SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission
May 31, 1995 File No. 0-14786
AUTOINFO, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-2867481
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1600 Route 208, Fair Lawn, New Jersey 07410
(Address of Principal Executive Officer) (Zip Code)
(Registrant's telephone number,
including area code) (201) 703-0500
Securities registered under Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO _____
As of August 17, 1995, the Registrant had outstanding 7,757,752 shares of
Common Stock.
The aggregate market value of the Registrant's Common Stock held by
nonaffiliates as of August 17, 1995 was approximately $22,333,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III Portions of the Registrant's annual proxy statement are incorporated by
reference.
Part IV Certain exhibits listed in response to Item 14(a)(3) have been included
in prior filings made by the Registrant under the Securities Act of
1933 and the Securities Exchange Act of 1934.
1
PART I
Item 1: BUSINESS
General
During fiscal year 1995 and subsequent to its fiscal year end, AutoInfo,
Inc. (the "Company") sold substantially all of its operating assets. As a
result, the Company's sole remaining operating business provides long distance
telephone communications services. The long distance telephone communication
service is marketed to over 2,000 customers through an independent commissioned
sales force currently comprised of approximately 30 members. In addition, the
Company is actively seeking out and evaluating acquisition candidates and
expansion opportunities.
On April 1, 1995, the Company sold its Orion Network (a communication and
trading network for the automobile parts salvage industry based principally on
satellite telecommunications technology), Compass Network (a communication and
trading network for the automobile parts salvage industry based principally on
voice communications technology), Checkmate Computer Systems (a computer
inventory management system for the automobile parts salvage industry), and
Insurance Parts Locator (an information database service on the availability of
recycled automotive parts provided to automobile insurers) businesses to ADP
Claims Solutions Group, Inc. ("ADP") for $30,350,000 in cash.
The Company has a preferred stock investment in ComputerLogic, Inc., a
provider of management information systems to the automotive collision and parts
industry, convertible at the Company's option into 38% of its outstanding
capital stock as well as an option to acquire the balance of the outstanding
capital stock based upon a formularized valuation. As a result of the sale of
the Company's businesses providing computerization and communications services
to the automotive industry, and due to the lack of synergistic strategic
opportunities, the Company has no intention of exercising its option and has
written-off this investment totalling $1,804,000, including unpaid fees and
preferred stock dividends of $155,000.
Subsequent to the fiscal year end, on July 20, 1995, the Company sold its
Insurance Inspection Services business, a provider of photo inspection services
to the automotive casualty insurance industry, for $3,750,000 in cash.
Competition
The Company competes with numerous companies that provide long distance
telephone communication services on the basis of price and service.
Patents, Trademarks and Copyrights
"AUTOINFO" is a registered trademark and service mark of the Company.
Employees
The Company currently has 7 full-time employees. None of the Company's
employees are represented by a labor union. The Company considers its
relationship with its employees to be good.
2
Directors and Executive Officers
The following table provides certain information with respect to the
directors and executive officers of the Company:
Name Age Position
---- --- --------
Andrew Gaspar 47 Director, Chairman of the Board
Scott Zecher 36 Director, President, Chief Operating Officer
William Wunderlich 47 Chief Financial Officer, Secretary, Treasurer
Jason Bacher 57 Director
Robert Fagenson 46 Director
Howard Nusbaum 47 Director
Jerome Stengel 58 Director
Directors of the Company are elected annually by the stockholders of the
Company to serve one year terms and until their successors have been elected and
qualified. All officers serve at the discretion of the Board of Directors. No
director or executive officer has any family relationship with any other
director or executive officer.
ANDREW GASPAR, age 47, was named Chairman of the Board on March 29,
1995. Mr. Gaspar has, since March 1991, been President of the general partner of
R.S. Lauder, Gaspar & Co. and Vice-Chairman of The Central European Development
Corporation, venture capital firms conducting business in the United States and
Eastern Europe. Prior thereto, Mr. Gaspar was a Managing Director of E.M.
Warburg Pincus & Co., a venture banking and investment advisory firm, a position
he held from 1982 through March 1991. He holds a B.S. degree from Columbia
University, an M.S. degree from Northeastern University and an M.B.A. degree
from Harvard Business School. He has been a director of the Company since 1978.
SCOTT ZECHER, age 36, joined the Company in January 1984 and was named its
President and Chief Operating Officer in January 1993. Prior to becoming
President, he held the position of Executive Vice President and Chief Financial
Officer. He became a director of the Company in 1989. From 1980 to 1984, he was
with the accounting firm of KPMG Peat Marwick. Mr. Zecher is a Certified Public
Accountant with a B.A. degree in Accounting and Economics from the City
University of New York at Queens College.
WILLIAM WUNDERLICH, age 47, joined the Company in October 1992 as its Vice
President-Finance and became Chief Financial Officer in January 1993. From 1990
to 1992, he served as Vice President of Goldstein Affiliates, Inc., a public
insurance 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.
3
JASON BACHER, age 57, has been a Director of the Company since its
inception in 1976. From its inception in 1976 through March 29, 1995, Mr. Bacher
was Chairman of the Board and the Chief Executive Officer of the Company. Mr.
Bacher has been associated with the automobile salvage industry since 1961 as a
principal of Bacher Tire Company, Inc., an automobile recycler located in the
New York metropolitan area. In connection with the sale by the Company of a
substantial portion of its operating assets to ADP on April 1, 1995, Mr. Bacher
became an employee of ADP.
ROBERT FAGENSON, age 46, has been an officer and director of Fagenson &
Co., Inc., a registered broker-dealer, for more than five years. Mr. Fagenson is
a member of the Board of Directors of the New York Stock Exchange. Since April
1983, Mr. Fagenson has also served as the Secretary and a director of Starr
Securities, Inc., a registered broker-dealer, which was the underwriter of the
Company's initial public offering in May 1986. Mr. Fagenson has been a director
of the Company since June 1986. Mr. Fagenson is also a director of Healthy
Planets Products, Inc., Microtel Franchise and Development Corp., and Rentway,
Inc. Mr. Fagenson has a B.S. degree in Business Administration from Syracuse
University.
HOWARD NUSBAUM, age 47, has been a director of the Company from its
inception in 1976. Mr. Nusbaum, who earned a B.A. degree from Brooklyn College,
has been a consultant to the automobile recycling industry since 1976.
JEROME STENGEL, age 58, has been a Vice President, Treasurer and Chief
Financial Officer of Genovese Drug Stores, Inc., an American Stock Exchange
company, for more than five years. Mr. Stengel is a Certified Public Accountant
with a B.B.A. degree from the City University of New York. He has been a
director of the Company since 1987.
