10QSB 1 d60335_10q.txt QUARTERLY REPORT FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended: JUNE 30, 2004 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from ______________ to ______________ Commission File Number: 0-14786 AUTOINFO, INC. (Exact name of Registrant as specified in its charter) DELAWARE 13-2867481 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification number) 6413 Congress Ave., Suite 240, Boca Raton, FL 33487 (Address of principal executive office) (561) 988-9456 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO |_| Number of shares outstanding of the Registrant's common stock as of July 30, 2004: 31,116,256 shares of common stock, $.001 par value. Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES |X| NO |_| 1 AUTOINFO, INC. AND SUBSIDIARIES INDEX Part I. Financial Information: Item 1. Consolidated Financial Statements: Page Balance Sheets June 30, 2004 (unaudited) and December 31, 2003 (audited).... 3 Statements of Income (unaudited) Three and six months ended June 30, 2004 and 2003............ 4 Statements of Cash Flows (unaudited) Six months ended June 30, 2004 and 2003...................... 5 Notes to Unaudited Consolidated Financial Statements........... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 10 Item 3. Controls and Procedures........................................ 15 Part II. Other Information................................................ 16 Signatures................................................................. 17 Exhibits................................................................... 18 2 AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, December 31, 2004 2003 ------------ ------------- Unaudited Audited ASSETS Current assets: Cash $ 66,000 $ 133,000 Accounts receivable 6,784,000 4,881,000 Other current assets 452,000 292,000 Loan receivable -- 100,000 Deferred income taxes (Note 2) 256,000 248,000 ------------ ------------ Total current assets 7,558,000 5,654,000 Fixed assets, net of accumulated depreciation 78,000 71,000 Deferred income taxes (Note 2) 548,000 536,000 Other assets 60,000 25,000 ------------ ------------ $ 8,244,000 $ 6,286,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Loan payable (Note 3) $ 1,257,000 $ 1,046,000 Convertible subordinated debentures (Note 3) -- 575,000 Accounts payable and accrued liabilities 3,636,000 2,773,000 ------------ ------------ Total current liabilities 4,893,000 4,394,000 ------------ ------------ Stockholders' Equity Preferred stock - authorized 10,000,000 shares $.001 par value; issued and outstanding - 0 shares as of June 30, 2004 and December 31, 2003 -- -- Common stock - authorized 100,000,000 shares $.001 par value; issued and outstanding - 31,116,000 shares as of June 30, 2004 and 27,383,000 shares as of December 31, 2003 31,000 27,000 Additional paid-in capital 19,031,000 18,023,000 Deficit (15,711,000) (16,158,000) ------------ ------------ Total stockholders' equity 3,351,000 1,892,000 ------------ ------------ $ 8,244,000 $ 6,286,000 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 3 AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Six Months Ended Three Months Ended June 30, June 30, ---------------------------- ---------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Gross revenues $ 19,119,000 $ 11,243,000 $ 10,960,000 $ 6,102,000 Cost of transportation 15,621,000 9,144,000 8,940,000 5,002,000 ------------ ------------ ------------ ------------ Net revenues 3,498,000 2,099,000 2,020,000 1,100,000 ------------ ------------ ------------ ------------ Commissions 2,009,000 1,244,000 1,169,000 640,000 Operating expenses 1,010,000 595,000 561,000 319,000 ------------ ------------ ------------ ------------ 3,019,000 1,839,000 1,730,000 959,000 ------------ ------------ ------------ ------------ Income from operations 479,000 260,000 290,000 141,000 ------------ ------------ ------------ ------------ Other charges (credits): Investment income -- (9,000) -- (6,000) Interest expense 26,000 71,000 12,000 33,000 ------------ ------------ ------------ ------------ 26,000 62,000 12,000 27,000 ------------ ------------ ------------ ------------ Income before income taxes 453,000 198,000 278,000 114,000 Income taxes (Note 2) 6,000 11,000 7,000 6,000 ------------ ------------ ------------ ------------ Net income $ 447,000 $ 187,000 $ 271,000 $ 108,000 ============ ============ ============ ============ Basic and diluted net income per share: $ .01 $ .01 $ .01 $ .00 ============ ============ ============ ============ Weighted average number of common and common equivalent shares 33,228,000 28,432,000 33,845,000 28,517,000 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. 4 AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 2004 2003 ----------- ----------- Cash flows from operating activities: Net income $ 447,000 $ 187,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 16,000 16,000 Non-cash compensation 15,000 -- Deferred income taxes (20,000) -- Changes in assets and liabilities: Accounts receivable (1,903,000) (361,000) Other current assets (160,000) (112,000) Loan receivable 100,000 -- Other assets (35,000) -- Accounts payable and accrued liabilities 863,000 154,000 ----------- ----------- Net cash used in operating activities (677,000) (116,000) ----------- ----------- Cash flows from investing activities: Capital expenditures (23,000) (16,000) ----------- ----------- Net cash used in investing activities (23,000) (16,000) ----------- ----------- Cash flows from financing activities: Exercise of stock options 5,000 -- Increase (decrease) in loan payable, net 211,000 (500,000) Sale of common stock 417,000 -- ----------- ----------- Net cash provided by (used in) financing