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 MARCH 31, 2007
[ ] 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 May 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 March 31, 2007 and 2006
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 13
PART II. OTHER INFORMATION 13
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS 15
ITEM 3 DEFAULTS ON SENIOR SECURITIES 15
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 15
ITEM 5 OTHER INFORMATION 15
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
-2-
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
March 31, September
30,
2007 2006
(Unaudited) *
Current Assets
Cash $ 162,995 $ 111,630
Accounts receivable
11,237,740 10,707,363
Prepaid expenses and
other current assets 378,148 286,243
Deferred tax asset -
current 159,859 159,859
---------- ----------
Total current assets 11,938,742 11,265,095
Property, plant and
equipment 2,045,048 1,958,820
Less: Accumulated
depreciation 1,175,825 1,066,546
---------- ----------
Net property, plant and
equipment 869,223 892,274
Goodwill, including
acquisition cost, net 535,108 535,108
Other assets 59,737 114,098
---------- ----------
Total assets $13,402,810 $12,806,575
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 5,025,440 $ 5,810,199
Accrued expenses 2,487,610 1,690,800
Short-term bank
borrowings 2,400,000 2,300,000
Income taxes payable 195,231
Notes/leases payable -
current portion 98,917 94,624
---------- ----------
Total current liabilities 10,207,198 9,895,623
Deferred tax liability -
non current 77,869 77,869
Long term portion of
notes/leases payable 2,343,588 2,379,407
Stockholders' equity
Common stock 3,251 3,251
Retained earnings 770,904 450,425
---------- ----------
Total stockholders' equity 774,155 453,676
Total liabilities and
stockholders' equity $13,402,810 $12,806,575
========== ==========
* 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 Six Months Ended
March 31, March 31,
2007 2006 2007 2006
Revenue $17,335,091 $16,902,604 $40,066,155 $36,394,423
Cost of transportation 12,309,399 12,092,054 28,094,446 26,400,760
---------- ---------- ---------- ----------
Net revenue 5,025,692 4,810,550 11,971,709 9,993,663
Selling, general and
administrative expenses 4,991,569 4,860,043 11,203,085 9,838,536
---------- ---------- ---------- ----------
Income/(loss) from
operations 34,123 (49,493) 768,624 155,127
Other income (expense):
Interest, net (90,106) (74,379) (176,156) (144,422)
Other income 18,051 13,011 98,223
---------- ---------- ---------- ----------
Income/(loss) before
income tax provision (37,932) (123,872) 605,479 108,928
Provision for income
taxes (17,400) (58,220) 285,000 51,196
Net income/(loss) $(20,532) $(65,652) $320,479 $57,732
========== ========= ========== ==========
Weighted average common
shares - basic 32,509,872 32,509,872 32,509,872 32,509,872
Net income per common
share - basic $ .00 $ .00 $ .01 $ .00
Weighted average common
shares - diluted 32,509,872 32,509,872 32,509,872 32,509,872
Net income per common
share - diluted $ .00 $ .00 $ .01 $ .00
The accompanying notes are an integral part of these
consolidated financial statements.
4
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
six months ended 320,479 320,479
March 31, 2007
---------- ------- ---------- ----------
Balance at March 32,509,872 $3,251 $ 770,904 $ 774,155
31, 2007 ========== ======= ========== ==========
5
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended
March 31,
2007 2006
Cash flows from operating
activities:
Net income $320,479 $57,732
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 119,387 78,452
Provision for doubtful
accounts 100,512 145,203
Loss on disposal of assets 1,375
Deferred income taxes
(Increase) decrease in assets:
Accounts receivable (630,888) (456,477)
Prepaid expenses and other
assets (83,504) 14,558
Increase (decrease) in
liabilities:
Income taxes payable 195,231
Accounts payable and
accrued expenses 12,051 (101,448)
-------- --------
Net cash provided by/(used for)
operating activities 34,643 (261,980)
Cash flows from investing
activities:
Purchase of equipment (97,711) (319,077)
Deposits 3,750 (10,385)
Collection of principal on loan
to licensee 42,208 37,881
-------- --------
Net cash used for investing
activities (51,753) (291,581)
Cash flows from financing
activities:
Borrowings under capital leases 120,067
Repayments under capital leases (31,525) (24,130)
Borrowings under short term
bank borrowing 1,700,000 611,860
Repayments under short term
bank borrowing (1,600,000) (200,000)
-------- --------
Net cash provided by financing
activities 68,475 507,797
Net increase/(decrease) in cash
and cash equivalents 51,365 (45,764)
Cash and cash equivalents,
beginning of year 111,630 180,317
Cash and cash equivalents, end of
period $162,995 $134,553
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
6
ALLSTATES WORLDCARGO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
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 March 31, 2007 and
September 30, 2006 and the results of operations for the
three and six months ended March 31, 2007 and 2006,
respectively.
