FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter Ended: SEPTEMBER 30, 2004
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the transition period from ______________ to ______________
Commission File Number: 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 number)
6413 Congress Ave., Suite 240, Boca Raton, FL 33487
(Address of principal executive office)
(561) 988-9456
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the 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 |_|
Number of shares outstanding of the Registrant's common stock as of November 1,
2004:
31,200,440 shares of common stock, $.001 par value.
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES |X| NO |_|
AUTOINFO, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information:
Item 1. Consolidated Financial Statements: Page
Balance Sheets
September 30, 2004 (unaudited) and December 31, 2003 (audited).... 3
Statements of Income (unaudited)
Three and nine months ended September 30, 2004 and 2003........... 4
Statements of Cash Flows (unaudited)
Nine months ended September 30, 2004 and 2003..................... 5
Notes to Unaudited Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 10
Item 3. Controls and Procedures............................................. 15
Part II. Other Information..................................................... 16
Signatures...................................................................... 17
Exhibits........................................................................ 18
2
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2004 2003
------------ ------------
Unaudited Audited
ASSETS (Note 3)
Current assets:
Cash $ 616,000 $ 133,000
Accounts receivable 7,906,000 4,881,000
Other current assets 612,000 292,000
Loan receivable -- 100,000
Deferred income taxes (Note 2) 259,000 248,000
------------ ------------
Total current assets 9,393,000 5,654,000
Fixed assets, net of accumulated depreciation 69,000 71,000
Deferred income taxes (Note 2) 555,000 536,000
Other assets 19,000 25,000
------------ ------------
$ 10,036,000 $ 6,286,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Loan payable (Note 3) $ 1,935,000 $ 1,046,000
Convertible subordinated debentures (Note 3) -- 575,000
Accounts payable and accrued liabilities 4,442,000 2,773,000
------------ ------------
Total current liabilities 6,377,000 4,394,000
------------ ------------
Stockholders' Equity
Preferred stock - authorized 10,000,000 shares
$.001 par value; issued and outstanding -0 shares
as of September 30, 2004 and December 31, 2003 -- --
Common stock - authorized 100,000,000 shares
$.001 par value; issued and outstanding -
31,200,000 shares as of September 30, 2004 and
27,383,000 shares as of December 31, 2003 31,000 27,000
Additional paid-in capital 19,061,000 18,023,000
Deficit (15,433,000) (16,158,000)
------------ ------------
Total stockholders' equity 3,659,000 1,892,000
------------ ------------
$ 10,036,000 $ 6,286,000
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------- ----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Gross revenues $ 32,057,000 $ 18,795,000 $ 12,938,000 $ 7,552,000
Cost of transportation 26,191,000 15,313,000 10,570,000 6,169,000
------------ ------------ ------------ ------------
Net revenues 5,866,000 3,482,000 2,368,000 1,383,000
------------ ------------ ------------ ------------
Commissions 3,403,000 2,033,000 1,394,000 789,000
Operating expenses 1,672,000 986,000 662,000 391,000
------------ ------------ ------------ ------------
5,075,000 3,019,000 2,056,000 1,180,000
------------ ------------ ------------ ------------
Income from operations 791,000 463,000 312,000 203,000
------------ ------------ ------------ ------------
Other charges (credits):
Investment income -- (12,000) -- (3,000)
Interest expense 53,000 95,000 27,000 24,000
------------ ------------ ------------ ------------
53,000 83,000 27,000 21,000
------------ ------------ ------------ ------------
Income before income taxes 738,000 380,000 285,000 182,000
Income taxes (Note 2) 13,000 21,000 7,000 10,000
------------ ------------ ------------ ------------
Net income $ 725,000 $ 359,000 $ 278,000 $ 172,000
============ ============ ============ ============
Basic and diluted net
income per share: $ .02 $ .01 $ .01 $ .00
============ ============ ============ ============
Weighted average number of
common and common
equivalent shares 33,327,000 28,533,000 33,525,000 28,852,000
------------ ------------ ------------ ------------
The accompanying notes are an integral part of these
consolidated financial statements.