Item 2: PROPERTIES
The Company maintains an operational facility of approximately 800 square
feet at 6818 Grover St., Omaha, Nebraska. The lease for such facility runs
through June 1996 at an annual rental of $10,000. AutoInfo Insurance Inspection
Services, which was sold on July 20, 1995, rents approximately 5,100 square feet
of space at 1600 Route 208, Fair Lawn, New Jersey. The lease runs through May
1997 at an annual rental of approximately $76,000. The Company intends to sublet
this space. The Company rents approximately 2,900 square feet of space at 1600
Route 208, Fair Lawn, New Jersey where it maintains its executive offices. The
lease runs through November 1997 at an annual rental of approximately $44,000,
subject to certain rent escalation provisions. The Company believes that its
present facilities are suitable and adequate for its reasonably foreseeable
growth.
Item 3: LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than ordinary
routine litigation incidental to its business.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the stockholders of the Company was held on March 30,
1995 in New York, New York, pursuant to notice. At such meeting, the
stockholders approved the sale of certain of the assets of the Company,
comprised of all of the operating assets relating to its Orion Network, Compass
Network, Checkmate Computer Systems and Insurance Parts Locator businesses, to
ADP Claims Solutions Group, Inc., a wholly-owned subsidiary of Automatic Data
Processing, Inc., for $30,350,000 in cash.
4
PART II
Item 5: PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded in the over-the-counter market and is
quoted through the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") on the National Market System under the symbol AUTO.
The following table sets forth, for the periods indicated, the high and low
closing bid quotations per share for the Company's Common Stock as reported by
NASDAQ.
High Low
---- ---
Fiscal year ended May 31, 1993
First quarter ..................................... 4 3/8 3 1/4
Second quarter .................................... 3 7/8 3
Third quarter ..................................... 5 3 3/4
Fourth quarter .................................... 4 1/8 3 1/2
Fiscal year ended May 31, 1994
First quarter ..................................... 4 3 11/16
Second quarter .................................... 4 5/8 3 1/4
Third quarter ..................................... 4 5/8 3 7/8
Fourth quarter .................................... 4 1/8 3 5/8
Fiscal year ended May 31, 1995
First quarter ..................................... 4 2 3/4
Second quarter .................................... 3 1/8 2 1/2
Third quarter ..................................... 3 1/2 3 3/16
Fourth quarter .................................... 3 59/64 3 1/4
As of August 8, 1995, the closing bid price per share for the Company's
Common Stock, as reported by NASDAQ was $3.125. As of August 8, 1995, the
Company had approximately 400 stockholders of record.
Dividend Policy
The Company has never declared or paid a cash dividend on its Common
Stock. It has been the policy of the Company's Board of Directors to retain all
available funds to finance the development and growth of the Company's business.
The payment of cash dividends in the future will be dependent upon the earnings
and financial requirements of the Company and other factors deemed relevant by
the Board of Directors.
5
Item 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of selected consolidated financial data
relating to the Company. This summary has been restated to present the
businesses sold as discontinued operations.
Year Ended May 31,
------------------------------------------------------
(In Thousands, Except Per Share Data)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Statement of Operations Data:
Revenues $ 4,798 $ 4,196 $ 4,414 $ 1,825 $ 192
Loss from continuing
operations before
income tax benefit (2,809) (317) (494) (590) (431)
Benefit from income
taxes (635) (98) (176) (173) (36)
Loss from continuing
operations (2,174) (219) (318) (417) (395)
Income from discontinued
operations 1,615 2,239 2,054 1,638 2,798
Gain on sale of discontinued
operations 8,885 - - - -
Net income 8,326 2,021 1,736 1,221 2,403
Net income (loss) per share:
From continuing operations (.29) (.03) (.04) (.05) (.06)
From discontinued operations .22 .30 .28 .22 .39
From gain on sale of
discontinued operations 1.19 - - - -
----- ------ ------ ------ ------
Net income per share 1.12 .27 .24 .17 .33
----- ------ ------ ------ ------
Balance Sheet Data:
Total assets $42,357 $26,387 $19,975 $18,611 $17,430
Working capital 31,304 20,531 4,195 3,199 6,868
Long-term debt 4,000 4,161 0 215 724
Retained earnings
(accumulated deficit) 13,199 4,873 2,852 1,116 (105)
Stockholders' equity 30,121 20,857 18,625 16,872 15,435
6
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Company's working capital was $31.3 million and liquid assets amounted
to $38.8 million as of May 31, 1995. The Company has sufficient liquid assets to
meet its short and long term capital requirements.
The total amount of debt outstanding as of May 31, 1995 was $4,161,000, of
which $161,000 is due in less than one year. This debt primarily relates to the
$4 million of 7.55% subordinated noted issued by the Company in January 1994.
The Company has adequate resources to meet these obligations.
Subsequent to the close of the year ended May 31, 1995, the Company
received cash of $3,750,000 in connection with the sale of certain operating
assets of its insurance inspection services division business. Any gain or loss
on the sale as well as the resulting income tax provision or benefit is not
expected to be material. (See Note 12 to the Consolidated Financial Statements.)
Inflation and changing prices had no material impact on revenues or the
results of operations for the year ended May 31, 1995. There are no trends or
commitments which may have an impact on the Company's liquidity.
Accounts receivable decreased $238,860 as of May 31, 1995 compared with
May 31, 1994. The decrease is attributable to the write-off of dividends and
fees receivable relating to the Company's investment in Preferred Stock (See
Note 6).
Income taxes payable increased by $7,059,396 primarily related to taxes
due on the gain on sale of assets of discontinued operations.
Results of Operations
On April 1, 1995, the Company consummated the sale of certain assets, net
of certain liabilities, constituting the operating assets of the Orion Network,
Compass Network, Checkmate Computer Systems, and Insurance Parts Locator
businesses. The Results of Operations of these businesses have been classified
as discontinued operations. The Company's continuing operations consist of its
insurance inspection services and long distance services businesses. Except as
otherwise noted, the following discussion of the results of operations is with
respect to the Company's continuing operations.
