-----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, LMCwe3NGlHdneiQiupOTWftAZ6rQ2JTGa+6Z0ZmSF+1EPNaPkzXTqQkqDMki5ycB MQW2eNXMWBckDSn0/zdMUA== 0001169232-05-001695.txt : 20050316 0001169232-05-001695.hdr.sgml : 20050316 20050316160317 ACCESSION NUMBER: 0001169232-05-001695 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050316 DATE AS OF CHANGE: 20050316 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: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-11497 FILM NUMBER: 05685543 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 10KSB 1 d63000_10-ksb.txt FORM 10KSB ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB -------------------------------- (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission File Number 001-11497 AUTOINFO, INC. (Exact name of registrant as specified in its charter) DELAWARE 13-2867481 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6413 Congress Avenue - Suite 260 Boca Raton, FL 33487 (Address of principal executive offices) Registrant's telephone number, including area code: (561) 988-9456 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par value $.001 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 |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. |X| The Registrant's revenues for the year ended December 31, 2004 were $46,492,000. As of March 7, 2005, 31,367,000 shares of the Registrant's common stock were outstanding. The aggregate market value of the common stock of the Registrant held by non-affiliates of the Registrant as of March 7, 2005 (based upon the closing price on the OTC Bulletin Board of the National Association of Securities Dealers of $0.66 on that date) was approximately $7,909,000. 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 |_| DOCUMENTS INCORPORATED BY REFERENCE NONE AUTOINFO, INC. Form 10-KSB Annual Report TABLE OF CONTENTS Page ---- PART I.........................................................................3 Item 1. Business..........................................................3 Risk Factors......................................................7 Item 2. Properties.......................................................12 Item 3. Legal Proceedings................................................12 Item 4. Submission of Matters to a Vote of Security Holders..............12 PART II.......................................................................13 Item 5. Market for our Common Equity and Related Stockholder Matters.....13 Selected Consolidated Financial Data.............................14 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................15 Item 7. Financial Statements and Supplementary Data......................20 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures........................................20 Item 8A. Controls and Procedures..........................................20 Item 8B. Other Information................................................20 PART III......................................................................21 Item 9. Directors and Executive Officers.................................21 Item 10. Executive Compensation...........................................23 Item 11. Security Ownership of Certain Beneficial Owners and Management...24 Item 12. Certain Relationships and Related Transactions...................25 Item 13. Exhibits.........................................................25 Item 14. Principal Accounting Fees and Services...........................27 FORWARD LOOKING STATEMENT INFORMATION Certain statements made in this Annual Report on Form 10-KSB 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 such forward-looking statements include, but are not limited to, the factors set forth herein under the headings "Business," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 2 PART I 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 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 $46.5 million during our most recently completed fiscal year. Our brokerage services are provided though a network of independent sales agents. As of February 22, 2005, we had 12 regional operating centers providing brokerage services and representatives in 21 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 February 22, 2005, we had seven regional operating centers providing contract carrier services, representatives in nine states and 83 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. 3 The present market for freight moved by truck is estimated by management to exceed $200 billion per year. This is a highly fragmented industry comprised of common carriers - contract carriers - freight forwarders and freight brokers. The actual movement of goods is accomplished by trucking (consisting of local, over the road, truckload, and less than truckload shipments); air freight (time sensitive in nature); rail freight (non time sensitive in nature and usually less expensive than truck); and ocean freight (generally in containerized ships). Other services provided include warehousing and distribution. There are several trends which are relevant to the continued dependency upon and growth of the trucking industry: o Just in time service With new technology and a premium on cost savings, businesses are able to maintain smaller inventories, thereby reducing carrying costs and warehouse space requirements. The impact on the freight industry is more shipments of smaller quantities that are more time sensitive and, therefore, more costly. o Outsourcing Companies have found it to be more cost effective and efficient to eliminate company owned truck fleets and rely upon others to handle their trucking and shipping needs. o Logistics Small to medium size businesses, with less frequent shipping requirements, utilize logistics providers (freight brokers, etc.) to manage all aspects of the transportation, warehousing and delivery needs. The market for third party logistics providers is highly fragmented. It is comprised primarily of full service logistics providers, freight brokers, independent sales agents and sales representatives. Sales agents often work out of home based offices or small regional sales offices and affiliate themselves with full service brokers to provide back office services including load dispatching, bonding and licensing, billing, collection and other administrative services. Sales representatives vary from experienced people with years of freight industry experience and established client relationships to telemarketing personnel cold calling shippers and dispatchers. Third party logistics companies provide numerous services to clients on an outsourced basis, by contract and on demand. The continued growth of this industry has created secondary market opportunities to provide low-cost delivery to the endpoint, in addition to supply chain services of warehousing, inventory management and electronic interface with customers and suppliers. Third party logistics companies provide customized domestic and international freight transportation of customers' goods and packages, via truck, rail, airplane and ship, and provide warehousing and storage of those goods. Many companies utilize information systems and expertise to reduce inventories, cut transportation costs, speed delivery and improve customer service. The third-party logistics services business has been bolstered in recent years by the competitiveness of the global economy, which causes shippers to focus on reducing handling costs, operating with lower inventories and shortening inventory transit times. Using a network of transportation, handling and storage providers in multiple transportation modes, third-party logistics services companies seek to improve their customers' operating efficiency by reducing their inventory levels and related handling costs. Many third-party logistics service providers are non-asset-based, primarily utilizing physical assets owned by others in multiple transport modes. The third-party logistics services business increasingly relies upon advanced information technology to link the shipper with its inventory and as an analytical tool to optimize transportation solutions. This trend favors the larger, more professionally managed companies that have the resources to support a sophisticated information technology infrastructure. By outsourcing all non-core business services to third party providers, companies can help to control costs, eliminate staff and focus on internal business. 