PROSPECTUS Filed Pursuant to
Rule 424(b)(3)
Registration No. 333-132766
5,383,333 SHARES
of
COMMON STOCK
AUTOINFO, INC.
--------------
The selling stockholders named in this prospectus, Kinderhook Partners, LP
and Vinoray R. Shah, are offering up to 5,383,333 shares of our common stock
they own. We will not receive any of the proceeds from the sale of the shares.
We will bear all costs relating to the offer and sale of the shares, which we
expect will be approximately $13,000. However, the selling stockholders will pay
any commissions, fees and discounts of underwriters, brokers, dealers or agents.
Each selling stockholder will sell the shares whenever it chooses to do so
at varying prices to be determined at the time of each sale either based upon
prevailing market conditions or at negotiated prices. Each selling stockholder
may sell these shares directly to or through broker-dealers, who may receive
compensation in the form of discounts, concessions or commissions from either
the selling stockholder or the purchasers of the shares or both of them. Brokers
or dealers effecting transactions in these shares should confirm that the shares
are registered under applicable state law or that an exemption from registration
is available.
Our common stock is quoted on the OTC Bulletin Board under the trading
symbol "AUTO." The high and low prices for our common stock on the OTC Bulletin
Board were $1.19 and $0.93 on April 27, 2006.
See "Risk Factors" beginning on page 6 of this prospectus for the factors
you should consider before buying shares of our common stock.
No underwriter or person has been engaged by us to facilitate the sale of
the shares of common stock in this offering. This offering will continue for up
to 24 months after the accompanying registration statement is declared effective
by the Securities and Exchange Commission or for so long thereafter as sales of
shares offered by the selling stockholder would otherwise be subject to volume
limitations imposed by Rule 144 under the Securities Act of 1933, as amended.
Neither the Securities and Exchange Commission nor any other regulatory
body has approved these shares or determined that this prospectus is accurate or
complete. It is illegal for anyone to tell you otherwise.
The date of this Prospectus is April 28, 2006
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PROSPECTUS SUMMARY
Business overview
Through our wholly-owned subsidiary, Sunteck Transport Co., Inc.
(Sunteck), we are a non-asset based transportation services company. As a
non-asset based provider of brokerage and contract carrier transportation
services, we do not own any equipment and our services are provided through our
strategic alliances with less than truckload, truckload, air, rail, ocean common
carriers and independent owner-operators to service our customers' needs. Our
brokerage services are provided though a network of independent sales agents
throughout the United States and Canada. Our contract carrier services, which
commenced in 2003, are also provided through a network of independent sales
agents and independent owner-operators throughout the United States. These
services generated gross revenue, net revenue and net income of approximately
$68.0 million, $13.6 million and $3.6 million, respectively, during our most
recently completed fiscal year.
Strategy
Our strategy is to continue to expand through affiliations with
independent sales agents and through internal expansion. We intend to seek, on a
selective basis, acquisition of businesses that have product lines or services
which complement and expand our existing services and product lines, and provide
us with strategic distribution locations or attractive customer bases. Our
ability to implement our growth strategy will be dependent on our ability to
identify and affiliate with these new agents on desirable economic terms.
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Contact information
Our principal executive office is located at 6413 Congress Avenue, Suite
260, Boca Raton, Florida 33487, and our telephone number is (561) 988-9456. Our
Web address is www.suntecktransport.com. None of the information on our Web site
is part of this prospectus.
The Offering
------------
Securities offered...................................... 5,383,333 shares of common stock.
Shares of common stock to be outstanding after this
offering........................................... 31,798,856(1)
Selling Stockholders Kinderhook Partners, LP and Vinoray R. Shah
Proceeds:.............................................. We will not receive any of the proceeds from the sale of
the shares. Although we will not receive the proceeds
from the sale of shares in this offering, we will bear
all costs relating to the offer and sale of the shares,
which we expect will be approximately $13,000. However,
the selling stockholders will pay any commissions, fees
and discounts of underwriters, brokers, dealers or
agents.
Risk factors:.......................................... The offering involves a high degree of risk. Please
refer to "Risk Factors" beginning on page 6 of this
prospectus for a description of the risk factors you
should consider before buying shares of our common
stock.
OTC bulletin board symbol:.............................. AUTO
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(1) Assumes no exercise of options outstanding immediately before this
offering covering 7,153,516 shares of our common stock.
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Summary Financial Information
The table below sets forth a summary of our statement of operations data
as of December 31, 2005, 2004 and 2003.
Years Ended December 31,
(Audited)
2005 2004 2003
---------- ---------- ----------
Statement of Operations Data:
(in thousands, except for per share data)
Gross revenue 68,040 46,492 27,171
Net revenue 13,554 8,734 5,076
Net income 3,608 1,466 1,300
Net income per share (basic) $ 0.11 $ 0.05 $ 0.05
Net income per share (diluted) $ 0.11 $ 0.04 $ 0.05
Weighted average number of shares
outstanding (basic) 31,520,000 30,915,000 27,355,000
Weighted average number of shares
outstanding (diluted) 33,920,000 33,438,000 28,789,000
The table below sets forth a summary of our balance sheet data as of
December 31, 2005 and 2004.
December 31,
(Audited)
2005 2004
--------- ---------
-----------------------------
Balance Sheet Data: (in thousands)
-----------------------------
Cash and cash equivalents $ 419 $ 38
Accounts receivable, net 12,735 9,658
Total assets 16,646 11,795
Total liabilities 8,515 7,383
Deficit (11,084) (14,692)
Stockholders' equity 8,131 4,412
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5
RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the risks described below and the other information in this prospectus,
including our financial statements and the notes to those statements, before you
purchase any shares.
We are dependent upon independent commissioned sales agents who have direct
relationships with our customers.
A substantial portion of our business is originated by our network of
independent sales agents. Most of these sales agents work with us on an
exclusive basis. We do not have non-compete or non-solicitation agreements with
these agents. These contracts are typically terminable upon 10 to 30 days notice
by either party and do not restrict the ability of a former agent to compete
with Sunteck following termination. As a result, if sales representatives
terminate their affiliation with us, our revenue and results of operations could
be adversely affected.
We are dependent on third party capacity providers.
We do not own trucks or other transportation equipment and rely on third
party capacity providers, including independent owner operators, unrelated
trucking companies, railroads and air cargo carriers to transport freight for
our customers. We compete with motor carriers and other third parties for the
services of independent owner operators and other third party capacity
providers. A significant decrease in available capacity provided by either our
independent owner operators or other third party capacity providers could have a
material adverse effect on our results of operations and revenue.
Decreased demand for transportation services could adversely affect our
operating results.
The transportation industry historically has experienced cyclical
financial results as a result of slowdowns in economic activity, the business
cycles of customers, price increases by capacity providers, interest rate
fluctuations, and other economic factors beyond our control. Certain of our
third party capacity providers can be expected to charge higher prices to cover
increased operating expenses, and our operating income may decline if we are
unable to pass through to our customers the full amount of these higher
transportation costs. If a slowdown in economic activity or a downturn in our
customers' business cycles causes a reduction in the volume of freight shipped
by those customers, our operating results could be materially adversely
affected.
We have limited marketing and sales capabilities and must make sales in
fragmented markets.
Our future success depends, to a great extent, on our ability to
successfully market our services through our network of independent agents. Our
sales and marketing capabilities are more limited than many of our competitors
who have captive internal sales forces and greater financial resources than us.
We cannot assure you that any marketing and sales efforts undertaken on our
behalf will be successful or will result in any significant sales.
Our industry is intensely competitive, which may adversely affect our operations
and financial results.
All our markets are intensely competitive and numerous companies offer
services that compete with our services. We anticipate that competition for our
services will continue to increase. Many of our competitors have substantially
greater capital resources, sales and marketing resources and experience. We
cannot assure you that we will be able to effectively compete with our
competitors in effecting our business expansion plans.
6
We depend on the continued services of our president.
Our future success depends, in part, on the continuing efforts of our
president, Harry Wachtel, who conceived our strategic plan and who is
responsible for executing that plan. The loss of Mr. Wachtel would adversely
affect our business. At this time we do not have any term "key man" insurance on
Mr. Wachtel. If we lose the services of Mr. Wachtel, our business, operations,
and financial condition would be materially adversely affected.
We must attract and retain qualified personnel.
As we implement our business growth strategy, significant demands will be
placed on our managerial, financial and other resources. One of the keys to our
future success will be our ability to attract and retain highly qualified
marketing, sales and administrative personnel. Competition for qualified
personnel in these areas is intense and we will be competing for their services
with companies that have substantially greater resources than we do. We cannot
assure you that we will be able to identify, attract and retain personnel with
skills and experience necessary and relevant to the future operations of our
business. Our inability to retain or attract qualified personnel in these areas
could have a material adverse effect on our business and results of operations.
We may require additional financing in the future, which may not be available on
acceptable terms.
Depending on our ability to generate revenues, we may require additional
funds to expand our business operations and for working capital and general
corporate purposes. Any additional equity financing may be dilutive to
stockholders, and debt financings may involve restrictive covenants that limit
our ability to make decisions that we believe will be in our best interests. In
the event we cannot obtain additional financing on terms acceptable to us when
required, our ability to expand operations may be materially adversely affected.
Our principal stockholders have substantial control over our affairs.
As of March 7, 2006, our president, Harry Wachtel, owned approximately
16.4% of the issued and outstanding shares of our common stock. Further, James
T. Martin and Kinderhook Partners, LP, two significant stockholders, owned
approximately 19.7% and 19.4%, respectively, of the issued and outstanding
shares of our common stock. As a result, either Mr. Wachtel, Mr. Martin or
Kinderhook Partners, LP could assert control over our affairs, including the
election of directors and any proposals regarding a sale of the company or its
assets or a merger. In addition, this concentration of ownership could have the
effect of delaying, deferring or preventing a change in control or impeding a
merger or consolidation, takeover or other business combination which you, as a
stockholder, may otherwise view favorably.
Our stock price is volatile and could be further affected by events not within
our control.
The market price of our common stock has historically experienced and may
continue to experience significant volatility. For the 52-week period ended
March 24, 2006, our closing stock price has ranged from $0.40 to $0.90. On March
27, 2006, our closing stock price was $0.77.
The trading price of our common stock has been volatile and will continue
to be subject to:
o volatility in the trading markets generally;
o significant fluctuations in our quarterly operating results; and
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o announcements regarding our business or the business of our
competitors.
Statements or changes in opinions, ratings or earnings estimates made by
brokerage firms or industry analysts relating to the markets in which we operate
or expect to operate could also have an adverse effect on the market price of
our common stock. In addition, the stock market as a whole has from time to time
experienced extreme price and volume fluctuations which have particularly
affected the market price for the securities of many small-cap companies and
which often have been unrelated to the operating performance of these companies.
The price of our common stock may be adversely affected by the possible issuance
of shares of our common stock as a result of the exercise of outstanding
options.
We have granted options covering approximately 7.2 million shares of our
common stock. As a result of the actual or potential sale of these shares into
the market, our common stock price may decrease.
Future sales of our common stock may adversely affect our common stock price.
If our stockholders sell a large number of shares of common stock or if we
issue a large number of shares in connection with future acquisitions or
financings, the market price of our common stock could decline significantly. In
addition, the perception in the public market that our stockholders might sell a
large number of shares of common stock could cause a decline in the market price
of our common stock.
Some provisions in our charter documents and bylaws may have anti-takeover
effects.
Our certificate of incorporation and bylaws contain provisions that may
make it more difficult for a third party to acquire us, with the result that it
may deter potential suitors. For example, our board of directors is authorized,
without action of the stockholders, to issue authorized but unissued common and
preferred stock. The existence of authorized but unissued common and preferred
stock enables us to discourage or to make it more difficult to obtain control of
us by means of a merger, tender offer, proxy contest or otherwise.
We have agreed to limitations on the potential liability of our directors.
Our certificate of incorporation provides that, in general, directors will
not be personally liable for monetary damages to the company or our stockholders
for a breach of fiduciary duty. Although this limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
recission, the presence of these provisions in the certificate of incorporation
could prevent us from recovering monetary damages.
Liquidity on the OTC Bulletin Board is limited, and we may be unable to obtain
listing of our common stock on a more liquid market.
Our common stock is quoted on the Nasdaq OTC Bulletin Board, which
provides significantly less liquidity than a securities exchange (such as the
American or New York Stock Exchange) or an automated quotation system (such as
the Nasdaq National or SmallCap Market). We do not currently meet the minimum
trading price requirement for listing on the Nasdaq SmallCap Market or the
American Stock Exchange. There is uncertainty that we will ever be accepted for
a listing on an automated quotation system or securities exchange.
8
Our common stock has been thinly traded, and the public market may provide
little or no liquidity for holders of our common stock.
Purchasers of shares of our common stock may find it difficult to resell
their shares at prices quoted in the market or at all. There is currently a
limited volume of trading in our common stock, and on many days there has been
no trading activity at all. Due to the historically low trading price of our
common stock, many brokerage firms may be unwilling to effect transactions in
our common stock, particularly because low-priced securities are subject to an
SEC rule that imposes additional sales practice requirements on broker-dealers
who sell low-priced securities (generally those below $5.00 per share). We
cannot predict when or whether investor interest in our common stock might lead
to an increase in its market price or the development of a more active trading
market or how liquid that market might become.
The application of the "penny stock" rules could adversely effect the market
price of our common stock.