YEARS ENDED MAY 31, 1995 AND 1994
Revenues
For the years ended May 31, 1995 and 1994, the Company's revenues were
derived from the sale of insurance inspection services (79% and 58%,
respectively) and the sale of long distance telephone services (21% and 42%,
respectively). Total revenues for the year ended May 31, 1995 were $4,797,531,
an increase of 14% or $601,831 over total revenues of $4,195,700 for the prior
year. Revenues from the Company's insurance inspection services business
increased by $1,373,000 due to the acquisitions consummated in the fourth
quarter of the prior fiscal year. This increase was offset by a decline in
revenue of $723,000 in the Company's telephone reseller division due primarily
to reduced network usage levels and volume rebates from AT&T ($200,000) received
in the prior fiscal year in connection with the achievement of certain network
usage levels.
7
Operating Expenses
System and support costs for the year ended May 31, 1995 increased by 68%
to $1,992,881 from $1,187,499 for the prior year. The increase was primarily
related to the increase in revenue of the Company's insurance inspection
services business.
Salaries and employee benefit expenses for the year ended May 31, 1995
increased by 10% to $2,057,496 from $1,874,052 for the prior year. The increase
was primarily related to the increase in revenue of the Company's insurance
inspection services business.
Selling and administrative expenses for the year ended May 31, 1995
decreased by 8% to $1,657,672 from $1,530,514 for the prior year. The decrease
was related to the reduction of selling expenses directly related to the decline
in revenues in the Company's Telephone Reseller Division.
Depreciation and amortization expense for the year ended May 31, 1995
increased by 66% to $413,926 from $249,759 for the prior year. The increase was
primarily due to depreciation and amortization of acquisition costs associated
with the Company's insurance inspection services business.
Other (Income) Expenses
Interest income was $568,449, an increase of $409,155 over $159,294 for
the prior year period. This was directly attributable to the investment of the
proceeds of the $4,000,000 subordinated notes issued by the Company in January
1994 and the proceeds from the sale of assets of $30,350,000 in April 1995.
Dividend income was $0 as compared with $115,258 for the prior year. This
decrease is directly related to the write-off of the Company's Preferred Stock
investment.
Interest expense was $315,908, an increase of $184,821 over $131,087 for
the prior year. This was directly related to the $4,000,000 subordinated notes
issued by the Company in January 1994 and notes payable issued in connection
with an acquisition in January 1994.
Preferred stock investment write-off was $1,804,256. As a result of the
sale of the Company's businesses providing computerization and communication
services to the automotive industry, the lack of synergistic business
opportunity and the inability to remit management fees and preferred stock
dividends as they became due, the Company has written off its preferred stock
investment in ComputerLogic, Inc. (See Note 6 to the Consolidated Financial
Statements.)
Minority interest in net loss of partnership was $67,133 compared with
$185,923 for the prior year. The Company acquired the minority interest in
September 1994.
Loss from Continuing Operations and Income Tax Benefit
Loss from continuing operations before taxes for the year ended May 31,
1995 was $2,809,026 compared to $316,736 in the prior year, an increase of
$2,492,290. This increase is attributable to the write-off of the Company's
Preferred Stock investment ($1,804,000), the reduction in the minority interest
in the net loss associated with the Company's insurance service business
($119,000), the increase in depreciation and amortization of acquisition costs
($114,000), and the impact of the decline in revenue in the Company's Telephone
Reseller Division.
The income tax benefit for the year ended May 31, 1995 was $634,623, or
22.6% of the loss before income taxes compared to $98,171, or 31.0% in the prior
year. The decrease in percentage was the result of the write-off of the
Company's Preferred Stock investment with no current tax benefit. The net loss
from continuing operations was $2,174,403 for the year ended May 31, 1995 an
increase of $1,955,838 as compared to $218,565 in the prior year.
8
Income From Discontinued Operations
Income from discontinued operations for the year ended May 31, 1995 was
$1,614,936 as compared to $2,239,313 in the prior year, a decrease of $624,377.
The income for fiscal year 1995 reflects the ten month period up to the date of
sale. In addition, the decrease was caused by lower margins on the sale of
computer systems ($200,000) and the impact of reduced revenues from the sale of
automotive supplies ($60,000).
Gain on Sale of Discontinued Operations
The gain on the sale of discontinued operations for the year ended May 31,
1995 relates solely to the sale of the operating assets of the Company's Orion
Network, Compass Network, Checkmate Computer Systems and Insurance Parts Locator
businesses on April 1, 1995 to ADP Claims Solutions Group, Inc. The gross
proceeds of $30,350,000 in cash resulted in a gain of $8,885,688 after
applicable taxes of $7,658,641.
Years Ended May 31, 1994 and 1993
For the years ended May 31, 1994 and 1993, the Company's revenues were
derived from the sale of insurance inspection services (58% in both years) and
the sale of long distance telephone services (42% in both years). Total revenues
for the year ended May 31, 1994 were $4,195,700, a decrease of 5%, or $218,181
over total revenues of $4,413,881 for the prior year.
Operating Expenses
System and support costs for the year ended May 31, 1994 decreased by 20%
to $1,187,499 from $1,477,639 for the prior year. The decrease was primarily
related to the elimination of site costs for a portion of photo inspection
services.
Salaries and employee benefit expenses for the year ended May 31, 1994
increased by 13% to $1,874,052 from $1,657,201 for the prior year. The increase
was principally attributable to the increase in revenue of the Company's
insurance inspection services business.
Selling and administrative expenses for the year ended May 31, 1994
decreased by 20% to $1,530,514 from $1,914,869 for the prior year. These
decreases were directly attributable to reduced selling costs associated with
the reduced revenues in the Company's telephone reseller division.
Depreciation and amortization expense for the year ended May 31, 1994
increased by 38% to $249,759 from $181,423 for the prior year period. This was
due to depreciation and amortization of acquisition costs associated with the
insurance inspection services business.
Other (Income) Expenses
Interest expense was $131,087, an increase of $110,669 over $20,418 for
the prior year period. This was directly related to the $4,000,000 subordinated
notes issued by the Company in January 1994 and notes payable issued in
connection with an acquisition in January 1994.
Interest income was $159,294, an increase of $80,657 over $78,637 for the
prior year period. This was directly attributable to the investment of the
proceeds of the $4,000,000 subordinated notes issued by the Company in January
1994.
Minority interest in net loss of partnership was $185,923, an increase of
$36,110 over $149,813 for the prior year period. This increase was directly
related to the increase in the operations in the Company's insurance inspection
services business.
9
Loss from Continuing Operations and Income Tax Benefit
Loss from continuing operations before taxes for the year ended May 31,
1994 was $316,736 compared to $493,961 in the prior year, a decrease of
$177,225. This decrease is attributable to increased profit in the Company's
telephone reseller division.
