-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PRiV0jhZ1U1horUl7FutJ54ZgFq6oOtiBT88z2zCCZB9OiwAfMrB+HroQXrCPqhE uQEMyhoaku7xMBLloMRl2A== 0001169232-04-002008.txt : 20040330 0001169232-04-002008.hdr.sgml : 20040330 20040330161933 ACCESSION NUMBER: 0001169232-04-002008 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20040330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTOINFO INC CENTRAL INDEX KEY: 0000351017 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING & COURIER SERVICES (NO AIR) [4210] IRS NUMBER: 132867481 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-114037 FILM NUMBER: 04701374 BUSINESS ADDRESS: STREET 1: PO BOX 4383 CITY: STAMFORD STATE: CT ZIP: 06907-0383 BUSINESS PHONE: 2019301800 MAIL ADDRESS: STREET 1: PO BOX 4383 CITY: STAMFORD STATE: CT ZIP: 06907-0383 SB-2 1 d59108_sb2.txt REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on March 30, 2004 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- AUTOINFO, INC. (Exact name of Registrant as specified in its charter) Delaware 4731 13-2867481 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification No.)
AutoInfo, Inc. 6413 Congress Avenue, Suite 240 Boca Raton, Florida 33487 (561) 988-9456 (561) 994-8033 Facsimile (Address, including zip code, and telephone number, including area code, of Registrant's executive offices) ----------------------------------------- Harry Wachtel Chief Executive Officer 6413 Congress Avenue, Suite 240 Boca Raton, Florida 33487 (561) 988-9456 (561) 994-8033 Facsimile (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------------------- Copy to: Kenneth S. Rose, Esq. Morse, Zelnick, Rose & Lander, LLP 405 Park Avenue New York, New York 10022 (212) 838-5030 (212) 838-9190 Facsimile Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box. |X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_| ----------------------- CALCULATION OF REGISTRATION FEE ================================================================================ Proposed Maximum Title of Each Class of Aggregate Offering Amount of Securities to be Registered Price (1) Registration Fee - -------------------------------------------------------------------------------- Common stock, $.001 par value $2,361,666 $299.22 ================================================================================ (1) In accordance with Rule 457(c), the aggregate offering price per share is estimated solely for purposes of calculating the Registration fee, using the average of the high and low sales price reported by the OTC bulletin board for the common stock on March 29, 2004. ----------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. PROSPECTUS (Subject to Completion) Dated March 30, 2004 3,633,333 SHARES of COMMON STOCK AUTOINFO, INC. -------------- The selling stockholder named in this prospectus is offering up to 3,633,333 shares of our common stock it owns. We will not receive any of the proceeds from the sale of the shares. We will bear all costs relating to the offer and sale of the shares, which we expect will be approximately $25,000. However, the selling stockholder will pay any commissions, fees and discounts of underwriters, brokers, dealers or agents. The selling stockholder will sell the shares whenever it chooses to do so at varying prices to be determined at the time of each sale. The selling stockholder may sell these shares directly to or through broker-dealers, who may receive compensation in the form of discounts, concessions or commissions from either the selling stockholder or the purchasers of the shares or both of them. Brokers or dealers effecting transactions in these shares should confirm that the shares are registered under applicable state law or that an exemption from registration is available. Our common stock is quoted on the OTC Bulletin Board under the trading symbol "AUTO.OB." The high and low prices for our common stock on the OTC Bulletin Board were $0.60 and $0.70 on March 29, 2004. See "Risk Factors" beginning on page 6 of this prospectus for the factors you should consider before buying shares of our common stock. No underwriter or person has been engaged by us to facilitate the sale of the shares of common stock in this offering. This offering will continue for up to 24 months after the accompanying registration statement is declared effective by the Securities and Exchange Commission or for so long thereafter as sales of shares offered by the selling stockholder would otherwise be subject to volume limitations imposed under the Securities Act. Neither the Securities and Exchange Commission nor any other regulatory body has approved these shares or determined that this prospectus is accurate or complete. It is illegal for anyone to tell you otherwise. The date of this Prospectus is _________, 2004 - -------------------------------------------------------------------------------- PROSPECTUS SUMMARY Business overview Through our wholly-owned subsidiary, Sunteck Transport Co., Inc. (Sunteck), we are a non-asset based transportation services company, providing transportation capacity and related transportation services to shippers throughout the United States, and to a lesser extent, Canada. 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. Our brokerage services are provided though a network of independent sales agents. As of March 1, 2004, we had six regional operating centers providing brokerage services and representatives in 15 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 no 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 March 1, 2004, we had five regional offices providing contract carrier services and 43 independent owner-operators. Strategy Our strategy is to continue to expand through affiliations with independent sales agents and through internal expansion. We intend to seek, on a selective basis, acquisition of businesses that have product lines or services which complement and expand our existing services and product lines, and provide us with strategic distribution locations or attractive customer bases. Our ability to implement our growth strategy will be dependent on our ability to identify and affiliate with these new agents on desirable economic terms. - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- Contact information Our principal executive office is located at 6413 Congress Avenue, Suite 240, Boca Raton, Florida 33487, and our telephone number is (561) 988-9456. Our web address is www.suntecktransport.com or www.autoinfo.com. None of the information on any of our websites is part of this prospectus. The Offering Securities offered....................... 3,633,333 shares of common stock. Shares of common stock to be outstanding after this offering....... 31,116,256(1) Proceeds:................................ We will not receive any of the proceeds from the sale of the shares. Although we will not receive the proceeds from the sale of shares in this offering, we will pay all of the expenses of the offering, including, without limitation, professional fees and printing expenses. Risk factors:............................ The offering involves a high degree of risk. Please refer to "Risk Factors" for a description of the risk factors you should consider. OTC bulletin board symbol:............... AUTO.OB
- ---------- (1) Unless otherwise stated, the information contained in this prospectus assumes no exercise of options outstanding immediately before this offering covering 4,001,485 shares of our common stock. - -------------------------------------------------------------------------------- 4 - -------------------------------------------------------------------------------- Summary Financial Information
Years Ended December 31, ----------------------------------------------- 2003 2002 ------------- ------------ Statement of Operations Data: (in thousands, except share and per share data) ----------------------------------------------- Gross revenue 27,171 18,863 ------------ ------------ Net revenue 5,076 3,368 ------------ ------------ Net income 1,300 340 ============ ============ Basic and diluted income per share $ 0.05 $ 0.01 ============ ============ Weighted average number of shares outstanding 28,789,000 27,940,000 ------------ ------------
The table below sets forth a summary of our balance sheet data as of December 31, 2003. December 31, 2003 (in thousands) ----------------- 2003 ----------------- Balance Sheet Data: ------------------------------- Cash and cash equivalents $ 133 Accounts receivable 4,881 Total assets 6,286 Total liabilities 4,394 Deficit (16,158) Stockholders' equity 1,892 - -------------------------------------------------------------------------------- 5 RISK FACTORS This offering involves a high degree of risk. You should carefully consider the risks described below and the other information in this prospectus, including our financial statements and the notes to those statements, before you purchase any shares. Continued expansion of our business operations is uncertain. For the year ended December 31, 2003, we increased gross revenues from $18.9 million to $27.2 million and had net income of $1,300,000 as compared $340,000 in the prior year. There is no assurance that we will be able to continue the expansion of our operations. Factors that could adversely affect our future operating results include: o the success of Sunteck in continuing the expansion of its business operations; and o changes in general economic conditions. Control of customer accounts; dependence on independent commission sales agents. A substantial portion of our business is originated by our network of independent sales representatives. Most of these sales representatives work with us on a non-exclusive basis. We do not have non-compete or non-solicitation agreements with these representatives and our contracts with them are typically terminable upon 10 to 30 days notice by either party and do not restrict the ability of a former agent to compete with Sunteck following termination. As a result, if sales representatives terminate their affiliation with us or direct their freight business to other logistics providers, our revenue and results of operations could be adversely affected. Dependence on third party capacity providers. We do not own trucks or other transportation equipment and rely on third party capacity providers, including independent owner operators, unrelated trucking companies, railroads and air cargo carriers to transport freight for our customers. We compete with motor carriers and other third parties for the services of independent owner operators and other third party capacity providers. A significant decrease in available capacity provided by either our independent owner operators or other third party capacity providers could have a material adverse effect on Sunteck, including our results of operations and revenue. Decreased demand for transportation services. The transportation industry historically has experienced cyclical financial results as a result of slowdowns in economic activity, the business cycles of customers, price increases by capacity providers, interest rate fluctuations, and other economic factors beyond Sunteck's control. Certain of our third party capacity providers can be expected to charge higher prices to cover increased operating expenses, and our operating income may decline if it is unable to pass through to its customers the full amount of such higher transportation costs. If a slowdown in economic activity or a downturn in our customers' business cycles causes a reduction in the volume of freight shipped by those customers, our operating results could be materially adversely affected. 6 We have limited marketing and sales capabilities and must make sales in fragmented markets. Our future success depends, to a great extent, on our ability to successfully market our services. We currently have limited sales and marketing capabilities. Our ability to successfully market our services is further complicated by the fact that our primary markets are highly fragmented. Consequently, we will need to identify and successfully target particular market segments in which we believe we will have the most success. These efforts will require a substantial, but unknown, amount of effort and resources. We cannot assure you that any marketing and sales efforts undertaken by us will be successful or will result in any significant sales. Our industry is intensely competitive, which may adversely affect our operations and financial results. All our markets are intensely competitive and numerous companies offer services that compete with our services. We anticipate that competition for our services will continue to increase. Many of our competitors have substantially greater capital resources, sales and marketing resources and experience. We cannot assure you that we will be able to effectively compete with our competitors in effecting our business expansion plans. We depend on the continued services of our president. Our future success depends, in part, on the continuing efforts of our president, Harry Wachtel, who conceived our strategic plan and who is responsible for executing that plan. The loss of Mr. Wachtel would adversely affect our business. At this time we do not have any term "key man" insurance on Mr. Wachtel. If we lose the services of Mr. Wachtel, our business, operations and financial condition would be materially adversely affected. We may have difficulties in managing our growth. Our future growth depends, in part, on our ability to implement and expand our financial control systems and to expand, train and manage our employee base and provide support to an expanded customer base. If we cannot manage growth effectively, it could have a material adverse effect on our results of operations, business and financial condition. Acquisitions and expansion involve substantial infrastructure and working capital costs. We cannot assure you that we will be able to integrate our acquisitions and expansions efficiently. Similarly, we cannot assure you that we will continue to expand or that any expansion will enhance our profitability. If we do not achieve sufficient revenue growth to offset increased expenses associated with our expansion, our results will be adversely affected. We must attract and retain qualified personnel. As we implement our business growth strategy, significant demands will be placed on our managerial, financial and other resources. One of the keys to our future success will be our ability to attract and retain highly qualified marketing, sales and administrative personnel. Competition for qualified personnel in these areas is intense and we will be competing for their services with companies that have substantially greater resources than we do. We cannot assure you that we will be able to identify, attract and retain personnel with skills and experience necessary and relevant to the future operations of our business. Our inability to retain or attract qualified personnel in these areas could have a material adverse effect on our business and results of operations. 