-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WFIDX/cjlVNRaOig9gXG941cHoNehfd/Z9De12sZabNMgqZKkNHO995Fwp5jbHvh nrVpG1ic8X39oc3I65KWaw== 0001260415-07-000008.txt : 20070214 0001260415-07-000008.hdr.sgml : 20070214 20070214172916 ACCESSION NUMBER: 0001260415-07-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070214 DATE AS OF CHANGE: 20070214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLSTATES WORLDCARGO INC CENTRAL INDEX KEY: 0001072293 STANDARD INDUSTRIAL CLASSIFICATION: ARRANGEMENT OF TRANSPORTATION OF FREIGHT & CARGO [4731] IRS NUMBER: 223487471 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24991 FILM NUMBER: 07622891 BUSINESS ADDRESS: STREET 1: 4 LAKESIDE DRIVE SOUTH CITY: FORKED RIVER STATE: NJ ZIP: 08731 BUSINESS PHONE: 6096935950 MAIL ADDRESS: STREET 1: 4 LAKESIDE DRIVE SOUTH CITY: FORKED RIVER STATE: NJ ZIP: 08731 FORMER COMPANY: FORMER CONFORMED NAME: AUDIOGENESIS SYSTEMS INC DATE OF NAME CHANGE: 19981016 10-Q 1 awc10q-123106.txt ALLSTATES WORLDCARGO, INC. FORM 10-Q 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. ------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) New Jersey 22-3487471 -------------- ------------------------------- (State or other jurisdiction (IRS Employer Identification No.) of incorporation) 4 Lakeside Drive South, Forked River, New Jersey, 08731 ---------------------------------------------------------- (Address of principal executive offices) 609-693-5950 -------------------------------------------------- (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 -2- 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. -3- 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. -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 three months ended 341,011 341,011 December 31, 2006 ---------- ------- ---------- ---------- Balance at December 31, 2006 32,509,872 $3,251 $ 791,436 $ 794,687 ========== ======= ========== ========== -5- 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. -6- 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. -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 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% ======== ========== -8- 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 -14- SIGNATURES Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALLSTATES WORLDCARGO, INC. BY: /s/ SAM DIGIRALOMO DATED: 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 -15- EX-31 2 ex31-1.txt CERTIFICATION Exhibit 31.1 CERTIFICATION I, Sam DiGiralomo, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Allstates WorldCargo, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. February 14, 2007 /s/ Sam DiGiralomo President and Chief Executive Officer EX-31 3 ex31-2.txt CERTIFICATION Exhibit 31.2 CERTIFICATION I, Craig D. Stratton, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Allstates WorldCargo, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. February 14, 2007 /s/ Craig D. Stratton Chief Financial Officer and Chief Accounting Officer EX-32 4 ex32-1.txt CERTIFICATION EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Allstates WorldCargo, Inc. (the "Company") on Form 10-Q for the period ending December 31, 2006 as filed with the Securities and Exchange Commission (the "Report"), I, Sam DiGiralomo, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the company as of the dates presented and the consolidated result of operations of the Company for the periods presented. February 14, 2007 /s/ Sam DiGiralomo President and Chief Executive Officer This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. EX-32 5 ex32-2.txt CERTIFICATION EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Allstates WorldCargo, Inc. (the "Company") on Form 10-Q for the period ending December 31, 2006 as filed with the Securities and Exchange Commission (the "Report"), I, Craig D. Stratton, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the company as of the dates presented and the consolidated result of operations of the Company for the periods presented. February 14, 2007 /s/ Craig D. Stratton Chief Financial Officer and Chief Accounting Officer This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. -----END PRIVACY-ENHANCED MESSAGE-----