As long as the trading price of our common stock is below $5.00 per share,
the open-market trading of our common stock will be subject to the "penny stock"
rules. The "penny stock" rules impose additional sales practice requirements on
broker-dealers who sell securities to persons other than established customers
and accredited investors (generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with their spouse). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of securities and have received the
purchaser's written consent to the transaction before the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
broker-dealer must deliver, before the transaction, a disclosure schedule
prescribed by the Securities and Exchange Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. These additional burdens
imposed on broker-dealers may restrict the ability of broker-dealers to sell the
common stock and may affect a stockholder's ability to resell the common stock.
Stockholders should be aware that, according to Securities and Exchange
Commission Release No. 34-29093, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include (i) control
of the market for the security by one or a few broker-dealers that are often
related to the promoter or issuer; (ii) manipulation of prices through
prearranged matching of purchases and sales and false and misleading press
releases; (iii) boiler room practices involving high-pressure sales tactics and
unrealistic price projections by inexperienced sales persons; (iv) excessive and
undisclosed bid-ask differential and markups by selling broker-dealers; and (v)
the wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequent investor losses. Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.
FORWARD-LOOKING STATEMENTS
Some of the statements made in this prospectus discuss future events and
developments, including our future business strategy and our ability to generate
revenue, income and cash flow. In some cases, you can identify forward-looking
statements by words or phrases such as "may," "will," "should," "expects,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential,"
"continue," "our future success depends," "seek to continue," or the negative of
these words or phrases, or comparable words or phrases. These statements are
only predictions that are based, in part, on assumptions involving judgments
about future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various facts, including the
9
risks outlined in this "Risk Factors" section. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on which they are
made. We do not undertake to update any of the forward-looking statements after
the date of this prospectus to conform these statements to actual results.
USE OF PROCEEDS
All shares of our common stock offered by this prospectus are being
registered for the account of the selling stockholders. We will not receive any
of the proceeds from the sale of these shares.
DIVIDEND POLICY
We have not declared or paid any dividends in the last two years and we do
not intend to pay any dividends in the foreseeable future. We intend to retain
any future earnings for use in the operation and expansion of our business. Any
future decision to pay dividends on common stock will be at the discretion of
our board of directors and will be dependent upon our fiscal condition, results
of operations capital requirements and other factors our board of directors may
deem relevant.
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 2005
and 2004:
December 31,
------------
2005 2004
---- ----
(Audited)
---------
-------------------------------
Current liabilities:
Loan payable $ 1,280,000 $ 1,998,000
Accounts payable and accrued liabilities 7,235,000 5,385,000
------------ ------------
Total current liabilities $ 8,515,000 $ 7,383,000
------------ ------------
Stockholders' Equity
Common stock -- authorized 100,000,000
shares $.001 par value; issued and
outstanding --31,624,000 and 31,218,000
shares as of December 31, 2005 and 2004,
respectively $ 32,000 $ 31,000
Preferred stock -- authorized 10,000,000
shares $.001 par value; issued and
outstanding --0 shares as of December 31,
2005 and 2004 -- --
Other capital 549,000 324,000
Deferred compensation (413,000) (277,000)
Additional paid-in capital 19,047,000 19,026,000
Deficit (11,084,000) (14,692,000)
------------ ------------
Total stockholders' equity $ 8,131,000 $ 4,412,000
------------ ------------
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PRICE RANGES OF OUR COMMON STOCK
Our common stock is not listed on any stock exchange. Our common stock is
traded over-the-counter on the Over-the-Counter Electronic Bulletin Board
("OTCBB") under the symbol "Auto." The following table sets forth the high and
low bid information for the common stock for the periods presented, as reported
by the OTCBB. The bid information reflects inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.
Year Ended December 31, 2005 High Low
First quarter $0.70 $0.28
Second quarter 0.67 0.41
Third quarter 0.51 0.32
Fourth quarter 0.61 0.32
Year Ended December 31, 2004 High Low
First quarter $0.70 $0.28
Second quarter 0.67 0.41
Third quarter 0.51 0.32
Fourth quarter 0.61 0.32
As of March 27, 2006, the closing bid price per share for our common
stock, as reported on the OTCBB was $0.77 As of March 27, 2006, we had
approximately 1,000 beneficial stockholders.
SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of our selected consolidated financial data for
the years ended December 31, 2005, 2004, 2003, 2002, and 2001. The financial
data has been derived from our audited consolidated financial statements and
accompanying notes.
The selected financial data set forth below should be read together with,
and are qualified by reference to, the "Management's Discussion and Analysis of
Financial condition and Results of Operations" section of this prospectus and
our audited consolidated financial statements and accompanying notes included
elsewhere in this prospectus.
000's omitted, except for per share data Year ended December 31,
---------------------------------------------------------------------
2005 2004 2003 2002 2001
--------- --------- --------- --------- ---------
Statement of Operations Data:
------------------------------------
Gross revenues $ 68,040 $ 46,492 $ 27,171 $ 18,863 $ 8,029
Net revenues (1) 13,554 8,734 5,076 3,368 1,567
Net income (loss) $ 3,608 $ 1,466 $ 1,300 $ 340 $ (15)
Net income (loss) per share (2) (3)
Basic .11 $ .05 $ .05 $ .01 $ (.00)
Diluted .11 $ .04 $ .05 $ .01 $ (.00)
(1) Net revenues are determined by deducting cost of transportation from gross
revenues. See Management's Discussion and Analysis of Financial Condition
and Results of Operations.
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(2) The common stock equivalents for the year ended December 31, 2005, 2004,
2003 and 2002 were 2,400,000, 2,523,000, 1,434,000 and 635,000.
(3) The common stock equivalents for the year ended December 31, 2001 was
30,000. The common stock equivalents for these shares were not included in
the calculation of diluted income (loss) per common share because the
effect would have been antidilutive.
000's omitted As at December 31,
-----------------------------------------------------------------------
2005 2004 2003 2002 2001
--------- --------- --------- --------- ---------
Balance Sheet Data:
----------------------------
Cash and cash equivalents $ 419 $ 38 $ 133 $ 684 $ 898
Accounts receivable, net 12,735 9,658 4,881 2,996 1,358
Total assets 16,646 11,795 6,286 3,944 2,458
Total liabilities 8,515 7,383 4,394 3,356 2,215
Deficit (11,084) (14,692) (16,158) (17,458) (17,798)
Stockholders' equity 8,131 4,412 1,892 588 243
SUPPLEMENTARY CONSOLIDATED FINANCIAL INFORMATION
The following is our unaudited quarterly supplementary consolidated
financial information for the years ended December 31, 2005 and 2004.
The financial data set forth below are qualified by reference to our
audited consolidated financial statements and accompanying notes included
elsewhere in this prospectus.
Year Ended December 31, 2005
Quarter Ended
------------------------------------------------------------------
Mar 31 June 30 Sept 30 Dec 31
------------ ------------ ------------ ------------
Gross revenues $ 14,915,000 $ 15,477,000 $ 17,336,000 $ 20,312,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income $ 393,000 $ 441,000 $ 580,000 $ 2,194,000
============ ============ ============ ============
Basic net income per share $ .013 $ .014 $ .018 $ .069
------------ ------------ ------------ ------------
Diluted net income per share $ .011 $ .013 $ .017 $ .065
============ ============ ============ ============
Year Ended December 31, 2004
Quarter Ended
------------------------------------------------------------------
Mar 31 June 30 Sept 30 Dec 31
------------ ------------ ------------ ------------
Gross revenues $ 8,159,000 $ 10,960,000 $ 12,938,000 $ 14,435,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income $ 176,000 $ 271,000 $ 278,000 $ 741,000
============ ============ ============ ============
Basic net income per share $ .006 $ .009 $ .009 $ .023
------------ ------------ ------------ ------------
Diluted net income per share $ .005 $ .008 $ .008 $ .022
============ ============ ============ ============
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary statement identifying important factors that could cause our actual
results to differ from those projected in forward looking statements.
Readers of this prospectus are advised that this document contains both
statements of historical facts and forward looking statements. Forward looking
statements are subject to certain risks and uncertainties, which could cause
actual results to differ materially from those indicated by the forward looking
statements. Examples of forward looking statements include, but are not limited
to (i) projections of revenues, income or loss, earnings per share, capital
expenditures, dividends, capital structure and other financial items, (ii)
statements of our plans and objectives with respect to business transactions and
enhancement of stockholder value, (iii) statements of future economic
performance, and (iv) statements of assumptions underlying other statements and
statements about our business prospects.
This prospectus also identifies important factors, which could cause
actual results to differ materially from those indicated by the forward looking
statements. These risks and uncertainties include the factors discussed under
the heading "Risk Factors" beginning at page 6 of this prospectus.
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with our financial
statements and the notes thereto appearing elsewhere in this prospectust.
Overview
Through our wholly-owned subsidiary, Sunteck Transport Co., Inc.
(Sunteck), we are a non-asset based transportation services company, providing
transportation capacity and related transportation services to shippers
throughout the United States, and to a lesser extent, Canada. As a non-asset
based provider of brokerage and contract carrier transportation services, we do
not own any equipment and our services are provided through our strategic
alliances with less than truckload, truckload, air, rail, ocean common carriers
and independent owner-operators to service our customers' needs. Our non-asset
based services include ground transportation coast to coast, local pick up and
delivery, air freight and ocean freight. Our business services emphasize safety,
information coordination and customer service and are delivered through a
network of independent commissioned sales agents and third party capacity
providers coordinated by us. The independent commissioned sales agents typically
enter into exclusive contractual arrangements with us and are responsible for
locating freight and coordinating the transportation of the freight with
customers and capacity providers. The third party capacity providers consist of
independent contractors who provide truck capacity to us, including
owner-operators who operate under our contract carrier license, air cargo
carriers and railroads. Through this network of agents and capacity providers,
we operate a transportation services business with revenue, net revenue and net
income of approximately $68.0 million, $13.6 million and $3.6 million,
respectively, during our most recently completed fiscal year.
Our brokerage services are provided though a network of independent sales
agents throughout the United States and Canada. Our services include arranging
for the transport of customers' freight from the shippers location to the
designated destination. We do not own any trucking equipment and rely on
independent carriers for the movement of customers' freight. We seek to
establish long-term relationships with our customers and provide a variety of
logistics services and solutions to eliminate inefficiencies in our customers'
supply chain management.
Our contract carrier services, which commenced in 2003, are also provided
through a network of independent sales agents and independent owner-operators
throughout the United States. We do no own any trucking equipment; our
independent owner-operators lease onto our operating authority and transport
freight under the Sunteck name.
The most significant factors in our growth during the past two years have
been internal growth experienced by our
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existing agents and the expansion of our brokerage services agent, contract
carrier services agent and owner-operator networks. This growth is readily
measured by the number of transactions we have processed, which increased from
30,800 in 2003 to 43,300 in 2004 and to 53,300 is 2005, an increase of 41% from
2003 to 2004 and 23% from 2004 to 2005. The average revenue dollar per load in
our broker division also increased by 28% in 2004 as compared to 2003 and by 22%
in 2005 as compared to 2004. This is the result of several factors including an
increase in truckload business versus less than truckload at higher per load
revenues, the addition of sales agents hauling heavy equipment at higher per
load revenues, an increase in long-haul versus short-haul volume and, to a
lesser degree, a general increase in prices.
During the next twelve months, we plan to continue to offer our brokerage
and contract carrier transportation services and expand our agent network. We
are presently profitable and have adequate available lines of credit to satisfy
our working capital requirements during the next twelve months.
Results of operations
Comparison of 2005 vs 2004
During the year ended December 31, 2005, we continued to implement our
strategic growth business plan consisting primarily of the expansion of client
services, the opening of regional operations centers in key geographical markets
and the addition of independent sales agents providing brokerage and contract
carrier services. Our net revenues (gross revenues less cost of transportation)
are the primary indicator of our ability to source, add value and resell
services that are provided by third parties and are considered to be the primary
measurement of growth. Therefore, the discussion of the results of operations
below focuses on the changes in our net revenues. The increases in net revenues
and all related cost and expense categories are the direct result of our
business expansion.
The following table represents certain statement of operation data as a
percentage of net revenues:
2005 2004
--------- ---------
Net revenues 100.0% 100.0%
Commissions 61.6% 59.3%
Operating expenses 22.2% 28.8%
Interest expense .4% .6%
Income taxes (benefit) (10.8)% (5.5)%
Net income 26.6% 16.8%
Revenues
Gross revenues, consisting of freight fees and other related services
revenue, totaled $68,040,000 for the year ended December 31, 2005, as compared
with $46,492,000 in the prior year, an increase of 46%. Net revenues were
$13,554,000 for the year ended December 31, 2005, as compared with $8,734,000 in
the prior year, an increase of 55%.
Gross revenues from brokerage services increased to $58,150,000 from
$36,931,000 and net revenues increased to $11,887,000 from $7,032,000 in the
prior year. This increase is the direct result of the continued expansion of our
agent network and customer base which resulted in a 29% increase in the number
of transactions processed and a 22% increase in the average dollar amount per
load.
14
Gross revenues from contract carrier services increased to $9,890,000 from
$9,561,000 and net revenues decreased to $1,667,000 from 1,702,000 in the prior
year. Gross revenues increased approximately 3% for the year. However, there
were fluctuations during the year in the number of agents and owner-operators
due to the termination of agents and the addition of new agents. As a result of
these fluctuations, gross revenues during the first quarter of 2005 increased by
94% over the corresponding 2004 period and decreased 9%, 17% and 6% for the
second, third and fourth quarters, respectively, as compared to the
corresponding quarters of 2004. The decrease in net revenues is primarily the
result of higher fuel costs and an increase in fuel service and detention
charges which are passed directly through to our owner operators, thereby
reducing net revenues as a percentage of gross revenues.