7 We may require additional financing in the future, which may not be available on acceptable terms. Depending on our ability to generate revenues, we may require additional funds to expand Sunteck's business operations and for working capital and general corporate purposes. Any additional equity financing may be dilutive to stockholders, and debt financings, if available, may involve restrictive covenants that further limit our ability to make decisions that we believe will be in our best interests. In the event we cannot obtain additional financing on terms acceptable to us when required, our ability to expand Sunteck's operations may be materially adversely affected. Our principal stockholders have substantial control over our affairs. As of March 30, 2004, our president, Harry Wachtel was our largest stockholder, owning approximately 29% of the issued and outstanding shares of our common stock. Further, James T. Martin owns approximately 20% of the issued and outstanding shares of our common stock. As a result, either Mr. Wachtel or Mr. Martin could assert control over our affairs, including the election of directors and any proposals regarding a sale of the Company or its assets or a merger. In addition, this concentration of ownership could have the effect of delaying, deferring or preventing a change in control or impeding a merger or consolidation, takeover or other business combination which you, as a stockholder, may otherwise view favorably. Our stock price is volatile and could be further affected by events not within our control. The market price of our common stock has historically experienced and may continue to experience significant volatility. For the 52-week period ended March 30, 2004, our stock closing price has ranged from $0.11 to $0.70. On March 29, 2004, our stock closing price was $0.60. The trading price of our common stock has been volatile and will continue to be subject to: o volatility in the trading markets generally; o significant fluctuations in our quarterly operating results; and o announcements regarding our business or the business of our competitors. Statements or changes in opinions, ratings or earnings estimates made by brokerage firms or industry analysts relating to the markets in which we operate or expect to operate could also have an adverse effect on the market price of our common stock. In addition, the stock market as a whole has from time to time experienced extreme price and volume fluctuations which have particularly affected the market price for the securities of many small cap companies and which often have been unrelated to the operating performance of these companies. The price of our common stock may be adversely affected by the possible issuance of shares of our common stock as a result of the exercise of outstanding options. We have granted options covering approximately 4.1 million shares of our common stock. As a result of the actual or potential sale of these shares into the market, our common stock price may decrease. 8 Future sales of our common stock may adversely affect our common stock price. If our stockholders sell a large number of shares of common stock or if we issue a large number of shares in connection with future acquisitions or financings, the market price of our common stock could decline significantly. In addition, the perception in the public market that our stockholders might sell a large number of shares of common stock could cause a decline in the market price of our common stock. Some provisions in our charter documents and bylaws may have anti-takeover effects. Our certificate of incorporation and bylaws contain provisions that may make it more difficult for a third party to acquire us, with the result that it may deter potential suitors. For example, our board of directors is authorized, without action of the stockholders, to issue authorized but unissued common and preferred stock. The existence of authorized but unissued common and preferred stock enables us to discourage or to make it more difficult to obtain control of us by means of a merger, tender offer, proxy contest or otherwise. We have agreed to limitations on the potential liability of our directors. Our certificate of incorporation provides that, in general, directors will not be personally liable for monetary damages to the company or our stockholders for a breach of fiduciary duty. Although this limitation of liability does not affect the availability of equitable remedies such as injunctive relief or rescission, the presence of these provisions in the certificate of incorporation could prevent us from recovering monetary damages. Liquidity on the otc bulletin board is limited, and we may be unable to obtain listing of our common stock on a more liquid market. Our common stock is quoted on the OTC Bulletin Board, which provides significantly less liquidity than a securities exchange (such as the American or New York Stock Exchange) or an automated quotation system (such as the Nasdaq National or SmallCap Market). There is uncertainty that we will ever be accepted for a listing on an automated quotation system or securities exchange. Our common stock has been thinly traded, and the public market may provide little or no liquidity for holders of our common stock. Purchasers of shares of our common stock may find it difficult to resell their shares at prices quoted in the market or at all. There is currently a limited volume of trading in our common stock, and on many days there has been no trading activity at all. Due to the historically low trading price of our common stock, many brokerage firms may be unwilling to effect transactions in our common stock, particularly because low-priced securities are subject to an SEC rule that imposes additional sales practice requirements on broker-dealers who sell low-priced securities (generally those below $5.00 per share). We cannot predict when or whether investor interest in our common stock might lead to an increase in its market price or the development of a more active trading market or how liquid that market might become. 9 The application of the "penny stock" rules could adversely affect the market price of our common stock. As long as the trading price of our common stock is below $5.00 per share, the open-market trading of our common stock will be subject to the "penny stock" rules. The "penny stock" rules impose additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of securities and have received the purchaser's written consent to the transaction before the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the broker-dealer must deliver, before the transaction, a disclosure schedule prescribed by the Securities and Exchange Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. These additional burdens imposed on broker-dealers may restrict the ability of broker-dealers to sell the common stock and may affect a stockholder's ability to resell the common stock. Stockholders should be aware that, according to Securities and Exchange Commission Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. FORWARD-LOOKING STATEMENTS Some of the statements made in this prospectus discuss future events and developments, including our future business strategy and our ability to generate revenue, income and cash flow. In some cases, you can identify forward-looking statements by words or phrases such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," "our future success depends," "seek to continue," or the negative of these words or phrases, or comparable words or phrases. These statements are only predictions that are based, in part, on assumptions involving judgments about future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various facts, including the risks outlined in this "Risk Factors" section. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We do not 10 undertake to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results. USE OF PROCEEDS All shares of our common stock offered by this prospectus are being registered for the account of the selling stockholder. We will not receive any of the proceeds from the sale of these shares. DIVIDEND POLICY We have not declared or paid any dividends in the last two years and we do not intend to pay any dividends in the foreseeable future. We intend to retain any future earnings for use in the operation and expansion of our business. Any future decision to pay dividends on common stock will be at the discretion of our board of directors and will be dependent upon our fiscal condition, results of operations capital requirements and other factors our board of directors may deem relevant. CAPITALIZATION The following table sets forth our capitalization as of December 31, 2003: Stockholders' Equity Common stock -- authorized 100,000,000 shares $.001 par value; issued and outstanding -- 27,382,923 shares as of December 31, 2003 $ 27,000 Preferred stock -- authorized 10,000,000 shares $.001 par value; issued and outstanding -- 0 shares as of December 31, 2003 -- Additional paid-in capital 18,023,000 Deficit (16,158,000) ------------ Total stockholders' equity $ 1,892,000 ------------ 11 PRICE RANGES OF OUR COMMON STOCK Our common stock is not listed on any stock exchange. Our common stock is traded over-the-counter on the Over-the-Counter Electronic Bulletin Board under the symbol "Auto." The following table sets forth the high and low bid information for the common stock for the periods presented, as reported by the Over-the-Counter Electronic Bulletin Board. The bid information reflects inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. Year Ended December 31, 2004 High Low - ---------------------------- ---- --- First quarter (through March 29, 2004) $0.70 $0.28 Year Ended December 31, 2003 High Low - ---------------------------- ---- --- First quarter $0.22 $0.14 Second quarter 0.23 0.11 Third quarter 0.37 0.17 Fourth quarter 0.39 0.23 Year Ended December 31, 2002 High Low - ---------------------------- ---- --- First quarter $0.19 $0.06 Second quarter 0.17 0.12 Third quarter 0.22 0.10 Fourth quarter 0.22 0.12 As of March 29, 2004, the closing bid price per share for our common stock, as reported on the OTC Bulletin Board of the National Association of Securities Dealers, Inc. was $0.60. As of March 29, 2004, we had approximately 1,000 beneficial stockholders. 12 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The statement of operations data for each of the years in the two-year period ended December 31, 2003 and the balance sheet data at December 31, 2003 are derived from our financial statements, which have been audited by Dworken, Hillman, LaMorte & Sterczala, P.C., independent auditors, and are included elsewhere in this prospectus. Historical results are not necessarily indicative of the results to be expected in the future, and the results of interim periods are not necessarily indicative of results for the entire year. Statement of operations data: (in thousands, except share and per share data) Years Ended December 31, ------------------------------ 2003 2002 ---------- ---------- Gross revenues $ 27,171 $ 18,863 Net revenues (1) 5,076 3,368 Net income $ 1,300 $ 340 Basic net income per share (2) From continuing operations $ .05 $ .01 ---------- ---------- Net income per share, basic $ .05 $ .01 ---------- ---------- Diluted net income per share (2) From continuing operations $ .05 $ .01 ---------- ---------- Net income per share, diluted $ .05 $ .01 ---------- ---------- - ---------- (1) Net revenues are determined by deducting cost of transportation from gross revenues. See Management's Discussion and Analysis of Financial Condition and Results of Operations. (2) The common stock equivalents for the year ended December 31, 2003 and 2002 were 1,434,000 and 635,000, respectively. Balance sheet data: (in thousands) December 31, 2003 --------------------- 2003 2002 -------- -------- Balance Sheet Data: - -------------------------------- Cash and cash equivalents $ 133 $ 684 Accounts receivable 4,881 2,996 Total assets 6,286 3,944 Total liabilities 4,394 3,356 Deficit (16,158) (17,458) Stockholders' equity 1,892 588 13 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. This report also identifies important factors, which could cause actual results to differ materially from those indicated by the forward looking statements. These risks and uncertainties include the factors discussed under the heading "Risk Factors" beginning at page 6 of this prospectus. The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the notes thereto appearing elsewhere in this 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. Our brokerage services are provided though a network of independent sales agents. As of March 1, 2004, we had six regional operating centers providing brokerage services and representatives in 15 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. 