activities 633,000 (500,000) ----------- ----------- Net change in cash (67,000) (632,000) Cash at beginning of period 133,000 684,000 ----------- ----------- Cash at end of period $ 66,000 $ 52,000 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 5 AUTOINFO, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Forward Looking Statements Certain statements made in this Quarterly Report on Form 10-QSB are "forward-looking statements"(within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein particularly in view of the current state of our operations, the inclusion of such information should not be regarded as a statement by us or any other person that our objectives and plans will be achieved. Factors that could cause actual results to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the factors set forth under the headings "Business," and "Risk Factors" in our Annual Report on Form 10-KSB for the year ended December 31, 2003 as filed with the Securities and Exchange Commission. Note 1. - Business and Summary of Significant Accounting Policies Business Through our wholly-owned subsidiary, Sunteck Transport Co., Inc. (Sunteck), we are a non-asset based transportation services company, providing transportation capacity and related transportation services to shippers throughout the United States, and to a lesser extent, Canada. Our non-asset based services include ground transportation coast to coast, local pick up and delivery, air freight and ocean freight. We have strategic alliances with less than truckload, truckload, air, rail and ocean common carriers to service our customers' needs. Our business services emphasize safety, information coordination and customer service and are delivered through a network of independent commissioned sales agents and third party capacity providers coordinated by the Company. The independent commissioned sales agents typically enter into non-exclusive contractual arrangements with Sunteck and are responsible for locating freight and coordinating the transportation of the freight with customers and capacity providers. The third party capacity providers consist of independent contractors who provide truck capacity to the Company, including owner-operators who operate under our contract carrier license, air cargo carriers and railroads. Through this network of agents and capacity providers, Sunteck operates a transportation services business with revenue of approximately $27 million during our most recently completed fiscal year and approximately $19 million during our most recently completed six month period ended June 30, 2004. Our brokerage services are provided though a network of independent sales agents. As of July 23, 2004, we had nine regional operating centers providing brokerage services and representatives in 18 states and Canada. Our services include arranging for the transport of customers' freight from the shippers location to the designated destination. We do not own any trucking equipment and rely on independent carriers for the movement of customers' freight. We seek to establish long-term relationships with our customers and provide a variety of logistics services and solutions to eliminate inefficiencies in our customers' supply chain management. Our contract carrier services, which commenced in 2003, are also provided through a network of independent sales agents. We do not own any trucking equipment and have a network of independent owner-operators who lease onto 6 our operating authority and transport freight under the Sunteck name. As of July 23, 2004, we had six regional offices providing contract carrier services and 125 independent owner-operators. Summary of Significant Accounting Policies Basis of Presentation The financial statements of the Company have been prepared using the accrual basis of accounting under accounting principles generally accepted in the United States of America (GAAP). Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Sunteck Transport Co., Inc. All significant intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition As a third party transportation logistics provider, the Company acts as the shippers' agent and arranges for a carrier to handle the freight. Gross revenues consist of the total dollar value of services purchased by shippers. Revenue is recognized upon the pick up of freight, at which time the related transportation cost, including commission, is also recognized. At that time, the Company's obligations are completed and collection of receivables is reasonably assured. Emerging Issues Task Force No. 99-19, "Reporting Revenues Gross as a Principal Versus Net as an Agent" (EITF 99-19), establishes criteria for recognizing revenues on a gross or net basis. The Company is the primary obligor in its transactions, has all credit risk, maintains substantially all risk and rewards, has discretion in selecting the supplier, and has latitude in pricing decisions. Accordingly, the Company records all transactions at the gross amount, consistent with the provisions of EITF 99-19. Provision For Doubtful Accounts The Company continuously monitors the creditworthiness of its customers and has established an allowance for amounts that may become uncollectible in the future based on current economic trends, its historical payment and bad debt write-off experience, and any specific customer related collection issues. Cash From time to time, the Company has on deposit at financial institutions cash balances which exceed federal deposit insurance limitations. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash. Fixed Assets Fixed assets as of June 30, 2004 and December 31, 2003, consisting predominantly of furniture, fixtures and equipment, were carried at cost net of accumulated depreciation. Depreciation of fixed assets was provided on the straight-line method over the estimated useful lives of the related assets which range from three to five years. Income Per Share Basic income per share is based on net income divided by the weighted average number of common shares outstanding. Common stock equivalents outstanding were 2,728,000 and 1,169,000 and 2,584,000 and 517,000 for the three and six month periods ended June 30, 2004 and 2003, respectively. 7 Use of Estimates The preparation of these financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. The Company believes that all such assumptions are reasonable and that all estimates are adequate, however, actual results could differ from those estimates. Income Taxes The Company utilizes the asset and liability method for accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and future benefits to be recognized upon the utilization of certain operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Stock-Based Compensation The Company has adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). As permitted by SFAS 123, the Company has chosen to continue to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and, accordingly, no compensation cost has been recognized in the financial statements for stock options granted to employees. New Accounting Pronouncements In April 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 149, "Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities" (SFAS 149), which amends SFAS 133 to provide clarification on the financial accounting and reporting of derivative instruments and hedging activities and requires that contracts with similar characteristics be accounted for on a comparable basis. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity", which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity and requires that such instruments be classified as liabilities. Adoption of these statements did not have a material impact on the Company's financial position or results of operations. Note 2- Income Taxes For the periods ended June 30, 2004 and 2003, the provision for income taxes consisted of the following:
Six Months Ended June 30, --------------------------------------------------- 2004 2003 --------------------------------------------------- Current Deferred Current Deferred --------- --------- --------- --------- Tax expense before application of operating loss carryforwards $ 176,000 $ -- $ 75,000 $ -- Tax expense (benefit) of operating loss carryforwards (150,000) 150,000 (64,000) 64,000 Change in valuation allowance -- (170,000) -- (64,000) --------- --------- --------- --------- Income tax expense (benefit) $ 26,000 $ (20,000) $ 11,000 $ -- --------- --------- --------- ---------
8
Three Months Ended June 30, --------------------------------------------------- 2004 2003 --------------------------------------------------- Current Deferred Current Deferred --------- --------- --------- --------- Tax expense before application of operating loss carryforwards $ 107,000 $ -- $ 44,000 $ -- Tax expense (benefit) of operating loss carryforwards (91,000) 91,000 (38,000) 38,000 Change in valuation allowance -- (100,000) -- (38,000) --------- --------- --------- --------- Income tax expense (benefit) $ 16,000 $ (9,000) $ 6,000 $ -- --------- --------- --------- ---------
Deferred taxes are comprised of the following at June 30, 2004 and December 31, 2003: June 30, December 31, 2004 2003 ----------- ----------- Deferred tax assets: Net operating loss carryforward $ 5,776,000 $ 5,926,000 ----------- ----------- Gross deferred tax assets 5,776,000 5,926,000 Less: valuation allowance (4,972,000) (5,142,000) ----------- ----------- Deferred tax asset $ 804,000 $ 784,000 =========== =========== The deferred tax asset represents expected future tax savings resulting from the Company's net operating loss carryforward. As of December 31, 2003, the Company has a net operating loss carryforward of approximately $17.3 million for federal income tax purposes which expire through 2014. Utilization of this benefit is primarily subject to the extent of future earning of the Company, and may be limited by, among other things, shareholder changes, including the possible issuance by the Company of additional shares in one or more financing or acquisition transactions. The Company has established a valuation allowance for the portion of the possible tax savings not likely to be realized by the end of the carryforward period. Based upon available objective evidence, including the Company's post-merger history of profitability, management believes it is more likely than not that forecasted taxable income will be sufficient to utilize a portion of the net operating loss carryforward before its expiration in 2014. However, there can be no assurance that the Company will meet its expectations of future income. Note 3 - Significant Events In January 2004, the Company sold 1,333,333 shares of common stock to Kinderhook Partners, LP (Kinderhook) for $442,000 in a private transaction. In a simultaneous transaction, Kinderhook acquired all of the Company's outstanding 12% Convertible Subordinated Debentures from the debenture holders and immediately converted these debentures into 2,300,000 shares of common stock. In connection with the transaction, the Company agreed with 9 Kinderhook to file and process to effectiveness a registration statement on Form SB-2 covering the resale of the 3,633,333 share of common stock acquired. In furtherance of that obligation, the Company filed a registration statement on Form SB-2 covering the shares on March 30, 2004. The registration statement covering the resale of the shares was declared effective by the Securities and Exchange Commission on May 18, 2004. In June 2004, we renewed our credit facility with Wachovia Bank providing for an available line of credit of $2,500,000, an increase of $1,000,000. The credit facility, which matures in June 2005, is secured by substantially all of our assets and provides for the monthly payment of interest at the bank's prime rate plus 1/2 of 1%, requires the maintenance of certain financial ratios, and places limitations on future capital expenditures. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary statement identifying important factors that could cause our actual results to differ from those projected in forward looking statements. Pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, readers of this report are advised that this document contains both statements of historical facts and forward looking statements. Forward looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those indicated by the forward looking statements. Examples of forward looking statements include, but are not limited to (i) projections of revenues, income or loss, earnings per share, capital expenditures, dividends, capital structure and other financial items, (ii) statements of our plans and objectives with respect to business transactions and enhancement of shareholder value, (iii) statements of future economic performance, and (iv) statements of assumptions underlying other statements and statements about our business prospects. The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the notes thereto appearing elsewhere in this report. Overview Through our wholly-owned subsidiary, Sunteck Transport Co., Inc. (Sunteck), we are a non-asset based transportation services company, providing transportation capacity and related transportation services to shippers throughout the United States, and to a lesser extent, Canada. Our non-asset based services include ground transportation coast to coast, local pick up and delivery, air freight and ocean freight. We have strategic alliances with less than truckload, truckload, air, rail and ocean common carriers to service our customers' needs. Our business services emphasize safety, information coordination and customer service and are delivered through a network of independent commissioned sales agents and third party capacity providers coordinated by us. The independent commissioned sales agents typically enter into non-exclusive contractual arrangements with Sunteck and are responsible for locating freight and coordinating the transportation of the freight with customers and capacity providers. The third party capacity providers consist of independent contractors who provide truck capacity to us, including owner-operators who operate under our contract carrier license, air cargo carriers and railroads. Through this network of agents and capacity providers, Sunteck operates a transportation services business with revenue of approximately $27 million during our most recently completed fiscal year and approximately $19 million during our most recently completed six month period ended June 30, 2004. Our brokerage services are provided though a network of independent sales agents. As of July 23, 2004, we had nine regional operating centers providing brokerage services and representatives in 18 states and Canada. Our services include arranging for the transport of customers' freight from the shippers location to the designated destination. We do not own any trucking equipment and rely on independent carriers for the movement of customers' freight. We seek to establish long-term relationships with our customers and provide a variety of logistics services and solutions to eliminate inefficiencies in our customers' supply chain management. 10 Our contract carrier services, which commenced in 2003, are also provided through a network of independent sales agents. We do not own any trucking equipment and have a network of independent owner-operators who lease onto our operating authority and transport freight under the Sunteck name. As of July 23, 2004, we had six regional offices providing contract carrier services and 125 independent owner-operators. The most significant factor in our growth during the past two years has been the expansion of our brokerage services agent network and the expansion of our contract carrier services agent and owner operator network. This growth is readily measured by the number of transactions we have processed, which increased for the respective six month periods from 13,900 in 2003 to 18,800 is 2004, an increase of 35%. Additionally, the average revenue dollars per load in our brokerage division increased by 31% in 2004 as compared to 2003. This is the result of several factors including an increase in truckload business versus less than truckload at higher per load revenues, 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 three and six months ended June 30, 2004 and 2003 During the three and six month periods ended June 30, 2004, we continued to implement our strategic growth business plan consisting primarily of the expansion of client services, the opening of regional operations centers in key geographical markets, and the addition of independent sales agents providing brokerage and contract carrier services. Our net revenues (gross revenues less cost of transportation) are the primary indicator of our ability to source, add value and resell service that are provided by third parties and are considered to be the primary measurement of growth. Therefore, the discussion of the results of operations below focuses on the changes in our net revenues. The increases in net revenues and all