Costs and expenses
Commissions totaled $8,348,000 for the year ended December 31, 2005, as
compared with $5,179,000 in the prior year, an increase of 61%. This increase is
the direct result of the continued expansion of our agent network and customer
base. As a percentage of net revenues, commissions were 62% for the year ended
December 31, 2005 as compared with 59% in the prior year. This increase is the
direct result of the expansion of our agent network at higher commission rates
and additional bonuses earned after certain monthly benchmarks are achieved.
Operating expenses totaled $3,005,000 for the year ended December 31,
2005, as compared with $2,519,000 in the prior year. As a percentage of net
revenues, operating expenses were 22% for the year ended December 31, 2005 as
compared with 29% in the prior year. This decrease is the direct result of our
ability to leverage selling, general and administrative expenses in connection
with business expansion. We have increased administrative staff commensurate
with the increase in transaction volume. In February 2005, we moved our
headquarters increasing our space to 5,300 square feet. We presently have
adequate facilities and management to handle the present and anticipated
transaction volume in 2006 without a significant increase in overhead.
Interest expense was $56,000 for the year ended December 31, 2005 as
compared with $50,000 in the prior year. This increase is primarily the result
of increased average borrowings and the increase in the prime lending rate from
4% at the beginning of 2004 to 7.25% by the end of 2005. Our line of credit
facility is at a interest rate of prime + 1/2%.
Income tax
The income tax benefit of $1,463,000 for the year ended December 31, 2005
consisted of a benefit of $2,304,000 resulting from the anticipated future
utilization of an available federal tax loss carryforward, net of the
utilization of the deferred tax benefit of $718,000 and state income taxes of
$123,000. The income tax benefit of $480,000 for the year ended December 31,
2004 consisted of a benefit of $873,000 resulting from the anticipated future
utilization of an available federal tax loss carryforward, net of the
utilization of the deferred tax benefit of $336,000 and state income taxes of
$57,000. Based upon available objective evidence, including our post-merger
history of profitability, we believe that it is more likely than not that
forecasted taxable income will be sufficient to utilize a portion of the net
operating loss carryforward before its expiration in 2014. Accordingly, in 2005
the valuation allowance was reduced by $2,304,000.
Comparison of 2004 vs 2003
During the year ended December 31, 2004, we continued to implement our
strategic growth business plan consisting primarily of the expansion of client
services, the opening of regional operations centers in key geographical markets
and the addition of independent sales agents providing brokerage and contract
carrier services. Our net revenues (gross revenues less cost of transportation)
are the primary indicator of our ability to source, add value and resell
services that are provided by third parties and are considered to be the primary
measurement of growth. Therefore, the discussion of
15
the results of operations below focuses on the changes in our net revenues. The
increases in net revenues and all related cost and expense categories are the
direct result of our business expansion.
The following table represents certain statement of operation data as a
percentage of net revenues:
2004 2003
------- -------
Net revenues 100.0% 100.0%
Commissions 59.3% 58.2%
Operating expenses 28.8% 28.9%
Interest expense .6% 2.2%
Income taxes (benefit) (5.5)% (14.9)%
Net income 16.8% 25.6%
Revenues
Gross revenues, consisting of freight fees and other related services
revenue, totaled $46,492,000 for the year ended December 31, 2004, as compared
with $27,171,000 in the prior year, an increase of 71%. Net revenues were
$8,734,000 for the year ended December 31, 2004, as compared with $5,076,000 in
the prior year, an increase of 72%.
Gross revenues from brokerage services increased to $36,931,000 from
$25,106,000 and net revenues increased to $7,032,000 from $4,685,000 in the
prior year. This increase is the direct result of the continued expansion of our
agent network and customer base which resulted in a 15% increase in the number
of transactions processed and a 28% increase in the average dollar amount per
load.
Gross revenues from contract carrier services, which we began offering in
2003, increased to $9,561,000 from $2,065,000 and net revenues increased to
$1,702,000 from $391,000 in the prior year. This increase is the direct result
of the operation of our contract services for a full year and expansion of our
agent network and customer base which resulted in a 426% increase in the number
of transactions processed.
Costs and expenses
Commissions totaled $5,179,000 for the year ended December 31, 2004, as
compared with $2,955,000 in the prior year, an increase of 75%. This increase is
the direct result of the continued expansion of our agent network and customer
base. As a percentage of net revenues, commissions were 59% for the year ended
December 31, 2004 as compared with 58% in the prior year.
Operating expenses totaled $2,519,000 for the year ended December 31,
2004, as compared with $1,466,000 in the prior year. As a percentage of net
revenues, operating expenses were 29% for the years ended December 31, 2004 and
2003. This is the direct result of our ability to leverage selling, general and
administrative expenses in connection with business expansion. We have increased
administrative staff commensurate with the increase in transaction volume.
Interest expense was $50,000 for the year ended December 31, 2004 as
compared with $109,000 in the prior year. This decrease is primarily the result
of borrowings pursuant to our line of credit, secured in May 2003 at a interest
rate of prime + 1/2%, and the corresponding repayment in May 2003 of our
$500,000 loan at an interest rate of 17%.
16
Income tax
The income tax benefit of $480,000 for the year ended December 31, 2004
consisted of a benefit of $873,000 resulting from the anticipated future
utilization of an available federal tax loss carryforward, net of the
utilization of the deferred tax benefit of $336,000 and state income taxes of
$57,000. The income tax benefit of $754,000 for the year ended December 31, 2003
consisted of $784,000 resulting from the anticipated future utilization of an
available federal tax loss carryforward, net of state income taxes of $30,000.
Based upon available objective evidence, including our post-merger history of
profitability, we believe that it is more likely than not that forecasted
taxable income will be sufficient to utilize a portion of the net operating loss
carryforward before its expiration in 2014. Accordingly, in 2004 the valuation
allowance was reduced by $873,000.
Trends and uncertainties
The transportation industry is highly competitive and highly fragmented.
In our brokerage services, our primary competitors are other non-asset based as
well as asset based third party logistics companies, freight brokers, carriers
offering logistics services and freight forwarders. In our contract carrier
services, our competitors are other contract carriers and common carriers. We
also compete with customers' and shippers' internal traffic and transportation
departments as well as carriers internal sales and marketing departments
directly seeking shippers' freight. We anticipate that competition for our
services will continue to increase. Many of our competitors have substantially
greater capital resources, sales and marketing resources and experience. We
cannot assure you that we will be able to effectively compete with our
competitors in effecting our business expansion plans. The most significant
trend contributing to our growth during the past two years has been the
expansion of our brokerage services agent network and contract carrier agent and
owner operator network. Sales agents are independent contractors and, as such,
there are no assurances that we can either maintain our existing agent network
or continue to expand this network.
For the year ended December 31, 2005, we increased gross revenues from
$46.5 million to $68.0 million and had net income of $3,608,000 as compared with
$1,466,000 in the prior year. As of December 31, 2005, we had an accumulated
deficit of $11.1 million. Factors that could adversely affect our operating
results include:
o the success of Sunteck in expanding its business operations;
and
o changes in general economic conditions.
Depending on our ability to generate revenues, we may require additional
funds to expand our business operations and for working capital and general
corporate purposes. Any additional equity financing may be dilutive to
stockholders, and debt financings may involve restrictive covenants that further
limit our ability to make decisions that we believe will be in our best
interests. In the event we cannot obtain additional financing on terms
acceptable to us when required, our ability to expand our operations may be
materially adversely affected.
Liquidity and capital resources
During the past two years, our sources for cash have been the cash flow
generated from operations and available borrowings under lines of credit.
At December 31, 2005, we had outstanding $1,280,000 pursuant to our
$2,500,000 line of credit. The line of credit, obtained from a bank in May 2003,
is subject to the maintenance of certain financial covenants, is secured by
accounts receivable and other operating assets, and matures in June 2006. We
believe that we have sufficient working capital to meet our short-term operating
needs and that we will be able to increase, extend or replace the line of credit
on
17
terms acceptable to us.
At December 31, 2005, we had liquid assets of approximately $419,000.
Available cash is used to reduce borrowings on our line of credit.
The total amount of debt outstanding at December 31, 2005 and 2004 was
$1,280,000 and $1,998,000, respectively. The following table presents our debt
instruments and their weighted average interest rates at December 31, 2005 and
2004, respectively:
Weighted
Average Weighted
Balance Rate Balance Average Rate
---------------------------------------------------
2005 2004
---------------------------------------------------
Line of Credit $1,280,000 6.4% $1,998,000 5.2%
Inflation and changing prices had no material impact on our revenues or
the results of operations for the year ended December 31, 2005.
In January 2004, we sold 1,333,333 shares of our common stock for cash
proceeds of $417,000. Simultaneously, in a related transaction, our 12%
convertible debentures were converted into 2,300,000 shares of common stock. The
result of these transactions was an increase in cash of $417,000, a decrease in
debt of $575,000 and an increase in equity of $1,017,000. The cash proceeds of
$417,000 were used to reduce the outstanding balance under our line of credit.
Critical Accounting Policies
Preparation of our financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Note 1 of the Notes to Financial Statements
includes a summary of the significant accounting policies and methods used in
the preparation of our financial statements. The most significant areas
involving our estimates and assumptions are described below. Actual results
could differ materially from our estimates under different assumptions or
conditions.
Revenue Recognition
As a third party transportation logistics provider, we act as the
shippers' agent and arrange for a carrier to handle the freight. Gross revenues
consist of the total dollar value of services purchased by shippers. Revenue is
recognized upon the delivery of freight, at which time the related
transportation cost, including commission, is also recognized. At that time, our
obligations are completed and collection of receivables is reasonably assured.
Emerging Issues Task Force No. 99-19, "Reporting Revenues Gross as a
Principal Versus Net as an Agent" (EITF 99-19), establishes criteria for
recognizing revenues on a gross or net basis. We are the primary obligor in our
transactions, have all credit risk, maintain substantially all risk and rewards,
have discretion in selecting the supplier, and latitude in pricing decisions.
Accordingly, we record all transactions at the gross amount, consistent with the
provisions of EITF 99-19.
Income Taxes
The deferred tax asset represents expected future tax savings resulting
from our net operating loss carryforward.
18
As of December 31, 2005, we had a net operating loss carryforward of
approximately $14.3 million for federal income tax purposes which expire through
2014. Utilization of this benefit is primarily subject to the extent of our
future earnings, and may be limited by, among other things, shareholder changes,
including the possible issuance of additional shares in one or more financing or
acquisition transactions. We have established a valuation allowance for the
portion of possible tax savings not likely to be realized by the end of the
carryforward period.
Provision For Doubtful Accounts
We continuously monitor the creditworthiness of our customers and have
established an allowance for amounts that may become uncollectible in the future
based on current economic trends, our historical payment and bad debt write-off
experience, and any specific customer related collection issues.
Recently Issued Accounting Standards
In May 2005, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 154, "Accounting Changes
and Error Corrections" (SFAS 154), which supersedes Accounting Principles
Bulletin (APB) Opinion No. 20, "Accounting Changes" and SFAS No. 3, "Reporting
Accounting Changes in Interim Financial Statements." SFAS 154 changes the
requirements for the accounting for and reporting of changes in accounting
principle. The statement requires the retroactive application to prior periods'
financial statements of changes in accounting principles, unless it is
impracticable to determine either the period specific effects or the cumulative
effect of the change. SFAS 154 does not change the guidance for reporting the
correction of an error in previously issued financial statements or the change
in an accounting estimate. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
The adoption of SFAS 154 is not expected to have a material impact on our
consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment"
(SFAS 123R), which is a revision of SFAS No. 123 and supersedes APB No. 25,
"Accounting for Stock Issued to Employees." SFAS 123R requires employee stock
options to be valued at fair value on the date of grant, and charged to expense
in the Company's consolidated financial statements over the applicable vesting
period. We will adopt the new standard using the modified prospective method in
the first quarter of 2006. Under this method, compensation cost is recognized
beginning with the effective date for all share based payments granted after the
effective date and for all awards granted to employees prior to the effective
date that remain unvested. SFAS 123R also amends SFAS No. 95, "Statement of Cash
Flows", requiring that any excess tax benefits received upon the exercise of
options be reflected as financing cash inflows rather than operating cash
inflows. Adoption of SFAS 123R will not change our accounting for non-employee
stock options. Based on current employee stock options outstanding, management
estimates that adoption of SFAS 123R will result in compensation expense related
to employee stock options of approximately $18,000 in 2006.
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
19
Contractual Obligations
The following table summarizes our contractual obligations as of December
31, 2005:
---------------------------------------------------------------------------------------------------------
Payments due by period
Contractual Obligations ------------------------------------------------------------------------
Less than 1 More than 5
Total year 1-3 years 3-5 years years
---------------------------------------------------------------------------------------------------------
Operating Lease Obligations $ 303,000 $ 68,000 $141,000 $94,000 --
---------------------------------------------------------------------------------------------------------
Line of Credit 1,280,000 1,280,000 -- -- --
---------------------------------------------------------------------------------------------------------
Total $1,583,000 $1,348,000 $141,000 $94,000 --
---------------------------------------------------------------------------------------------------------
BUSINESS
Overview
Through our wholly-owned subsidiary, Sunteck Transport Co., Inc.
