,687 453,676
Total liabilities and
stockholders' equity $16,836,813 $12,806,575
========== ==========
* 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,
2006 2005
---------- ----------
Revenues $22,731,064 $19,491,819
Cost of transportation 15,785,047 14,308,707
---------- ----------
Net revenue 6,946,017 5,183,112
Selling, general and
administrative expenses 6,211,516 4,978,493
---------- ----------
Income from operations 734,501 204,619
Other income (expense):
Interest, net (86,050) (70,042)
Other income (expense) (5,040) 98,223
---------- ----------
Income before income tax
provision 643,411 232,800
Provision for income taxes 302,400 109,416
Net income $ 341,011 $ 123,384
======= =======
Weighted average common
shares - basic 32,509,872 32,509,872
Net income per common
share - basic $ .01 $ .00
Weighted average common
shares - diluted 32,509,872 32,509,872
Net income per common
share - diluted $ .01 $ .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 Earning Equity
Shares
Balance at ---------- ------- ---------- ----------
September 30, 2006 32,509,872 $3,251 $ 450,425 $ 453,676
Consolidated net
profit for the
three months ended 341,011 341,011
December 31, 2006 ---------- ------- ---------- ----------
Balance at December
31, 2006 32,509,872 $3,251 $ 791,436 $ 794,687
========== ======= ========== ==========
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ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31,
2006 2005
--------- ----------
Cash flows from operating
activities:
Net income $ 341,011 $ 123,384
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 57,854 35,695
Provision for doubtful
accounts 57,245 75,149
Deferred income taxes
(Increase) decrease in assets:
Accounts receivable (4,156,521) 543,492
Prepaid expenses and other
assets 63,408 107,669
Increase (decrease) in
liabilities:
Accounts payable and
accrued expenses 3,372,639 117,667
Income taxes payable 230,976
--------- ----------
Net cash provided/(used for) by
operating activities (33,388) 1,003,056
Cash flows from investing
activities:
Purchase of equipment (46,506) (259,786)
Collection of principal on loan
to licensee 20,550 19,586
--------- ----------
Net cash used for investing
activities (25,956) (240,200)
Cash flows from financing
activities:
Borrowings under capital leases 120,067
Repayments under capital leases (14,387) (8,923)
Borrowings under short term
bank borrowing 700,000
Repayments under short term
bank borrowing (600,000) (200,000)
--------- ----------
Net cash used for financing
activities 85,613 (88,856)
Net increase in cash and cash
equivalents 26,269 674,000
Cash and cash equivalents,
beginning of year 111,630 180,317
--------- ----------
Cash and cash equivalents, end of
period $137,899 $854,317
========= ==========
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, 2006
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 2006 Form 10-K
filing dated December 29, 2006 (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, 2006 and
September 30, 2006 and the results of operations for the
three months ended December 31, 2006 and 2005, respectively.
2. Net income per common share appearing in the statements
of operations for the three months ended December 31, 2006
and 2005, 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 20 offices
throughout the United States, including the corporate
headquarters, and employs 85 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 19 branch
locations, 13 are licensees operations, while 6 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,
2006 2005
-------- ---------
Revenues 100.0% 100.0%
Cost of transportation 69.4 73.4
-------- ---------
Net revenue 30.6 26.6
Operating expenses:
Personnel costs 8.1 9.3
License commissions and royalties 14.1 10.4
Other selling, general and
administrative expenses 5.2 5.9
-------- ---------
Total operating expenses 27.4 25.6
Operating income 3.2 1.0
Net interest expense (0.4) (0.3)
Other income/(expense) 0.0 0.5
Net income before tax provision 2.8 1.2
Tax provision 1.3 0.6
Net income 1.5% 0.6%
======== ==========
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Revenues
Revenues of the Company represents gross consolidated
sales less customer discounts. Total revenues for the
quarter ended December 31, 2006 increased by approximately
$3.2 million, or 16.6%, to $22,731,000, over the quarter
ended December 31, 2005, reflecting a higher volume of
shipments and total weight of cargo shipped. Domestic
revenues increased by approximately $1.2 million or 7.8%, to
$17,003,000 during the three-month period ended December 31,
2006 in comparison to the same period in the previous year.