4
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
2004 2003
----------- -----------
Cash flows from operating activities:
Net income $ 725,000 $ 359,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 27,000 24,000
Non-cash compensation 37,000 --
Deferred income taxes (30,000) --
Changes in assets and liabilities:
Accounts receivable (3,025,000) (1,640,000)
Other current assets (320,000) (145,000)
Loan receivable 100,000 --
Other assets 6,000 --
Accounts payable and accrued liabilities 1,669,000 973,000
----------- -----------
Net cash used in operating activities (811,000) (429,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures (25,000) (29,000)
----------- -----------
Net cash used in investing activities (25,000) (29,000)
----------- -----------
Cash flows from financing activities:
Exercise of stock options 13,000 --
Increase (decrease) in loan payable, net 889,000 (193,000)
Sale of common stock 417,000 --
----------- -----------
Net cash provided by (used in) financing activities 1,319,000 (193,000)
----------- -----------
Net change in cash 483,000 (651,000)
Cash at beginning of period 133,000 684,000
----------- -----------
Cash at end of period $ 616,000 $ 33,000
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
5
AUTOINFO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Forward Looking Statements
Certain statements made in this Quarterly Report on Form 10-QSB are
"forward-looking statements"(within the meaning of the Private Securities
Litigation Reform Act of 1995) regarding the plans and objectives of management
for future operations. Such statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. The forward-looking statements included herein are
based on current expectations that involve numerous risks and uncertainties. Our
plans and objectives are based, in part, on assumptions involving judgments with
respect to, among other things, 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.
Although we believe that our assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the forward-looking statements
included in this report will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein
particularly in view of the current state of our operations, the inclusion of
such information should not be regarded as a statement by us or any other person
that our objectives and plans will be achieved. Factors that could cause actual
results to differ materially from those expressed or implied by forward-looking
statements include, but are not limited to, the factors set forth under the
headings "Business," and "Risk Factors" in our Annual Report on Form 10-KSB for
the year ended December 31, 2003 as filed with the Securities and Exchange
Commission.
Note 1. - Business and Summary of Significant Accounting Policies
Business
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. Our non-asset
based services include ground transportation coast to coast, local pick up and
delivery, air freight and ocean freight. We have strategic alliances with less
than truckload, truckload, air, rail and ocean common carriers to service our
customers' needs. 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 the Company. The independent commissioned sales agents typically
enter into non-exclusive contractual arrangements with Sunteck 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 our contract carrier
license, air cargo carriers and railroads. Through this network of agents and
capacity providers, Sunteck operates a transportation services business with
revenue of approximately $27 million during our most recently completed fiscal
year and approximately $32 million during our most recently completed nine month
period ended September 30, 2004.
Our brokerage services are provided though a network of independent sales
agents. As of November 1, 2004, we had nine regional operating centers providing
brokerage services and representatives in 18 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. We do not own any trucking
equipment and have a network of independent owner-operators who lease onto
6
our operating authority and transport freight under the Sunteck name. As of
November 1, 2004, we had seven regional offices providing contract carrier
services and 85 independent owner-operators.
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 Company
and its wholly-owned subsidiary Sunteck Transport Co., Inc. All significant
intercompany balances and transactions have been eliminated in consolidation.
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 pick up 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.
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.
Cash
From time to time, the Company has on deposit at financial institutions
cash balances which exceed federal deposit insurance limitations. The Company
has not experienced any losses in such accounts and believes it is not exposed
to any significant credit risk on cash.
Fixed Assets
Fixed assets as of September 30, 2004 and December 31, 2003, consisting
predominantly of furniture, fixtures and equipment, 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 2,357,000 and 1,504,000 and 2,509,000 and 1,185,000 for the
three and nine month periods ended September 30, 2004 and 2003, respectively.
7
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.
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 has adopted 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 in the financial
statements for stock options granted to employees.
New Accounting Pronouncements
In April 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 149, "Amendment of Statement No.
133 on Derivative Instruments and Hedging Activities" (SFAS 149), which amends
SFAS 133 to provide clarification on the financial accounting and reporting of
derivative instruments and hedging activities and requires that contracts with
similar characteristics be accounted for on a comparable basis.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity",
which establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity and
requires that such instruments be classified as liabilities.
Adoption of these statements did not have a material impact on the
Company's financial position or results of operations.