4 Operations and systems In our brokerage services, we process approximately 3,300 freight orders per month. Our sales agents in our 12 regional operating centers and representatives in 21 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 1,000 freight orders per month. Our sales agents in our seven regional operating centers and representatives in nine states receive customers' freight requirements daily and, utilizing their respective owner-operators, make appropriate carrier arrangements for the pick-up and timely delivery of customers' freight. In addition, utilizing various sources including numerous internet based freight posting boards, our agents locate additional freight to maximize utilization of available capacity and minimize deadhead miles, or miles driven generating little or no revenue. A typical owner-operator will generate $2,500 per week in revenues. We rely exclusively on independent third parties for our hauling capacity. These third party capacity providers consist of our independent owner-operators, unrelated trucking companies, air cargo carriers and railroads. Our use of capacity provided by our independent owner-operators, and other third party capacity providers allows us to maintain a lower level of capital investment, resulting in lower fixed costs. We utilize a state-of-the-art proprietary internet based order entry system. All agents access our web-based platform and orders are entered into a customized traffic management system, which enables us to monitor the status of all orders, generate customer billing and provide detailed transactional reports in our Florida corporate headquarters. We use these reports to monitor customer logistics and transportation usage, track customer and carrier historical data, generate detailed financial and accounting data and provide our customers with details of their supply chain activity. We maintain dual off-site storage and back up faculties to insure data integrity and safety. Suppliers We use the services of various third party transportation companies. During 2004, 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 2004, no customer accounted for more than 10% of our revenues. We typically receive credit applications from all customers, review credit references and perform credit checks to ensure credit worthiness. Sunteck has achieved revenue growth through the addition of independent sales agents, the opening of new operations offices, an increase in the number of customers serviced, and the expansion of logistics and supply chain services we provide. Each operations office markets our full range of supply chain services to existing customers and pursues new customers within 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 5 available freight and load capacity thereby increasing gross margins above historical levels. In addition, sales representatives will be added to regional operating office sales agent locations to increase market penetration. Since representatives work on a commission basis, this expansion essentially comes at no additional overhead outlay. Significant opportunities for expansion and growth also includes strategic alliances with other service freight broker groups. This strategy will enable us to achieve strong regional penetration into new geographical markets and increase back office capabilities to service the agent network. Competition The transportation industry is highly competitive and highly fragmented. In our brokerage services, our primary competitors are other non-asset based as well as asset based third party logistics companies, freight brokers, carriers offering logistics services and freight forwarders. In our contract carrier services, our competitors are other contract carriers and common carriers. We also compete with customers' and shippers' internal traffic and transportation departments as well as carriers internal sales and marketing departments directly seeking shippers' freight. We generally compete on the basis of price and the range of logistics and supply chain services offered. Government regulation Our industry has long been subject to government legislation and regulation. Over the years, many changes in these laws and regulations have affected the industry and caused changes in the operating practices and the cost of providing transportation services. We cannot predict what effect, if any, legislative and regulatory changes may have on the industry in the future. We are licensed by the United States Department of Transportation (DOT) as a broker arranging the movement of materials by motor carrier. In this capacity, we are required to meet certain qualifications to enable us to conduct business, which includes the compliance with certain surety bond requirements. We are also licensed by the DOT as a contract carrier arranging the movement of materials by motor carrier. In this capacity, we are required to meet certain qualifications to enable us to conduct business, which includes the maintenance of $1,000,000 of general liability insurance and $100,000 of cargo insurance. If we fail to comply with, or lose, any required licenses, governmental regulators could assess penalties or issue a cease and desist order against our operations that are not in compliance. Risk and liability In our brokerage services, we do not assume liability for loss or damage to freight; we act as the shipper's agent and arrange for a carrier to handle the freight. Therefore, we do not take possession of the shipper's freight and, accordingly, we are not liable for the carrier's negligence or failure to perform. We do assist our customers in the processing and collection of any claim. The Federal Highway Administration requires us to maintain a surety bond of $10,000, which is intended to show our financial responsibility and provide surety for the arrangements with shippers and carriers. In addition, we maintain $100,000 of contingent cargo liability insurance. In our contract carrier services business, we are liable for loss or damage to our customers' freight. We maintain cargo liability insurance coverage with a policy limit of $100,000 per occurrence. 6 Company background AutoInfo, Inc. was organized under the laws of the State of New York in 1976 and reincorporated under the laws of Delaware in 1987. 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 in exchange for, upon closing, ten million shares of our common stock, which constituted approximately 37% of our proposed outstanding common stock under our Chapter 11 reorganization plan. 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 Bankruptcy Court, upon the closing of the Sunteck merger, which occurred in December 2000. RISK FACTORS In addition to the other information provided in our reports, you should carefully consider the following factors in evaluating our business, operations and financial condition. Additional risks and uncertainties not presently known to us, that we currently deem immaterial or that are similar to those faced by other companies in our industry or business in general, such as competitive conditions, may also impair our business operations. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition and results of operations. Continued expansion of our business operations is uncertain. For the year ended December 31, 2004, we increased gross revenues from $27.2 million to $46.5 million and had income before taxes of $986,000 as compared $546,000 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 some of these representatives. These contracts are typically terminable upon 10 to 30 days notice by either party and do not always 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 7 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 we are unable to pass through to our customers the full amount of these higher transportation costs. If a slowdown in economic activity or a downturn in our customers' business cycles causes a reduction in the volume of freight shipped by those customers, our operating results could be materially adversely affected. We have limited marketing and sales capabilities and must make sales in fragmented markets. Our future success depends, to a great extent, on our ability to successfully market our services. 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 8 highly qualified marketing, sales and administrative personnel. Competition for qualified personnel in these areas is intense and we will be competing for their services with companies that have substantially greater resources than we do. We cannot assure you that we will be able to identify, attract and retain personnel with skills and experience necessary and relevant to the future operations of our business. Our inability to retain or attract qualified personnel in these areas could have a material adverse effect on our business and results of operations. We may require additional financing in the future, which may not be available on acceptable terms. Depending on our ability to generate revenues, we may require additional funds to expand Sunteck's business operations and for working capital and general corporate purposes. Any additional equity financing may be dilutive to stockholders, and debt financings may involve restrictive covenants that further limit our ability to make decisions that we believe will be in our best interests. In the event we cannot obtain additional financing on terms acceptable to us when required, our ability to expand Sunteck's operations may be materially adversely affected. Our principal stockholders have substantial control over our affairs. As of March 7, 2005, our president, Harry Wachtel was our largest stockholder, owning approximately 24% 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 7, 2005, our closing stock price has ranged from $0.30 to $0.76. On March 7, 2005, our closing stock price was $0.66. 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 5.6 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. 9 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. The application of the "penny stock" rules could adversely effect the market price of our common stock. As long as the trading price of our common stock is below $5.00 per share, the open-market trading of our common stock will be subject to the "penny stock" rules. The "penny stock" rules impose additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of securities and have received the purchaser's written consent to the transaction before the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the broker-dealer must deliver, before the transaction, a disclosure schedule prescribed by the Securities and Exchange Commission relating to the penny stock market. The broker-dealer also must disclose the 10 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. 11 Patents, trademarks and copyrights "AUTOINFO" is our registered trademark and service mark. Employees As of February 22, 2005, we had 196 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. Available Information Our website address is www.suntecktransport.com. We are not including the information contained on our website as part of, or incorporating it by reference into, this annual report on Form 10-KSB. We make available free of charge through our website our annual report on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K, Forms 3, 4 and 5, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers such as us that file electronically with the SEC. The website address is www.sec.gov. PROPERTIES We lease approximately 5,300 square feet of space for our executive offices and the headquarters of Sunteck at 6413 Congress Avenue, Boca Raton, Florida. This lease runs through April 2010 and provides for aggregate rent payments of $57,000 for the thirteen months ending February 2006, $61,000 for the thirteen months ending March 2007, $65,000 for the thirteen months ending April 2008, $68,000 for the twelve months ended April 2009 and $71,000 for the twelve months ended April 2010. We lease 1,100 square feet for our operating office at 315 Main Street, Pineville, North Carolina. The lease runs through February 2008 and provides for an annual rental of $13,000. LEGAL PROCEEDINGS We are not a party to any material legal proceedings. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 12 PART II MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 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 each quarter within the last two fiscal years, 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 $0.70 $0.28 Second quarter 0.67 0.41 Third quarter 0.51 0.32 Fourth quarter 0.61 0.32 Year Ended December 31, 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 As of March 7, 2005, 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 $0.66. As of March 7, 2005, we had approximately 1,000 beneficial stockholders. Dividend policy We have never declared or paid a cash dividend on our common stock. It has been the policy of our board of directors to retain all available funds to finance the development and growth of our business. The payment of cash dividends in the future will be dependent upon our earnings and financial requirements and other factors deemed relevant by our board of directors. 13 SELECTED CONSOLIDATED FINANCIAL DATA The following is a summary of our selected consolidated financial data for the years ended December 31, 2004, 2003, 2002, 2001 and 2000. The financial data has been derived from our audited consolidated financial statements and accompanying notes. This financial data reflects our acquisition of Sunteck in December 2000, which was accounted for as a pooling of interest. Accordingly, all periods presented below have been restated to include the accounts and operations of Sunteck under continuing operations. The selected financial data set forth below should be read together with, and are qualified by reference to, the "Management's Discussion and Analysis of Financial condition and Results of Operations" section of this report and our audited consolidated financial statements and accompanying notes included elsewhere in this report.
000's omitted, except for per share data Year ended December 31, --------------------------------------------------------------------------- 2004 2003 2002 2001 2000 ---------- ---------- ---------- ---------- ---------- Statement of Operations Data: Gross revenues $ 46,492 $ 27,171 $ 18,863 $ 8,029 $ 3,389 Net revenues (1) 8,734 5,076 3,368 1,567 835 Income (loss) from continuing operations 1,466 1,300 340 (15) (81) Income from discontinued operations -- -- -- -- 9,471 Net income (loss) $ 1,466 $ 1,300 $ 340 $ (15) $ 9,390 Basic net income (loss) per share (2) (3) From continuing operations $ .05 $ .05 $ .01 $ (.00) $ .00 From discontinued operations -- -- -- -- .51 ---------- ---------- ---------- ---------- ---------- Net income (loss) per share, basic $ .05 $ .05 $ .01 $ (.00) $ .51 ---------- ---------- ---------- ---------- ---------- Diluted net income (loss) per share (2) (3) From continuing operations $ .04 $ .05 $ .01 $ (.00) $ .00 From discontinued operations -- -- -- -- .48 ---------- ---------- ---------- ---------- ---------- Net income (loss) per share, diluted $ .04 $ .05 $ .01 $ (.00) $ .48 ---------- ---------- ---------- ---------- ----------
(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, 2004, 2003 and 2002 were 2,523,000, 1,434,000 and 635,000 and for the year ended December 31, 2000 were 1,304,000. (3) The common stock equivalents for the years ended December 31, 2001 was 30,000. The common stock equivalents for these shares were not included in the calculation of diluted income (loss) per common share because the effect would have been antidilutive.