International revenues increased by approximately $2.0
million or 53.9%, to $5,728,000, during the same comparative
periods. Higher business volume in markets served by
certain existing stations accounted for the increases in
both domestic and international revenues. The increase in
domestic sales was achieved despite the adverse affect of
Allstates' termination of the contractual relationship with
our Chicago branch licensee during the second quarter of
fiscal 2006, accounting for a $990,000 decrease in revenue
at that station.
Net Revenue
Net revenues represents the difference between gross
sales and the cost of transportation. The cost of
transportation is comprised primarily of amounts paid by the
Company to carriers and cartage agents for the transport of
cargo. Cost of transportation as a percentage of revenues
decreased by 4.0%, to 69.4%, for the three months ended
December 31, 2006, in comparison to the same period in the
previous year. The cost of sales percentage decrease is
primarily due to the increased volume of higher margin
business during the quarter, as well as significant
improvements in margins realized on certain existing
business. In absolute terms, the cost of sales increased by
approximately $1.5 million or 10.3%, to $15,785,000 during
the three months ended December 31, 2006 versus the
comparative period in the prior year, reflecting the
increased sales volume. Gross margins increased to 30.6%
during the quarter ended December 31, 2006 from 26.6% in the
same quarter of the previous fiscal year. Net revenue
increased by approximately $1,763,000, to $6,946,000 for the
three months ended December 31, 2006 versus the same three
months of the prior year.
Selling, General and Administrative Expenses
As a percentage of revenues, operating expenses
increased by 1.8% for the three months ended December 31,
2006 in comparison to the three months ended December 31,
2005, reflecting the growth rate in sales in relation to
fixed operating expenses. In absolute terms, operating
expenses increased by approximately $1,233,000 or 24.8%
during the three-month period ended December 31, 2006 as
compared to the same period in the prior fiscal year. The
comparative increase in SG&A expenses reflects the increase
in sales volume for the quarter, manifested primarily in
higher license commission, royalty and cargo insurance
expense.
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 $1,170,000 for the three-month period ended
December 31, 2006. in comparison to the same period in the
previous year. The higher expense is primarily due to the
change in status of our Newark, NJ branch from a company-
owned branch location to a licensee operated station
effective April 1, 2006. Licensee commissions and royalties
expensed to that station totaled approximately $762,000
during the quarter ended December 31, 2006. A net increase
in gross profits at our other licensee locations accounts
for the balance of the increase in licensee commissions. As
a percentage of revenues, licensee commissions and royalties
increased by 3.7%, to 14.1% of sales during the quarter
ended December 31, 2006.
-9-
Cargo insurance increased by approximately $68,000
during the three months ended December 31, 2006 as compared
to the same period of the previous year. Cargo insurance
expense, which is based on the amount of revenue, shipment
weight and declared value for the period, was higher due to
increases in those variables.
Freight claims expense increased by approximately
$69,000 during the quarter ended December 31, 2006 as
compared to the same period of the prior fiscal year,
primarily reflecting claims made to one customer relating to
stolen freight from fiscal 2005.
SG&A expenses presented for the three months ended
December 31, 2006 and 2005 are inclusive of expenditures to
related parties totaling $626,625 and $505,395, respectively.
Income From Operations
Operating income increased during the three months
ended December 31, 2006 by approximately $530,000, to
$735,000, 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, 2005,
the operating margin for the three month period ended
December 31, 2006 increased by 2.2%, to 3.2% of sales.
Net Interest Expense
Net interest expense increased by approximately $16,000
for the three months ended December 31, 2006 as compared to
the same period in the previous year, reflecting higher
interest rates on higher average outstanding borrowings.
Other income
Other income reported during the three months ended
December 31, 2005 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 $643,000 during
the quarter ended December 31, 2006, versus $233,000 during
the same period in the prior year. The Company recorded a
tax provision of approximately $302,000 for the quarter
ended December 31, 2006 as compared to a tax provision of
$109,000 for quarter ended December 31, 2005. Net income
after tax amounted to approximately $341,000 or 1.5% of
revenues during the first quarter of Fiscal 2007 versus net
income of approximately $123,000 or 0.6% of revenues in the
first quarter of Fiscal 2006.