(Sunteck), we are a non-asset based transportation services company, providing
transportation capacity and related transportation services to shippers
throughout the United States, and to a lesser extent, Canada. As a non-asset
based provider of brokerage and contract carrier transportation services, we do
not own any equipment and our services are provided through our strategic
alliances with less than truckload, truckload, air, rail, ocean common carriers
and independent owner-operators to service our customers' needs. Our non-asset
based services include ground transportation coast to coast, local pick up and
delivery, air freight and ocean freight. Our business services emphasize safety,
information coordination and customer service and are delivered through a
network of independent commissioned sales agents and third party capacity
providers coordinated by us. The independent commissioned sales agents typically
enter into exclusive contractual arrangements with us and are responsible for
locating freight and coordinating the transportation of the freight with
customers and capacity providers. The third party capacity providers consist of
independent contractors who provide truck capacity to us, including
owner-operators who operate under our contract carrier license, air cargo
carriers and railroads. Through this network of agents and capacity providers,
we operate a transportation services business with revenue, net revenue and net
income of approximately $68.0 million, $13.6 million and $3.6 million,
respectively, during our most recently completed fiscal year.
Our brokerage services are provided though a network of independent sales
agents throughout the United States and Canada. Our services include arranging
for the transport of customers' freight from the shippers location to the
designated destination. We do not own any trucking equipment and rely on
independent carriers for the movement of customers' freight. We seek to
establish long-term relationships with our customers and provide a variety of
logistics services and solutions to eliminate inefficiencies in our customers'
supply chain management.
Our contract carrier services, which commenced in 2003, are also provided
through a network of independent sales agents and independent owner-operators
throughout the United States. We do not own any trucking equipment; our
independent owner-operators lease onto our operating authority and transport
freight under the Sunteck name.
Strategy
Our strategy is to continue to expand through affiliations with
independent sales agents and through internal expansion. We have been successful
at expanding our brokerage sales agent network and now have representatives
throughout the United States and Canada. We have also been successful in
expanding our contract carriers services. In addition, we have experienced
internal expansion as many of our existing agents have expanded their customer
base and increased the number of transactions generated. We intend to seek, on a
selective basis, acquisition of businesses that have
20
services which complement and expand our existing services, and provide us with
strategic distribution locations or attractive customer bases. Our ability to
implement our growth strategy will be dependent on our ability to identify and
affiliate with these agents on desirable economic terms.
Company background
AutoInfo, Inc. was organized under the laws of the State of New York in
1976 and reincorporated under the laws of Delaware in 1987. In December 2000, we
acquired Sunteck in a merger transaction.
The industry
Prior to the mid 1980's, the trucking industry was regulated by the
Interstate Commerce Commission. Deregulation brought new breath and life to the
industry. This also brought with it the problem of how to navigate the
transportation highway. Shippers found it difficult to locate carriers and
carriers found that it was expensive to find freight. Enter the third party
transportation providers-intermediaries (freight brokers, freight forwarders and
logistics providers). The third party intermediary connects the shipper and the
carrier and helps manage the flow of goods.
The present market for freight moved by truck is estimated by management
to exceed $200 billion per year. This is a highly fragmented industry comprised
of common carriers, contract carriers, freight forwarders and freight brokers.
The actual movement of goods is accomplished by trucking (consisting of
local, over the road, truckload, and less than truckload shipments), air freight
(time sensitive in nature), rail freight (non time sensitive in nature and
usually less expensive than truck) and ocean freight (generally in containerized
ships). Other services provided include warehousing and distribution.
There are several trends which are relevant to the continued dependency
upon and growth of the trucking industry:
o Just in time service With new technology and a premium on cost savings,
businesses are able to maintain smaller inventories,
thereby reducing carrying costs and warehouse space
requirements. The impact on the freight industry is
more shipments of smaller quantities that are more
time sensitive and, therefore, more costly.
o Outsourcing Companies have found it to be more cost effective and
efficient to eliminate company owned truck fleets and
rely upon others to handle their trucking and shipping
needs.
o Logistics Small to medium size businesses, with less frequent
shipping requirements, utilize logistics providers
(freight brokers, etc.) to manage all aspects of the
transportation, warehousing and delivery needs.
The market for third party logistics providers is highly fragmented. It is
comprised primarily of full service logistics providers, freight brokers,
independent sales agents and sales representatives. Sales agents often work out
of home-based offices or small regional sales offices and affiliate themselves
with full service brokers to provide back-office services including load
dispatching, bonding and licensing, billing, collection and other administrative
services. Sales representatives vary from experienced people with years of
freight industry experience and established client relationships to
telemarketing personnel cold calling shippers and dispatchers.
Third party logistics companies provide numerous services to clients on an
outsourced basis, by contract and on demand. The continued growth of this
industry has created secondary market opportunities to provide low-cost delivery
to the endpoint, in addition to supply chain services of warehousing, inventory
management and electronic interface with
21
customers and suppliers. Third party logistics companies provide customized
domestic and international freight transportation of customers' goods and
packages via truck, rail, airplane and ship, and provide warehousing and storage
of those goods. Many companies utilize information systems and expertise to
reduce inventories, cut transportation costs, speed delivery and improve
customer service. The third-party logistics services business has been bolstered
in recent years by the competitiveness of the global economy, which causes
shippers to focus on reducing handling costs, operating with lower inventories
and shortening inventory transit times. Using a network of transportation,
handling and storage providers in multiple transportation modes, third-party
logistics services companies seek to improve their customers' operating
efficiency by reducing their inventory levels and related handling costs. Many
third-party logistics service providers are non-asset-based, primarily utilizing
physical assets owned by others in multiple transport modes.
The third-party logistics services business increasingly relies upon
advanced information technology to link the shipper with its inventory and as an
analytical tool to optimize transportation solutions. This trend favors the
larger, more professionally managed companies that have the resources to support
a sophisticated information technology infrastructure. By outsourcing all
non-core business services to third party providers, companies can help to
control costs, eliminate staff and focus on internal business.
Operations and systems
In our brokerage services, we process approximately 3,600 freight orders
per month. Our sales agents throughout the United States and Canada receive
customers' freight requirements daily. All agents make appropriate carrier
arrangements for the pick-up and timely delivery of customers' freight.
In our contract carrier services, we process approximately 850 freight
orders per month. Our sales agents in our seven regional operating centers and
representatives in nine states receive customers' freight requirements daily
and, utilizing their respective owner-operators, make appropriate carrier
arrangements for the pick-up and timely delivery of customers' freight. In
addition, utilizing various sources including numerous internet based freight
posting boards, our agents locate additional freight to maximize utilization of
available capacity and minimize deadhead miles, or miles driven generating
little or no revenue. A typical owner-operator will generate $2,500 per week in
revenues.
Our sales agents vary in level of experience from agents with years of
freight industry experience and established client relationships to a more
limited number of inexperienced telemarketing and operations personnel working
under the direct supervision and training of experienced sales agents and
dispatchers.
We rely exclusively on independent third parties for our hauling capacity.
These third party capacity providers consist of our independent owner-operators,
unrelated trucking companies, air cargo carriers and railroads. Our use of
capacity provided by our independent owner-operators, and other third party
capacity providers, allows us to maintain a lower level of capital investment,
resulting in lower fixed costs.
We utilize a state-of-the-art proprietary internet based order entry
system. All agents access our Web -based platform and orders are entered into a
customized traffic management system, which enables us to monitor the status of
all orders, generate customer billing and provide detailed transactional reports
in our Florida corporate headquarters. We use these reports to monitor customer
logistics and transportation usage, track customer and carrier historical data,
generate detailed financial and accounting data and provide our customers with
details of their supply chain activity. We maintain dual off-site storage and
back-up facilities to insure data integrity and safety.
Suppliers
We use the services of various third party transportation companies.
During 2005, no third party provider handled more than 10% of our shipping
volume (measured by revenue).
22
Customers
We strive to establish long-term customer relationships and, by providing
a full range of logistics and supply chain services, we seek to increase our
level of business with each customer. We service customers ranging from Fortune
100 companies to small businesses in a variety of industries. During 2005, no
customer accounted for more than 10% of our revenues. We typically receive
credit applications from all customers, review credit references and perform
credit checks to ensure credit worthiness.
Sunteck has achieved revenue growth through the addition of independent
sales agents, the opening of new operations offices, an increase in the number
of customers serviced, and the expansion of the logistics and supply chain
services we provide.
Each operations office markets our full range of supply chain services to
existing customers and pursues new customers within its local markets. We build
new customer relationships by exploiting our range of logistics and supply chain
services, the traffic lanes we commonly service, carrier relationships and
capabilities, our industry specific expertise and our sales agents individual
knowledge and experience.
Our growth model is focused on adding sales agents in strategic markets.
As this agent network is further established and expanded, we believe that
significant other opportunities will emerge. Larger sales agents offices often
have their own equipment (truck space), which presents the opportunity to
maximize available freight and load capacity thereby increasing gross margins
above historical levels. In addition, sales representatives will be added to
regional operating office sales agent locations to increase market penetration.
Since representatives work on a commission basis, this expansion essentially
comes at no additional overhead outlay.
Significant opportunities for expansion and growth also includes strategic
alliances with other service freight broker groups. This strategy will enable us
to achieve strong regional penetration into new geographical markets and
increase back office capabilities to service the agent network.
Competition
The transportation industry is highly competitive and highly fragmented.
In our brokerage services, our primary competitors are other non-asset based as
well as asset based third party logistics companies, freight brokers, carriers
offering logistics services and freight forwarders. In our contract carrier
services, our competitors are other contract carriers and common carriers. We
also compete with customers' and shippers' internal traffic and transportation
departments as well as carriers internal sales and marketing departments
directly seeking shippers' freight. We generally compete on the basis of price
and the range of logistics and supply chain services offered.
Government regulation
Our industry has long been subject to government legislation and
regulation. Over the years, many changes in these laws and regulations have
affected the industry and caused changes in the operating practices and the cost
of providing transportation services. We cannot predict what effect, if any,
legislative and regulatory changes may have on the industry in the future.
We are licensed by the United States Department of Transportation (DOT) as
a broker arranging the movement of materials by motor carrier. In this capacity,
we are required to meet certain qualifications to enable us to conduct business,
which includes the compliance with certain surety bond requirements. We are also
licensed by the DOT as a contract carrier arranging the movement of materials by
motor carrier. In this capacity, we are required to meet certain qualifications
23
to enable us to conduct business, which includes the maintenance of $1,000,000
of general liability insurance and $100,000 of cargo insurance.
If we fail to comply with, or lose, any required licenses, governmental
regulators could assess penalties or issue a cease and desist order against our
operations that are not in compliance.
Risk and liability
In our brokerage services, we do not assume liability for loss or damage
to freight; we act as the shipper's agent and arrange for a carrier to handle
the freight. Therefore, we do not take possession of the shipper's freight and,
accordingly, we are not liable for the carrier's negligence or failure to
perform. We do assist our customers in the processing and collection of any
claim. The Federal Highway Administration requires us to maintain a surety bond
of $10,000, which is intended to show our financial responsibility and provide
surety for the arrangements with shippers and carriers. In addition, we maintain
$100,000 of contingent cargo liability insurance.
In our contract carrier services business, we are liable for loss or
damage to our customers' freight. We maintain cargo liability insurance coverage
with a policy limit of $100,000 per occurrence. We have not incurred any
material losses to date. Any such losses in excess of insurance limits would be
accounted for as incurred for financial reporting purposes.
Employees
As of March 3, 2006, we had 35 full-time employees. None of our employees
are represented by a labor union and we believe that our relationship with our
employees is good.
Available Information
Our Web site address is www.suntecktransport.com. We are not including the
information contained on our Web site as part of, or incorporating it by
reference into, this prospectus. We make available free of charge through our
Web site our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, Forms 3, 4 and 5, and all amendments to those reports as
soon as reasonably practicable after such material is electronically filed with
or furnished to the Securities and Exchange Commission (SEC).
In connection with the shares offered by this prospectus, we have filed a
registration statement on Form S-1 under the Securities Act with the SEC. This
prospectus, filed as part of that registration statement, does not contain all
of the information included in the registration statement and the accompanying
exhibits and schedules. For further information with respect to our shares and
us you should refer to the registration statement and the accompanying exhibits
and schedules. With respect to statements contained in this prospectus regarding
the contents of any contract or any other document, you should refer to the copy
of the contract or other document filed as an exhibit to the registration
statement, each statement being qualified in all respects by the actual contents
of the contract or other document referred to.
The public may read and copy any materials we file with the SEC, including
a copy of the registration statement and the accompanying exhibits, at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers such as us that file electronically with the SEC. The Web site
address is www.sec.gov.
Properties
We lease approximately 5,300 square feet of space for our executive
offices and the headquarters of Sunteck at
24
6413 Congress Avenue, Boca Raton, Florida. This lease runs through April 2010
and provides for aggregate rent payments of $57,000 for the thirteen months
ending February 2006, $61,000 for the thirteen months ending March 2007, $65,000
for the thirteen months ending April 2008, $68,000 for the twelve months ended
April 2009 and $71,000 for the twelve months ended April 2010. We lease 1,100
square feet for our operating office at 315 Main Street, Pineville, North
Carolina. The lease runs through February 2008 and provides for an annual rental
of $13,000.
Legal proceedings
We are not a party to any material legal proceedings.
25
MANAGEMENT
Executive officers and directors
The following table sets forth the names, ages and positions of our
directors, executive officers and key employees:
Name Age Position
---- --- --------
Peter C. Einselen 66 Director
Thomas C. Robertson 60 Director
Harry Wachtel 47 President, chief executive officer and director
Mark Weiss 46 National account executive and director
William Wunderlich 58 Chief financial officer
PETER C. EINSELEN has been a director since January 1999. Mr. Einselen has
been an account executive since 1990 and served as senior vice president from
1990 to 2001 of Anderson & Strudwick, a brokerage firm. From 1983 to 1990, Mr.