000's omitted As at December 31, --------------------------------------------------------------------- 2004 2003 2002 2001 2000 ---------- ---------- ---------- ---------- ---------- Balance Sheet Data: Cash and short term investments $ 38 $ 133 $ 684 $ 898 $ 941 Accounts receivable 9,658 4,881 2,996 1,358 720 Total assets 11,795 6,286 3,944 2,458 1,740 Total liabilities 7,383 4,394 3,356 2,215 1,481 Deficit (14,692) (16,158) (17,458) (17,798) (17,784) Stockholders' equity 4,412 1,892 588 243 258
14 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 7 of this report. 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 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 $46.5 million during our most recently completed fiscal year. Our brokerage services are provided through a network of independent sales agents. As of February 22, 2005, we had 12 regional operating centers providing brokerage services and representatives in 21 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 February 22, 2005, we had seven regional operating centers providing contract carrier services, representatives in nine states and 83 independent owner-operators. 15 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 30,800 in 2003 to 43,300 is 2004, an increase of 41%. The average revenue dollar per load in our broker division also increased 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 year ended December 31, 2004 During the year ended December 31, 2004, we continued to implement our strategic growth business plan consisting primarily of the expansion of client services, the opening of regional operations centers in key geographical markets, the addition of independent sales agents providing brokerage and contract carrier services. Our net revenues (gross revenues less cost of transportation) are the primary indicator of our ability to source, add value and resell services that are provided by third parties and are considered to be the primary measurement of growth. Therefore, the discussion of the results of operations below focuses on the changes in our net revenues. The increases in net revenues and all related cost and expense categories are the direct result of our business expansion. The following table represents certain statement of operation data as a percentage of net revenues: 2004 2003 ------------- ------------- Net revenues 100.0% 100.0% Commissions 59.3% 58.2% Operating expenses 28.0% 28.6% Other charges 1.4% 2.5% Income taxes (benefit) (5.5)% (14.9)% Net income 16.8% 25.6% Revenues Gross revenues, consisting of freight fees and other related services revenue, totaled $46,492,000 for the year ended December 31, 2004, as compared with $27,171,000 in the prior year, an increase of 71%. Net revenues were $8,734,000 for the year ended December 31, 2004, as compared with $5,076,000 in the prior year, an increase of 72%. Gross revenues from brokerage services increased to $36,931,000 from $25,106,000 and net revenues increased to $7,032,000 from $4,685,000 in the prior year. This increase is the direct result of the continued expansion of our agent network and customer base. Gross revenues from contract carrier services, which we began offering in 2003, increased to $9,561,000 from $2,065,000 and net revenues increased to $1,702,000 from $391,000 in the prior year. Costs and expenses Commissions totaled $5,179,000 for the year ended December 31, 2004, as compared with $2,955,000 in the prior year, an increase of 75%. This increase is the direct result of the continued expansion of our agent network and customer base. As a percentage of net revenues, commissions were 59% for the year ended December 31, 2004 as compared with 58% in the prior year. 16 Operating expenses totaled $2,449,000 for the year ended December 31, 2004, as compared with $1,450,000 in the prior year. As a percentage of net revenues, operating expenses were 28% for the year ended December 31, 2004 as compared with 29% 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. We have increased administrative staff commensurate with the increase in transaction volume. In February 2005, we moved our headquarters increasing our space to 5,300 square feet. We presently have adequate facilities and management to handle the present and anticipated transaction volume in 2005 without a significant increase in overhead. Interest expense was $120,000 for the year ended December 31, 2004 as compared with $131,000 in the prior year. This decrease is primarily the result of borrowings pursuant to our line of credit, secured in May 2004 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 2001. Income tax The income tax benefit of $480,000 for the year ended December 31, 2004 consisted of a benefit of $873,000 resulting from the anticipated future utilization of an available federal tax loss carryforward, net of income taxes of $393,000. The income tax benefit of $754,000 for the year ended December 31, 2003 consisted of $784,000 resulting from the anticipated future utilization of an available federal tax loss carryforward, net of state income taxes of $30,000. Based upon available objective evidence, including our post-merger history of profitability, we believe that it is more likely than not that forecasted taxable income will be sufficient to utilize a portion of the net operating loss carryforward before its expiration in 2014. Accordingly, in 2004 the valuation allowance was reduced by $873,000. Net income Net income totaled $1,466,000 for the year ended December 31, 2004, as compared with $1,300,000 in the prior year. This increase is the direct result of the increase in revenues due the continuing expansion of our operations resulting in an increase in income before income taxes of $440,000 offset by the net decrease in the recognition on the deferred tax asset of $247,000 and the increase in state income taxes of $27,000. Trends and uncertainties The transportation industry is highly competitive and highly fragmented. In our brokerage services, our primary competitors are other non-asset based as well as asset based third party logistics companies, freight brokers, carriers offering logistics services and freight forwarders. In our contract carrier services, our competitors are other contract carriers and common carriers. We also compete with customers' and shippers' internal traffic and transportation departments as well as carriers internal sales and marketing departments directly seeking shippers' freight. We anticipate that competition for our services will continue to increase. Many of our competitors have substantially greater capital resources, sales and marketing resources and experience. We cannot assure you that we will be able to effectively compete with our competitors in effecting our business expansion plans. The most significant trend contributing to our growth during the past two years has been the expansion of our brokerage services agent network and, 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, 2004, we increased gross revenues from $27.2 million to $46.5 million and had net income of $1,466,000 as compared with $1,300,000 in the prior year. As of December 31, 17 2004, we had an accumulated deficit of $14.7 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 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 under lines of credit. At December 31, 2004, we had outstanding $1,998,000 pursuant to our $2,500,000 line of credit. The line of credit, obtained from a bank in May 2003, is subject to the maintenance of certain financial covenants, is secured by accounts receivable and other operating assets, and matures in June 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 December 31, 2004, we had liquid assets of approximately $38,000. Available cash is used to reduce borrowings on our line of credit. The total amount of debt outstanding as of December 31, 2004 and 2003 was $1,998,000 and $1,621,000, respectively. The following table presents our debt instruments and their weighted average interest rates as of December 31, 2004 and 2003, respectively: Weighted Weighted Balance Average Rate Balance Average Rate --------------------------------------------------- 2004 2003 --------------------------------------------------- Subordinated Debt -- -- $ 575,000 12.0% Line of Credit $1,998,000 5.2% $1,046,000 4.5% Inflation and changing prices had no material impact on our revenues or the results of operations for the year ended December 31, 2004. In January 2004, we sold 1,333,333 shares of our common stock for cash proceeds of $417,000. Simultaneously, in a related transaction, our 12% convertible debentures were converted into 2,300,000 shares of common stock. The result of these transactions was an increase in cash of $417,000, a decrease in debt of $575,000 and an increase in equity of $1,017,000. The cash proceeds of $417,000 were used to reduce the outstanding balance under our line of credit. Critical Accounting Policies Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date 18 of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 1 of the Notes to Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of our financial statements. The most significant areas involving 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 delivery of freight, at which time the related transportation cost, including commission, is also recognized. At that time, our obligations are completed and collection of receivables is reasonably assured. Emerging Issues Task Force No. 99-19, "Reporting Revenues Gross as a Principal Versus Net as an Agent" (EITF 99-19), establishes criteria for recognizing revenues on a gross or net basis. We are the primary obligor in our transactions, have all credit risk, maintain substantially all risk and rewards, have discretion in selecting the supplier, and latitude in pricing decisions. Accordingly, we record all transactions at the gross amount, consistent with the provisions of EITF 99-19. Income Taxes The deferred tax asset represents expected future tax savings resulting from our net operating loss carryforward. As of December 31, 2004, we had a net operating loss carryforward of approximately $16.5 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 by the 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 December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" (SFAS 123R), replacing SFAS 123 and superseding Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). SFAS 123R requires public companies to recognize compensation expense for the cost of awards of equity compensation effective July 1, 2005. This compensation cost will be measured as the fair value of the award estimated using an option-pricing model on the grant date. The Company is currently evaluating the various transition provisions under SFAS 123R and will adopt SFAS 123R effective July 1, 2005, which is expected to result in increased compensation expense in future periods. In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - an Amendment of APB No. 29" (SFAS 153). The amendments made by SFAS 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have "commercial 19 substance." This standard is effective for nonmonetary asset exchanges occurring after July 1, 2005. The adoption of this standard is not expected to impact the Company's consolidated financial statements. Off-balance sheet arrangements We do not have any off-balance sheet arrangements. FINANCIAL STATEMENTS The response to this item is submitted as a separate section of this report beginning on page F-1. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. CONTROLS AND PROCEDURES Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our 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, our chief executive officer and chief financial officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) our fiscal fourth quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. OTHER INFORMATION None. 20 PART III DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth the names, ages and positions of our directors, executive officers and key employees:
Name Age Position - ---- --- -------- Peter C. Einselen 65 Director Thomas C. Robertson 59 Director Harry Wachtel 46 President, chief executive officer and director Mark Weiss 45 National account executive and director William Wunderlich 57 Chief financial officer
PETER C. EINSELEN has been a director since January 1999. Mr. Einselen has been an account executive since 1990 and served as senior vice president from 1990 to 2001 of Anderson & Strudwick, a brokerage firm,. From 1983 to 1990, Mr. Einselen was employed by Scott and Stringfellow, Incorporated, a brokerage firm. THOMAS C. ROBERTSON has been a director since January 1999. Mr. Robertson has been senior vice president since 2004 and was president, chief financial officer and a director from 1988 to 2004 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. WILLIAM WUNDERLICH joined us in October 1992 as our vice president - finance, became chief financial officer in January 1993, president in January 1999 and, in conjunction with the acquisition of Sunteck, became executive vice president in December 2000. From 1990 to 1992, he served as vice president of Goldstein Affiliates, Inc., a public adjusting company. From 1981 to 1990, he served as executive vice president, chief financial officer and a director of Novo Corporation, a manufacturer of consumer products. Mr. Wunderlich is a Certified Public Accountant with a B.A. degree in Accounting and Economics from the City University of New York at Queens College. Mr. Wunderlich is the brother-in-law of Mr. Weiss, one of our directors. Director Compensation We do not pay any directors' fees. Directors are reimbursed for the costs relating to attending board and committee meetings. During 2004, Peter C. Einselen and Thomas C. Robertson, our non-employee directors, 21 each were granted options to purchase 62,500 shares of our common stock at prices ranging from $0.29 to $0.60 per share, the fair market value on the date of grant. Committees of the Board of Directors Our board of directors has an audit committee and a compensation committee. The audit committee reviews the scope and results of the audit and other services provided by our independent accountants and our internal controls. The compensation committee is responsible for the approval of compensation arrangements for our officers and the review of our compensation plans and policies. Each committee is comprised of Messrs. Einselen and Robertson, our non-employee independent outside directors. Audit Committee Matters Under its charter, the audit committee must pre-approve all engagements of our independent auditor unless an exception to such pre-approval exists under the Securities Exchange Act of 1934 or the rules of the Securities and Exchange Commission (SEC). Each year, the independent auditor's retention to audit our financial statements, including the associated fee, is approved by the committee before the filing of the preceding year's annual report on Form 10-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 SEC rules stating that an auditor is not independent of an audit client if the services it provides to the client are not appropriately approved, each new engagement of Dworken, Hillman, LaMorte & Sterczala, P.C. was approved in advance by the Audit Committee, and none of those engagements made use of the de minimus exception to pre-approval contained in the SEC's rules. Our board has determined that the chairman of the audit committee, Mr. Robertson, is an "audit committee financial expert," as that term is defined in Item 401(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. 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. 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 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. 22 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 2004, 2003 and 2002 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 2004 ....................................... $205,000 $125,000 -- 2003 ....................................... $175,000 $ 51,531 -- 2002 ....................................... $175,000 $ 13,035 -- William Wunderlich Executive vice president and chief financial officer 2004 ....................................... $100,000 $125,000 -- 2003 ....................................... $ 93,750 $ 55,281 -- 2002 ....................................... $ 75,000 $ 28,035 -- Mark Weiss National account executive 2004 ....................................... $107,503 -- -- 2003 ....................................... $118,592 -- -- 2002 ....................................... $127,836 -- --