14 Our contract carrier services, which commenced in 2003, are also provided through a network of independent sales agents. We do no 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 March 1, 2004, we had five regional offices providing contract carrier services and 43 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, in 2003, the introduction and 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 from 23,500 in 2002 to 30,800 is 2003, an increase of 31%. The average revenue dollar per load in our broker division also increased in 2003 as compared to 2002. This is the result of several factors including an increase in truckload business verses less than truckload at higher per load revenues, the addition of sales agents hauling heavy equipment at higher per load revenues and, to a lesser degree, a general increase in prices. Results of operations For the year ended December 31, 2003 During the year ended December 31, 2003, 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, 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: 2003 2002 ---------- ---------- Net revenues 100.0% 100.0% Commissions 58.2% 54.2% Operating expenses 28.6% 31.4% Other charges 2.5% 3.8% Income taxes, (benefit) (14.9)% .5% Net income 25.6% 10.1% Revenues Gross revenues, consisting of freight fees and other related services revenue, totaled $27,171,000 for the year ended December 31, 2003, as compared with $18,863,000 in the prior year, an increase of 44%. Net revenues were $5,076,000 for the year ended December 31, 2003, as compared with $3,368,000 in the prior year, an increase of 51%. Gross revenues from brokerage services increased to $25,106,000 from 18,863,000 and net revenues increased to $4,685,000 from $3,368,000 in the prior year. This increase is the direct result of the continued expansion of our agent network and customer 15 base. Gross revenues from contract carrier services, which we began offering in 2003, were $2,065,000 and net revenues were 391,000. A significant portion of these revenues and earnings occurred in the fourth quarter. The total net revenue growth was 51% as compared with the gross revenue increase of 44% is the result of higher margins in our contract carrier division and the general mix of business at higher margins generated by our expanded sales agent base. Costs and expenses Commissions totaled $2,955,000 for the year ended December 31, 2003, as compared with $1,827,000 in the prior year, an increase of 51%. As a percentage of net revenues, commissions were 58.2% for the year ended December 31, 2003 as compared with 54.2% in the prior year. This increase is the direct result of higher commission rates paid to sales agents related to competition for attracting new sales agent pursuant to our business expansion model. Operating expenses totaled $1,450,000 for the year ended December 31, 2003, as compared with $1,057,000 in the prior year. As a percentage of net revenues, operating expenses were 28.6% for the year ended December 31, 2003 as compared with 31.4% in the prior year. This decrease is the direct result of management's ability to leverage selling, general and administrative expenses in connection with business expansion. During 2003, we moved our headquarters increasing our space to 2,350 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 in 2004 without 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 $6,000 for the year ended December 31, 2003, as compared to $26,000 in the prior year. This decrease is the direct result of the sale of substantially all marketable securities during the year ended December 31, 2002. Interest expense was $131,000 for the year ended December 31, 2003 as compared with $154,000 in the prior year. This decrease is primarily the result of borrowings pursuant to our $1.5 million line of credit, secured in May 2003 at a interest rate of prime + 1/2% and the corresponding repayment in May 2003 of the $500,000 loan at an interest rate of 17%, originated in August 2002. Income tax The income tax benefit of $754,000 for the year ended December 31, 2003 consisted of $784,000 resulting from the anticipated future utilization of an available federal tax loss carryforward, net of state income taxes of $30,000. Based upon available objective evidence, including the Company's post-merger history of profitability, management believes it is more likely than not that forecasted taxable income will be sufficient to utilize a portion of the net operating loss carryforward before its expiration in 2014. Accordingly, in 2003 the valuation allowance was reduced by $784,000. Income taxes of $16,000 for the year ended December 31, 2002 related to the operating results net of the benefit of the utilization of net operating loss carryforwards. Net income Net income totaled $1,300,000 for the year ended December 31, 2003, as compared with $340,000 in the prior year. This increase is the direct result of the increase in revenues due the continuing expansion of our operations and the recognition on the deferred tax asset of $784,000. 16 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 year ended December 31, 2003, we increased gross revenues from $18.9 million to $27.2 million and had net income of $1,300,000 as compared with $340,000 in the prior year. As of December 31, 2003, we had an accumulated deficit of $16.2 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 debt financings, if available, may involve restrictive covenants that further limit our ability to make decisions that we believe will be in our best interests. In the event we cannot obtain additional financing on terms acceptable to us when required, our ability to expand Sunteck's operations may be materially adversely affected. Liquidity and capital resources During the past two years, our sources for cash have been the cash flow generated from operations and available borrowings and lines of credit. At December 31, 2003, we had outstanding $575,000 of convertible subordinated debentures and $1,046,000 pursuant to our $1,500,000 line of credit. The debentures are convertible into common stock at the option of the debenture holder at a conversion price of $0.25 per share and are redeemable, at the option of the holder, on or after December 31, 2003. In January 2004, these debentures were converted into 2,300,000 shares of common stock. 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 May 2004. 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 December 31, 2003, we had liquid assets of approximately $133,000. Available cash is used to reduce borrowings on our line of credit. 17 The total amount of debt outstanding as of December 31, 2003 and 2002 was $1,621,000 and $1,075,000, respectively. The following table presents our debt instruments and their weighted average interest rates as of December 31, 2003 and 2002, respectively: Weighted Weighted Balance Average Rate Balance Average Rate ------------------------------------------------------ 2003 2002 ------------------------------------------------------ Subordinated Debt $ 575,000 12.0% $ 575,000 12.0% Line of Credit $ 1,046,000 4.5% $ 500,000 17.0% Inflation and changing prices had no material impact on our revenues or the results of operations for the year ended December 31, 2003. 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 cash of $442,000, a decrease in debt of $575,000 and an increase in equity of $1,017,000. The cash proceeds of $442,000 were used to reduce the outstanding balance under our line of credit. Critical accounting policies Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 1 of the Notes to Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of 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 18 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. 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 $17.5 million for federal income tax purposes which expire through 2014. Utilization of this benefit is primarily subject to the extent of our future earnings, and may be limited by, among other things, shareholder changes, including the possible issuance of additional shares in one or more financing or acquisition transactions. We have established a valuation allowance for the portion of possible tax savings not likely to be realized by the end of the carryforward period. Provision for doubtful accounts We continuously monitor the creditworthiness of our customers and have established an allowance for amounts that may become uncollectible in the future based on current economic trends, our historical payment and bad debt write-off experience, and any specific customer related collection issues. Recently issued accounting 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 our financial position or results of operations. Off-balance sheet arrangements We do not have any off-balance sheet arrangements. 19 BUSINESS Overview Through our wholly-owned subsidiary, Sunteck Transport Co., Inc. (Sunteck), we are a non-asset based transportation services company, providing transportation capacity and related transportation services to shippers throughout the United States, and to a lesser extent, Canada. 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. Our brokerage services are provided though a network of independent sales agents. As of March 1, 2004, we had six regional operating centers providing brokerage services and representatives in 15 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 no 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 March 1, 2004, we had five regional offices providing contract carrier services and 43 independent owner-operators. Strategy Our strategy is to continue to expand through affiliations with independent sales agents and through internal expansion. We intend to seek, on a selective basis, acquisition of businesses that have product lines or services which complement and expand our existing services and product lines, and provide us with strategic distribution locations or attractive customer bases. Our ability to implement our growth strategy will be dependent on our ability to identify and affiliate with these agents on desirable economic terms. The industry Prior to the mid 1980's, the trucking industry was regulated by the Interstate Commerce Commission. Deregulation brought new breath and life to the industry. This also brought with it the problem of how to navigate the transportation highway. Shippers found it difficult to locate carriers and carriers found that it was expensive to find freight. Enter the third party transportation providers-intermediaries (freight brokers, freight forwarders and logistics providers). The third party intermediary connects the shipper and the carrier and helps manage the flow of goods. 20 The present market for freight moved by truck is estimated by management to exceed $200 billion per year. This is a highly fragmented industry comprised of common carriers - contract carriers - freight forwarders and freight brokers. The actual movement of goods is accomplished by trucking (consisting of local, over the road, truckload, and less than truckload shipments); air freight (time sensitive in nature); rail freight (non time sensitive in nature and usually less expensive than truck); and ocean freight (generally in containerized ships). Other services provided include warehousing and distribution. There are several trends which are relevant to the continued dependency upon and growth of the trucking industry: o Just in time service With new technology and a premium on cost savings, businesses are able to maintain smaller inventories, thereby reducing carrying costs and warehouse space requirements. The impact on the freight industry is more shipments of smaller quantities that are more time sensitive and, therefore, more costly. o Outsourcing Companies have found it to be more cost effective and efficient to eliminate company owned truck fleets and rely upon others to handle their trucking / shipping needs. o Logistics Small to medium size businesses, with less frequent shipping requirements, utilize logistics providers (freight brokers, etc.) to manage all aspects of the transportation, warehousing and delivery needs. The market for third party logistics providers is highly fragmented. It is comprised primarily of full service logistics providers, freight brokers, independent sales agents and sales representatives. Sales agents often work out of home based offices or small regional sales offices and affiliate themselves with full service brokers to provide back office services including load dispatching, bonding and licensing, billing, collection and other administrative services. Sales representatives vary from experienced people with years of freight industry experience and established client relationships to telemarketing personnel cold calling shippers and dispatchers. Third party logistics companies provide numerous services to clients on an outsourced basis, by contract and on demand. The continued growth of this industry has created secondary market opportunities to provide low-cost delivery to the endpoint, in addition to supply chain services of warehousing, inventory management and electronic interface with customers and suppliers. Third party logistics companies provide customized domestic and international freight transportation of customers' goods and packages, via truck, rail, airplane and ship, and provide warehousing and storage of those goods. Many companies utilize information systems and expertise to reduce inventories, cut transportation costs, speed delivery and improve customer service. The third-party logistics services business has been bolstered in recent years by the competitiveness of the global economy, which causes shippers to focus on reducing handling costs, operating with lower inventories and shortening inventory transit times. Using a network of transportation, handling and storage providers in multiple transportation modes, third-party logistics services companies seek to improve their customers' operating efficiency by reducing their inventory levels and related handling costs. Many third-party logistics service providers are non-asset-based, primarily utilizing physical assets owned by others in multiple transport modes. 21 The third-party logistics services business increasingly relies upon advanced information technology to link the shipper with its inventory and as an analytical tool to optimize transportation solutions. This trend favors the larger, more professionally managed companies that have the resources to support a sophisticated information technology infrastructure. By outsourcing all non- core business services to third party providers, companies can help to control costs, eliminate staff and focus on internal business. Operations and systems In our brokerage services, we process approximately 2,500 freight orders per month. Our sales agents in our six regional operating centers and representatives in fifteen states and Canada receive customers' freight requirements daily. All agents make appropriate carrier arrangements for the pick-up and timely delivery of customers' freight. In our contract carrier services, we process approximately 400 freight orders per month. Our sales agents in our five regional operating centers receive customers' freight requirements daily and, utilizing their respective owner-operators, make appropriate carrier arrangements for the pick-up and timely delivery of customers' freight. In addition, utilizing various sources including numerous internet based freight posting boards, our agents locate additional freight to maximize utilization of available capacity and minimize deadhead miles, or miles driven generating little or no revenue. A typical owner-operator will generate $2,500 per week in revenues. We rely exclusively on independent third parties for our hauling capacity. These third party capacity providers consist of our independent owner-operators, unrelated trucking companies, air cargo carriers and railroads. Our use of capacity provided by our independent owner-operators, and other third party capacity providers allows us to maintain a lower level of capital investment, resulting in lower fixed costs. We utilize a state-of-the-art order entry system. All agents are integrated live via Internet access to our database and client server-based system in our Florida corporate headquarters. Orders are entered into a customized freight order and tracking system, which enables us to monitor the status of all orders, generate customer billing and provide detailed transactional reports. We use these reports to monitor customer logistics and transportation usage, track customer and carrier historical data, generate detailed financial and accounting data and provide our customers with details of their supply chain activity. Suppliers We use the services of various third party transportation companies. No significant third party provider handled more than 10% of our shipping volume (measured by revenue). Customers We strive to establish long-term customer relationships and, by providing a full range of logistics and supply chain services, we seek to increase our level of business with each customer. We service customers ranging from Fortune 100 companies to small businesses in a variety of industries. During 2003, no customer accounted for more than 10% of our revenues. We typically receive credit applications from all customers, review credit references and perform credit checks to ensure credit worthiness. 