Einselen was employed by Scott and Stringfellow, Incorporated, a brokerage firm.
THOMAS C. ROBERTSON has been a director since January 1999. Mr. Robertson
has been senior vice president since 2004 and was president and chief financial
officer from 1988 to 2004 and a director from 1988 to 2005 of Anderson &
Strudwick, a brokerage firm. Mr. Robertson has been president of Gardner &
Robertson, a money management firm, since 1997.
HARRY WACHTEL joined us in conjunction with the acquisition of Sunteck and
has been a director, and our president and chief executive officer since
December 7, 2000. Since 1997, he has been president of Sunteck. From 1992 to
1997, he served as vice president of sales and marketing for Pioneer Services,
Inc., a third party, non-asset based transportation logistics provider.
MARK WEISS joined us in conjunction with the acquisition of Sunteck and
has been a director since December 7, 2000. Since 1997, he has been employed by
Sunteck as a national account executive. From 1994 to 1997 he served as a
national account executive for Pioneer Services, Inc., a third party, non-asset
based transportation logistics provider. Mr. Weiss is the brother-in-law of Mr.
Wunderlich, our executive vice president and chief financial officer.
WILLIAM WUNDERLICH joined us in October 1992 as our vice president -
finance, became chief financial officer in January 1993, president in January
1999 and, in conjunction with the acquisition of Sunteck, became executive vice
president in December 2000. From 1990 to 1992, he served as vice president of
Goldstein Affiliates, Inc., a public adjusting company. From 1981 to 1990, he
served as executive vice president, chief financial officer and a director of
Novo Corporation, a manufacturer of consumer products. Mr. Wunderlich is a
Certified Public Accountant with a B.A. degree in Accounting and Economics from
the City University of New York at Queens College. Mr. Wunderlich is the
brother-in-law of Mr. Weiss, one of our directors.
Director Compensation
We do not pay any directors' fees. Directors are reimbursed for the costs
relating to attending board and committee meetings. During 2005, Peter C.
Einselen and Thomas C. Robertson, our non-employee directors, each were granted
options to purchase 100,000 shares of our common stock at prices ranging from
$0.46 to $0.65 per share, 110% of the fair market value on the date of grant.
26
Committees of the Board of Directors
Our board of directors has an audit committee and a compensation
committee. The audit committee reviews the scope and results of the audit and
other services provided by our independent accountants and our internal
controls. The compensation committee is responsible for the approval of
compensation arrangements for our officers and the review of our compensation
plans and policies. Each committee is comprised of Messrs. Einselen and
Robertson, our non-employee independent outside directors.
Audit Committee Matters
Under its charter, the audit committee must pre-approve all engagements of
our independent auditor unless an exception to such pre-approval exists under
the Securities Exchange Act of 1934 or the rules of the Securities and Exchange
Commission (SEC). Each year, the independent auditor's retention to audit our
financial statements, including the associated fee, is approved by the committee
before the filing of the preceding year's annual report on Form 10-K. At the
beginning of the fiscal year, the audit committee will evaluate other known
potential engagements of the independent auditor, including the scope of the
work proposed to be performed and the proposed fees, and approve or reject each
service, taking into account whether the services are permissible under
applicable law and the possible impact of each non-audit service on the
independent auditor's independence from management. At each subsequent committee
meeting, the committee will receive updates on the services actually provided by
the independent auditor, and management may present additional services for
approval. Typically, these would be services such as due diligence for an
acquisition that would not have been known at the beginning of the year
Since the May 6, 2003 effective date of the SEC rules stating that an
auditor is not independent of an audit client if the services it provides to the
client are not appropriately approved, each new engagement of Dworken, Hillman,
LaMorte & Sterczala, P.C. was approved in advance by the audit committee, and
none of those engagements made use of the de minimus exception to pre-approval
contained in the SEC's rules.
Our board has determined that the chairman of the audit committee, Mr.
Robertson, is an "audit committee financial expert," as that term is defined in
Item 401(h) of Regulation S-K, and "independent" for purposes of current and
recently-adopted Nasdaq listing standards and Section 10A(m)(3) of the
Securities Exchange Act of 1934.
Compensation Committee Interlocks and Insider Participation
During 2005, the compensation committee consisted of Messrs. Einselen and
Robertson, both of whom are non-employee directors. In December 2000, we issued
10-year 12% subordinated convertible debentures in the aggregate principal
amount of $50,000 to Messrs. Einselen and Robertson. In January 2004, these
debentures were acquired by Kinderhook Partners, LP, in a private placement
transaction from the holders and were subsequently converted in shares of our
common stock. To our knowledge, no member of the Compensation Committee has a
relationship that would constitute an interlocking relationship with executive
officers or directors of another entity.
27
REPORT OF COMPENSATION COMMITTEE
To the Board of Directors:
Compensation policies applicable to executive officers
The purpose of the Company's executive compensation program is to attract,
retain and motivate qualified executives to manage the business of the Company
so as to maximize profits and shareholder value. Executive compensation in the
aggregate is made up principally of the executive's annual base salary, a bonus
based upon operating earnings, a discretionary bonus which may be awarded by the
Company's Compensation Committee and awards of Company stock or stock options
under the Company's Stock Option Plans. The Company's Compensation Committee
annually considers and makes recommendations to the Board of Directors as to
executive compensation including changes in base salary, bonuses and awards of
Company stock or stock options.
Consistent with the above-noted purpose of the executive compensation
program, it is the policy of the Compensation Committee, in recommending the
aggregate annual compensation of executive officers of the Company, to consider
the overall performance of the Company and the individual contribution and
performance of the executive. The performance of the Company is the significant
factor. While shareholders' total return is important and is considered by the
Compensation Committee, it is subject to the vagaries of the public market place
and the Company's compensation program focuses on the Company's strategic plans,
corporate performance measures, and specific corporate goals which should lead
to a favorable stock price. The corporate performance measure which the
Compensation Committee considers include sales, earnings, return on equity and
comparisons of sales and earnings with prior years and with budgets.
The Compensation Committee does not rely on any fixed formulae or specific
numerical criteria in determining an executive's aggregate compensation. It
considers both corporate and personal performance criteria, competitive
compensation levels, the economic environment and changes in the cost of living
as well as the recommendations of management. The Compensation Committee then
exercises business judgment based on all of these criteria and the purposes of
the executive compensation program.
Compensation of the chief executive officer
Mr. Wachtel's base salary of $205,000 and bonus of $125,000 for 2005 was
based principally on his rights under his employment agreement with the Company.
Mr. Wunderlich's base salary of $100,000 and bonus of $125,000 for 2005
was based principally on his rights under his employment agreement with the
Company.
Section 162(m) of the Internal Revenue Code of 1996, as amended
(the"Code"), generally disallows a tax deduction to public companies for
compensation over $1 million paid to the Company's chief executive officer and
four other most highly compensated executive officers, unless the compensation
is considered performance based. The compensation disclosed in this report does
not exceed the $1 million limit, and executive compensation for 2006 is also
expected to qualify for deductibility. The Company currently intends to
structure the performance-based portion of its executive officers' compensation
to achieve maximum deductibility under Section 162(m) of the code with minimal
sacrifices in flexibility and corporate objective.
Respectfully submitted,
AutoInfo, Inc. Compensation Committee
(Thomas Robertson and Peter Einselin)
28
COMPANY PERFORMANCE
AND COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN AMONG AUTOINFO, INC.,
THE NASDAQ COMPOSITE INDEX,
AND THE DOW JONES TRANSPORTATION INDEX
The following graph shows a five year comparison of cumulative total
returns for AutoInfo, the NASDAQ Composite Index, and the Nasdaq Transportation
Index.
[THE DATA BELOW REPRESENTS A LINE CHART IN THE PRINTED REPORT]
DOW JONES
NASDAQ COMPOSITE INDEX TRANSPORTATION INDEX AUTOINFO, INC.
2000* 1.00 1.00 1.00
2001 0.79 0.73 4.00
2002 0.54 0.78 6.33
2003 0.81 1.02 9.67
2004 0.88 1.29 20.33
2005 0.89 1.42 19.33
EXECUTIVE COMPENSATION
Summary compensation.
The following table sets forth certain information concerning compensation
paid for services in all capacities awarded to, earned by or paid to our chief
executive officer and the other most highly compensated executive officers
during 2005, 2004 and 2003 whose aggregate compensation exceeded $100,000
("Named Executive Officers").
29
All other
Name and principal position Salary Bonus compensation
------------------------------------------------ ------------- ---------- ---------------
Harry Wachtel
President and chief executive officer
2005........................................ $205,000 $125,000 --
2004........................................ $205,000 $125,000 --
2003........................................ $175,000 $ 51,531 --
William Wunderlich
Executive vice president and chief financial
officer
2005........................................ $100,000 $125,000 --
2004........................................ $100,000 $125,000 --
2003........................................ $93,750 $ 55,281 --
Mark Weiss
National account executive
2005........................................ $122,703 -- --
2004........................................ $107,503 -- --
2003........................................ $118,592 -- --
Option grants during the year ended December 31, 2005, 2004 and 2003
Our compensation committee did not grant any options to the Named
Executive Officers during the years ended December 31, 2005, 2004 and 2003.
Option exercises and year-end option values. The following table provides
information with respect to options exercised by the Named Executive Officers
during 2005 and the number and value of unexercised options held by the Named
Executive Officers as of December 31, 2005.
Aggregated Option Exercise in Last Fiscal Year and Year-End Option Values
Number of Shares Underlying Value of Unexercised In-the-
Unexercised Options at Fiscal Money Options At Fiscal
Year-End Year-End (2)
Shares Acquired ---------------------------- ---------------------------
Name on Exercise Value Realized (1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------------ ----------- ------------- ----------- -------------
Harry Wachtel -- -- -- -- -- --
Mark Weiss -- -- -- -- -- --
William Wunderlich 40,000 $17,000 770,000 -- $370,000 --
----------
(1) For the purposes of this calculation, value is based upon the difference
between the exercise price of the options and the stock price at date of
exercise.
(2) For the purposes of this calculation, value is based upon the difference
between the exercise price of the exercisable and unexercisable options
and the stock price at December 31, 2005 of $0.58 per share.
30
Equity Compensation Plan Information
Year Ended December 31, 2005
Number of securities
remaining available for
Number of securities Weighted-average future issuance under
to be issued upon exercise price of equity compensation
exercise of outstanding plans (excluding
outstanding options, options, warrants securities reflected in
Plan Category warrants and rights and rights column (a))
------------------------------------- ----------------------- -------------------- --------------------------
(a) (b) (c)
Equity compensation plans
approved by security holders
(1985, 1986, 1989, 1992,
1997, 1999, 2003 and 2005
Stock Option Plans) (1)....... 7,081,000 $0.37 958,000
======================= ==================== ==========================
Total 7,081,000 $0.37 958,000
======================= ==================== ==========================
(1) We do not have any equity compensation plans which have not been approved
by security holders.
Employment Agreements
We have employment agreements with Messrs. Wachtel and Wunderlich
providing for their employment, as our chief executive officer and chief
financial officer, respectively, for terms expiring on December 31, 2008,
subject to automatic one-year renewals unless either party gives written notice
ninety days prior to the end of the then current term of the agreement. The
agreements provide for annual base salaries of $250,000 and $175,000,
respectively, and for participation in all executive benefit plans. Each of Mr.
Wachtel's and Mr. Wunderlich's agreements provide that they will each be
entitled to a bonus equal to 10% of our consolidated pre-tax profit (as defined
in their respective employment agreements) up to $1,250,000 and 5% of our
consolidated pre-tax profit in excess of $1,250,000. Further, Mr. Wachtel's
agreement provides, among other things, that, if employment is terminated
without cause (as defined therein) or if he terminates his employment for good
reason (as defined therein) or within six months after a change of control (as
defined therein), we will pay him an amount equal to his then current base
salary plus the average incentive compensation due to him during the remaining
term of the agreement.
Limitation of directors' liability and indemnification
Our certificate of incorporation limits the liability of individual
directors for specified breaches of their fiduciary duty. The effect of this
provision is to eliminate the liability of directors for monetary damages
arising out of their failure, through negligent or grossly negligent conduct, to
satisfy their duty of care, which requires them to exercise informed business
judgment. The liability of directors under the federal securities laws is not
affected. A director may be liable for monetary damages only if a claimant can
show receipt of financial benefit to which the director is not entitled,
intentional infliction of harm on us or on our shareholders, a violation of
section 174 of the Delaware General Corporation Law (dealing with unlawful
distributions to shareholders effected by vote of directors), and any amended or
successor provision thereto, or an intentional violation of criminal law.
Our certificate of incorporation also provides that we will indemnify each
of our directors or officers, and their heirs, administrators, successors and
assigns against any and all expenses, including amounts paid upon judgments,
counsel fees, and amounts paid or to be paid in settlement before or after suit
is commenced, actually and necessarily incurred by such persons in connection
with the defense or settlement of any claim, action, suit or proceeding, in
which they, or any of them are made parties, or which may be asserted against
them or any of them by reason of being, or having been, directors
31
or officers of the corporation, except in relation to such matters in which such
director or officer shall be adjudged to be liable for his own negligence or
misconduct in the performance of his duty.