Note 2- Income Taxes
For the periods ended September 30, 2004 and 2003, the provision for
income taxes consisted of the following:
Nine Months Ended September 30,
---------------------------------------------------
2004 2003
---------------------------------------------------
Current Deferred Current Deferred
---------------------------------------------------
Tax expense before application of
operating loss carryforwards $ 292,000 $ -- $ 143,000 $ --
Tax expense (benefit) of operating
loss carryforwards (249,000) 249,000 (122,000) 122,000
Change in valuation allowance -- (279,000) -- (122,000)
---------------------------------------------------
Income tax expense (benefit) $ 43,000 $ (30,000) $ 21,000 $ --
---------------------------------------------------
8
Three Months Ended September 30,
---------------------------------------------------
2004 2003
---------------------------------------------------
Current Deferred Current Deferred
---------------------------------------------------
Tax expense before application of
operating loss carryforwards $ 116,000 $ -- $ 67,000 $ --
Tax expense (benefit) of operating
loss carryforwards (99,000) 99,000 (57,000) 57,000
Change in valuation allowance -- (109,000) -- (57,000)
---------------------------------------------------
Income tax expense (benefit) $ 17,000 $ (10,000) $ 10,000 $ --
---------------------------------------------------
Deferred taxes are comprised of the following at September 30, 2004 and
December 31, 2003:
September 30, December 31,
2004 2003
------------ ------------
Deferred tax assets:
Net operating loss carryforward $ 5,677,000 $ 5,926,000
------------ ------------
Gross deferred tax assets 5,677,000 5,926,000
Less: valuation allowance (4,863,000) (5,142,000)
------------ ------------
Deferred tax asset $ 814,000 $ 784,000
============ ============
The deferred tax asset represents expected future tax savings resulting
from the Company's net operating loss carryforward. As of December 31, 2003, the
Company had net operating loss carryforwards of approximately $17.3 million for
federal income tax purposes which expire through 2014. Expected future
utilization of this benefit is evaluated annually and is primarily subject to
the extent of future earnings of the Company, and may be limited by, 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. However,
there can be no assurance that the Company will meet its expectations of future
income.
Note 3 - Significant Events
In January 2004, the Company sold 1,333,333 shares of common stock to
Kinderhook Partners, LP (Kinderhook) for $442,000 in a private transaction. In a
simultaneous transaction, Kinderhook acquired all of the Company's outstanding
12% Convertible Subordinated Debentures from the debenture holders and
immediately converted these debentures into 2,300,000 shares of common stock. In
connection with the transaction, the Company agreed with
9
Kinderhook to file and process to effectiveness a registration statement on Form
SB-2 covering the resale of the 3,633,333 share of common stock acquired. In
furtherance of that obligation, the Company filed a registration statement on
Form SB-2 covering the shares on March 30, 2004. The registration statement
covering the resale of the shares was declared effective by the Securities and
Exchange Commission on May 18, 2004.
In June 2004, we renewed our credit facility with Wachovia Bank providing
for an available line of credit of $2,500,000, an increase of $1,000,000. The
credit facility, which matures in June 2005, is secured by substantially all of
our assets and provides for the monthly payment of interest at the bank's prime
rate plus 1/2 of 1%, requires the maintenance of certain financial ratios, and
places limitations on future capital expenditures.
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.
Pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, readers of this report 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 shareholder value, (iii)
statements of future economic performance, and (iv) statements of assumptions
underlying other statements and statements about our business prospects.
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 report.
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. Our non-asset
based services include ground transportation coast to coast, local pick up and
delivery, air freight and ocean freight. We have strategic alliances with less
than truckload, truckload, air, rail and ocean common carriers to service our
customers' needs. 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 non-exclusive contractual arrangements with Sunteck 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,
Sunteck operates a transportation services business with revenue of
approximately $27 million during our most recently completed fiscal year and
approximately $32 million during our most recently completed nine month period
ended September 30, 2004.
Our brokerage services are provided though a network of independent sales
agents. As of November 1, 2004, we had nine regional operating centers providing
brokerage services and representatives in 18 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.
10
Our contract carrier services, which commenced in 2003, are also provided
through a network of independent sales agents. We do not own any trucking
equipment and have a network of independent owner-operators who lease onto our
operating authority and transport freight under the Sunteck name. As of November
1, 2004, we had seven regional offices providing contract carrier services and
85 independent owner-operators.
The most significant factor in our growth during the past two years has
been the expansion of our brokerage services agent network and the expansion of
our contract carrier services agent and owner operator network. This growth is
readily measured by the number of transactions we have processed, which
increased for the respective nine month periods from 13,900 in 2003 to 18,800 is
2004, an increase of 35%. Additionally, average revenue dollars per load in our
brokerage division increased by 31% in 2004 as compared to 2003. This is the
result of several factors including an increase in truckload business versus
less than truckload at higher per load revenues, hauling heavy equipment at
higher per load revenues and, to a lesser degree, a general increase in prices.