Option grants during the year ended December 31, 2004 Our compensation committee did not grant any options to the named executives during the year ended December 31, 2004. Option exercises and year-end option values. The following table provides information with respect to options exercised by the Named Executive Officers during 2004 and the number and value of unexercised options held by the Named Executive Officers as of December 31, 2004. 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 -- -- 810,000 -- $413,000 --
- ---------- (1) For the purposes of this calculation, value is based upon the difference between the exercise price of the options and the stock price at date of exercise. (2) For the purposes of this calculation, value is based upon the difference between the exercise price of the exercisable and unexercisable options and the stock price at December 31, 2004 of $0.61 per share. 23 Equity Compensation Plan Information Year Ended December 31, 2004
Number of securities remaining available for Number of securities Weighted-average future issuance under to be issued upon exercise price of equity compensation exercise of outstanding plans (excluding outstanding options, options, warrants securities reflected in Plan Category warrants and rights and rights column (a)) - ---------------------------------- -------------------- ----------------- ----------------------- (a) (b) (c) Equity compensation plans approved by security holders (1985, 1986, 1989, 1992, 1997, 1999 and 2003 Stock Option Plans)................. 5,594,000 $0.28 450,000 Equity compensation plans not approved by security holders(1).................... -- -- -- ========= ===== ======= Total............................ 5,594,000 $0.28 450,000 ========= ===== =======
(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 (which were subsequently amended and modified during 2003 and 2004) with Messrs. Wachtel and Wunderlich providing for their employment, as our chief executive officer and chief financial officer, respectively, for terms expiring 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 $205,000 and $100,000, respectively, and for participation in all executive benefit plans. Each of Mr. Wachtel's and Mr. Wunderlich's agreements provide that they will each be entitled to a bonus equal to 10% of our consolidated pre-tax profit (as defined) up to $1,250,000. Further, 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. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table, together with the accompanying footnotes, sets forth information, as of March 10, 2005, regarding stock ownership of all persons known by us to own beneficially 5% or more of our outstanding common stock, all directors, Named Executive Officers and all directors and executive officers as a group. We determined beneficial ownership in accordance with rules promulgated by the SEC, 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. 24 Name of Shares of Common Stock Percentage Beneficial Owner (1) Beneficially Owned Of Ownership -------------------- ------------------ ------------ (i) Directors and Executive Officers Harry Wachtel 7,560,000 (2) 24.1% Thomas C. Robertson 240,000 (3) * Peter C. Einselen 410,000 (3) 1.3% Mark Weiss 950,000 (5) 3.0% William I. Wunderlich 1,525,000 (4)(6) 4.7% All executive officers and directors as a group (5 persons) 9,125,000 (7) 28.0% (ii) 5% Stockholders James T. Martin 6,270,000 20.0% Kinderhook Partners 5,159,000 16.4% - ---------- * 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 260, Boca Raton, FL 33487. The address for Mr. Martin is c/o Bermuda Trust Company, Compass Point Road, 9 Bermudian Road, Hamilton HM11, Bermuda. The address for Kinderhook Partners is One Executive Drive, Suite 160, Fort Lee, NJ 07024. (2) Includes 1,560,000 shares with respect to which Mr. Wachtel has been granted voting rights pursuant to voting proxy agreements. (3) Includes 180,000 shares issuable upon the exercise of stock options. (4) Includes 810,000 shares issuable upon the exercise of stock options. (5) Includes 950,000 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 610,000 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. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In August 2001, we entered into a $500,000 line of credit agreement with James T. Martin, a significant stockholder, secured by our accounts receivable. 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 was charged to operations in 2003. In December 2001, we lent $100,000 to the father-in-law of Harry Wachtel, our president. This loan bore interest at 4% per annum and was due in December 2006. This loan was repaid in March 2004. In December 2000, we obtained financing totaling $575,000 from certain related parties in the form of ten year 12% subordinated convertible debentures. Interest of $4,000 and $69,000 was charged to operations in each of 2004 and 2003, respectively. In January 2004, these debentures were converted into 2,300,000 shares of common stock. EXHIBITS Exhibits - -------- 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) 25 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) 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 May 7, 2004.* No. 10L Amendment to Employment Agreement between AutoInfo, Inc. and William Wunderlich dated May 7, 2004.* No. 10M Stock Purchase Agreement between AutoInfo, Inc and Kinderhook Partners, LP dated January 21, 2004.(10) No. 10N Registration Rights Agreement between AutoInfo, Inc. and Kinderhook Partners, LP, et al, dated October 4, 2004.* No. 10O First Amendment to Revolving Credit and Security Agreement between Wachovia Bank and AutoInfo, Inc., et al * No. 14A Code of Ethics.(10) No. 21A Subsidiaries of the Registrant. * No. 23A Consent of Dworken, Hillman, LaMorte & Sterczala, P.C., independent registered public accounting firm.* 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.* 26 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. (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-KSB 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-KSB for the year ended December 31, 2003 and is incorporated herein by reference. PRINCIPAL ACCOUNTING FEES AND SERVICES 2004 2003 ------- ------- Audit fees $48,480 $46,570 Audit related fees -- -- Tax fees -- -- All other fees -- -- Total fees $48,480 $46,570 ------- ------- Audit Committee Pre-Approval Policies and Procedures Our audit committee charter provides that the audit committee will pre-approve audit services and non-audit services to be provided by our independent auditors before the accountant is engaged to render these services. The audit committee may consult with management in the decision-making process, but may not delegate this authority to management. The audit committee may delegate its authority to pre-approve services to one or more committee members, provided that the designees present the pre-approvals to the full committee at the next committee meeting. 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d), the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on March 15, 2005 on its behalf by the undersigned, thereunto duly authorized. AutoInfo, Inc. By: /s/ Harry M. Wachtel ------------------------------- Harry M. Wachtel, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated. /s/ Harry M. Wachtel - ----------------------------- Harry M. Wachtel President, Chief Executive Officer and March 15, 2005 Chairman of the Board (Principal Executive Officer) /s/ William I. Wunderlich - ----------------------------- William I. Wunderlich Chief Financial Officer March 15, 2005 (Principal Accounting Officer) /s/ Mark Weiss - ----------------------------- Mark Weiss Director March 15, 2005 /s/ Peter C. Einselen - ----------------------------- Peter C. Einselen Director March 15, 2005 /s/ Thomas C. Robertson - ----------------------------- Thomas C. Robertson Director March 15, 2005