related cost and expense categories are the direct result of our business expansion. The following table represents certain statement of operation data as a percentage of net revenues: Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 ------- ------- ------- ------- Net revenues 100.0% 100.0% 100.0% 100.0% ------- ------- ------- ------- Commissions 57.9% 58.2% 57.4% 59.3% Operating expenses 27.8% 29.0% 28.9% 28.3% Other charges .6% 2.5% .7% 3.0% Income taxes .3% .5% .2% .5% ------- ------- ------- ------- Net income 13.4% 9.8% 12.8% 8.9% ------- ------- ------- ------- Revenues Gross revenues, consisting of freight fees and other related services revenue, totaled $10,960,000 and $19,119,000 for the three and six month periods ended June 30, 2004, as compared with $6,102,000 and $11,243,000 in the prior year periods, an increase of 80% and 70%, respectively. Net revenues were $2,020,000 and $3,498,000 for the three and six month ended June 30, 2004, as compared with $1,100,000 and $2,099,000 in the prior year periods, an increase of 84% and 67%, respectively. Gross revenues from brokerage services increased to $8,385,000 and $15,233,000 for the three and six month periods ended June 30, 2004 from $5,943,000 and $10,957,000 in the prior year periods and net revenues increased to $1,538,000 and $2,754,000 for the three and six month periods ended June 30, 2004 from 11 $1,065,000 and $2,041,000 in the prior year periods. This increase is the direct result of the continued expansion of our agent network and customer base. Gross revenues from contract carrier services, which we began offering in 2003, increased to $2,575,000 and $3,886,000 for the three and six month periods ended June 30, 2004 from $159,000 and $286,000 in the prior year periods and net revenues increased to $482,000 and $744,000 for the three and six month periods ended June 30, 2004 from $35,000 and $58,000 in the prior year periods. The total net revenue growth was 84% and 67% for the three and six month periods ended June 30, 2004 as compared with the gross revenue growth of 80% and 70%, respectively. Costs and expenses Commissions totaled $1,169,000 and $2,009,000 for the three and six month periods ended June 30, 2004, as compared with $640,000 and $1,244,000 in the prior year periods. As a percentage of net revenues, commissions were 58% and 57% for the three and six month periods ended June 30, 2004 as compared with 58% and 59% in the prior year periods. This decrease is insignificant and is based on agent revenue mix during the period. Operating expenses totaled $561,000 and $1,010,000 for the three and six month periods ended June 30, 2004, as compared with $319,000 and $595,000 in the prior year periods. As a percentage of net revenues, operating expenses were 28% and 29% for the three and six month periods ended June 30, 2004 as compared with 29% and 28% in the prior year periods. During 2003, we moved our headquarters increasing our space to 2,358 square feet and during the quarter ended June 30, 2004, we leased an additional 1,287 square feet. We have increased administrative staff commensurate with the increase in transaction volume. We presently have adequate facilities and management to handle the present and anticipated transaction volume 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 and $9,000 for the three and six month periods ended June 30, 2003. We had no investment income in 2004. Interest expense totaled $12,000 and $26,000 for the three and six month periods ended June 30, 2004, as compared with $33,000 and $71,000 in the prior year periods. The decrease is the result our reduced cost of money under the line of credit agreement we entered into in May 2003, which bears interest at prime plus 1/2% per annum. This replaced a $500,000 line of credit bearing interest at 17% per annum. In addition, in January 2004, $575,000 of 12% convertible subordinated debentures was converted into common stock. Income tax The income tax expense of $7,000 for the three months ended June 30, 2004 consisted of $100,000 resulting from the anticipated future utilization of an available federal tax loss carryforward, net of the utilization of deferred tax benefit of $91,000 and state income taxes of $16,000. The income tax expense of $6,000 for the six months ended June 30, 2004 consisted of $170,000 resulting from the anticipated future utilization of an available federal tax loss carryforward, net of the utilization of deferred tax benefit of $150,000 and state income taxes of $26,000. 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, as of June 30, 2004, the valuation allowance was reduced by an additional $170,000. Income taxes of $6,000 and $11,000 for the three and six month periods ended June 30, 2003 related to the operating results net of the benefit of the utilization of net operating loss carryforwards. Net income Net income totaled $271,000 and $447,000 for the three and six month periods ended June 30, 2004, as compared with $108,000 and $187,000 in the prior year periods. This increase is the direct result of the increase in revenues due to the continuing expansion of our operations and the additional recognition on the deferred tax asset of $100,000 and $170,000 for the three and six month periods ended June 30, 2004, respectively. 