Liquidity and Capital Resources
Net cash used for operating activities was
approximately $33,000 for the three months ended December
31, 2006 compared to net cash provided by operations of
approximately $1,003,000 for the three months ended December
31, 2005. For the three months ended December 31, 2006,
cash was used to finance the $4,157,000 increase in accounts
receivable, offset by the $3,373,000 increase in accounts
payable, a $283,000 swing increase in income taxes due, and
the net income of the Company. Net income, net of non-cash
charges totaled $456,000. For the three months ended
December 31, 2005, cash was provided by a decrease in
accounts receivable of $543,000, an increase in accounts
payable of $117,000, as well as the net income of the
Company, net of non-cash charges, of $234,000.
-10-
At December 31, 2006, the Company had cash of $138,000
and net working capital of $1,735,000, compared with cash of
$854,000 and net working capital of $1,523,000 respectively,
at December 31, 2005. The increase in working capital at
December 31, 2006 versus December 31, 2005 was primarily
affected by the Company's net income during the preceding
twelve months, offset by capital expenditures made during
that period.
The Company's investing activities during the three
months ended December 31, 2006 were primarily comprised of
expenditures made for the benefit of the new computer
system, primarily representing long term enhancements and
improvements. For the three months ended December 31, 2006,
capital expenditures amounted to approximately $47,000.
Capital expenditures amounted to approximately $260,000 for
the three months ended December 31, 2005, of which
approximately $120,000 is financed by a three year leasing
arrangement.
The Company has a commercial line of credit with a
bank, which became effective March 30, 2006, pursuant to
which the Company may borrow up to $3,000,000, based on a
maximum of 70% of eligible accounts receivable. Per the
agreement, which expires May 28, 2007, interest on
outstanding borrowings accrues at the banks prime rate of
interest (8.25% at December 31, 2006). Allstates previously
had a $2,000,000 line of credit with a different bank, which
was originally scheduled to expire on January 31, 2007.
However, that line of credit was paid off and terminated
concurrent with the opening of the line of credit with the
new bank. Outstanding borrowings on the line of credit at
December 31, 2006 and 2005 were $2,400,000 and $1,400,000,
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
Environmental matter
As previously reported, the Company has been involved
in an ongoing environmental proceeding pertaining to five
underground storage tanks and two above ground storage tanks
that were removed from a facility in which the Company
leased office space at the time prior to 1997. Also as
previously reported, the Company performed certain remedial
work and monitoring as required by the New Jersey Department
of Environmental Protection (the "NJDEP"), and at the
NJDEP's request, the Company submitted proposal that no
further action was required. The NJDEP subsequently issued a
No Further Action ("NFA") letter for the soil and
groundwater. Pursuant to the NFA, Allstates was to seal the
monitoring wells at the site.
As previously reported, the work was unable to be
completed due to site improvements installed by the current
property owner that rendered the monitoring wells
inaccessible. While the property owner agreed to fund the
additional costs necessary to access the wells for
abandonment, information provided by the owner indicates
that the monitoring wells were likely destroyed and that
abandonment is not feasible.
In order to resolve the matter administratively with
DEP, Allstates must proceed through NJDEP's Notice of Non-
Compliance process for lost or destroyed wells. This
process requires that the party
-12-
demonstrate that it made an appropriate effort to find and
properly abandon the wells, but that abandonment
is not possible. Documentation was submitted by counsel to
the NJDEP to demonstrate that when the site improvements
were installed, the contractors excavated to a depth such
that the wells would have been destroyed beyond the ability
to be properly abandoned. Although the NJDEP has
acknowledged that a high penalty is unlikely, it cannot
estimate the amount of penalty until the time of settlement.
Allstates will proceed to resolve the issue administratively
pursuant to the Notice of Non-Compliance process. A
conservative estimate for the penalty, including some
premium assessed by the NJDEP, may be $3,000-$10,000. The
law provides for higher penalties, but the NJDEP has not
typically assessed significant penalties in this type of
matter.
Allstates counsel has received written confirmation
from the property owner that it would assume the cost of the
penalty, conservatively estimated at $3,000 to $10,000, as
well as the costs to perform the remaining work concerning
the well closure issue and the legal fees to resolve the
matter.
In March 1997, Allstates made claims against liability
insurance carriers for coverage. The Company's counsel
submitted invoices to the carriers in September 2003, and
continues to respond to their requests for information. The
Company's counsel is in the process of arranging to meet
with the carriers to discuss settlement.