22 Sunteck has achieved revenue growth through the addition of sales agents and independent sales agent / representatives; the opening of new operations offices; an increase in the number of customers serviced and the expansion of logistics and supply chain services provided. Each operations office markets our full range of supply chain services to existing customers and pursues new customers within their local markets. We build new customer relationships by exploiting our range of logistics and supply chain services, the traffic lanes we commonly service, carrier relationships and capabilities, our industry specific expertise and our sales agents individual knowledge and experience. Our growth model is focused on adding sales agents in strategic markets. As this agent network is further established and expanded, we believe that significant other opportunities will emerge. Larger sales agents offices often have their own equipment (truck space), which presents the opportunity to maximize available freight and load capacity thereby increasing gross margins above historical levels. In addition, sales representatives will be added to regional operating office sales agent locations to increase market penetration. Since representatives work on a commission basis, this expansion essentially comes at no additional overhead outlay. Significant opportunities for expansion and growth also includes strategic alliances with other service freight broker groups. This strategy will enable us to achieve strong regional penetration into new geographical markets and increase back office capabilities to service the agent network. Competition The transportation industry is highly competitive and highly fragmented. In our brokerage services, our primary competitors are other non-asset based as well as asset based third party logistics companies, freight brokers, carriers offering logistics services and freight forwarders. In our contract carrier services, our competitors are other contract carriers and common carriers. We also compete with customers' and shippers' internal traffic and transportation departments as well as carriers internal sales and marketing departments directly seeking shippers' freight. We generally compete on the basis of price and the range of logistics and supply chain services offered. Government regulation Our industry has long been subject to government legislation and regulation. Over the years, many changes in these laws and regulations have affected the industry and caused changes in the operating practices and the cost of providing transportation services. We cannot predict what effect, if any, legislative and regulatory changes may have on the industry in the future. We are licensed by the United States Department of Transportation (DOT) as a broker arranging the movement of materials by motor carrier. In this capacity, we are required to meet certain qualifications to enable us to conduct business, which includes the compliance with certain surety bond requirements. We are licensed by the United States Department of Transportation (DOT) as a contract carrier arranging the movement of materials by motor carrier. In this capacity, we are required to meet certain qualifications to enable us to conduct business, which includes the maintenance of $1,000,000 of general liability insurance and $100,000 of cargo insurance. 23 If we fail to comply with, or lose, any required licenses, governmental regulators could assess penalties or issue a cease and desist order against our operations that are not in compliance. If we expand our services internationally, we may become subject to international economic and political risks. Doing business outside the United States subjects us to various risks, including changing economic and political conditions, major work stoppages, exchange controls, currency fluctuations, armed conflicts and unexpected changes in United States and foreign laws relating to tariffs, trade restrictions, transportation regulations, foreign investments and taxation. Significant expansion in foreign countries will expose us to increased risk of loss from foreign currency fluctuations and exchange controls as well as longer accounts receivable payment cycles. We have no control over most of these risks and may be unable to anticipate changes in international economic and political conditions or alter business practices in time to avoid the adverse effect of any of these changes. Risk and liability In our brokerage services, we do not assume liability for loss or damage to freight; we act as the shipper's agent and arrange for a carrier to handle the freight. Therefore, we do not take possession of the shipper's freight and, accordingly, we are not liable for the carrier's negligence or failure to perform. We do assist our customers in the processing and collection of any claim. The Federal Highway Administration requires us to maintain a surety bond of $10,000, which is intended to show our financial responsibility and provide surety for the arrangements with shippers and carriers. In addition, we maintain $100,000 of contingent cargo liability insurance. In our contract carrier services business, we are liable for loss or damage to our customers' freight. We maintain cargo liability insurance coverage with a policy limit of $200,000. Company background AutoInfo was organized under the laws of the State of Delaware in 1987. On February 2, 2000, we filed a disclosure statement and reorganization plan pursuant to Chapter 11 of Title 11 of the United States Bankruptcy Code. On June 22, 2000, we entered into a Merger Agreement with Sunteck, a full service third party transportation logistics provider, in exchange for, upon closing, ten million shares of our common stock, which constituted approximately 37% of the proposed outstanding common stock of reorganized AutoInfo under our Chapter 11 reorganization plan. Sunteck, which was formed in 1997, is a full service third party transportation logistics provider. Its supply chain services include ground transportation coast-to-coast, local pick up and delivery, warehousing, air freight and ocean freight. Sunteck has developed strategic alliances with less than truckload, truckload, air, rail and ocean common carriers to service its customers' needs. On June 27, 2000, our Amended Disclosure Statement and Amended Plan of Reorganization were approved by the Bankruptcy Court. On August 1, 2000, we announced that the Reorganization Plan had been confirmed and would become effective, without further action by the Court, upon the closing of the Sunteck merger, which occurred in December 2000. 24 Intellectual property "AUTOINFO" is our registered trademark and service mark. Employees As of February 29, 2004, we had 118 full-time employees, independent sales agents and owner-operators. None of our employees are represented by a labor union and we believe that our relationship with our employees, agents and owner-operators is good. Properties We lease approximately 2,350 square feet of space for our executive offices and the headquarters of Sunteck at 6413 Congress Avenue, Boca Raton, Florida. This lease runs through October 2006 and provides for an annual rental of $23,000 for the twelve months ending October 2004 and $33,000 for each of the two years ending October 2005 and 2006, respectively. We lease 1,100 square feet for our operating office at 315 Main Street, Pineville, North Carolina. The lease runs through February 2005 and provides for an annual rental of $12,000. We lease 700 square feet for our operating office at 1040 North Halsted Street, Chicago, Illinois. The lease runs through September 2004 and provides for an annual rental of $9,600. Legal proceedings We are not a party to any material legal proceedings. 25 MANAGEMENT Executive Officers and Directors The following table sets forth the names, ages and positions of our directors, executive officers and key employees: Name Age Position - ---- --- -------- Peter C. Einselen 64 Director Thomas C. Robertson 58 Director Harry Wachtel 45 President, chief executive officer and director Mark Weiss 44 National account executive and director William Wunderlich 56 Chief financial officer PETER C. EINSELEN has been a director since January 1999. Mr. Einselen has served as senior vice president of Anderson & Strudwick, a brokerage firm, since 1990. From 1983 to 1990, Mr. Einselen was employed by Scott and Stringfellow, Incorporated, a brokerage firm. THOMAS C. ROBERTSON has been a director since January 1999. Mr. Robertson has been senior vice president since 2003 and was president, chief financial officer and a director from 1988 to 2003 of Anderson & Strudwick, a brokerage firm. Mr. Robertson has been president of Gardner & Robertson, a money management firm, since 1997. HARRY WACHTEL joined us in conjunction with the acquisition of Sunteck and has been a director, and our president and chief executive officer since December 7, 2000. Since 1997, he has been president of Sunteck. From 1992 to 1997, he served as vice president of sales and marketing for Pioneer Services, Inc., a third party, non-asset based transportation logistics provider. From 1990 to 1991 he served as president of Guaranteed Federal Financial, a mortgage origination company. MARK WEISS joined us in conjunction with the acquisition of Sunteck and has been a director since December 7, 2000. Since 1997, he has been employed by Sunteck as a national account executive. From 1994 to 1997 he served as a national account executive for Pioneer Services, Inc., a third party, non-asset based transportation logistics provider. From 1982 to 1994 he was president of The Picture Place Ltd. Inc., a retailer and wholesaler of photographic, video and art equipment and supplies. Mr. Weiss is the brother-in-law of Mr. Wunderlich, our executive vice president and chief financial officer of the Company. WILLIAM WUNDERLICH joined us in October 1992 as our vice president - finance, became chief financial officer in January 1993, president in January 1999 and, in conjunction with the acquisition of Sunteck, became executive vice president in December 2000. From 1990 to 1992, he served as vice president of Goldstein Affiliates, Inc., a public adjusting company. From 1981 to 1990, he served as executive vice president, chief financial officer and a director of Novo Corporation, a manufacturer of consumer products. Mr. Wunderlich is a Certified Public Accountant with a B.A. degree in Accounting and Economics from the City University of New York at Queens College. Mr. Wunderlich is the brother-in-law of Mr. Weiss, one of our directors. 26 Committees of the board of directors Our board of directors has an audit committee and a compensation committee. The audit committee reviews the scope and results of the audit and other services provided by our independent accountants and our internal controls. The compensation committee is responsible for the approval of compensation arrangements for our officers and the review of our compensation plans and policies. Each committee is comprised of Messrs. Einselen and Robertson, our non-employee independent outside directors. Audit committee matters Under its charter, the Audit Committee must pre-approve all engagements of our independent auditor unless an exception to such pre-approval exists under the Securities Exchange Act of 1934 or the rules of the Securities and Exchange Commission. Each year, the independent auditor's retention to audit our financial statements, including the associated fee, is approved by the committee before the filing of the preceding year's annual report on Form 10-KSB. At the beginning of the fiscal year, the Audit Committee will evaluate other known potential engagements of the independent auditor, including the scope of the work proposed to be performed and the proposed fees, and approve or reject each service, taking into account whether the services are permissible under applicable law and the possible impact of each non-audit service on the independent auditor's independence from management. At each subsequent committee meeting, the committee will receive updates on the services actually provided by the independent auditor, and management may present additional services for approval. Typically, these would be services such as due diligence for an acquisition, that would not have been known at the beginning of the year Since the May 6, 2003 effective date of the Securities and Exchange Commission rules stating that an auditor is not independent of an audit client if the services it provides to the client are not appropriately approved, each new engagement of Dworken, Hillman, LaMorte & Sterczala, P.C. was approved in advance by the Audit Committee, and none of those engagements made use of the de minimus exception to pre-approval contained in the Commission's rules. Our Board has determined that the Chairman of the Audit Committee, Mr. Robertson, is an "audit committee financial expert," as that term is defined in Item 401(e) of Regulation B, and "independent" for purposes of current and recently-adopted Nasdaq listing standards and Section 10A(m)(3) of the Securities Exchange Act of 1934. Section 16(a) beneficial ownership reporting compliance Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (SEC). Officers, directors and greater than ten-percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. Based solely on review of the copies of such forms furnished to us, or written representations that no Forms 5 were required, we believe that all Section 16(a) filing requirements applicable to our officers and directors were complied with. 27 Compensation of directors We do not pay any directors' fees. Directors are reimbursed for the costs relating to attending board and committee meetings. During 2003, each non-employee director was granted options to purchase a total of 77,500 shares of our common stock at prices ranging from $0.11 to $0.24 per share, the fair market value on the date of grant. EXECUTIVE COMPENSATION Summary compensation. The following table sets forth certain information concerning compensation paid for services in all capacities awarded to, earned by or paid to our chief executive officer and the other most highly compensated executive officers during 2003, 2002 and 2001 whose aggregate compensation exceeded $100,000 (Named Executive Officers).