There is no pending litigation or proceeding involving any of our
directors, officers, employees or agents in which we are required or permitted
to provide indemnification, except as set forth under Certain Relationships and
Related Party Transactions. We are also not aware of any threatened litigation
or proceeding that may result in a claim for such indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons under our
certificate of incorporation, we have been informed that, in the opinion of the
SEC, indemnification is against public policy as expressed in the Securities Act
and is unenforceable.
Code of ethics
We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer and other persons performing similar
functions. This code of ethics is posted on our Web site at
www.suntecktransport.com.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 2000, we obtained financing totaling $575,000, including
$363,000 from certain related parties, in the form of ten year 12% subordinated
convertible debentures. The financing was provided in part by Harry Wachtel, our
president and chief executive officer ($200,000), William Wunderlich, our chief
financial officer ($25,000), two of our outside independent directors, Peter
Einselen ($25,000) and Thomas Robertson ($25,000), and James Martin, a
significant stockholder ($88,000). Interest of $4,000 and $69,000 was charged to
operations in 2004 and 2003, respectively. In January 2004, these debentures
were acquired by Kinderhook Partners, LP in a private placement transaction from
the holders and were subsequently converted into 2,300,000 shares of our common
stock.
32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common shares as of the date of this prospectus by:
o each person, or group of affiliated persons, known by us to be the
beneficial owner of more than 5% of our outstanding common shares;
o each of our directors;
o each executive officer named in the summary compensation table
above; and
o all of our directors and executive officers as a group.
We determined beneficial ownership in accordance with rules promulgated by
the Securities and Exchange Commission, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Except as otherwise
indicated, we believe that the persons or entities named in the following table
have sole voting and investment power with respect to all shares of common stock
as beneficially owned by them, subject to community property laws where
applicable.
Name of Shares of Common Stock Percentage
Beneficial Owner (1) Beneficially Owned Of Ownership
-------------------- ------------------ ------------
(i) Directors and Executive
Officers
Harry Wachtel 6,510,000 (2) 20.5%
Thomas C. Robertson 380,000 (3) 1.2%
Peter C. Einselen 510,000 (3) 1.6%
Mark Weiss 900,000 (5) 2.8%
William I. Wunderlich 1,322,000 (4)(6) 4.1%
All executive officers and directors as
a group (5 persons) 8,315,000 (7) 25.1%
(ii) 5% Stockholders
James T. Martin 6,270,000 19.7%
Kinderhook Partners, LP 6,125,812 19.3%
----------
(1) Unless otherwise indicated below, each director, executive officer and
each 5% stockholder has sole voting and investment power with respect to
all shares beneficially owned. The address for Mr. Wachtel, Mr. Weiss and
Mr. Wunderlich is c/o AutoInfo, Inc., 6413 Congress Avenue, Suite 260,
Boca Raton, FL 33487. The address for Mr. Martin is c/o Bermuda Trust
Company, Compass Point Road, 9 Bermudian Road, Hamilton HM11, Bermuda. The
address for Kinderhook Partners, LP is One Executive Drive, Suite 160,
Fort Lee, NJ 07024.
(2) Includes 1,307,000 shares with respect to which Mr. Wachtel has been
granted voting rights pursuant to voting proxy agreements.
(3) Includes 280,000 shares issuable upon the exercise of stock options.
(4) Includes 280,000 shares issuable upon the exercise of stock options.
(5) Includes 900,000 with respect to which Mr. Weiss has granted voting rights
to Mr. Wachtel pursuant to a voting proxy agreement. Mr. Weiss retains
full control over the disposition of these shares.
(6) Includes 407,000 with respect to which Mr. Wunderlich has granted voting
rights to Mr. Wachtel pursuant to a voting proxy agreement. Mr. Wunderlich
retains full control over the disposition of these shares.
(7) Assumes that all currently exercisable options or warrants owned by
members of this group have been exercised.
33
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 110,000,000 shares, including
100,000,000 shares of common stock, par value $0.001 per share, and 10,000,000
shares of preferred stock, par value $0.01 per share. Our board of directors may
designate the rights and preferences of the preferred stock. Preferred stock
could be used, under certain circumstances, as a way to discourage, delay or
prevent a takeover of the company. See "Anti-Takeover Provisions." As of March
27, 2006, there were issued and outstanding 31,798,856 shares of common stock
and no shares of preferred stock.
The authorized but unissued shares of common stock are available for
future issuance without stockholder approval. These additional shares may be
utilized for a variety of corporate purposes, including future public offerings
to raise additional capital, corporate acquisitions and employee benefit plans.
The existence of authorized but unissued common stock could render more
difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
the corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our certificate of incorporation does not impose
any supermajority vote requirements.
Common stock
Under our Restated Certificate of Incorporation, shares of our common
stock are identical in all respects, and each share entitles the holder to the
same rights and privileges as are enjoyed by other holders and is subject to the
same qualifications, limitations and restrictions as apply to other shares.
Holders of our common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders. Holders of our
common stock do not have cumulative voting rights. Accordingly, subject to any
voting rights of holders of any preferred stock that may be issued, holders of a
plurality of our common stock present at a meeting at which a quorum is present
are able to elect all of the directors eligible for election. The presence of a
majority of the voting power of our outstanding capital stock constitutes a
quorum.
The holders of our common stock are entitled to dividends when and if
declared by our board of directors from legally available funds. The holders of
our common stock are also entitled to share pro rata in any distribution to
stockholders upon our liquidation or dissolution.
None of the shares of our common stock:
o have preemptive rights;
o are redeemable;
o are subject to assessments or further calls;
o have conversion rights; or
o have sinking fund provisions.
34
Preferred stock
We are currently authorized to issue 10,000,000 shares of preferred stock
in one or more series. No series has been designated. Our board of directors may
determine the terms of the preferred stock at the time of its issuance without
action by our stockholders. The terms of any issuance of preferred stock may
include:
o voting rights, including the right to vote as a series on particular
matters, which could be superior to those of our common stock;
o preferences over our common stock as to dividends and distributions
in liquidation;
o conversion and redemption rights, including the right to convert
into shares of our common stock; and
o sinking fund provisions.
Outstanding options and warrants
At March 7, 2006, we had outstanding 7,153,516 stock options granted to
employees and consultants. These options have exercise prices ranging from $0.05
to $0.65 per share, with an average weighted exercise price of $ 0.39, and
expire between May 2007 and November 2013. Of the options outstanding at March
7, 2006, 3,077,831 are vested and currently exercisable.
Registration rights
Other than the registration rights with respect to the shares offered by
this Prospectus, we do not have any contractual obligations to register any
shares of our common stock.
Voting rights
In June 2001, each of William Wunderlich, our chief financial officer and
Mark Weiss, a director, granted to Harry Wachtel, our president and chief
executive officer, an irrevocable proxy to vote 750,000 and 1,000,000,
respectively, of shares of our common stock they then owned. These proxies were
granted in conjunction with the purchase by the holders of the subject shares
from Mr. Wachtel in a private placement transaction. As of March 27, 2006, the
irrevocable proxies with respect to 442,658 of these shares have been
terminated, leaving Mr. Wachtel with irrevocable proxies covering the remaining
1,307,342 shares.
Transfer agent
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company, located in New York, New York.
35
SELLING STOCKHOLDERS
Kinderhook Partners, LP (Kinderhook) acquired the shares of common stock
offered hereby in four transactions. In January 2004, 1,333,333 shares of common
stock were acquired from us, in a private placement transaction, for a total
consideration of $442,000, or approximately $0.33 per share. Simultaneously with
this purchase, Kinderhook acquired all of our then outstanding 12% Convertible
Debentures ($575,000 principal amount) in a private transaction with the
existing debenture holders and immediately converted these debentures into
2,300,000 shares of common stock. Subsequently, in November 2004 and January
2006, Kinderhook acquired 727,500 and 966,576 shares of common stock from two of
our affiliates, Mr. Wachtel and Mr. Wunderlich, in a private placement
transaction, for $0.34 and $0.54 per share, respectively. Similarly, Mr. Shah
acquired 22,500 and 33,424 shares of common stock, all offered hereby, from Mr.
Wachtel and Mr. Wunderlich, respectively, in the November 2004 and January 2006
transactions on the same terms and conditions. In connection with each of these
transactions, we undertook to file and process to effectiveness a resale
prospectus covering the shares acquired.
The following table sets forth certain information known to us with
respect to the beneficial ownership of our common stock as of March 24, 2006, by
each selling stockholder. The number of shares in the column labeled "Number of
Shares Being Offered" represent all of the shares that each selling stockholder
may offer under this prospectus. The table assumes that the selling stockholders
will sell all of the shares offered under this prospectus. We are unable to
determine the exact number of shares that actually will be sold. We do not know
how long the selling stockholder will hold the shares before selling them and we
currently have no agreements, arrangements or understandings with the selling
stockholders regarding the sale of any of the shares other than our agreement
with the selling stockholder to maintain the effectiveness of this registration
statement for up to two years. Each of the selling stockholders may be deemed to
be an "underwriter" within the meaning of the Securities Act of 1933 in
connection with its sale of our shares under this prospectus.
Number of Number of
shares Owned Number of Shares Owned
Name and Address of Before the Percentage Shares After the Percentage
Beneficial Owner (1) Offering of Class Offered Offering of Class
------------------------------- -------------- ------------ ------------- --------------- -----------
Kinderhook Partners, LP(2)... 6,125,812 19.3% 5,327,409 798,403 2.5%
Vinoray R. Shah 55,924 (3) 55,924 0 (3)
----------
(1) The address of Kinderhook Partners, LP is One Executive Drive, Suite 160,
Fort Lee, NJ 07024. The address of Vinoray R. Shah is 50 Hilltop Road,
Longmeadow, MA 01106. None of the selling stockholders currently own any
options, warrants or other derivative securities convertible into shares
of our common stock.
(2) The General Partner of Kinderhook Partners, LP is Kinderhook GP, LLC.
Stephen J. Clearman is the managing member of Kinderhook GP, LLC.
Kinderhook GP, LLC and Stephen J. Clearman each disclaim beneficial
ownership of the shares except to the extent of their pecuniary interest
therein.
(3) Less than 1%.
PLAN OF DISTRIBUTION
We are registering shares of our common stock under the Securities Act for
sale by the selling stockholder. As used in this prospectus, "selling
stockholders" includes the pledgees, donees, transferees or others who may later
hold the selling stockholder's interests. We have agreed to pay the costs and
fees of registering the shares, including the preparation of the registration
statement that includes this prospectus, but the selling stockholders will pay
any brokerage commissions, discounts or other expenses relating to the sale of
the shares, including attorneys' fees.
36
The selling stockholders may sell the shares in the over-the-counter
market or otherwise, at market prices prevailing at the time of sale, at prices
related to the prevailing market prices, or at negotiated prices. In addition,
the selling stockholder may sell some or all of their shares through:
o a block trade in which a broker-dealer may resell a portion of the
block, as principal, in order to facilitate the transaction;
o purchases by a broker-dealer, as principal, and resale by the
broker-dealer for its account; or
o ordinary brokerage transactions and transactions in which a broker
solicits purchasers.
When selling the shares, the selling stockholders may enter into hedging
transactions. For example, the selling stockholder may:
o enter into transactions involving short sales of the shares by
broker-dealers;
o sell shares short themselves and redeliver such shares to close out
their short positions;
o enter into option or other types of transactions that require the
selling stockholder to deliver shares to a broker-dealer, who will
then resell or transfer the shares under this prospectus; or
o loan or pledge the shares to a broker-dealer, who may sell the
loaned shares or, in the event of default, sell the pledged shares.
The selling stockholders may negotiate and pay broker-dealers commissions,
discounts or concessions for their services. Broker-dealers engaged by the
selling stockholder may allow other broker-dealers to participate in resales.
However, the selling stockholders may, and any broker-dealers involved in the
sale or resale of the shares will, qualify as "underwriters" within the meaning
of Section 2(a)(11) of the Securities Act. In addition, the broker-dealers'
commissions, discounts or concession may qualify as underwriters' compensation
under the Securities Act. If a selling stockholder qualifies as an
"underwriter," it will be subject to the prospectus delivery requirements of
Section 5(b)(2) of the Securities Act.
The selling stockholders should be aware that the anti-manipulation
provisions of Regulation M under the Securities Exchange Act will apply to
purchases and sales of shares of common stock by the selling stockholders, and
that there are restrictions on market-making activities by persons engaged in
the distribution of the shares. Under Regulation M, the selling stockholders or
their agents may not bid for, purchase, or attempt to induce any person to bid
for or purchase, shares of our common stock while such selling stockholders are
distributing shares pursuant to this prospectus. The selling stockholders are
advised that if a particular offer of common stock is to be made on terms
constituting a material change from the information set forth above with respect
to the Plan of Distribution, then, to the extent required, a post-effective
amendment to the registration statement must be filed with the Securities and
Exchange Commission.
From time to time this prospectus will be supplemented and amended as
required by the Securities Act of 1933, as amended. During any time when a
supplement or amendment is so required, the selling stockholder is to cease
sales until the prospectus has been supplemented or amended. Pursuant to the
registration rights granted to certain of the selling stockholder, we have
agreed to update and maintain the effectiveness of this prospectus.
In addition to selling their shares under this prospectus, the selling
stockholders may:
37
o agree to indemnify any broker-dealer or agent against certain
liabilities related to the selling of the shares, including
liabilities arising under the Securities Act;
o transfer its shares in other ways not involving market makers or
established trading markets, including directly by gift,
distribution, or other transfer; or
o sell its shares pursuant to Rule 144 under the Securities Act rather
than pursuant to this prospectus, if the shares are eligible for
such sale and the transaction meets the requirements of Rule 144.