Results of operations
For the three and nine months ended September 30, 2004 and 2003
During the three and nine month periods ended September 30, 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 service 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:
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
------ ------ ------ ------
Net revenues 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Commissions 58.9% 57.0% 58.0% 58.4%
Operating expenses 28.0% 28.3% 28.5% 28.3%
Other charges 1.1% 1.5% .9% 2.4%
Income taxes .3% .7% .2% .6%
------ ------ ------ ------
Net income 11.7% 12.4% 12.4% 10.3%
------ ------ ------ ------
Revenues
Gross revenues, consisting of freight fees and other related services
revenue, totaled $12,938,000 and $32,057,000 for the three and nine month
periods ended September 30, 2004, as compared with $7,552,000 and $18,795,000 in
the prior year periods, an increase of 71% and 71%, respectively. Net revenues
were $2,368,000 and $5,866,000 for the three and nine month ended September 30,
2004, as compared with $1,383,000 and $3,482,000 in the prior year periods, an
increase of 71% and 68%, respectively. Gross revenues from brokerage services
increased to $10,028,000 and $25,261,000 for the three and nine month periods
ended September 30, 2004 from $6,982,000 and $17,939,000 in the prior year
periods and net revenues increased to $1,898,000 and $4,652,000 for the three
and nine
11
month periods ended September 30, 2004 from $1,271,000 and $3,312,000 in the
prior year periods. This increase is the direct result of the continued
expansion of our agent network and customer base. Gross revenues from contract
carrier services, which we began offering in 2003, increased to $2,910,000 and
$6,796,000 for the three and nine month periods ended September 30, 2004 from
$570,000 and $856,000 in the prior year periods and net revenues increased to
$470,000 and $1,214,000 for the three and nine month periods ended September 30,
2004 from $112,000 and $170,000 in the prior year periods.
Costs and expenses
Commissions totaled $1,394,000 and $3,403,000 for the three and nine month
periods ended September 30, 2004, as compared with $789,000 and $2,033,000 in
the prior year periods. As a percentage of net revenues, commissions were 59%
and 58% for the three and nine month periods ended September 30, 2004 as
compared with 57% and 58% in the prior year periods. This increase is
insignificant and is based on agent revenue mix during the period.
Operating expenses totaled $662,000 and $1,672,000 for the three and nine
month periods ended September 30, 2004, as compared with $391,000 and $986,000
in the prior year periods. As a percentage of net revenues, operating expenses
were 28% and 29% for the three and nine month periods ended September 30, 2004
as compared with 28% and 28% in the prior year periods. During 2003, we moved
our headquarters increasing our space to 2,358 square feet and during the
quarter ended June 30, 2004, we leased an additional 1,287 square feet. We have
increased administrative staff commensurate with the increase in transaction
volume. We presently have adequate facilities and management to handle the
present and anticipated transaction volume without a significant increase in
overhead.
Investment income, primarily consisting of the gain on the sale of
marketable securities and dividend and interest income, yielded a gain of $3,000
and $12,000 for the three and nine month periods ended September 30, 2003. We
had no investment income in 2004.
Interest expense totaled $27,000 and $53,000 for the three and nine month
periods ended September 30, 2004, as compared with $24,000 and $95,000 in the
prior year periods. The decrease in interest expense for the nine month periods
ended September 30 is the result our reduced cost of money under the line of
credit agreement we entered into in May 2003, which bears interest at prime plus
1/2% per annum. This replaced a $500,000 line of credit bearing interest at 17%
per annum. In addition, in January 2004, $575,000 of 12% convertible
subordinated debentures was converted into common stock. The increase in
interest expense for the three month periods ended September 30, is the result
our increased borrowings and under the line of credit agreement.
Income tax
The income tax expense of $7,000 for the three months ended September 30, 2004
consisted of $109,000 resulting from the anticipated future utilization of an
available federal tax loss carryforward, net of the utilization of deferred tax
benefit of $99,000 and state income taxes of $17,000. The income tax expense of
$13,000 for the nine months ended September 30, 2004 consisted of $279,000
resulting from the anticipated future utilization of an available federal tax
loss carryforward, net of the utilization of deferred tax benefit of $249,000
and state income taxes of $43,000. Income taxes of $10,000 and $21,000 for the
three and nine month periods ended September 30, 2003 related to the operating
results net of the benefit of the utilization of net operating loss
carryforwards.
The deferred tax asset of $814,000 as of September 30, 2004 represents expected
future tax savings resulting from the Company's net operating loss carryforward.