All other Name and principal position Salary Bonus compensation - ------------------------------------------------ ------------- ----------- ---------------- Harry Wachtel President and chief executive officer 2003........................................ $175,000 $51,531 -- 2002........................................ $175,000 $13,035 -- 2001........................................ $ 75,000(1) -- -- William Wunderlich Executive vice president and chief financial officer 2003........................................ $ 93,750 $55,281 -- 2002........................................ $ 75,000 $28,035 -- 2001........................................ $ 75,000 -- -- Mark Weiss National account executive 2003........................................ $118,592 -- -- 2002........................................ $127,836 -- -- 2001........................................ $131,663 -- --
- ---------- (1) For the year ended December 31, 2001, Mr. Wachtel waived $100,000 of his minimum salary. Option grants during the year ended December 31, 2003 Our Compensation Committee did not grant any options to the named executives during the year ended December 31, 2003. During 2003, non-employee directors were granted options to purchase a total of 155,000 shares of our common stock at prices ranging from $0.11 to $0.24 per share, the fair market value on the date of grant. During 2001, non-employee directors were granted options to purchase a total of 30,000 shares of our common stock at $0.05 per share, the fair market value on the date of grant. 28 Option exercises and year-end option values. The following table provides information with respect to options exercised by the Named Executive Officers during 2003 and the number and value of unexercised options held by the Named Executive Officers as of December 31, 2003. Aggregated Option Exercise in Last Fiscal Year and Year-End Option Values
Number of Shares Underlying Value of Unexercised In-the- Unexercised Options at Fiscal Money Options At Fiscal Year-End Year-End (2) ----------------------------- ----------------------------- Shares Acquired Name on Exercise (#) Value Realized (1) Exercisable Unexercisable Exercisable Unexercisable - ---- --------------- ------------------ ----------- ------------- ----------- ------------- Harry Wachtel -- -- -- -- -- -- Mark Weiss -- -- -- -- -- -- William Wunderlich 35,000 $ 4,620 810,000 0 $153,900 $ 0
- ---------- (1) For the purposes of this calculation, value is based upon the difference between the exercise price of the options and the stock price at date of exercise. (2) For the purposes of this calculation, value is based upon the difference between the exercise price of the exercisable and unexercisable options and the stock price at December 31, 2003 of $0.29 per share. Equity Compensation Plan Information Year Ended December 31, 2003
Number of securities remaining available for Number of securities Weighted-average future issuance under to be issued upon exercise price of equity compensation exercise of outstanding plans (excluding outstanding options, options, warrants securities reflected in Plan Category warrants and rights and rights column (a)) - ------------------------------------ -------------------- ----------------- ----------------------- (a) (b) Equity compensation plans approved by security holders (1985, 1986, 1989, 1992, 1997, 1999 and 2003 Stock Option Plans) 4,095,256 $ 0.15 2,129,744 Equity compensation plans not approved by security holders(1) -- -- -- ========= ========= ========= Total 4,095,256 $ 0.15 2,129,744 ========= ========= =========
(1) We do not have any equity compensation plans which have not been approved by security holders. Employment agreements In December 2000, we entered into employment agreements with Messrs. Wachtel and Wunderlich providing for their employment, as our chief executive officer and chief financial officer, respectively, for terms expiring, as modified in April 2003, on March 31, 2006 subject to automatic one-year renewals unless either party gives written notice ninety days prior to the end of the then current term of the agreement. The agreements provide for annual base salaries of $175,000 and $75,000, respectively, and for participation in all executive benefit plans. As of April 1, 2003, Mr. Wunderlich's base salary was increased to $100,000. Each of Mr. Wachtel's and Mr. Wunderlich's agreements provide that they will each be entitled to a bonus equal to 10% of our consolidated pre-tax profit from $100,000 to $1,250,000. Further, the Mr. Wachtel's agreement provides, among other things, that, if employment is terminated without cause (as defined) or if he terminates his employment for good reason (as defined) or within six months after a change of control (as defined), we will pay him an amount equal to his respective current base salary plus the average incentive compensation due to him during the remaining term of the agreement. 29 Limitation of directors' liability and indemnification Our certificate of incorporation limits the liability of individual directors for specified breaches of their fiduciary duty. The effect of this provision is to eliminate the liability of directors for monetary damages arising out of their failure, through negligent or grossly negligent conduct, to satisfy their duty of care, which requires them to exercise informed business judgment. The liability of directors under the federal securities laws is not affected. A director may be liable for monetary damages only if a claimant can show receipt of financial benefit to which the director is not entitled, intentional infliction of harm on us or on our shareholders, a violation of section 174 of the Delaware General Corporation Law (dealing with unlawful distributions to shareholders effected by vote of directors), and any amended or successor provision thereto, or an intentional violation of criminal law. Our certificate of incorporation also provides that we will indemnify each of our directors or officers, and their heirs, administrators, successors and assigns against any and all expenses, including amounts paid upon judgments, counsel fees, and amounts paid or to be paid in settlement before or after suit is commenced, actually and necessarily incurred by such persons in connection with the defense or settlement of any claim, action, suit or proceeding, in which they, or any of them are made parties, or which may be asserted against them or any of them by reason of being, or having been, directors or officers of the corporation, except in relation to such matters in which such director or officer shall be adjudged to be liable for his own negligence or misconduct in the performance of his duty. There is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which we are required or permitted to provide indemnification, except as set forth under Certain Relationships and Related Party Transactions. We are also not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or controlling persons under our certificate of incorporation, we have been informed that, in the opinion of the SEC, indemnification is against public policy as expressed in the Securities Act and is unenforceable. Code of ethics We have adopted a code of ethics that applies to our principal executive officer, principal financial officer and other persons performing similar functions. This code of ethics is posted on our website at www.suntecktransport.com. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS In August 2002, we entered into a $500,000 line of credit agreement with James T. Martin, a significant stockholder, secured by our accounts receivable, which expired in August 2003. Interest on the outstanding borrowings was 17% per annum, payable quarterly in arrears. This line of credit was repaid in full in May 2003. Interest of $35,000 and $85,000 was charged to operations in 2003 and 2002, respectively. In December 2001, we lent $100,000 to the father-in-law of Harry Wachtel, our president. This loan bears interest at 4% per annum and is due in December 2006. This loan was repaid in March 2004. 30 In December 2000, the Company obtained financing totaling $575,000 from certain related parties in the form of ten year 12% subordinated convertible debentures. The debentures are convertible into common stock at the option of the debenture holder at a conversion price of $0.25 per share and are redeemable, at the option of the holder, on or after December 31, 2003. Interest of $69,000 was charged to operations in each of 2003 and 2002. In January 2004, these debentures were converted into 2,300,000 shares of common stock. 31 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information regarding the beneficial ownership of our common shares as of the date of this prospectus by: o each person, or group of affiliated persons, known by us to be the beneficial owner of more than 5% of our outstanding common shares; o each of our directors; o each executive officer named in the summary compensation table above; and o all of our directors and executive officers as a group. We determined beneficial ownership in accordance with rules promulgated by the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. Except as otherwise indicated, we believe that the persons or entities named in the following table have sole voting and investment power with respect to all shares of common stock as beneficially owned by them, subject to community property laws where applicable. Name of Shares of Common Stock Percentage Beneficial Owner (1) Beneficially Owned Of Ownership -------------------- ------------------ ------------ (i) Directors and Executive Officers Harry Wachtel 8,970,000(2) 28.8% Thomas C. Robertson 165,000(3) * Peter C. Einselen 335,000(3) 1.1% Mark Weiss 1,000,000(5) 3.2% William I. Wunderlich 1,665,000(4)(6) 5.2% All executive officers and directors as a group (5 persons) 10,385,000(7) 32.3% (ii) 5% Stockholders James T. Martin 6,270,000 20.2% Kinderhook Partners, LP (8) 3,788,333 12.2% - ---------- * Less than 1% (1) Unless otherwise indicated below, each director, executive officer and each 5% stockholder has sole voting and investment power with respect to all shares beneficially owned. The address for Mr. Wachtel and Mr. Wunderlich is c/o AutoInfo, Inc., 6413 Congress Avenue, Suite 240, Boca Raton, FL 33487. The address for Mr. Martin is c/o Bermuda Trust Company, Compass Point Road, 9 Bermudian Road, Hamilton HM11, Bermuda. (2) Includes 1,750,000 shares with respect to which Mr. Wachtel has been granted voting rights pursuant to voting proxy agreements. (3) Includes 105,000 shares issuable upon the exercise of stock options. (4) Includes 810,000 shares issuable upon the exercise of stock options. (5) Includes 1,000,000 with respect to which Mr. Weiss has granted voting rights to Mr. Wachtel pursuant to a voting proxy agreement. Mr. Weiss retains full control over the disposition of these shares. (6) Includes 750,000 with respect to which Mr. Wunderlich has granted voting rights to Mr. Wachtel pursuant to a voting proxy agreement. Mr. Wunderlich retains full control over the disposition of these shares. (7) Assumes that all currently exercisable options or warrants owned by members of this group have been exercised. (8) The General Partner of Kinderhook Partners, LP is Kinderhook GP, LLC. Stephen J. Clearman is the managing member of Kinderhook GP, LLC. Kinderhook GP, LLC and Stephen J. Clearman each disclaim beneficial ownership of the shares except to the extent of their pecuniary interest therein. 32 DESCRIPTION OF SECURITIES Our authorized capital stock consists of 110,000,000 shares, including 100,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share. Our Board of Directors may designate the rights and preferences of the preferred stock. Preferred stock could be used, under certain circumstances, as a way to discourage, delay or prevent a takeover of the Company. See "Anti-Takeover Provisions." As of March 30, 2004, there were issued and outstanding 31,116,256 shares of common stock and no shares of preferred stock. The authorized but unissued shares of common stock are available for future issuance without stockholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued common stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise. The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or bylaws, unless the corporation's certificate of incorporation or bylaws, as the case may be, requires a greater percentage. Our certificate of incorporation does not impose any supermajority vote requirements. Common stock Under our Restated Certificate of Incorporation, shares of our common stock are identical in all respects, and each share entitles the holder to the same rights and privileges as are enjoyed by other holders and is subject to the same qualifications, limitations and restrictions as apply to other shares. Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of our common stock do not have cumulative voting rights. Accordingly, subject to any voting rights of holders of any preferred stock that may be issued, holders of a plurality of our common stock present at a meeting at which a quorum is present are able to elect all of the directors eligible for election. The presence of a majority of the voting power of our outstanding capital stock constitutes a quorum. The holders of our common stock are entitled to dividends when and if declared by our board of directors from legally available funds. The holders of our common stock are also entitled to share pro rata in any distribution to stockholders upon our liquidation or dissolution. None of the shares of our common stock: o have preemptive rights; o are redeemable; o are subject to assessments or further calls; o have conversion rights; or o have sinking fund provisions. 33 Preferred stock We are currently authorized to issue 10,000,000 shares of preferred stock in one or more series. No series has been designated. Our board of directors may determine the terms of the preferred stock at the time of its issuance without action by our stockholders. The terms of any issuance of preferred stock may include: o voting rights, including the right to vote as a series on particular matters, which could be superior to those of our common stock; o preferences over our common stock as to dividends and distributions in liquidation; o conversion and redemption rights, including the right to convert into shares of our Common Stock; and o sinking fund provisions. Outstanding options and warrants At March 30, 2004, we had outstanding 4,001,485 stock options granted to employees and consultants. These options have exercise prices ranging from $0.05 to $0.60 per share, with an average weighted exercise price of $0.11, and expire between April 2005 and March 2014. Of the options outstanding at March 30, 2004, 1,755,269 are vested and currently exercisable. Registration rights Other than the registration rights with respect to the shares offered by this Prospectus, we do not have any contractual obligations to register any shares of our common stock. Transfer agent The transfer agent and registrar for our common stock and the warrant agent for the unit warrants is American Stock Transfer and Trust Company, located in New York, New York. 34 SELLING STOCKHOLDER The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of March 23, 2004, by the selling stockholder. The number of shares in the column labeled "Shares Being Offered" represent all of the shares that the selling stockholder may offer under this prospectus. The table assumes that the selling stockholder sells all of the shares. We are unable to determine the exact number of shares that actually will be sold. We do not know how long the selling stockholder will hold the shares before selling them and we currently have no agreements, arrangements or understandings with the selling stockholders regarding the sale of any of the shares other than our agreement with the selling stockholder to maintain the effectiveness of this registration statement for two years.