2. Net income per common share appearing in the statements
of operations for the three and six months ended March 31,
2007 and 2006, 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 20 offices
throughout the United States, including the corporate
headquarters, and employs 92 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, 12 are licensees 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 Six months ended
March 31, March 31,
2007 2006 2007 2006
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of transportation 71.0 71.5 70.1 72.5
----- ----- ----- -----
Gross profit 29.0 28.5 29.9 27.5
Operating expenses:
Personnel costs 9.7 11.4 8.8 10.3
License commissions
and royalties 13.5 10.6 13.8 10.5
Other selling, general
and administrative
expenses 5.6 6.8 5.4 6.3
----- ----- ----- -----
Total operating expenses 28.8 28.8 28.0 27.1
Operating income/(loss) 0.2 (0.3) 1.9 0.4
Interest expense, net (0.5) (0.4) (0.4) (0.4)
Other expense 0.1 (0.0) 0.0 0.3
----- ----- ----- -----
Net income/(loss) before
tax provision (0.2) (0.7) 1.5 0.3
Tax provision 0.1 0.3 (0.7) (0.1)%
----- ----- ----- -----
Net income/(loss) (0.1)% (0.4)% 0.8% 0.2%
8
Revenue
Revenue of the Company represents gross consolidated
sales less customer discounts. Total revenue for the three
months ended March 31, 2007 increased by approximately
$432,000, or 2.6%, to $17,335,000, over the quarter ended
March 31, 2006, reflecting a higher volume of shipments and
total weight of cargo shipped. Total sales for the six
month period ended March 31, 2007 increased by approximately
$3.7 million, or 10.1%, to $40,066,000 compared to the six
month period ended March 31, 2006, for the same reasons.
Total revenue increases during those comparative periods
were achieved despite the adverse affect of Allstates
WorldCargo's termination of the contractual relationship
with our Chicago branch licensee during the second quarter
of fiscal 2006, as well as with our Minneapolis branch
licensee during the second quarter of fiscal 2007. The
terminations of those contracts account for approximate
decreases of $1,185,000 and $2,230,000 for the three and six
month comparative periods. The Company was able to
compensate for that loss of revenue through incremental
growth at our existing branch locations. During the six
months ended March 31, 2007, one customer accounted for
approximately 9.7% of total revenue.
Domestic revenue increased by approximately $285,000
or 2.1%, to $13,569,000 during the three-month period ended
March 31, 2007 in comparison to the same period in the
previous year, reflecting higher shipping volume for the
reasons mentioned above. During the six months ended March
31, 2007, domestic revenue increased by approximately $1.5
million or 5.2%, to $30,572,000 compared to the same period
in the prior year. International revenue increased by
approximately $147,000 or 4.1%, to $3,766,000, during the
three months ended March 31, 2007 in comparison to the prior
year period. During the six months ended March 31, 2007,
international sales increased comparatively by approximately
$2.2 million or 29.3%, to $9,494,000.