28 AUTOINFO, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2004 and 2003 F-3 Consolidated Statements of Income for the Years Ended December 31, 2004 and 2003 F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2004 and 2003 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2004 and 2003 F-6 Notes to Consolidated Financial Statements F-7 Information required by schedules called for under Regulation S-X is either not applicable or is included in the Consolidated Financial Statements or Notes thereto. Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of AutoInfo, Inc. We have audited the accompanying consolidated balance sheets of AutoInfo, Inc. and subsidiaries as of December 31, 2004 and 2003, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AutoInfo, Inc. and subsidiaries as of December 31, 2004 and 2003 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 11, 2005 Shelton, Connecticut /s/ Dworken, Hillman, LaMorte & Sterczala, P.C. ----------------------------------------------- Dworken, Hillman, LaMorte & Sterczala, P.C. AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS (Note 2)
December 31 ------------------------------- 2004 2003 ------------ ------------ Current assets: Cash and cash equivalents $ 38,000 $ 133,000 Accounts receivable, net of allowance for doubtful accounts of $60,000 9,658,000 4,881,000 Loan receivable (Note 3) -- 100,000 Deferred income taxes (Note 4) 369,000 248,000 Other current assets 679,000 292,000 ------------ ------------ Total current assets 10,744,000 5,654,000 Fixed assets, net of depreciation 69,000 71,000 Deferred income taxes (Note 4) 952,000 536,000 Other assets 30,000 25,000 ------------ ------------ $ 11,795,000 $ 6,286,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Loan payable (Note 2) $ 1,998,000 $ 1,046,000 Convertible subordinated debentures (Note 2) -- 575,000 Accounts payable and accrued liabilities 5,385,000 2,773,000 ------------ ------------ Total current liabilities 7,383,000 4,394,000 ------------ ------------ Commitments and contingencies (Note 5) Stockholders' equity : (Note 6) Common stock - authorized 100,000,000 shares, $.001 par value; issue and outstanding 31,218,000 and 27,383,000 as of December 31, 2004 and 2003, respectively 31,000 27,000 Other capital 324,000 -- Deferred compensation (277,000) -- Additional paid-in capital 19,026,000 18,023,000 Deficit (14,692,000) (16,158,000) ------------ ------------ Total stockholders' equity 4,412,000 1,892,000 ------------ ------------ $ 11,795,000 $ 6,286,000 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
For The Years Ended December 31, ---------------------------------- 2004 2003 ------------ ------------ Gross revenues $ 46,492,000 $ 27,171,000 Cost of transportation 37,758,000 22,095,000 ------------ ------------ Net revenues 8,734,000 5,076,000 ------------ ------------ Commissions 5,179,000 2,955,000 Operating expenses 2,449,000 1,450,000 ------------ ------------ 7,628,000 4,405,000 ------------ ------------ Income from operations 1,106,000 671,000 ------------ ------------ Other charges (credits): Investment income -- (6,000) Interest expense 120,000 131,000 ------------ ------------ 120,000 125,000 ------------ ------------ Income before income taxes (benefit) 986,000 546,000 Income taxes (benefit) (Note 4) (480,000) (754,000) ------------ ------------ Net income 1,466,000 1,300,000 ============ ============ Net income per share (basic) $ .05 $ .05 Net income per share (diluted) $ .04 $ .05 Weighted average number of common shares (basic) 30,915,000 27,355,000 Weighted average number of common shares (diluted) 33,438,000 28,789,000
The accompanying notes are an integral part of these consolidated financial statements. AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Shares of Common Additional Stock Common Other Deferred Paid - In Outstanding Stock Capital Compensation Capital Deficit ----------- ----- ------- ------------ ------- ------- Balance, January 1, 2003 27,348,000 $ 27,000 $ -- $ -- $18,019,000 $(17,458,000) Exercise of stock options 35,000 -- 4,000 Net income 1,300,000 ----------- ----------- -------- --------- ----------- ------------ Balance, December 31, 2003 27,383,000 27,000 -- -- 18,023,000 (16,158,000) Sale of common shares 1,333,000 2,000 415,000 Conversion of subordinated debentures (Note 2) 2,300,000 2,000 573,000 Exercise of stock options 202,000 -- 15,000 Shares granted under stock option plans to non-employees 324,000 (324,000) Compensation expense 47,000 Net income 1,466,000 ----------- ----------- -------- --------- ----------- ------------ Balance, December 31, 2004 31,218,000 $ 31,000 $324,000 $(277,000) $19,026,000 $(14,692,000) =========== =========== ======== ========= =========== ============
The accompanying notes are an integral part of these consolidated financial statements. AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, -------------------------------- 2004 2003 ----------- ----------- Cash flows from operating activities: Net income $ 1,466,000 $ 1,300,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization expenses 40,000 38,000 Deferred compensation expense 47,000 Deferred income taxes (537,000) (784,000) Changes in assets and liabilities: Accounts receivable, net (4,777,000) (1,885,000) Other current assets (398,000) (218,000) Other assets 105,000 (2,000) Accounts payable and accrued liabilities 2,612,000 492,000 ----------- ----------- Net cash used in operating activities (1,442,000) (1,059,000) ----------- ----------- Cash flows from investing activities: Capital expenditures (37,000) (42,000) ----------- ----------- Net cash used in investing activities (37,000) (42,000) ----------- ----------- Cash flows from financing activities: Sale of common shares 417,000 Conversion of subordinated debentures 575,000 Exercise of stock options 15,000 4,000 Increase in borrowings, net 377,000 546,000 ----------- ----------- Net cash provided by financing activities 1,384,000 550,000 ----------- ----------- Net change in cash and cash equivalents (95,000) (551,000) Cash and cash equivalents, beginning of year 133,000 684,000 ----------- ----------- Cash and cash equivalents, end of year $ 38,000 $ 133,000 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. AUTOINFO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2004 and 2003 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 us. The independent commissioned sales agents typically enter into 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 $47 million during our most recently completed fiscal year. Our brokerage services are provided though a network of independent sales agents. As of February 22, 2005, we had 12 regional operating centers providing brokerage services and representatives in 21 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 February 22, 2005, we had seven regional operating centers providing contract carrier services, representatives in nine states and 83 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 AutoInfo, Inc. (the Company), its wholly-owned subsidiary Sunteck Transport Co., Inc. and its wholly-owned subsidiary Sunteck Transport & Logistics, Inc., collectively (Sunteck). All significant intercompany balances and transactions have 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 delivery of freight, at which time the related transportation cost, including commission, is also recognized. At that time, the Company's obligations are completed and collection of receivables is reasonably assured. Emerging Issues Task Force No. 99-19, "Reporting Revenues Gross as a Principal Versus Net as an Agent" (EITF 99-19), establishes criteria for recognizing revenues on a gross or net basis. The Company is the primary obligor in its transactions, has all credit risk, maintains substantially all risk and rewards, has discretion in selecting the supplier, and has latitude in pricing decisions. Accordingly, the Company records all transactions at the gross amount, consistent with the provisions of EITF 99-19. 