Number of Number of shares Owned Number of Shares Owned Name and Address of Before the Percentage Shares After the Percentage Beneficial Owner Offering (1) of Class Offered Offering of Class - ------------------------------ -------------- ------------ ----------- -------------- ------------ Kinderhook Partners, LP(1).... 3,788,333 12.2% 3,633,333 155,000 0.05%
- ---------- (1) The General Partner of Kinderhook Partners, LP is Kinderhook GP, LLC. Stephen J. Clearman is the managing member of Kinderhook GP, LLC. Kinderhook GP, LLC and Stephen J. Clearman each disclaim beneficial ownership of the shares except to the extent of their pecuniary interest therein. PLAN OF DISTRIBUTION We are registering shares of our common stock under the Securities Act for sale by the selling stockholder. As used in this prospectus, "selling stockholder" includes the pledgees, donees, transferees or others who may later hold the selling stockholder's interests. We have agreed to pay the costs and fees of registering the shares, including the preparation of the registration statement that includes this prospectus, but the selling stockholder will pay any brokerage commissions, discounts or other expenses relating to the sale of the shares, including attorneys' fees. The selling stockholder may sell the shares in the over-the-counter market or otherwise, at market prices prevailing at the time of sale, at prices related to the prevailing market prices, or at negotiated prices. In addition, the selling stockholder may sell some or all of their shares through: o a block trade in which a broker-dealer may resell a portion of the block, as principal, in order to facilitate the transaction; o purchases by a broker-dealer, as principal, and resale by the broker-dealer for its account; or o ordinary brokerage transactions and transactions in which a broker solicits purchasers. When selling the shares, the selling stockholder may enter into hedging transactions. For example, the selling stockholder may: o enter into transactions involving short sales of the shares by broker-dealers; o sell shares short themselves and redeliver such shares to close out their short positions; 35 o enter into option or other types of transactions that require the selling stockholder to deliver shares to a broker-dealer, who will then resell or transfer the shares under this prospectus; or o loan or pledge the shares to a broker-dealer, who may sell the loaned shares or, in the event of default, sell the pledged shares. The selling stockholder may negotiate and pay broker-dealers commissions, discounts or concessions for their services. Broker-dealers engaged by the selling stockholder may allow other broker-dealers to participate in resales. However, the selling stockholder and any broker-dealers involved in the sale or resale of the shares may qualify as "underwriters" within the meaning of Section 2(a)(11) of the Securities Act. In addition, the broker-dealers' commissions, discounts or concession may qualify as underwriters' compensation under the Securities Act. If the selling stockholder qualifies as an "underwriter," it will be subject to the prospectus delivery requirements of Section 5(b)(2) of the Securities Act. The selling stockholder should be aware that the anti-manipulation provisions of Regulation M under the Securities Exchange Act will apply to purchases and sales of shares of common stock by the selling stockholders, and that there are restrictions on market-making activities by persons engaged in the distribution of the shares. Under Regulation M, the selling stockholders or their agents may not bid for, purchase, or attempt to induce any person to bid for or purchase, shares of our common stock while such selling stockholders are distributing shares pursuant to this prospectus. The selling stockholders are advised that if a particular offer of common stock is to be made on terms constituting a material change from the information set forth above with respect to the Plan of Distribution, then, to the extent required, a post-effective amendment to the registration statement must be filed with the Securities and Exchange Commission. From time to time this prospectus will be supplemented and amended as required by the Securities Act of 1933, as amended. During any time when a supplement or amendment is so required, the selling stockholder is to cease sales until the prospectus has been supplemented or amended. Pursuant to the registration rights granted to the selling stockholder, we have agreed to update and maintain the effectiveness of this prospectus. In addition to selling their shares under this prospectus, the selling stockholder may: o agree to indemnify any broker-dealer or agent against certain liabilities related to the selling of the shares, including liabilities arising under the Securities Act; o transfer its shares in other ways not involving market makers or established trading markets, including directly by gift, distribution, or other transfer; or o sell its shares pursuant to Rule 144 under the Securities Act rather than pursuant to this prospectus, if the shares are eligible for such sale and the transaction meets the requirements of Rule 144. LEGAL MATTERS The validity of the common shares offered by this prospectus will be passed upon for us by Morse, Zelnick, Rose & Lander LLP, New York, New York. Affiliates of Morse, Zelnick, Rose & Lander LLP, including its partners, own an aggregate of 34,000 shares of our common stock. 36 EXPERTS Dworken, Hillman, LaMorte & Sterczala, P.C., independent auditors, have audited our financial statements as of and for the years ended December 31, 2002 and 2003 as set forth in their report. We have included these financial statements in the prospectus and elsewhere in the registration statement in reliance on Dworken, Hillman, LaMorte & Sterczala, P.C.'s report, given on their authority as experts in accounting and auditing. COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Our Restated Certificate of Incorporation provides that we shall indemnify our directors and officers to the fullest extent permitted by Delaware law and that none of our directors will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability: o for any breach of the director's duty of loyalty to us or our stockholders; o for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law; o under section 174 of the Delaware General Corporation Law for the unlawful payment of dividends; or o for any transaction from which the director derives an improper personal benefit. These provisions require us to indemnify our directors and officers unless restricted by Delaware law and eliminate the our rights and those of our stockholders to recover monetary damages from a director for breach of his fiduciary duty of care as a director except in the situations described above. The limitations summarized above, however, do not affect our ability or that of its stockholders to seek non-monetary remedies, such as an injunction or rescission, against a director for breach of his fiduciary duty. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to ourdirectors, officers and controlling persons pursuant to the foregoing provisions, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. WHERE YOU CAN FIND MORE INFORMATION In connection with the units offered by this prospectus, we have filed a registration statement on Form SB-2 under the Securities Act with the SEC. This prospectus, filed as part of the registration statement, does not contain all of the information included in the registration statement and the accompanying exhibits and schedules. For further information with respect to our units, shares and warrants, and us you should refer to the registration statement and the accompanying exhibits and schedules. Statements contained in this prospectus regarding the contents of any contract or any other document are not necessarily complete, and you should refer to the copy of the contract or other document filed as an exhibit to the registration statement, each statement being qualified in all respects by the actual contents of the contract or other document referred to. You may inspect a copy of the registration statement and the accompanying exhibits and schedules without charge at the Securities and Exchange Commission's public reference facilities, Room 1024, 450 Fifth Street, N.W., Washington, 37 D.C. 20549, and at its regional offices located at 233 Broadway, 16th Floor, New York, New York 10279, and you may obtain copies of all or any part of the registration statement from those offices for a fee. You may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The SEC maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically. The address of the site is http://www.sec.gov. 38 ================================================================================ You may rely on the information contained in this prospectus. We have not authorized anyone to provide information different from that contained in this prospectus. Neither the delivery of this prospectus nor sale of common shares means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of an offer to buy our common shares in any circumstances under which the offer or solicitation is unlawful. --------------------------- Table of Contents Page ---- Prospectus Summary ....................................................... 3 Risk Factors ............................................................. Forward Looking Statements ............................................... Use of Proceeds .......................................................... Dividend Policy .......................................................... Capitalization ........................................................... Price Ranges of Our Common Stock ......................................... Selected Consolidated Financial Data ..................................... Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................. Business ................................................................. Management ............................................................... Certain Relationships and Related Party Transactions ..................... Security Ownership of Certain Beneficial Owners and Management ........... Description of Securities ................................................ Selling Stockholder ...................................................... Plan of Distribution ..................................................... Legal Matters ............................................................ Experts .................................................................. Where You Can Find More Information ...................................... Index to Financial Statements ............................................ F-1 --------------------------- ================================================================================ ================================================================================ 3,633,333 Shares of Common Stock AUTOINFO, INC. ------------ PROSPECTUS ------------ _________ ___, 2004 ================================================================================ AUTOINFO, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Public Accountants F-2 Consolidated Balance Sheets as of December 31, 2003 and 2002 F-3 Consolidated Statements of Income for the Years Ended December 31, 2003 and 2002 F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2003 and 2002 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2003 and 2002 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 Independent Auditors' Report To the Board of Directors and Stockholders of AutoInfo, Inc. We have audited the accompanying consolidated balance sheets of AutoInfo, Inc. and Subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AutoInfo, Inc. and Subsidiaries as of December 31, 2003 and 2002 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. February 13, 2004 Shelton, Connecticut /s/ Dworken, Hillman, LaMorte & Sterczala, P.C. ----------------------------------------------- Dworken, Hillman, LaMorte & Sterczala, P.C. F-2 AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS (Note 2) December 31 ---------------------------- 2003 2002 ------------ ------------ Current assets: Cash and cash equivalents $ 133,000 $ 684,000 Accounts receivable, net of allowance for doubtful accounts of $60,000 4,881,000 2,996,000 Other current assets 292,000 74,000 Loan receivable (Note 3) 100,000 100,000 Deferred income taxes (Note 4) 248,000 -- ------------ ------------ Total current assets 5,654,000 3,854,000 Fixed assets, net of depreciation 71,000 67,000 Deferred income taxes (Note 4) 536,000 -- Other assets 25,000 23,000 ------------ ------------ $ 6,286,000 $ 3,944,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Loan payable (Note 2) $ 1,046,000 $ 500,000 Convertible subordinated debentures (Note 2) 575,000 575,000 Accounts payable and accrued liabilities 2,773,000 2,281,000 ------------ ------------ Total current liabilities 4,394,000 3,356,000 ------------ ------------ Commitments and Contingencies (Note 5) Stockholders' equity : (Note 6) Common Stock - authorized 100,000,000 shares, $.001 par value; issue and outstanding 27,382,923 and 27,347,923 as