12 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 six month period ended June 30, 2004, we increased gross revenues from $11.2 million to $19.1 million and had net income of $447,000 as compared with $187,000 in the prior year. As of June 30, 2004, we had an accumulated deficit of $15.7 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, if any when needed, on terms acceptable to us, 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 under lines of credit. At June 30, 2004, we had outstanding $1,257,000 pursuant to our $2,500,000 line of credit. The line of credit, obtained from a bank in May 2003, is subject to the maintenance of certain financial covenants and is secured by accounts receivable and other operating assets, and matures in June 2005. We believe that we have sufficient working capital to meet our short-term operating needs and that we will be able to increase, extend or replace the line of credit on terms acceptable to us. At June 30, 2004, we had liquid assets of approximately $66,000. Available cash is used to reduce borrowings on our line of credit. The total amount of debt outstanding as of June 30, 2004 and December 31, 2003 was $1,257,000 and $1,621,000, respectively. The following table presents our debt instruments and their weighted average interest rates as of June 30, 2004 and December 31, 2003, respectively: Weighted Weighted Balance Average Rate Balance Average Rate ----------------------------------------------------- June 30, 2004 December 31, 2003 ----------------------------------------------------- Subordinated Debt -- -- $ 575,000 12.0% Line of Credit $1,257,000 4.5% $1,046,000 4.5% 13 Inflation and changing prices had no material impact on our revenues or the results of operations for the period ended June 30, 2004. In January 2004, we sold 1,333,333 shares of our common stock for gross cash proceeds of $442,000. Simultaneously, in a related transaction, our 12% convertible debentures were converted into 2,300,000 shares of common stock. The result of these transactions was an increase in 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 on our line of credit. In June 2004, we renewed our credit facility with Wachovia Bank providing for an available line of credit of $2,500,000, an increase of $1,000,000. The credit facility, which matures in June 2005, is secured by substantially all of our assets and provides for the monthly payment of interest at the bank's prime rate plus 1/2 of 1%, requires the maintenance of certain financial ratios, and places limitations on future capital expenditures. Critical accounting policies Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 1 of the Notes to Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of the Company's financial statements. The most significant areas involving management estimates and assumptions are described below. Actual results could differ materially from management's estimates under different assumptions or conditions. Revenue Recognition As a third party transportation logistics provider, we act as the shippers' agent and arrange for a carrier to handle the freight. Gross revenues consist of the total dollar value of services purchased by shippers. Revenue is recognized upon the pick up of freight, at which time the related transportation cost, including commission, is also recognized. At that time, our obligations are completed and collection of receivables is reasonably assured. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). SAB 101, as amended, summarizes some of the SEC's views in applying accounting principles generally accepted in the United States of America (GAAP) to revenue recognition in the financial statements. We believe our revenue recognition policy is appropriate and in accordance with GAAP and SAB 101. Emerging Issues Task Force No. 99-19, "Reporting Revenues Gross as a Principal Versus Net as an Agent" (EITF 99-19), establishes criteria for recognizing revenues on a gross or net basis. The Company is the primary obligor in its transactions, has all credit risk, maintains substantially all risk and rewards, has discretion in selecting the supplier, and has latitude in pricing decisions. Accordingly, the Company records all transactions at the gross amount, consistent with the provisions of EITF 99-19. Income Taxes The deferred tax asset represents expected future tax savings resulting from our net operating loss carryforward. As of December 31, 2003, we had a net operating loss carryforward of approximately $17.3 million for federal income tax purposes which expire through 2014. 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 by the Company of additional shares in one or more financing or acquisition transactions. We have established a valuation allowance for the portion of possible tax savings not likely to be realized by the end of the carryforward period. 14 Provision For Doubtful Accounts We continuously monitor the creditworthiness of our customers and have established an allowance for amounts that may become uncollectible in the future based on current economic trends, our historical payment and bad debt write-off experience, and any specific customer related collection issues. Off-balance sheet arrangements We do not have any off-balance sheet arrangements. CONTROLS AND PROCEDURES The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective. There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company's fiscal second quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 15 Part II OTHER INFORMATION Item 1-5: Inapplicable Item 6: (a) Exhibits 31A Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 31B Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 32A Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* 32B Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* ---------- * Filed as an exhibit hereto. (b) Reports on Form 8 -K NONE 16 SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto authorized. AUTOINFO, INC. By: /s/ William Wunderlich -------------------------------- William Wunderlich Executive Vice President and Principal Financial Officer Date: August 9, 2004 17