LEGAL MATTERS
Morse, Zelnick, Rose & Lander, LLP, 405 Park Avenue, New York, New York
10022 delivered an opinion that the issuance of the shares covered by this
prospectus has been approved by our Board of Directors and that such shares,
when issued, will be fully paid and non-assessable under Delaware law.
EXPERTS
Dworken, Hillman, LaMorte & Sterczala, P.C., independent registered public
accounting firm, have audited our financial statements as of and for the years
ended December 31, 2003, 2004 and 2005 as set forth in their report. We have
included these financial statements in the prospectus and elsewhere in the
registration statement in reliance on Dworken, Hillman, LaMorte & Sterczala,
P.C.'s report, given on their authority as experts in accounting and auditing.
COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our Restated Certificate of Incorporation provides that we shall indemnify
our directors and officers to the fullest extent permitted by Delaware law and
that none of our directors will be personally liable to us or our stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability:
o for any breach of the director's duty of loyalty to us or our
stockholders;
o for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of the law;
o under section 174 of the Delaware General Corporation Law for the
unlawful payment of dividends; or
o for any transaction from which the director derives an improper
personal benefit.
These provisions require us to indemnify our directors and officers unless
restricted by Delaware law and eliminate the our rights and those of our
stockholders to recover monetary damages from a director for breach of his
fiduciary duty of care as a director except in the situations described above.
The limitations summarized above, however, do not affect our ability or that of
its stockholders to seek non-monetary remedies, such as an injunction or
rescission, against a director for breach of his fiduciary duty.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, we have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
38
You may rely on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor sale of common shares
means that information contained in this prospectus is correct after the date of
this prospectus. This prospectus is not an offer to sell or solicitation of an
offer to buy our common shares in any circumstances under which the offer or
solicitation is unlawful.
---------------------------
Table of Contents
Page
----
Prospectus Summary .................................................. 3
Risk Factors ........................................................ 6
Forward Looking Statements .......................................... 9
Use of Proceeds ..................................................... 10
Dividend Policy ..................................................... 10
Capitalization ...................................................... 10
Price Ranges of Our Common Stock .................................... 11
Selected Consolidated Financial Data ................................ 11
Management's Discussion and
Analysis of Financial Condition
and Results of Operations ......................................... 13
Business ............................................................ 20
Management .......................................................... 26
Certain Relationships and Related
Party Transactions ................................................ 32
Security Ownership of Certain
Beneficial Owners and
Management ........................................................ 33
Description of Securities ........................................... 34
Selling Stockholders ................................................ 36
Plan of Distribution ................................................ 36
Legal Matters ....................................................... 38
Experts ............................................................. 38
Index to Financial Statements ....................................... F-1
================================================================================
================================================================================
5,383,333 Shares
of
Common Stock
AUTOINFO, INC.
------------
PROSPECTUS
------------
April 28, 2006
================================================================================
AUTOINFO, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2005 and 2004 F-3
Consolidated Statements of Income for the Years Ended
December 31, 2005, 2004 and 2003 F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2005, 2004 and 2003 F-5
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2005, 2004 and 2003 F-6
Notes to Consolidated Financial Statements F-7
Information required by schedules called for under Regulation S-X is either not
applicable or is included in the Consolidated Financial Statements or Notes
thereto.
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of AutoInfo, Inc.
We have audited the accompanying consolidated balance sheets of AutoInfo, Inc.
and subsidiaries as of December 31, 2005 and 2004, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 2005. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AutoInfo, Inc. and subsidiaries
as of December 31, 2005 and 2004 and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2005 in
conformity with accounting principles generally accepted in the United States of
America.
February 3, 2006
Shelton, Connecticut
/s/ Dworken, Hillman, LaMorte & Sterczala, P.C.
-----------------------------------------------
Dworken, Hillman, LaMorte & Sterczala, P.C.
F-2
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------------
2005 2004
------------ ------------
ASSETS (Note 2)
Current assets:
Cash and cash equivalents $ 419,000 $ 38,000
Accounts receivable, net of allowance for doubtful accounts
of $201,000 and $125,000 as of December 31, 2005 and
2004, respectively 12,735,000 9,658,000
Deferred income taxes (Note 4) 860,000 369,000
Other current assets 255,000 679,000
------------ ------------
Total current assets 14,269,000 10,744,000
Fixed assets, net of depreciation 292,000 69,000
Deferred income taxes (Note 4) 2,047,000 952,000
Other assets 38,000 30,000
------------ ------------
$ 16,646,000 $ 11,795,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable (Note 2) $ 1,280,000 $ 1,998,000
Accounts payable and accrued liabilities 7,235,000 5,385,000
------------ ------------
Total current liabilities 8,515,000 7,383,000
------------ ------------
Commitments and contingencies (Note 5)
Stockholders' equity : (Note 6)
Common stock - authorized 100,000,000 shares, $.001 par
value; issue and outstanding 31,624,000 and 31,218,000 as
of December 31, 2005 and 2004, respectively 32,000 31,000
Other capital 549,000 324,000
Deferred compensation (413,000) (277,000)
Additional paid-in capital 19,047,000 19,026,000
Deficit (11,084,000) (14,692,000)
------------ ------------
Total stockholders' equity 8,131,000 4,412,000
------------ ------------
$ 16,646,000 $ 11,795,000
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For The Years Ended December 31,
--------------------------------------------------
2005 2004 2003
------------ ------------ ------------
Gross revenues $ 68,040,000 $ 46,492,000 $ 27,171,000
Cost of transportation 54,486,000 37,758,000 22,095,000
------------ ------------ ------------
Net revenues 13,554,000 8,734,000 5,076,000
------------ ------------ ------------
Commissions 8,348,000 5,179,000 2,955,000
Operating expenses 3,005,000 2,519,000 1,466,000
------------ ------------ ------------
11,353,000 7,698,000 4,421,000
------------ ------------ ------------
Income from operations 2,201,000 1,036,000 655,000
Interest expense (Note 3) 56,000 50,000 109,000
------------ ------------ ------------
Income before income taxes (benefit) 2,145,000 986,000 546,000
Income taxes (benefit) (Note 4) (1,463,000) (480,000) (754,000)
------------ ------------ ------------
Net income $ 3,608,000 $ 1,466,000 $ 1,300,000
============ ============ ============
Net income per share:
Basic $ .11 $ .05 $ .05
Diluted $ .11 $ .04 .05
Weighted average number of common shares:
Basic 31,520,000 30,915,000 27,355,000
Diluted 33,920,000 33,438,000 28,789,000
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Shares of
Common Additional
Stock Common Other Deferred Paid - In
Outstanding Stock Capital Compensation Capital Deficit
----------- ------------ ------------ ------------ ----------- ------------
Balance January 1, 2003 27,348,000 $ 27,000 $ $ $18,019,000 $(17,458,000)
Exercise of stock options 35,000 4,000
Net income 1,300,000
---------- ------------ ------------ ------------ ----------- ------------
Balance, December 31, 2003 27,383,000 27,000 -- -- 18,023,000 (16,158,000)
Sale of common shares 1,333,000 2,000 415,000
Conversion of subordinated
debentures (Note 3) 2,300,000 2,000 573,000
Exercise of stock options 202,000 -- 15,000
Shares granted under stock
option plans to non-employees 324,000 (324,000)
Compensation expense 47,000
Net income 1,466,000
---------- ------------ ------------ ------------ ----------- ------------
Balance, December 31, 2004 31,218,000 $ 31,000 $ 324,000 $ (277,000) $19,026,000 $(14,692,000)
Exercise of stock options 406,000 1,000 21,000
Shares granted under stock
option plans to non-employees 261,000 (261,000)
Cancellation of stock options (36,000) 36,000
Compensation expense 89,000
Net income 3,608,000
---------- ------------ ------------ ------------ ----------- ------------
Balance, December 31, 2005 31,624,000 $ 32,000 $ 549,000 $ (413,000) $19,047,000 $(11,084,000)
========== ============ ============ ============ =========== ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31,
2005 2004 2003
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 3,608,000 $ 1,466,000 $ 1,300,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Change in allowance for doubtful accounts 76,000 65,000 --
Depreciation and amortization expenses 85,000 40,000 38,000
Deferred compensation expense 89,000 47,000 --
Deferred income taxes (1,586,000) (537,000) (784,000)
Changes in assets and liabilities:
Accounts receivable, net (3,153,000) (4,842,000) (1,885,000)
Other current assets 424,000 (398,000) (218,000)
Other assets (8,000) 105,000 (2,000)
Accounts payable and accrued liabilities 1,850,000 2,612,000 492,000
----------- ----------- -----------
Net cash provided by (used in) operating activities 1,385,000 (1,442,000) (1,059,000)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (307,000) (37,000) (42,000)
----------- ----------- -----------
Net cash used in investing activities (307,000) (37,000) (42,000)
----------- ----------- -----------
Cash flows from financing activities:
Sale of common shares -- 417,000 --
Exercise of stock options 21,000 15,000 4,000
(Decrease) increase in loan payable, net (718,000) 952,000 546,000
----------- ----------- -----------
Net cash provided by (used in) financing activities (697,000) 1,384,000 550,000
----------- ----------- -----------
Net change in cash and cash equivalents 381,000 (95,000) (551,000)
Cash and cash equivalents, beginning of year 38,000 133,000 684,000
----------- ----------- -----------
Cash and cash equivalents, end of year $ 419,000 $ 38,000 $ 133,000
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
AUTOINFO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 and 2003
Note 1 - Business and Summary of Significant Accounting Policies
Business Overview
Through its wholly-owned subsidiary, Sunteck Transport Co., Inc.
(Sunteck), the Company is a non-asset based transportation services company,
providing transportation capacity and related transportation services to
shippers throughout the United States, and to a lesser extent, Canada. As a
non-asset based provider of brokerage and contract carrier transportation
services, the Company does not own any equipment and its services are provided
through strategic alliances with less than truckload, truckload, air, rail,
ocean common carriers and independent owner-operators to service customers'
needs. The Company's non-asset based services include ground transportation
coast to coast, local pick up and delivery, air freight and ocean freight. The
Company's business services emphasize safety, information coordination and
customer service and are delivered through a network of independent commissioned
sales agents and third party capacity providers coordinated by it. The
independent commissioned sales agents typically enter into exclusive contractual
arrangements with the Company and are responsible for locating freight and
coordinating the transportation of the freight with customers and capacity
providers. The third party capacity providers consist of independent contractors
who provide truck capacity to the Company, including owner-operators who operate
under the Company's contract carrier license, air cargo carriers and railroads.
The Company's brokerage services are provided though a network of
independent sales agents throughout the United States and Canada. The Company's
services include arranging for the transport of customers' freight from the
shippers location to the designated destination. The Company does not own any
trucking equipment and relies on independent carriers for the movement of
customers' freight. The Company seeks to establish long-term relationships with
its customers and provides a variety of logistics services and solutions to
eliminate inefficiencies in itscustomers' supply chain management.
The Company's contract carrier services, which commenced in 2003, are also
provided through a network of independent sales agents and independent
owner-operators throughout the United States. The Company does no own any
trucking equipment; its independent owner-operators lease onto the Company's
operating authority and transport freight under the its name.
Summary of Significant Accounting Policies
Basis of Presentation
The financial statements of the Company have been prepared using the
accrual basis of accounting under accounting principles generally accepted in
the United States of America (GAAP).
Principles of Consolidation
The consolidated financial statements include the accounts of the
AutoInfo, Inc. (the Company), its wholly-owned subsidiary Sunteck Transport Co.,
Inc. and its wholly-owned subsidiary Sunteck Transport & Logistics, Inc.,
(collectively, Sunteck). All significant intercompany balances and transactions
have
F-7
been eliminated in consolidation.
Use of Estimates
The preparation of these financial statements in conformity with GAAP
requires management to make certain estimates and assumptions. These estimates
and assumptions affect the reported amounts of assets, liabilities and
contingent liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the periods presented. The Company
believes that all such assumptions are reasonable and that all estimates are
adequate, however, actual results could differ from those estimates.
Revenue Recognition
As a third party transportation logistics provider, the Company acts as
the shippers' agent and arranges for a carrier to handle the freight. Gross
revenues consist of the total dollar value of services purchased by shippers.
Revenue is recognized upon the delivery of freight, at which time the related
transportation cost, including commission, is also recognized. At that time, the
Company's obligations are completed and collection of receivables is reasonably
assured.
Emerging Issues Task Force No. 99-19, "Reporting Revenues Gross as a
Principal Versus Net as an Agent" (EITF 99-19), establishes criteria for
recognizing revenues on a gross or net basis. The Company is the primary obligor
in its transactions, has all credit risk, maintains substantially all risk and
rewards, has discretion in selecting the supplier, and has latitude in pricing
decisions. Accordingly, the Company records all transactions at the gross
amount, consistent with the provisions of EITF 99-19.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks.
Provision For Doubtful Accounts
The Company continuously monitors the creditworthiness of its customers
and has established an allowance for amounts that may become uncollectible in
the future based on current economic trends, its historical payment and bad debt
write-off experience, and any specific customer related collection issues.
Fixed Assets
Fixed assets as of December 31, 2005 and 2004, consisting predominantly of
furniture, fixtures equipment and proprietary software, were carried at cost net
of accumulated depreciation. Depreciation of fixed assets was provided on the
straight-line method over the estimated useful lives of the related assets which
range from three to five years.
Income Per Share
Basic income per share is based on net income divided by the weighted
average number of common shares outstanding. Common stock equivalents
outstanding were 2,400,000, 2,523,000 and 1,434,000 for the year ended December
31, 2005, 2004 and 2003, respectively.