Net Revenue
Net revenue represents the difference between gross
sales and the cost of transportation. The cost of
transportation is composed primarily of amounts paid by the
Company to carriers and cartage agents for the transport of
cargo. The cost of transportation as a percentage of
revenue decreased by 0.5%, to 71.0%, for the three months
ended March 31, 2007, and decreased by 2.4%, to 70.1% for
the six months then ended, in comparison to the same period
in the previous year. The cost of sales percentage
decreases are primarily due to a combination of increased
volume of higher margin business during each of the
comparative periods, significant improvements in margins
realized on certain existing business, and the elimination
of lower margin business resulting from the terminated
relationships of two of our branch licensees. In absolute
terms, the cost of transportation increased by approximately
$217,000 or 1.8%, to $12,309,000 during the three months
ended March 31, 2007 over the previous year period. During
the six months ended March 31, 2007, cost of transportation
increased by approximately $1.7 million or 6.4% versus the
comparative period in the prior year, reflecting the
increased sales volume. Gross margins increased to 29.0%
during the quarter ended March 31, 2007 from 28.5% in the
same quarter of the previous fiscal year, and increased for
the six month comparative period then ended to 29.9% from
27.5% in the prior year period. Net revenue increased by
approximately 215,000 to $5,026,000 for the three months
ended March 31, 2007 versus the same three months of the
prior year, and increased by approximately $2.0 million for
the six month comparative period then ended.
9
Selling, General and Administrative Expenses
As a percentage of revenue, operating expenses remained
constant at 28.8% for the three months ended March 31, 2007
in comparison to the three months ended March 31, 2006, and
increased by 1.0% to 28.0% of sales for the six month period
then ended. In absolute terms, operating expenses increased
by approximately $132,000 or 2.7% during the three-month
period ended March 31, 2007 as compared to the same period
in the prior fiscal year, and increased by $1,365,000 during
the six months then ended. The comparative increases in
SG&A expenses during those periods reflects the increase in
sales volume, manifested primarily in higher license
commission, royalty and cargo insurance expense, and offset
by reductions in personnel and facilities expenses.
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 $546,000 for the three-month period ended
March 31, 2007, in comparison to the same period in the
previous year, and increased by approximately $1,716,000
during the six months then ended. 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 $530,000 during the quarter ended March 31,
2007 and totaled approximately $1,291,000 for the six months
ended on that date. 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
revenue, licensee commissions and royalties increased by
2.9%, to 13.5% of sales during the quarter ended March 31,
2007, and increased by 3.3%, to 13.8% of sales during the
six months then ended.
Cargo insurance increased by approximately $18,000 and
$87,000 during the three and six months ended March 31, 2007
respectively, as compared to the same periods 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.
Personnel-related expenses decreased on a net basis
during the three and six month periods ended March 31, 2007
by approximately $243,000 and 220,000 respectively,
primarily related to the conversion of the Newark, NJ branch
from a company-owned branch location to a licensee operated
station at the start of the third quarter of fiscal 2006.
Facilities-related expenses, specifically rent and
utilities, decreased by approximately $60,000 for the same
reason.
SG&A expenses presented for the three months ended
March 31, 2007 and 2006 are inclusive of expenditures to
related parties totaling $469,216 and $520,809, respectively.
SG&A expenses presented for the six months ended March 31,
2007 and 2006 are inclusive of expenditures to related
parties totaling $961,225 and 1,026,204, respectively.
Income From Operations
Operating income increased during the three months
ended March 31, 2007 by approximately $84,000, to $34,000,
compared to the same three month period in the previous
year, for the reasons indicated above. In comparison to the
respective period ended March 31, 2006, the operating margin
for the three month period ended March 31, 2007 increased by
0.5%, to 0.2% of sales.
Operating income increased during the six months ended
March 31, 2007 by approximately $613,000, to $769,000,
compared to the same six month period in the prior year, for
the reasons indicated above. In comparison to the
respective period ended March 31, 2006, the operating margin
for the six month period ended March 31, 2007 increased by
0.6%, to 0.8% of sales.