The income tax benefit for the year ended May 31, 1994 was $98,171, or
31.0% of the loss before income taxes compared to $176,200, or 35.7% in the
prior year. The decrease in percentage was the result of credits relating to
amendments to and refunds from the prior year.
Income from Discontinued Operations
Income from discontinued operations for the year ended May 31, 1994 was
$2,239,313 as compared to $2,053,959 in the prior year, an increase of $185,354.
The increase was caused by an increase in revenues in the satellite and voice
communications networks of $760,000.
Trends and Uncertainties
During the year ended May 31, 1995, increased competition had an adverse
impact on the sale of computer systems and the results of operations.
Item 8: Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of this
Report beginning on page F-1.
Item 9: Disagreements on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10: Directors and Executive Officers of the Registrant
Item 11: Executive Compensation
Item 12: Security Ownership of Certain Beneficial Owners and Management
Item 13: Certain Relationships and Related Transactions
Pursuant to General Instruction G, the information required by Part III
shall be incorporated by reference from the Registrant's definitive proxy
statement for the fiscal year ended May 31, 1995 which is to be filed with the
Commission.
10
PART IV
Item 14: Exhibits, Financial Statements and Reports on Form 8-K
Financial Statements
The financial statements listed in the accompanying index to financial
statements on Page F-1 are filed as part of this report.
Exhibits
The Exhibits listed below are filed as part of this Report.
No. 2A Agreement and Plan of Merger between AutoInfo, Inc. (New York) and
AutoInfo, Inc. (Delaware), January 20, 1987. (2)
No. 3A Certificate of Incorporation of the Company. (3)
No. 3B Amended and restated By-Laws of the Company. (11)
No. 4A Specimen Stock Certificate. (4)
No. 4B Form of Warrant Agreement and form of Warrant issued to Starr
Securities, Inc., Martin Vegh and Robert Fagenson, May 20, 1986. (1)
No. 4C Rights Agreement, dated as of March 30, 1995, between AutoInfo, Inc.
and American Stock Transfer & Trust Company, as Rights Agent.(5)
No. 9A Settlement Agreement, dated June 22, 1995, between AutoInfo, Inc.
and Ryback Management Corporation, et al.*
No. 10A 1985 Stock Option Plan. (1)
No. 10B 1986 Stock Option Plan. (3)
No. 10C 1989 Stock Option Plan. (7)
No. 10D 1992 Stock Option Plan. (10)
No. 10E Employment Agreement between AutoInfo, Inc. and Scott Zecher dated
as of January 1, 1994, as amended by Agreement dated April 10,
1995.*
No. 10F Supplemental Employment Agreement between AutoInfo, Inc. and Scott
Zecher dated as of April 10, 1995.*
No. 10G Employment Agreement between AutoInfo, Inc. and William Wunderlich
dated as of April 10, 1995.*
No. 10H Supplemental Employment Agreement between AutoInfo, Inc. and William
Wunderlich dated as of April 10, 1995.*
No. 10I Form of AutoInfo, Inc. Employee Protection Trust Agreement dated
August 17, 1995.*
11
No. 10J Form of Restricted Stock Grant Agreement between AutoInfo, Inc. and
certain executive officers, directors and consultants. (4)
No. 10K Series A Convertible Preferred Stock Purchase Agreement dated as of
December 19, 1991 between ComputerLogic, Inc., Richard A. Palmer and
AutoInfo, Inc. (8)
No. 10L Series B Preferred Stock Purchase Option Agreement dated as of
December 19, 1991 between ComputerLogic, Inc., Richard A. Palmer and
AutoInfo, Inc. (8)
No. 10M Outstanding Stock Purchase Option Agreement dated as of December 19,
1991 between ComputerLogic, Inc., Richard Palmer and AutoInfo, Inc.
(8)
No. 10N Note Agreement dated January 10, 1994 between AutoInfo, Inc. and
certain investors with respect to issuance of $4 million of 7.55%
Subordinated Notes due January 9, 2000 and 533,333 Common Stock
Purchase Warrants.(6)
No. 10O Asset Purchase Agreement dated January 31, 1995 between ADP Claims
Solutions Group, Inc. and AutoInfo, Inc.(9)
No. 10P Promissory Note and Security and Pledge Agreement dated April 28,
1995 between AutoInfo, Inc. and Scott Zecher.*
No. 11A Calculation of earnings per share.*
No. 23A Consent of Arthur Andersen LLP, independent public accountants.*
--------------------------------
*Filed as an Exhibit hereto.
(1) This Exhibit was filed as an Exhibit to the Company's Registration
Statement on Form S-18 (File No. 33-3526-NY) and is incorporated herein
by reference.
(2) This Exhibit was filed as an Exhibit to the Company's Current Report on
Form 8-K dated January 6, 1987 and is incorporated herein by reference.
(3) These Exhibits were filed as Exhibits to the Company's definitive proxy
statement dated October 20, 1986 and are incorporated herein by
reference.
(4) These Exhibits were filed as Exhibits to the Company's Registration
Statement on Form S-1 (File No. 33-15465) and are incorporated herein by
reference.
(5) This Exhibit was filed as an Exhibit to the Company's Registration
Statement on Form 8-A filed April 13, 1995, and is incorporated herein by
reference.
(6) This Exhibit was filed as an Exhibit to the Company's Annual Report on
Form 10-K for the year ended May 31, 1994 and is incorporated herein by
reference.
(7) This Exhibit was filed as an Exhibit to the Company's definitive proxy
statement dated September 25, 1989 and is incorporated herein by
reference.
(8) These Exhibits were filed as Exhibits to the Company's Current Report on
Form 8-K dated December 19, 1991 and are incorporated herein by
reference.
(9) This Exhibit was filed as an Exhibit to the Company's definitive proxy
statement dated March 1, 1995 and is incorporated herein by reference.
(10) This Exhibit was filed as an Exhibit to the Company's definitive proxy
statement dated October 2, 1992 and is incorporated herein by reference.
(11) This Exhibit was filed as an Exhibit to the Company's Current Report on
Form 8-K dated March 30, 1995 and is incorporated herein by reference.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d), the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
August 17, 1994 on its behalf by the undersigned, thereunto duly authorized.
AUTOINFO, INC.
By:_________________________________
Scott Zecher, President and
Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated.