F-8
Income Taxes
The Company utilizes the asset and liability method for accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and future benefits to be
recognized upon the utilization of certain operating loss carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Stock-Based Compensation
The Company applies Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" (SFAS 123). As permitted by SFAS 123,
the Company has chosen to continue to apply Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and, accordingly, no
compensation cost has been recognized for stock options issued to employees in
the financial statements. As discussed below in "Recently Issued Accounting
Standards", the Company will adopt SFAS 123R in the first quarter of 2006.
The pro-forma effect of options issued to employees on net income and
earnings per share, utilizing the Black-Scholes option-pricing model, consistent
with the method stipulated by SFAS 123, was not material to the Company's
results of operations.
The Company accounts for stock options issued to non-employees using the
fair value method in accordance with SFAS 123. Deferred compensation,
representing the fair market value of the options issued utilizing the
Black-Scholes option-pricing model, is charged to earnings over the vesting
period.
Recently Issued Accounting Standards
In May 2005, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 154, "Accounting Changes
and Error Corrections" (SFAS 154), which supersedes Accounting Principles
Bulletin (APB) Opinion No. 20, "Accounting Changes" and SFAS No. 3, "Reporting
Accounting Changes in Interim Financial Statements." SFAS 154 changes the
requirements for the accounting for and reporting of changes in accounting
principle. The statement requires the retroactive application to prior periods'
financial statements of changes in accounting principles, unless it is
impracticable to determine either the period specific effects or the cumulative
effect of the change. SFAS 154 does not change the guidance for reporting the
correction of an error in previously issued financial statements or the change
in an accounting estimate. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
The adoption of SFAS 154 is not expected to have a material impact on our
consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment"
(SFAS 123R), which is a revision of SFAS No. 123 and supersedes APB No. 25,
"Accounting for Stock Issued to Employees." SFAS 123R requires employee stock
options to be valued at fair value on the date of grant, and charged to expense
in the Company's consolidated financial statements over the applicable vesting
period. We will adopt the new standard using the modified prospective method in
the first quarter of 2006. Under this method, compensation cost is recognized
beginning with the effective date for all share based payments granted after the
effective date and for all awards granted to employees prior to the effective
date that remain unvested. SFAS 123R also amends SFAS No. 95, "Statement of Cash
Flows", requiring that
F-9
any excess tax benefits received upon the exercise of options be reflected as
financing cash inflows rather than operating cash inflows. Adoption of SFAS 123R
will not change our accounting for non-employee stock options. Based on current
employee stock options outstanding, management estimates that adoption of SFAS
123R will result in compensation expense related to employee stock options of
approximately $18,000 in 2006.
Segment Information
The Company provides transportation capacity and related logistics
services through its integrated network of independent agents and third party
capacity providers. For the purpose of applying Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information", management has determined that it operates in a single
business segment.
Reclassifications
Certain prior year balances have been reclassified to conform with the
current year presentation. These reclassifications had no effect on previously
reported net income.
Note 2 - Debt
Loan Payable
In May 2003, the Company entered into a $1.5 million Line of Credit,
expiring in May 2004, with a commercial lending institution, secured by
substantially all assets of the Company. In 2004, this Line of Credit was
increased to $2.5 million, expiring in June 2006. The Line of Credit provides
for interest at the prime rate plus 1/2% and the maintenance of certain
financial covenants.
Note 3 - Related Party Transactions
In December 2000, the Company obtained financing totaling $575,000 from
certain related parties in the form of ten year 12% Subordinated Convertible
Debentures (Debentures). In January 2004, these Debentures were converted into
2,300,000 shares of common stock. Interest of $4,000 and $69,000 was charged to
operations in each of 2004 and 2003, respectively.
In August 2001, the Company entered into a $500,000 Line of Credit
Agreement with James T. Martin, a significant stockholder of the Company,
secured by the Company's accounts receivable. Interest on the outstanding
borrowings was 17% per annum, payable quarterly in arrears. This credit facility
was repaid in full in May 2003. Interest of $35,000 was charged to operations in
2003.
F-10
Note 4- Income Taxes
For the years ended December 31, 2005, 2004 and 2003, the provision for
income taxes consisted of the following:
2005 2004 2003
Current Deferred Current Deferred Current Deferred
----------- ----------- --------- --------- --------- ---------
Income tax expense before
application of operating
loss carryforwards $ 841.000 $ -- $ 393.000 $ -- $ 205.000 $ --
Income tax expense (benefit)
of operating loss carryforwards (718,000) 718,000 (336,000) 336,000 (175,000)
Cahange in valuation
allowance (2,304,000) (873,000) (784,000)
----------- ----------- --------- --------- --------- ---------
Income tax expense (benefit) $ 123,000 $(1,586,000) $ 57,000 $(537,000) $ 30,000 $(784,000)
----------- ----------- --------- --------- --------- ---------
The following table reconciles the Company's effective income tax rate on
income from operations to the Federal Statutory Rate for the years ended
December 31, 2005, 2004 and 2003:
2005 2004 2003
------- ------- -------
Federal Statutory Rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 3.4 5.7 3.6
Effect of:
Utilization of operating loss carryforward (34.0) (34.0) (34.0)
Change in valuation allowance (44.0) (54.4) (141.6)
------- ------- -------
(40.6)% (48.7)% (138.0)%
======= ======= =======
Deferred taxes are comprised of the following at December 31, 2005 and
2004:
December 31, December 31,
2005 2004
------------ ------------
Deferred tax asset:
Net operating loss carryforward $ 4,872,000 $ 5,590,000
----------- -----------
Gross deferred tax asset 4,872,000 5,590,000
Less: valuation allowance (1,965,000) (4,269,000)
----------- -----------
Deferred tax asset $ 2,907,000 $ 1,321,000
=========== ===========
The deferred tax asset represents expected future tax savings resulting
from the Company's net operating loss carryforward. As of December 31, 2005, the
Company has a net operating loss carryforward of approximately $14.3 million for
federal income tax purposes which expire through 2014. Utilization of this
benefit is primarily subject to the extent of future earning of the Company, and
may be limited by,
F-11
among other things, shareholder changes, including the possible issuance by the
Company of additional shares in one or more financing or acquisition
transactions. The Company has established a valuation allowance for the portion
of the possible tax savings not likely to be realized by the end of the
carryforward period.
Based upon available objective evidence, including the Company's
post-merger history of profitability, management believes it is more likely than
not that forecasted taxable income will be sufficient to utilize a portion of
the net operating loss carryforward before its expiration in 2014. Accordingly,
in 2005, 2004 and 2003 the valuation allowance was reduced by $2,304,000,
$873,000 and $784,000, respectively. However, there can be no assurance that the
Company will meet its expectations of future income.
Note 5 - Commitments and Contingencies
Leases
The Company is obligated under non-cancelable operating leases for
premises expiring at various dates through April 2010. Future minimum lease
payments are $68,000, $73,000, $68,000, $70,000 and $24,000 for the years ended
December 31, 2006, 2007, 2008, 2009 and 2010, respectively. Rent expense for the
years ended December 31, 2005, 2004 and 2003 was $97,000, $76,000 and $53,000,
respectively.
Other Agreements
The Company has employment agreements with Messrs. Wachtel and Wunderlich,
as chief executive officer and chief financial officer, respectively, who are
also stockholders. The agreements expire in December 31, 2008 and provide for
minimum annual compensation of $250,000 and $175,000, and bonuses equal to 10%
of the Company's consolidated pre-tax profit (as defined) up to $1,250,000 and,
5% of our consolidated pre-tax profit in excess of $1,250,000, respectively.
Bonus payments to each of Messrs. Wachtel and Wunderlich were $125,000 for the
years ended December 31, 2005 and 2004, and $51,531 and $55,281 for the year
ended December 31, 2003, respectively.
Litigation
The Company is involved in certain litigation arising in the ordinary
course of its business. In the opinion of management, these matters will not
have a material adverse effect on the Company's financial position or liquidity.
Note 6 - Stockholders' Equity
Stock Option Plans
The Company has eight stock option plans; its 1985, 1986, 1989, 1992,
1997, 1999, 2003 and 2005 Plan (collectively, the Plans). Pursuant to the Plans,
a total of 10,342,500 shares of Common Stock were made available for grant of
stock options. Under the Plans, options have been granted to key personnel for
terms of up to ten years at not less than fair value of the shares at the dates
of grant and are exercisable in whole or in part at stated times commencing one
year after the date of grant. No further grants will be made under the 1985,
1986, 1989 or 1992 Plans.
Options have been granted under the Plans to independent sales agents
under the same general terms and conditions as options granted to employees.
Such option grants are primarily based upon profits
F-12
generated and act as long-term incentives to remain with the Company. Out of the
total options outstanding of 7,081,000 as of December 31, 2005, 5,011,000 have
been granted to independent sales agents.
Option activity for the years ended December 31, 2005, 2004 and 2003 was
as follows:
Granted Exercisable
----------------------------------- ----------------------------------
Weighted Weighted
Number of Average Number of Average
Shares Exercise Price Shares Exercise Price
-------------- ----------------- --------------- ----------------
Outstanding at January 1, 2003 2,583,000 .11 1,005,000 $.09
--------------- ----------------
Forfeited (222,000) .10
Exercised (35,000) .10
Granted 1,769,000 .20
-------------- -----------------
Outstanding at December 31, 2003 4,095,000 $.15 1,802,000 $.10
--------------- ----------------
Forfeited (736,000) .16
Exercised (202,000) .07
Granted 2,437,000 .44
Outstanding December 31, 2004 5,594,000 $.28 2,449,000 $.15
--------------- ----------------
Forfeited (611,000) .33
Exercised (406,000) .13
Granted 2,504,000 .54
-------------- -----------------
Outstanding December 31, 2005 7,081,000 $.37 3,245,000 $.25
-------------- ----------------- --------------- ----------------
As of December 31, 2005, there were 1,228,000 shares of common stock available
for issuance pursuant to future stock option grants. Additional information
regarding options outstanding as of December 31, 2005 is as follows:
Options outstanding Options exercisable
------------------- -------------------
Weighted
average
remaining Weighted Weighted
Range of contractual life average average
exercise prices Shares (years) exercise price Shares exercise price
--------------- ------ ------- -------------- ------ --------------
$.05 - .10 925,000 3.45 $.093 925,000 $.093
.11 - .20 1,227,000 7.08 .158 991,000 .151
.24 - .37 1,240,000 4.49 .319 705,000 .311
.41 - .65 3,689,000 4.96 .534 624,000 .561
----------------------------------------------------------------------------------------------------------------------
$.05 - .65 7,081,000 5.05 $.373 3,245,000 $.248
----------------------------------------------------------------------------------------------------------------------
Weighted average fair value of options granted:
2005 $ .54
2004 $ .42
2003 $ .20
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option pricing
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model with the following weighted average assumptions by grant year. Adjustments
for forfeitures are made as they occur.
2005 2004 2003
-------------------------------------
Risk-free interest rate 3.00% 3.00% 3.00%
Expected dividend yield 0% 0% 0%
Expected volatility factor 22.29% 25.24% 41.06%
Expected option term, in years 6.00 5.48 10
Note 7 - Fair Value of Financial Instruments
The following disclosures of fair value were determined by management
using available market information and appropriate valuation methodologies.
Considerable judgment is necessary to interpret market data and develop
estimated fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize on disposition
of the financial instruments. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
Cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities and loan payable are carried at amounts which reasonably
approximate fair value.
Note 8 - Quarterly Results of Operations (Unaudited)
Year Ended December 31, 2005
Quarter Ended
--------------------------------------------------------
Mar 31 June 30 Sep 30 Dec 31
----------- ----------- ----------- -----------
Gross revenues $14,915,000 $15,477,000 $17,336,000 $20,312,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income $ 393,000 $ 441,000 $ 580,000 $ 2,194,000
=========== =========== =========== ===========
Basic net income per share $ .013 $ .014 $ .018 $ .069
----------- ----------- ----------- -----------
Diluted net income per share $ .011 $ .013 $ .017 $ .065
=========== =========== =========== ===========
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Year Ended December 31, 2004
Quarter Ended
-------------------------------------------------------------
Mar 31 June 30 Sep 30 Dec 31
---------- ----------- ----------- -----------
Gross revenues $8,159,000 $10,960,000 $12,938,000 $14,435,000
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Net income $ 176,000 $ 271,000 $ 278,000 $ 741,000
========== =========== =========== ===========
Basic net income per share $ .006 $ .009 $ .009 $ .023
---------- ----------- ----------- -----------
Diluted net income per share $ .005 $ .008 $ .008 $ .022
========== =========== =========== ===========
Year Ended December 31, 2003
Quarter Ended
-------------------------------------------------------------
Mar 31 June 30 Sep 30 Dec 31
---------- ----------- ----------- -----------
Gross revenues $5,141,000 $ 6,102,000 $ 7,552,000 $ 8,376,000
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Net income $ 79,000 $ 108,000 $ 172,000 $ 941,000
========== =========== =========== ===========
Basic and diluted net income per
share $ .003 $ .004 $ .006 $ .032
========== =========== =========== ===========
Note 9 - Supplemental Disclosure of Cash Flow Information and Non-cash Financing
Activities
Cash paid for interest in 2005, 2004 and 2003 was $56,000, $50,000 and
$109,000, respectively.
The Company paid no federal income taxes in 2005, 2004 and 2003.
In January 2004, $575,000 of outstanding 12% convertible debentures was
converted into 2,300,000 shares of common stock.
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