10
Net Interest Expense
Net interest expense increased by approximately $16,000
and $32,000 for the three and six months ended March 31,
2007 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 six months ended March
31, 2006 represents funds received during the period from
the final distribution settlement of the Q Logistics Chapter
11 filing from February 2001.
Net Income/(loss)
During the quarter ended March 31, 2007, income before
income taxes increased to a loss of approximately ($38,000)
versus a loss of approximately ($124,000) during the same
period in the prior year. The Company recorded a tax
benefit of approximately $17,000 for the quarter ended March
31, 2007 as compared to a tax benefit of approximately
$58,000 for quarter ended March 31, 2006. The net loss
after tax amounted to approximately ($21,000) or (0.1%) of
revenue during the second quarter of Fiscal 2007 versus a
net loss of approximately ($66,000) or (0.4%) of revenue in
the second quarter of Fiscal 2006.
During the six month period ended March 31, 2007,
income before income taxes increased to approximately
$605,000 versus $109,000 during the same period in the prior
year. The Company recorded a tax provision of approximately
$285,000 for the six months ended March 31, 2007 as compared
to a tax provision of approximately $51,000 for quarter
ended March 31, 2006. Net income after tax amounted to
approximately $320,000 or 0.8% of revenue during the six
months ended March 31, 2007 versus net income of
approximately $58,000 or 0.2% of revenue during the six
months then ended.
Liquidity and Capital Resources
Net cash provided by operating activities was
approximately $35,000 for the six months ended March 31,
2007 compared to net cash used for operations of
approximately $262,000 for the six months ended March 31,
2006. For the six months ended March 31, 2007, cash was
provided primarily by the net income of the Company, before
non-cash charges, of approximately $542,000, and an increase
in income taxes payable of $195,000, offset by an increase
in accounts receivable of $631,000. For the six months
ended March 31, 2006, cash was used to finance the $456,000
increase in accounts receivable, and also reflects the
decrease in accounts payable and accrued expenses of
$101,000. Net income, net of non-cash charges totaled
$281,000.
At March 31, 2007, the Company had cash of $163,000 and
net working capital of $1,732,000, compared with cash of
$135,000 and net working capital of $1,438,000 respectively,
at March 31, 2006. The increase in working capital at March
31, 2007 versus March 31, 2006 was primarily affected by the
Company's net income during the preceding twelve months,
before depreciation expense, of approximately $595,000,
offset by capital expenditures made during that period of
approximately $310,000.
The Company's investing activities during the six
months ended March 31, 2007 were primarily comprised of
expenditures made for the benefit of the new computer
system, primarily representing long term enhancements and
improvements. For the six months ended March 31, 2007,
capital expenditures amounted to approximately $98,000.
During the six months ended March 31, 2006, capital
expenditures amounted to approximately $319,000, of which
approximately $120,000 is financed by a three year leasing
arrangement.
11
The Company makes weekly collections on a $250,000 loan
extended to a licensee in March 2005 to finance their
expansion effort. The loan is being paid back 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. For the
six months ended March 31, 2007, Allstates collected
approximately $42,000, and through that date, has collected
approximately $164,000 since the loans inception.
The Company has a commercial line of credit with a
bank, pursuant to which the Company may borrow up to
$3,000,000, based on a maximum of 70% of eligible accounts
receivable. Per the agreement, which expires May 28, 2007,
interest on outstanding borrowings accrues at the banks
prime rate of interest (8.25% at March 31, 2007).
Management expects the loan agreement to be extended past
the expiration date. During the six months ended March 31,
2007, Allstates borrowed $1,700,000 from the bank credit
line and repaid $1,600,000. Outstanding borrowings on the
line of credit at March 31, 2007 and 2006 were $2,400,000
and $2,011,000, 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
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.
12
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
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 $3000 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.
13
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.
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."
14
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 in the pre-trial stage. The Company is
contesting 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
15
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: May 15, 2007
Sam DiGiralomo, President and CEO
BY: /s/ Craig D. Stratton DATED: May 15, 2007
Craig D. Stratton, CFO, Secretary,
Treasurer and Principal Financial Officer
16