________________________ Director and Chairman August , 1995
Andrew Gaspar
________________________ Director, President and August , 1995
Scott Zecher Chief Operating Officer
________________________ Chief Financial Officer, August , 1995
William Wunderlich Secretary and Treasurer
________________________ Director August , 1995
Jason Bacher
________________________ Director August , 1995
Robert Fagenson
________________________ Director August , 1995
Howard Nusbaum
________________________ Director August , 1995
Jerome Stengel
13
AUTOINFO, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants......................... F-2
Consolidated Balance Sheets - as of May 31, 1995 and 1994........ F-3
Consolidated Statements of Operations for the Years
Ended May 31, 1995, 1994 and 1993................................ F-4
Consolidated Statements of Stockholders' Equity for
the Years Ended May 31, 1995, 1994 and 1993...................... F-5
Consolidated Statements of Cash Flows for the Years
Ended May 31, 1995, 1994 and 1994................................ 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
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AutoInfo, Inc.:
We have audited the accompanying consolidated balance sheets of AutoInfo, Inc.
(a Delaware corporation) and subsidiaries as of May 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended May 31, 1995. 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 generally accepted auditing
standards. 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 May 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended May 31, 1995, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
July 11, 1995
F-2
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MAY 31, 1995 AND 1994
ASSETS 1995 1994
---- ----
Current assets:
Cash $ 521,868 $ 445,484
Short-term investments 38,314,489 7,063,691
Accounts receivable, net of allowance for
doubtful accounts (May 31, 1995 - $63,772;
May 31, 1994 - $113,504) 583,975 822,835
Net book value of assets of discontinued
operations (Note 3) - 13,453,483
Other current assets 120,074 114,502
----------- -----------
Total current assets 39,540,406 21,899,995
Property, equipment and furniture (at cost), net
of accumulated depreciation (May 31, 1995 -
$1,263,765; May 31, 1994 - $1,006,152) 692,784 595,290
Goodwill and other intangibles,
net of accumulated amortization (May 31, 1995 -
$286,490; May 31, 1994 - $130,179) 1,766,503 1,936,062
Investment, at cost - 1,637,199
Other assets 357,406 318,878
----------- -----------
$42,357,099 $26,387,424
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 160,869 $ 623,096
Accounts payable 400,544 291,312
Income taxes payable 7,131,543 72,147
Accrued liabilities 543,357 382,902
----------- -----------
Total current liabilities 8,236,313 1,369,457
----------- -----------
Long-term debt 4,000,000 4,160,869
----------- -----------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common Stock - authorized 20,000,000 shares $.01
par value; issued and outstanding - 7,756,252
at May 31, 1995 and 7,253,286 at May 31, 1994 77,563 72,533
Additional paid-in capital 17,725,267 16,344,194
Officer note receivable (Note 10) (466,797) -
Deferred compensation under stock bonus plan (414,686) (432,847)
Retained earnings 13,199,439 4,873,218
----------- -----------
Total stockholders' equity 30,120,786 20,857,098
----------- -----------
$42,357,099 $26,387,424
=========== ===========
See Accompanying Notes To Consolidated Financial Statements
F-3
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MAY 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
REVENUES $4,797,531 $4,195,700 $4,413,881
---------- ---------- ----------
Operating expenses:
System and support costs 1,992,881 1,187,499 1,477,639
Salaries and employee benefits 2,057,496 1,874,052 1,657,201
Selling, general and administrative 1,657,672 1,530,514 1,914,869
Depreciation and amortization 413,926 249,759 181,423
---------- ---------- ----------
Total operating expenses 6,121,975 4,841,824 5,231,132
---------- ---------- ----------
Loss from operations (1,324,444) (646,124) (817,251)
---------- ---------- ----------
Other (income) expenses:
Interest income (568,449) (159,294) (78,637)
Dividend income - (115,258) (115,258)
Interest expense 315,908 131,087 20,418
Preferred stock investment write-off 1,804,256 - -
Minority interest in net loss of partnership (67,133) (185,923) (149,813)
---------- ---------- ----------
Total other (income) expenses 1,484,582 (329,388) (323,290)
---------- ---------- ----------
Loss from continuing operations
before income tax benefit (2,809,026) (316,736) (493,961)
Income tax benefit (634,623) (98,171) (176,200)
---------- ---------- ----------
Loss from continuing operations (2,174,403) (218,565) (317,761)
Income from discontinued operations,
net of income taxes of $804,878,
$1,005,814 and $1,138,931, respectively
(Note 3) 1,614,936 2,239,313 2,053,959
Gain on sale of discontinued operations, net
of income taxes of $7,658,641 (Note 3) 8,885,688 - -
---------- ---------- ----------
Net income $8,326,221 $2,020,748 $1,736,198
========== ========== ==========
Per share data:
Loss from continuing operations ($.29) ($.03) ($.04)
Income from discontinued operations .22 .30 .28
Gain on sale of discontinued operations 1.19 - -
---------- ---------- ----------
Net income per share $1.12 $.27 $.24
========== ========== ==========
Weighted average number of common and
common equivalent shares 7,410,548 7,416,721 7,342,044
--------- --------- ---------
See Accompanying Notes To Consolidated Financial Statements
F-4
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1995, 1994 AND 1993
Shares of Deferred
Common Additional Officer Compensation
Stock Common Paid-In Note Under Stock Retained
Outstanding Stock Capital Receivable Bonus Plan Earnings
----------- ----- ------- ---------- ---------- --------
Balance, June 1, 1992 7,119,336 $71,193 $16,118,428 $ - $(434,201) $1,116,272
Amortization of
Deferred Compensation - - - - 17,083 -
Net Income - - - - - 1,736,198
--------- ------- ----------- --------- --------- -----------
Balance, May 31, 1993 7,119,336 71,193 16,118,428 - (417,118) 2,852,470
Common Stock Pursuant
to Stock Bonus Plan 15,000 150 32,662 - (32,812) -
Exercise of Stock
Option 118,950 1,190 193,104 - - -
Amortization of Deferred
Compensation - - - 17,083 -
Net Income - - - - - 2,020,748
--------- ------- ----------- --------- --------- -----------
Balance, May 31, 1994 7,253,286 72,533 16,344,194 - (432,847) 4,873,218
Exercise of Stock
Options 502,966 5,030 1,234,365 - - -
Amortization of Deferred
Compensation - - - - 18,161 -
Acceleration of Vesting
Rights of Employee
Stock Options - - 146,708 - - -
Loan to Officer for
the Exercise of Stock
Options (466,797)
Net Income - - - - - 8,326,221
--------- ------- ----------- --------- --------- -----------
Balance, May 31, 1995 7,756,252 $77,563 $17,725,267 $(466,797) $(414,686) $13,199,439
========= ======= =========== ========= ========= ===========
See Accompanying Notes To Consolidated Financial Statements
F-5
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 1995, 1994 AND 1994
1995 1994 1993
---- ---- ----
Cash Flows from Operating Activities:
Net income $ 8,326,221 $2,020,748 $ 1,736,198
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization expenses 413,926 249,759 181,423
Amortization of deferred compensation 18,161 17,083 17,083
Gain on sale of discontinued operations (16,544,329) - -
Preferred stock investment write-off 1,637,199 - -
Changes in assets and liabilities:
Accounts receivable, net 238,860 (253,901) (95,223)
Other current assets (5,572) 135,957 (4,454)
Other assets (38,528) (255,018) 17,911
Income taxes payable 7,059,396 5,468 (85,316)
Accounts payable and accrued liabilities 269,687 287,006 27,902
--------- --------- ----------
Net cash provided by continuing operations 1,375,021 2,207,102 1,795,524
--------- --------- ----------
Net cash provided by discontinued operations
and non-cash charges (205,480) (965,257) (403,060)
--------- --------- ----------
Cash Flows from Investing Activities:
Proceeds from the sale of discontinued
operations 30,350,000 - -
Officer note receivable (466,797) - -
Acquisitions - (948,639) -
Capital expenditures (341,861) (173,635) (81,595)
Purchases of short-term investments (31,250,798) (3,743,031) (810,012)
---------- --------- ----------
Net cash (used for) investing activities (1,709,456) (4,865,305) (891,607)
--------- --------- ----------
Cash Flows from Financing Activities:
Issuance of notes - 4,000,000 -
Reduction of borrowings (623,096) (277,406) (536,020)
Exercise of stock options 1,239,395 194,294 -
--------- --------- ----------
Net cash provided by (used for)
financing activities 616,299 3,916,888 (536,020)
--------- --------- ----------
Net increase (decrease) in cash 76,384 293,428 (35,163)
Cash at beginning of year 445,484 152,056 187,219
--------- --------- ----------
Cash at end of year $ 521,868 $ 445,484 $ 152,056
========= ========= ==========
--------------------------
Supplemental Disclosures of Non-cash Investing and Financing Activities: In
connection with acquisitions during the year ended May 31, 1994, the Company
entered into Notes payable of $844,759.
See Accompanying Notes To Consolidated Financial Statements
F-6
AUTOINFO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
Note 1 - Business and summary of significant accounting policies
Business
During fiscal year 1995 and subsequent to its fiscal year end, AutoInfo, Inc.
and subsidiaries (the "Company") sold substantially all of its operating assets.
As a result, the Company's sole remaining operating business provides long
distance telephone communications services. The Company is actively seeking out
and evaluating acquisition candidates and expansion opportunities.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. All significant intercompany
balances and transactions have been eliminated in consolidation.
Revenue Recognition
The Company recognizes revenue from insurance inspection services and long
distance telephone communications services as services are rendered.
Short-term Investments
Short-term investments include common stock and bond funds, money market
instruments and municipal bonds. Investments are carried at cost which
approximates market value. (See Note 4).
Property, Equipment and Furniture
Depreciation of equipment and furniture is provided on the straight-line method
over the estimated useful lives of the related assets which range from three to
five years.
Goodwill and Other Intangibles
The excess of cost over the fair value of net assets acquired is allocated to
goodwill and other intangibles and is being amortized using the straight-line
method over periods of up to twenty years. The Company evaluates the carrying
value of goodwill, and the remaining amortization periods based upon the
projected discounted cash flows of the operations of the acquired entities.
Based upon these evaluations to date, no impairment of goodwill exists at May
31, 1995.
Net Income Per Share
Net income per share of common stock is based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. The net income per share and the weighted average number of common and
common equivalent shares represent primary earnings per share data. Fully
diluted earnings per share is not presented since its effect is not significant.
F-7
AUTOINFO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
Income Taxes
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes" which
requires the use of the liability method of accounting for income taxes. Under
this method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted Statutory Tax Rates to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities. Deferred income taxes have not been provided for as the
effect of temporary differences between the financial reporting basis and the
tax basis of the Company's assets and liabilities are immaterial.
Note 2 - Business Acquisitions
In January and April 1994, the Company acquired the automotive photo inspection
business of D.B. Kelley Associates, Inc., and Equifax Services, Inc.,
respectively. The aggregate purchase price consisted of approximately $1,500,000
in cash and notes. The results of operations of these businesses have been
consolidated with the Company since January 31, 1994 and April 16, 1994,
respectively.
The acquisitions have been accounted for under the purchase method of accounting
and, accordingly, the purchase price was allocated to assets acquired based upon
their estimated fair market value at the date of acquisition. The excess of the
purchase price over the fair market value of net assets acquired has been
recorded as goodwill.
Note 3 - Discontinued Operations
On April 1, 1995, the Company sold the assets relating to its Orion Network,
Compass Network, Checkmate Computer Systems, and Insurance Parts Locator
businesses to ADP Claims Solutions Group, Inc., for $30,350,000 in cash. The
gain on the sale was $8,885,688 after applicable taxes of $7,658,641. Prior
years have been restated to present the businesses sold as discontinued
operations.
Summarized results of operations and financial position data of the discontinued
operations were as follows:
Years Ended May 31,
--------------------------------------
1995 1994 1993
---- ---- ----
Results of Operations:
Revenues $13,723,654 $16,371,697 $14,882,694
Income from operations 2,414,895 3,243,901 3,213,162
Income before income taxes 2,419,814 3,245,127 3,192,890
Income taxes 804,878 1,005,814 1,138,931
Net income from discontinued
operations 1,614,936 2,239,313 2,053,959
========== ========== ==========
As of May 31, 1994
------------------
Balance Sheet:
Current Assets $ 1,986,675
Net property, equipment and furniture 3,196,789
Net goodwill and other intangibles 8,793,627
Net license costs 273,492
Other Assets 100,000
Current liabilities (897,100)
----------
Net book value of assets of discontinued
operations $13,453,483
==========
F-8
AUTOINFO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
Note 4 - Short-Term Investments
Effective June 1, 1994, the Company, as required, adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". This
pronouncement establishes the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities. This statement supersedes Statement No. 12 "Accounting for
Certain Marketable Securities". The effect of the adoption of this pronouncement
was not material.