of December 31, 2003 and 2002, respectively 27,000 27,000 Additional paid-in capital 18,023,000 18,019,000 Deficit (16,158,000) (17,458,000) ------------ ------------ Total stockholders' equity 1,892,000 588,000 ------------ ------------ $ 6,286,000 $ 3,944,000 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-3 AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For The Years Ended December 31, -------------------------------- 2003 2002 ------------ ------------ Gross revenues $ 27,171,000 $ 18,863,000 Cost of transportation 22,095,000 15,495,000 ------------ ------------ Net revenues 5,076,000 3,368,000 ------------ ------------ Commissions 2,955,000 1,827,000 Operating expenses 1,450,000 1,057,000 ------------ ------------ 4,405,000 2,884,000 ------------ ------------ Income from operations 671,000 484,000 ------------ ------------ Other charges (credits): Investment income (6,000) (26,000) Interest expense 131,000 154,000 ------------ ------------ 125,000 128,000 ------------ ------------ Income before income taxes 546,000 356,000 Income taxes (benefit) (Note 4) (754,000) 16,000 ------------ ------------ Net income 1,300,000 340,000 ============ ============ Basic and diluted net income per share $ .05 $ .01 ============ ============ Weighted average number of common and common equivalent shares 28,789,000 27,940,000 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. F-4 AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Shares of Common Additional Stock Common Paid - In Outstanding Stock Capital Deficit ------------ ------------ ------------ ------------ Balance, January 1, 2002 27,298,000 $ 27,000 $ 18,014,000 $(17,798,000) Exercise of stock options 50,000 -- 5,000 Net income 340,000 ------------ ------------ ------------ ------------ Balance, December 31, 2002 27,348,000 27,000 18,019,000 (17,458,000) Exercise of stock options 35,000 -- 4,000 Net income 1,300,000 ------------ ------------ ------------ ------------ Balance, December 31, 2003 27,383,000 $ 27,000 $ 18,023,000 $(16,158,000) ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-5 AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For The Years Ended December 31, -------------------------------- 2003 2002 ----------- ----------- Cash flows from operating activities: Net income $ 1,300,000 $ 340,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization expenses 38,000 18,000 Deferred income taxes (784,000) -- Changes in assets and liabilities: Accounts receivable, net (1,885,000) (1,638,000) Other current assets (218,000) (9,000) Other assets (2,000) (23,000) Accounts payable and accrued liabilities 492,000 1,141,000 ----------- ----------- Net cash used in operating activities (1,059,000) (171,000) ----------- ----------- Cash flows from investing activities: Capital expenditures (42,000) (48,000) Redemption of short-term investments -- 13,000 ----------- ----------- Net cash used in investing activities (42,000) (35,000) ----------- ----------- Cash flows from financing activities: Exercise of stock options 4,000 5,000 Increase in borrowings, net 546,000 -- ----------- ----------- Net cash provided by financing activities 550,000 5,000 ----------- ----------- Net change in cash and cash equivalents (551,000) (201,000) Cash and cash equivalents, beginning of year 684,000 885,000 ----------- ----------- Cash and cash equivalents, end of year $ 133,000 $ 684,000 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. F-6 AUTOINFO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003 and 2002 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. Our brokerage services are provided though a network of independent sales agents. As of March 1, 2004, we had six regional operating centers providing brokerage services and representatives in 15 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 our operating authority and transport freight under the Sunteck name. As of March 1, 2004, we had five regional offices providing contract carrier services and 43 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. F-7 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 and Cash Equivalents Cash and cash equivalents consist of cash in banks and investments in short-term, highly liquid securities having original maturities of three months or less. 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 and cash equivalents. Fixed Assets Fixed assets as of December 31, 2003 and 2002, 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 1,434,000 and 633,000 for the year ended December 31, 2003 and 2002, respectively. 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. F-8 Income Taxes The Company utilizes the asset and liability method for accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and future benefits to be recognized upon the utilization of certain operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Stock-Based Compensation The Company 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 for stock options in the financial statements. 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. Reclassifications Certain December 31, 2002 balances have been reclassified to conform with the December 31, 2003 presentation. Note 2 - Debt Loan Payable In May 2003, the Company entered into a $1.5 million Line of Credit, expiring in May 2004, with a commercial lending institution, secured by substantially all assets of the Company. The line provides for interest at the prime rate plus 1/2% and the maintenance of certain financial covenants. Interest of $27,000 was charged to operations in 2003. F-9 In August 2002, the Company entered into a $500,000 Line of Credit Agreement with James T. Martin, a significant stockholder of the Company, secured by the Company's accounts receivable, which expires in August 2003. Interest on the outstanding borrowings was 17% per annum, payable quarterly in arrears. This credit facility was repaid in full in May 2003. Interest of $35,000 and $85,000 was charged to operations in 2003 and 2002, respectively. Convertible Subordinated Debentures In December 2000, the Company obtained financing totaling $575,000 from certain related parties in the form of ten year 12% Subordinated Convertible Debentures (Debentures). The Debentures are convertible into the common stock of the Company at the option of the debenture holder at a conversion price of $0.25 per share and are redeemable, at the option of the holder, on or after December 31, 2003. Interest of $69,000 was charged to operations in each of 2003 and 2002. In January 2004, these debentures were converted into 2,300,000 shares of common stock. See Note 10. Note 3 - Loan Receivable In December 2001, the Company made a loan of $100,000 to the father-in-law of Harry Wachtel, the president of the Company. This loan bears interest at 4% per annum and was repaid in full in March 2004. Note 4- Income Taxes For the years ended December 31, 2003 and 2002, the provision for income taxes consisted of the following: 2003 2002 ---------- ---------- Federal $ 175,000 $ 114,000 State 30,000 16,000 ---------- ---------- 205,000 130,000 Deferred tax benefit (175,000) (114,000) Change in valuation allowance (784,000) -- ---------- ---------- Income tax (benefit) $ (754,000) $ 16,000 ========== ========== The following table reconciles the Company's effective income tax rate on income from operations to the Federal Statutory Rate for the years ended December 31, 2003 and 2002. 2003 2002 ---------- ---------- Federal Statutory Rate 34.0% 34.0% State income taxes, net of federal benefit 3.6 4.5 Effect of: Utilization of operating loss carryforward (34.0) (34.0) Change in valuation allowance (141.6) -- ---------- ---------- (138.0)% 4.5% ========== ========== F-10 Deferred taxes are comprised of the following at December 31, 2003 and 2002: December 31, December 31, 2003 2002 ------------ ------------ Deferred tax assets: Net operating loss carryforward $ 5,926,000 $ 6,101,000 ------------ ------------ Gross deferred tax assets 5,926,000 6,101,000 Less: valuation allowance (5,142,000) (6,101,000) ------------ ------------ Deferred tax asset $ 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 has a net operating loss carryforward of approximately $17.5 million for federal income tax purposes which expire through 2014. Utilization of this benefit is primarily subject to the extent of future earning of the Company, and may be limited by, among other things, shareholder changes, including the possible issuance by the Company of additional shares in one or more financing or acquisition transactions. The Company has established a valuation allowance for the portion of the possible tax savings not likely to be realized by the end of the carryforward period. Based upon available objective evidence, including the Company's post-merger history of profitability, management believes it is more likely than not that forecasted taxable income will be sufficient to utilize a portion of the net operating loss carryforward before its expiration in 2014. Accordingly, in 2003 the valuation allowance was reduced by $784,000. However, there can be no assurance that the Company will meet its expectations of future income. Note 5 - Commitments and Contingencies Leases The Company is obligated under non-cancelable operating leases for premises expiring at various dates through October 2006. Future minimum lease payments are $45,000, $35,000 and $25,000 for the years ended December 31, 2004, 2005 and 2006, respectively. Rent expense for the years ended December 31, 2003 and 2002 was $53,000 and $77,000, respectively. Other Agreements The Company has employment agreements with Messrs. Wachtel, the president, and Wunderlich, the executive vice president and chief financial officer of the Company, who are also stockholders. The agreements expire in March 2006 and provide for minimum annual compensation of $175,000 and $100,000, and bonuses equal to 10% of the Company's consolidated pre-tax profit from $100,000 to $1,250,000, respectively. Bonus payments to Messrs. Wachtel and Wunderlich were $51,531 and $55,281 for the year ended December 31, 2003 and $13,035 and $28,035 for the year ended December 31, 2002, respectively. F-11 Litigation The Company is involved in certain litigation arising in the ordinary course of its business. In the opinion of management, these matters will not have a material adverse effect on the Company's financial position or liquidity. Note 6 - Stockholders' Equity Stock Option Plans The Company has seven stock option plans, its 1985, 1986, 1989, 1992, 1997, 1999 and 2003 Plan (collectively, the Plans). Pursuant to the Plans, a total of 7,842,500 shares of Common Stock were made available for grant of stock options. Under the Plans, options have been granted to key personnel for terms of up to ten years at not less than fair value of the shares at the dates of grant and are exercisable in whole or in part at stated times commencing one year after the date of grant. No further grants will be made under the 1985, 1986, 1989 or 1992 Plans. At December 31, 2003, options to purchase 4,095,000 shares of common stock were outstanding under the Plans. The pro-forma effect of these options on net income and earnings per share, utilizing the Black-Scholes option-pricing model, consistent with the method stipulated by SFAS 123, was not material to the Company's results of operations. Option activity for the years ended December 31, 2003 and 2002 was as follows:
Granted Exercisable ------------------------------ ---------------------------- Weighted Weighted Number of Average Number of Average Shares Exercise Price Shares Exercise Price ---------- ---------------- ---------- -------------- Outstanding at December 31, 2001 1,461,000 .10 Forfeited during the year (86,000) .08 Exercised during the year (50,000) .10 Granted during the year 1,258,000 .13 ---------- ---------- Outstanding at December 31, 2002 2,583,000 .11 1,005,000 $ .09 ---------- ---------- Forfeited during the year (222,000) .10 Exercised during the year (35,000) .10 Granted during the year 1,769,000 .20 ---------- ---------- Outstanding December 31, 2003 4,095,000 $ .15 1,802,000 $ .10 ---------- ---------- ---------- ----------
Weighted average fair value of options granted: 2003 $ .20 2002 $ .13 Note 7 - Fair Value of Financial Instruments The following disclosures of fair value were determined by management using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial F-12 instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Cash, accounts receivable, loans receivable, accounts payable and accrued liabilities, loans payable and convertible subordinated debentures are carried at amounts which reasonably approximate fair value. Note 8 - Quarterly Results of Operations (Unaudited)
Year Ended December 31, 2003 Quarter Ended ---------------------------------------------------- Mar 31 June 30 Sep 30 Dec 31 ---------- ---------- ---------- ---------- Gross revenues $5,141,000 $6,102,000 $7,552,000 $8,376,000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income $ 79,000 $ 108,000 $ 172,000 $ 941,000 ========== ========== ========== ========== Basic and diluted per share data: ---------- ---------- ---------- ---------- Net income $ .003 $ .004 $ .006 $ .032 ========== ========== ========== ========== Year Ended December 31, 2002 Quarter Ended ---------------------------------------------------- Mar 31 June 30 Sep 30 Dec 31 ---------- ---------- ---------- ---------- Gross revenues $3,560,000 $4,743,000 $5,412,000 $5,148,000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income $ 65,000 $ 83,000 $ 107,000 $ 85,000 ========== ========== ========== ========== Basic and diluted per share data: Net income $ .002 $ .003 $ .004 $ .003 ========== ========== ========== ==========