Joseph M. Guido v. Allstates WorldCargo, Inc., Sam
DiGiralomo, Barton C. Theile, and Craig D. Stratton.
As previously reported, pursuant to the Settlement
Agreement that resolved the litigation that commenced in
October 2004 by the Company's majority shareholder (the
"Shareholder Litigation"), the By-Laws of the Company were
amended to provide that the Board of Directors shall consist
of seven members. The number of directors prior to the
amendment was four. Also pursuant to the Settlement
Agreement, Charles F. Starkey, Alan E. Meyer, and Joseph
Buckelew were appointed to fill the vacancies on the Board
of Directors created by the expansion of its size. The By-
Laws were also amended, pursuant to the Settlement
Agreement, to provide for the manner in which vacancies in
the Board of Directors were to be filled. The Settlement
Agreement also required the parties 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 August 2, 2006, the Company received a Written
Consent in Lieu of a Special Meeting of the Stockholders of
Allstates WorldCargo, Inc. (the "Written Consent"), signed
by the Messrs. Guido, DiGiralomo, Theile, and Stratton, all
of whom constitute the holders of a majority of the issued
and outstanding shares of stock of the Company, and the
parties to the Settlement Agreement. The effect of the
Written Consent was to modify the Settlement Agreement by
(1) relieving the parties of the obligation to nominate and
vote for Messrs. Buckelew, Starkey, and Meyer (or their duly
appointed successors) as Directors, (2) removing Messrs.
Buckelew, Starkey, and Meyer from the Board of Directors,
(3) amending Section 3.02 of the By- Laws to provide that
the Board of Directors shall consist of not less than one
and not more than ten directors, with the precise number of
directors within that range to be set by the Board each year
before the annual meeting of shareholders, and with the
number of directors immediately following the adoption of
the amended Section 3.02 being four, and (4) amending
Sections 3.12(b) and 3.12(c) to provide that vacancies in
the Board shall be filled by an affirmative vote of the
remaining Board.
The Written Consent also provided that the By-Laws, as
amended, have been adopted by the Shareholders, and may not
be amended or repealed by the Board of Directors.
-13-
Masterbrush, LLC and B&G Plastics, Inc. v. Allstates
Logistics, Inc. and T.H. Weiss, Inc.
As previously reported, on or about December 5, 2005,
Masterbrush, LLC ("Masterbrush") and B&G Plastics, Inc.
("B&G") commenced an action against the Company's wholly-
owned subsidiary Allstates Logistics, Inc. ("ALI") and T.H.
Weiss, Inc. ("Weiss"), alleging various causes of action
arising out of the importation by Masterbrush of a quantity
of natural bristle paintbrushes produced in China (the
"Brushes").
The Complaint alleged that plaintiffs retained ALI to
expedite the importation of the Brushes into the United
States, that ALI wrongfully failed to advise plaintiffs that
the Brushes were subject to federal antidumping duties of
351.92 percent (the "Antidumping Duty") in addition to the 4
percent normal duty, and that by reason of ALI's (alleged)
failure to so advise plaintiffs, plaintiffs were required by
U.S. Customs to pay the Antidumping Duty, in the amount of
$422,282. The plaintiffs seek to recover compensatory
and consequential damages.
The case settled in November 2006. Pursuant to the
settlement, the case was dismissed against the Company,
without any admission of liability on the Company's part.
The Company was not, and will not be, required to pay any
money to the plaintiffs or any other party."
Autosplice, Inc. v. Allstates WorldCargo, Inc.
On or about November 30, 2006, a complaint was filed
against the Company in the Superior Court of California,
County of San Diego, Docket No. GIC876245. In that case, the
plaintiff alleges breach of contract and tortious behavior
in connection with a shipment of equipment handled by the
Company. The plaintiff alleges that it was damaged in the
amount of $139,379, which it seeks to recover. The
plaintiff has reserved the right to seek punitive damages in
the amount of $400,000.
The action is only recently commenced, and has not
progressed past the service of the Summons and Complaint.
The Company intends to contest the matter, and has turned
the matter over to its insurance carrier, which has
confirmed acceptance for defense and/or settlement.
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, 2007
Sam DiGiralomo, President and CEO
BY: /s/ Craig D. Stratton DATED: February 14, 2007
Craig D. Stratton, CFO,Secretary,
Treasurer and Principal Financial Officer
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