In connection with the adoption of SFAS No. 115, debt and equity securities used
as part of the Company's investment management that may be sold in response to
cash needs, changes in interest rates, and other factors have been classified as
securities available for sale. Such securities are reported at cost which
approximates fair value and have maturities of less than one year and included
common stock and bond funds ($3,520,041 as of May 31, 1995 and $3,577,584 as of
May 31, 1994), money market instruments ($3,159,808 as of May 31, 1995 and
$1,786,107 as of May 31, 1994) and municipal bonds ($31,634,640 as of May 31,
1995 and $1,700.000 as of May 31, 1994). As of May 31, 1995 unrealized gains and
losses were not material. Unrealized gains and losses, if material, would be
excluded from earnings and reported as a separate component of stockholders'
equity (on an after tax basis). During the years ended May 31, 1995 and 1994,
gains or losses arising from the disposition of marketable securities were not
material. Gains and losses on disposition of securities are recognized on the
specific identification method in the period in which they occur.
Note 5 - Accrued Liabilities
The components of accrued liabilities at May 31 were as follows:
1995 1994
---- ----
Payroll and related costs $ 76,856 $116,526
Professional Fees 196,431 29,500
Interest 126,243 118,693
Other 143,827 118,183
-------- --------
$543,357 $382,902
======== ========
Note 6 - Investment
In December 1991, the Company acquired a Preferred Stock Investment (3,293
shares of $500 par value, 7% cumulative convertible preferred stock) in
ComputerLogic, Inc., a Georgia Corporation, which offers computer based products
to the automobile parts and repair industries. The Preferred Stock elects not
less than 40% of the ComputerLogic board of directors. The Company's Preferred
Stock Investment is convertible into 38% of the outstanding capital stock of
ComputerLogic, Inc. The Company also has the option to increase its investment
for additional consideration as described in the purchase agreement. The
purchase price consisted of cash of $1,250,000 and 101,667 shares of the
Company's Common Stock. The investment was being carried at the lower of cost or
net realizable value.
F-9
AUTOINFO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
As a result of the sale of the Company's businesses providing computerization
and communications services to the automotive industry and the resulting lack of
synergistic business opportunities, the Company has no intention of exercising
its option to increase its investment. Additionally, ComputerLogic has been
unable to remit to the Company any management fees and certain preferred stock
dividends as they become due. The Company has therefore written off its
preferred stock investments totalling $1,804,256 which included unpaid
management fees and unpaid preferred stock dividends of $155,460 as of May 31,
1995.
Note 7 - Long-term Debt
Long-term debt consists of the following:
MAY 31,
----------------
1995 1994
---- ----
Subordinated notes due January 2000 payable in
equal annual installments in January 1998,
1999 and 2000 with interest at 7.55% paid
semi-annually $4,000,000 $4,000,000
Note payable to former owner of acquired
business, due in January 1996 with interest
at 4% payable in equal monthly installments 160,869 357,710
Debt incurred in connection with acquisition,
payable in equal installments in October 1994
and April 1995 - 426,255
--------- ---------
4,160,869 4,783,965
Less current portion of long-term debt 160,869 623,096
--------- ---------
Long-term debt $4,000,000 $4,160,869
--------- ---------
The Company paid interest of approximately $308,000, $14,000 and $48,000
during fiscal years 1995, 1994 and 1993, respectively.
The Company has an available unused line of credit in the amount of
$2,000,000 which expires on September 30, 1995.
F-10
AUTOINFO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
Note 8 - Income Taxes
For the years ended May 31, 1995, 1994 and 1993, the provision (benefit) for
income taxes consists of the following:
1995 1994 1993
---- ---- ----
Federal $ (611,690) $ (85,837) $ (161,428)
State (22,933) (12,334) (14,772)
--------- --------- ---------
Income tax benefit on loss
from continuing operations $ (634,623) $ (98,171) $ (176,200)
--------- --------- ---------
Income taxes on income from
discontinued operations:
Federal $ 884,452 $ 879,445 $1,043,434
State (79,574) 126,369 95,497
--------- --------- ---------
$ 804,878 $1,005,814 $1,138,931
--------- --------- ---------
Income taxes on gain on sale
of discontinued operations:
Federal $7,148,753 $ - $ -
State 509,888 - -
--------- --------- ---------
$7,658,641 $ - $ -
========= ========= =========
The following table reconciles the Company's effective income tax benefit on
loss from continuing operations to the Federal Statutory Rate for the years
ended May 31, 1995, 1994 and 1993:
1995 1994 1993
---- ---- ----
Federal Statutory Rate (34.0)% (34.0)% (34.0)%
Effect of:
State and local taxes, net
of federal benefit (.5) (3.9) (3.9)
Benefit from tax exempt
income (6.1) - -
Preferred stock investment
write-off 20.3 - -
Credits resulting from
amendments to and refunds
from prior year returns - 5.7 -
Other, net (2.3) 1.2 2.2
----- ----- -----
(22.6)% (31.0)% (35.7)%
===== ===== =====
The Company paid income taxes of approximately $884,000, $1,119,000 and
$1,178,000 during fiscal years 1995, 1994 and 1993, respectively.
F-11
AUTOINFO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
Note 9 - Commitments and Contingencies
Leases
The Company is obligated under noncancellable operating leases for premises and
equipment expiring at various dates through 1999. Future minimum lease payments
are $170,000, $148,000, $35,000 and $500 for each of the four year periods ended
May 31, 1999.
Lease expense for the years ended May 31, 1995, 1994 and 1993 was approximately
$384,000, $434,000 and $393,000, respectively.
401(k) Plan
The Company is obligated under its 401(k) Plan to match fifty percent of
employee contributions up to a maximum of three percent of eligible
compensation.
401(k) Plan expense for the years ended May 31, 1995, 1994 and 1993 was
approximately $72,000, $73,000 and $68,000, respectively.
Other Agreements
The Company has entered into supplemental employment agreements (the
"Supplemental Employment Agreements") with Messrs. Zecher and Wunderlich (the
"Covered Executives"), which provide that if there is a Change in Control of the
Company (as defined therein) during the Protected Period (described below), the
terms of the Supplemental Employment Agreements will supersede the Covered
Executives' existing employment agreements and will govern the terms of the
Covered Executives' employment following the Change in Control for a three-year
term, in the case of Mr. Zecher, and a two-year term, in the case of Mr.
Wunderlich (the "Employment Term").