As of December 31, 2003, the Company had net operating loss carryforwards of
approximately $17.3 million for federal income tax purposes which expire through
2014. Expected future utilization of this benefit is evaluated annually and is
primarily subject to the extent of future earnings of the Company, and may be
limited by, 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
12
that forecasted taxable income will be sufficient to utilize a portion of the
net operating loss carryforward before its expiration in 2014. Accordingly, as
of September 30, 2004, the valuation allowance was reduced by an additional
$279,000.
Net income
Net income totaled $278,000 and $725,000 for the three and nine month
periods ended September 30, 2004, as compared with $172,000 and $359,000 in the
prior year periods. This increase is the direct result of the increase in
revenues due to the continuing expansion of our operations and the additional
recognition on the deferred tax asset of $109,000 and $279,000 for the three and
nine month periods ended September 30, 2004, respectively.
Trends and uncertainties
The transportation industry is highly competitive and highly fragmented.
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. 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, in 2003, the
introduction and expansion of our 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 nine month period ended September 30, 2004, we increased gross
revenues from $18.8 million to $32.1 million and had net income of $725,000 as
compared with $359,000 in the prior year. As of September 30, 2004, we had an
accumulated deficit of $15.4 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 Sunteck's business operations and for working capital and
general corporate purposes. Any additional equity financing may be dilutive to
stockholders, and additional debt financings, if available, may involve
restrictive covenants.
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 September 30, 2004, we had outstanding $1,935,000 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 and is secured by
accounts receivable and other operating assets, and matures in June 2005. 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 terms acceptable to us.
At September 30, 2004, we had liquid assets of approximately $616,000.
Available cash is used to reduce borrowings on our line of credit.
The total amount of debt outstanding as of September 30, 2004 and December
31, 2003 was $1,935,000 and $1,621,000, respectively. The following table
presents our debt instruments and their weighted average interest rates as of
September 30, 2004 and December 31, 2003, respectively:
13
Weighted Weighted
Balance Average Rate Balance Average Rate
-----------------------------------------------------
September 30, 2004 December 31, 2003
-----------------------------------------------------
Subordinated Debt -- -- $ 575,000 12.0%
Line of Credit $1,935,000 5.0% $1,046,000 4.5%
Inflation and changing prices had no material impact on our revenues or
the results of operations for the period ended September 30, 2004.
In January 2004, we sold 1,333,333 shares of our common stock for gross
cash proceeds of $442,000. 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 net cash of $417,000, a decrease
in debt of $575,000 and an increase in equity of $1,017,000. The net cash
proceeds of $417,000 were used to reduce the outstanding balance on our line of
credit.
In June 2004, we renewed our credit facility with Wachovia Bank providing
for an available line of credit of $2,500,000, an increase of $1,000,000. The
credit facility, which matures in June 2005, is secured by substantially all of
our assets and provides for the monthly payment of interest at the bank's prime
rate plus 1/2 of 1%, requires the maintenance of certain financial ratios, and
places limitations on future capital expenditures.
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 the Company's financial statements. The most significant
areas involving management estimates and assumptions are described below. Actual
results could differ materially from management's 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 pick up 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.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101). SAB 101, as amended, summarizes some of the SEC's views in applying
accounting principles generally accepted in the United States of America (GAAP)
to revenue recognition in the financial statements. We believe our revenue
recognition policy is appropriate and in accordance with GAAP and SAB 101.
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.
14
Income Taxes
The deferred tax asset represents expected future tax savings resulting
from our net operating loss carryforward. As of December 31, 2003, we had a net
operating loss carryforward of approximately $17.3 million for federal income
tax purposes which expire through 2014. The expected future utilization of this
benefit is evaluated annually and is primarily subject to the extent of our
future earnings, and may be limited by, among other things, shareholder changes,
including the possible issuance by the Company 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.
Off-balance sheet arrangements
We do not have any off-balance sheet arrangements.
CONTROLS AND PROCEDURES
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
report. Based on that evaluation, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective.
There have not been any changes in the Company's internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the Company's fiscal third quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
15
Part II
OTHER INFORMATION
Item 1-5: Inapplicable
Item 6: (a) Exhibits
31A Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
31B Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
32A Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
32B Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to Section 906 2 of the
Sarbanes-Oxley Act of 2002.*
- ----------
* Filed as an exhibit hereto.
(b) Reports on Form 8 -K
NONE
16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
authorized.
AUTOINFO, INC.
By: /s/ William Wunderlich
----------------------------------
William Wunderlich
Executive Vice President and
Principal Financial Officer
Date: November 9, 2004
17