Note 9 - Supplemental Disclosure of Cash Flow Information Cash paid for interest in 2003 and 2002 was $131,000 and $147,000, respectively. The Company paid no income taxes in 2003 and 2002 Note 10 - Subsequent Event In January 2004, the Company sold 1,333,333 shares of common stock to Kinderhook Partners, LP in a private transaction. In a simultaneous transaction, Kinderhook Partners acquired all of the Company's 12% Convertible Subordinated Debentures and immediately converted these debentures into 2,300,000 shares of common stock. F-13 The following Pro-Forma Balance Sheet gives effect to these transactions as of December 31, 2003: As Stated Transaction Effect ProForma Total current assets $ 5,654,000 $ 442,000 $ 6,096,000 Total other assets 632,000 632,000 -------------------------------------------- $ 6,286,000 $ 442,000 $ 6,728,000 -------------------------------------------- Total current liabilities $ 4,394,000 $ (575,000) $ 3,819,000 Total stockholders' equity $ 1,892,000 $ 1,017,000 $ 2,909,000 -------------------------------------------- $ 6,286,000 $ 442,000 $ 6,728,000 -------------------------------------------- F-14 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers Section 145 of the Delaware General Corporation Law grants us the power to indemnify our directors and officers against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with specified actions, suits or proceedings, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation - a "derivative action"), if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses (including attorneys' fees) incurred in connection with the defense or settlement of such actions, and the statute requires court approval before there can be any indemnification in which the person seeking indemnification has been found liable to the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation's charter, bylaws, disinterested director vote, stockholder vote, agreement or otherwise. Our Certificate of Incorporation provides that we indemnify and hold harmless each of our directors and officers to the fullest extent authorized by the Delaware General Corporation Law, against all expense, liability and loss (including attorney's fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith. Our Certificate of Incorporation also provides that a director will not be personally liable to us or to our stockholders for monetary damages for breach of the fiduciary duty of care as a director. This provision does not eliminate or limit the liability of a director: o for breach of his or her duty of loyalty to us or to our stockholders; o for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; o under Section 174 of the Delaware General Corporation Law (relating to unlawful payments or dividends or unlawful stock repurchases or redemptions); or o for any improper benefit. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons pursuant to our Certificate of Incorporation, Bylaws and the Delaware General Corporation Law, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy and is, therefore, unenforceable. II-1 Item 25. Other Expenses of Issuance and Distribution. The following are the expenses of the issuance and distribution of the securities being registered, other than underwriting commissions and expenses, all of which will be paid by the Company. Other than the SEC registration fee all of such expenses are estimated. Registration fee ................................................. $ 300.00 Printing expenses ................................................ $ 500.00 Accounting fees and expenses ..................................... $ 1,000.00 Legal fees and expenses .......................................... $ 20,000.00 Transfer agent and registrar fees and expenses ................... $ 500.00 Miscellaneous .................................................... $ 2,700.00 ----------- Total ................................................... $ 25,000.00 =========== II-2 Item 26. Recent Sales of Unregistered Securities. On January 21, 2004, we closed a private placement pursuant to which we issued a total of 1,333,333 shares of our common stock, par value $0.001 per share (common stock"), to an accredited investor. We received $442,201.76 in consideration for the issuance of the securities. The securities were issued pursuant to the exemption from registration provided by Rule 506 of Regulation D, promulgated under the Securities Act of 1933, as amended. The investor received current information about our company and had the opportunity to ask questions about our company. The investor purchased the securities for investment purposes and the securities they received were marked with the appropriate restrictive legend. On January 21, 2004, we issued a total of 2,300,000 shares of our common stock upon conversion of $575,000 of outstanding 12% convertible debentures. The foregoing securities were issued in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended, provided in Section 4(2) thereof, as a transaction by an issuer not involving a public offering. The registrant reasonably believed that the purchaser had such knowledge and experience in financial and business matters to be capable of valuating the merits and risks of the investment, each purchaser represented an intention to acquire the securities for investment only and not with a view to distribution thereof and appropriate legends were affixed to the stock certificates or warrants. No commissions were paid in connection with such issuance. Exhibits Exhibit No. Description - --------- ----------- No. 3A Certificate of Incorporation of the Company, as amended. (9) No. 3B Amended and Restated By-Laws of the Company. (5) No. 4A Specimen Stock Certificate. (2) No. 5A Opinion of Morse, Zelnick, Rose & Lander LLP* No. 10A 1986 Stock Option Plan. (1) No. 10B 1989 Stock Option Plan. (3) No. 10C 1992 Stock Option Plan. (4) No. 10D 1997 Stock Option Plan. (6) No. 10E 1997 Non-Employee Stock Option Plan. (6) No. 10F 1999 Stock Option Plan. (8) No. 10G Form of Agreement and Plan of Reorganization among AutoInfo, Inc. on the one hand, and Sunteck Transport Co., Inc., et al., on the other hand, dated June 22, 2000. (7) II-3 No. 10H Form of Debenture dated December 6, 2000. (7) No. 10I Employment Agreement between AutoInfo, Inc. and Harry M. Wachtel dated as of December 7, 2000. (9) No. 10J Employment Agreement between AutoInfo, Inc. and William Wunderlich dated December 7, 2000. (9) No. 10K Amendment to Employment Agreement between AutoInfo, Inc. and Harry M. Wachtel dated as of April 1, 2003. (10) No. 10L Amendment to Employment Agreement between AutoInfo, Inc. and William Wunderlich dated April 1, 2003. (10) No. 10M Stock Purchase Agreement between AutoInfo, Inc. and Kinderhook Partners, LP dated January 21, 2004. (10) No. 14A Code of Ethics. (10) No. 21A Subsidiaries of the Registrant. (9) No. 23A Consent of Dworken, Hillman, LaMorte & Sterczala, P.C., independent public accountants.* No. 23B Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1) No. 24A Power of Attorney (included in signature page) - ---------- * Filed as an exhibit hereto. (1) This Exhibit was filed as an Exhibit to our definitive proxy statement dated October 20, 1986 and is incorporated herein by reference. (2) This Exhibit was filed as Exhibit to our Registration Statement on Form S-1 (File No. 33-15465) and is incorporated herein by reference. (3) This Exhibit was filed as an Exhibit to our definitive proxy statement dated September 25, 1989 and is incorporated herein by reference. (4) This Exhibit was filed as an Exhibit our definitive proxy statement dated October 2, 1992 and is incorporated herein by reference. (5) This Exhibit was filed as an Exhibit to our Current Report on Form 8-K dated March 30, 1995 and is incorporated herein by reference. (6) This Exhibit was filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 1997 and is incorporated herein by reference. (7) This Exhibit was filed as an Exhibit to our Current Report on Form 8-K dated December 6, 2000 and is incorporated herein by reference. (8) This Exhibit was filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 1999 and is incorporated herein by reference. (9) This Exhibit was filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2000 and is incorporated herein by reference. (10) This Exhibit was filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2003 and is incorporated herein by reference. II-4 Item 27. Undertakings A. The undersigned Registrant hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement to: (i) include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (iii) include any additional or changed material information with respect to the plan of distribution disclosed in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) To provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. (5) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective. (6) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. B. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-5 SIGNATURES In accordance with the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, in the City of Boca Raton, State of Florida on March 30, 2004. AUTOINFO, INC. By: /s/ Harry Wachtel -------------------------------------- Harry Wachtel, Chief Executive Officer ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Harry Wachtel and William Wunderlich, individually, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all pre- or post-effective amendments to this Registration Statement, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any one of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Act of 1933, as amended, the following persons have signed this Registration Statement in the capacities indicated on the date set forth above. Signature Title --------- ----- /s/ Harry Wachtel - ---------------------------- Chief Executive Officer, President and Director Harry Wachtel (principal executive officer) /s/ William W. Wunderlich - ---------------------------- Chief Financial and Accounting Officer William W. Wunderlich (principal financial officer) /s/ Mark Weiss - ---------------------------- Director Mark Weiss /s/ Peter C. Einselen Director - ---------------------------- Peter C. Einselen /s/ Thomas C. Roberston Director - ---------------------------- Thomas C. Roberston II-6 EX-5.1 3 d59108_ex5-1.txt OPINION EXHIBIT 5.1 MORSE, ZELNICK, ROSE & LANDER A LIMITED LIABILITY PARTNERSHIP 405 PARK AVENUE NEW YORK, NEW YORK 10022-4405 212-838-1177 FAX 212-838-9190 March 30, 2004 AutoInfo, Inc. 6413 Congress Ave, Suite 240 Boca Raton, Florida 22487 Re: Registration Statement on Form SB-2 Ladies and Gentlemen: We have acted as counsel to AutoInfo, Inc., a Delaware corporation ("AutoInfo"), in connection with the preparation of a registration statement on Form SB-2 (the "registration statement") filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"), to register the sale by the selling stockholder of up to 3,633,333 shares of common stock, par value $.001 per share (the "common stock"), of AutoInfo. In this regard, we have reviewed the Certificate of Incorporation of AutoInfo, as amended, resolutions adopted by AutoInfo's Board of Directors, the registration statement, and such other records, documents, statutes and decisions as we have deemed relevant in rendering this opinion. Based upon the foregoing we are of the opinion that: Each share of common stock included in the registration statement has been duly authorized for issuance and is legally issued, fully paid and non-assessable. Members of Morse, Zelnick, Rose & Lander, LLP own, in the aggregate 34,000 shares of AutoInfo common stock. We hereby consent to the use of this opinion as Exhibit 5.1 to the registration statement and to the reference to our Firm in the related prospectus under the heading "Legal Matters". In giving this opinion, we do not hereby admit that we are acting within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the SEC thereunder. Very truly yours, /s/ Morse, Zelnick, Rose & Lander, LLP -------------------------------------- Morse, Zelnick, Rose & Lander, LLP EX-23.(A) 4 d59108_ex23a.txt CONSENT EXHIBIT 23A CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the use in the Prospectus constituting part of this Registration Statement on Form SB-2 for AutoInfo, Inc. of our report dated February 13, 2004 on the financial statements of AutoInfo, Inc. for the years ended December 31, 2003 and 2002, which appear in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Registration Statement /s/ Dworken, Hillman, LaMorte & Sterczala, P.C. ----------------------------------------------- Dworken, Hillman, LaMorte & Sterczala, P.C. Shelton, Connecticut March 30, 2004 -----END PRIVACY-ENHANCED MESSAGE-----