The Supplemental Employment Agreements provide that during the Employment Term,
the Covered Executives will remain employed in their capacities with the Company
as of the Change in Control and will continue to receive an annual salary (the
"Base Salary") and benefits at least equal to that which they received prior to
the Change in Control and an annual bonus at least equal to the Covered
Executive's average annual bonus during the three years prior to the Change in
Control. The Supplemental Employment Agreements provide that if, during the
Employment Term, the Covered Executive's employment is terminated by the Company
other than for Cause or Disability or by the Executive either for Good Reason or
during the 60-day Window Period commencing on the anniversary of the Change in
Control (as each of the foregoing terms are defined in the applicable
Supplemental Employment Agreement), the Covered Executive would receive a
severance payment equal to the sum of his Base Salary and the higher of his
annual bonus for the then most recent year or his average annual bonus during
the three years preceding the Change in Control (the "Highest Annual Bonus")
multiplied by two, in the case of Mr. Zecher, and one and one-half, in the case
of Mr. Wunderlich. In addition, the restrictions on any stock-related incentive
awards held by the Covered Executive would lapse and he would be entitled to
continued coverage under the Company's life, health and disability benefits for
two years following termination of his employment (three years in the case of
Mr. Zecher) or until he receives similar benefits from a new employer. If Mr.
Zecher's employment is terminated (as described above) prior to April 10, 1996,
F-12
AUTOINFO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
he would receive severance equal to three (rather than two) times his Base
Salary and Highest Annual Bonus. If Mr. Wunderlich's employment is terminated
(as described above) prior to October 10, 1995, he would receive severance equal
to two (rather than one and one-half) times his Base Salary and Highest Annual
Bonus. Mr. Zecher's Supplemental Employment Agreement also provides that if he
is subject to excise taxes under Section 4999 of the Internal Revenue Code on
any payments or benefits triggered by a Change in Control, he will be entitled
to receive an additional amount such that after the payment of all applicable
taxes, he will retain an amount equal to that which he would have retained
absent the excise taxes. In connection with the Supplemental Employment
Agreements, the Company also approved the creation of an Employment Protection
Trust Agreement which is a form of a grantor trust under which the assets of the
trust remain subject to the satisfaction of the general claims of the Company's
creditors, to provide for the payment of all benefits payable under the
Supplemental Employment Agreements.
Note 10 - Stockholders' Equity
Stock Bonus Plan
In January 1994, the Company issued 15,000 shares of Common Stock pursuant to a
restricted stock bonus plan to a Director. In June 1987 and November 1987, the
Company issued 410,000 shares of Common Stock pursuant to a restricted stock
bonus plan to key executives and consultants.
These shares will vest ratably every two years over a period of 30 years. The
unvested portion is subject, upon the occurrence of certain events, to either
forfeiture or accelerated vesting. Such shares are recorded at their estimated
fair market value as determined by the Board of Directors and are charged as
compensation expense ratably over the vesting period.
Warrants
In connection with the $4,000,000 7.55% subordinated long-term notes issued in
January 1994, the Company issued six year warrants to purchase 533,333 shares of
Common Stock at a per share price of $4.00. The Company has reserved 533,333
shares of Common Stock for issuance upon the exercise of these warrants. No such
warrants have been exercised to date.
In connection with a May 1986 public offering of Common Stock, the Company
issued warrants to the underwriter for the purchase of 96,000 shares of its
Common Stock at a per share price of $4.80. During fiscal 1992, 66,750 warrants
to purchase shares of the Company's Common Stock expired. The remaining 29,250
warrants are exercisable through May 1996. The Company has reserved 29,250
shares of Common Stock for issuance upon the exercise of these warrants.
Stock Option Plans
The Company has four stock option plans under which officers and other key
employees may acquire shares of Common Stock. Options have been granted at not
less than fair market value on the date of grant and expire ten years from that
date. Options are exercisable immediately after the granting date except where
exercise is otherwise limited at the time of granting.
F-13
AUTOINFO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
Option information for the three year period ended May 31, 1995 is as follows:
Number of Option Price
Shares Per Share
--------- ------------
Outstanding at June 1, 1992 723,749 $1.625 to $4.125
Granted during the year 332,000 $3.00 to $3.50
Forfeited during the year (135,000) $3.50 to $4.125
------- --------------
Outstanding at May 31, 1993 920,749 $1.625 to $4.125
Granted during the year 165,000 $3.75 to $4.00
Exercised during the year (118,950) $1.625 to $1.75
Forfeited during the year (269,000) $3.00 to $4.00
------- -------------
Outstanding at May 31, 1994 697,799 $1.625 to $4.125
Granted during the year 270,000 $2.75 to $4.125
Exercised during the year (502,966) $1.625 to $3.375
Forfeited during the year ( 30,000) $3.00 to $3.75
------- -------------
Outstanding at May 31, 1995 434,833 $1.75 to $4.125
------- --------------
Options exercisable at May 31, 1995, 1994 and 1993 were 177,055, 380,799 and
477,082 shares, respectively. At May 31, 1995, 434,833 shares of the Company's
authorized Common Stock were reserved to cover future exercise of options, and
280,751 shares were available for future grants.
In connection with the sale of discontinued operations, the Company accelerated
the vesting provisions relating to outstanding options held by employees of the
businesses sold. As of May 31, 1995, the vesting of options to purchase 175,333
shares were accelerated resulting in a charge against the gain on sale of
discontinued operations of $146,708.
On April 10, 1995, an officer of the Company exercised options to acquire
216,799 shares. In connection with this exercise, the Company received a full
recourse, non-interest bearing note due in May 1996, secured by a pledge of the
acquired shares in the amount of $466,797.
Note 11 - Acquisition of Minority Interest
In September 1994, the Company acquired the minority interest in its insurance
inspection services business pursuant to a formularized valuation which resulted
in no additional consideration being due. Accordingly, there is no provision for
minority interest in net loss of partnership for any period subsequent to August
31, 1994.
Note 12 - Subsequent Event
In July 1995, the Company consummated the sale of certain assets net of certain
liabilities constituting the operating assets of its Insurance Inspection
Division for $3,750,000 in cash.
Revenues pertaining to this business segment included in the Consolidated
Statement of Operations were $3,767,103, $2,394,203 and $2,510,762 for the
fiscal years ended May 31, 1995, 1994 and 1993, respectively.
F-14
AUTOINFO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
The gain or loss on the sale of this segment, as well as the results of
operations for the period from June 1, 1995 through the date of sale, are
subject to the finalization of certain events relating to the transaction. The
Company does not expect any resulting gain or loss or the results of operations
for the period from June 1, 1995 through the date of sale to be material.
F-15