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. Fixed Assets Fixed assets as of December 31, 2004 and 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 2,523,000 and 1,434,000 for the year ended December 31, 2004 and 2003, 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. Income Taxes The Company utilizes the asset and liability method for accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and future benefits to be recognized upon the utilization of certain operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Stock-Based Compensation The Company applies Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). As permitted by SFAS 123, the Company has chosen to continue to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and, accordingly, no compensation cost has been recognized for stock options issued to employees in the financial statements. The pro-forma effect of options issued to employees on net income and earnings per share, utilizing the Black-Scholes option-pricing model, consistent with the method stipulated by SFAS 123, was not material to the Company's results of operations. The Company accounts for stock options issued to non-employees using the fair value method in accordance with SFAS 123. Deferred compensation, representing the fair market value of the options issued utilizing the Black-Scholes option-pricing model, is charged to earnings over the vesting period. New Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" (SFAS 123R), replacing SFAS 123 and superseding Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). SFAS 123R requires public companies to recognize compensation expense for the cost of awards of equity compensation effective July 1, 2005. This compensation cost will be measured as the fair value of the award estimated using an option-pricing model on the grant date. The Company is currently evaluating the various transition provisions under SFAS 123R and will adopt SFAS 123R effective July 1, 2005, which is expected to result in increased compensation expense in future periods. In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - an Amendment of APB No. 29" (SFAS 153). The amendments made by SFAS 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have "commercial substance." This standard is effective for nonmonetary asset exchanges occurring after July 1, 2005. The adoption of this standard is not expected to impact the Company's consolidated financial statements. Segment Information The Company provides transportation capacity and related logistics services through its integrated network of independent agents and third party capacity providers. For the purpose of applying Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information", management has determined that it operates in a single business segment. Note 2 - Debt Loan Payable In May 2003, the Company entered into a $1.5 million Line of Credit, expiring in May 2004, with a commercial lending institution, secured by substantially all assets of the Company. In 2004, this Line of Credit was increased to $2.5 million, expiring in June 2005. The line provides for interest at the prime rate plus 1/2% and the maintenance of certain financial covenants. Interest of $59,000 and $27,000 was charged to operations in 2004 and 2003, respectively. In August 2001, the Company entered into a $500,000 Line of Credit Agreement with James T. Martin, a significant stockholder of the Company, secured by the Company's accounts receivable. Interest on the outstanding borrowings was 17% per annum, payable quarterly in arrears. This credit facility was repaid in full in May 2003. Interest of $35,000 was charged to operations in 2003. 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). In January 2004, these Debentures were converted into 2,300,000 shares of common stock. Interest of $4,000 and $69,000 was charged to operations in each of 2004 and 2003, respectively. 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 bore interest at 4% per annum and was repaid in full in March 2004. Note 4- Income Taxes For the years ended December 31, 2004 and 2003, the provision for income taxes consisted of the following:
2004 2003 ------------------------- ------------------------- Current Deferred Current Deferred --------- --------- --------- --------- Income tax expense before application of operating loss carryforwards $ 393,000 $ -- $ 205,000 $ -- Income tax expense (benefit) of operating loss carryforwards (336,000) 336,000 (175,000) -- Change in valuation allowance -- (873,000) -- (784,000) ------------------------- ------------------------- Income tax expense (benefit) $ 57,000 $(537,000) $ 30,000 $(784,000) ========================= =========================
The following table reconciles the Company's effective income tax rate on income from operations to the Federal Statutory Rate for the years ended December 31, 2004 and 2003.
2004 2003 -------- -------- Federal Statutory Rate 34.0% 34.0% State income taxes, net of federal benefit 5.7 3.6 Effect of: Utilization of operating loss carryforward (34.0) (34.0) Change in valuation allowance (88.4) (141.6) -------- -------- (48.7)% (138.0)% ======== ========
Deferred taxes are comprised of the following at December 31, 2004 and 2003:
December 31, December 31, 2004 2003 ------------ ------------ Deferred tax asset: Net operating loss carryforward $ 5,590,000 $ 5,926,000 ----------- ----------- Gross deferred tax asset 5,590,000 5,926,000 Less: valuation allowance (4,269,000) (5,142,000) ----------- ----------- Deferred tax asset $ 1,321,000 $ 784,000 =========== ===========
The deferred tax asset represents expected future tax savings resulting from the Company's net operating loss carryforward. As of December 31, 2004, the Company has a net operating loss carryforward of approximately $16.5 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 2004 and 2003 the valuation allowance was reduced by $873,000 and $784,000, respectively. However, there can be no assurance that the Company will meet its expectations of future income. Note 5 - Commitments and Contingencies Leases The Company is obligated under non-cancelable operating leases for premises expiring at various dates through April 2010. Future minimum lease payments are $62,000, $68,000, $73,000, $67,000 and $70,000 for the years ended December 31, 2005, 2006, 2007, 2008 and 2009, respectively. Rent expense for the years ended December 31, 2004 and 2003 was $77,000 and $53,000, 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 $205,000 and $100,000, and bonuses equal to 10% of the Company's consolidated pre-tax profit (as defined) up to $1,250,000, respectively. Bonus payments to each of Messrs. Wachtel and Wunderlich were $125,000 for the year ended December 31, 2004 and $51,531 and $55,281 for the year ended December 31, 2003, respectively. Litigation The Company is involved in certain litigation arising in the ordinary course of its business. In the opinion of management, these matters will not have a material adverse effect on the Company's financial position or liquidity. Note 6 - Stockholders' Equity Stock Option Plans The Company has 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, 2004, options to purchase 5,594,000 shares of common stock were outstanding under the Plans. Option activity for the years ended December 31, 2004 and 2003 was as follows:
Granted Exercisable ------------------------------- ------------------------------ Weighted Weighted Number of Average Number of Average Shares Exercise Price Shares Exercise Price --------- -------------- --------- -------------- Outstanding at January 1, 2003 2,583,000 .11 Forfeited during the year (222,000) .10 Exercised during the year (35,000) .10 Granted during the year 1,769,000 .20 --------- ---- Outstanding at December 31, 2003 4,095,000 $.15 1,802,000 $.10 --------- ---- Forfeited during the year (736,000) .16 Exercised during the year (202,000) .07 Granted during the year 2,437,000 .44 --------- ---- Outstanding December 31, 2004 5,594,000 $.28 2,332,000 $.14 --------- ---- --------- ----
Weighted average fair value of options granted: 2004 $ .42 2003 $ .20 Note 7 - Fair Value of Financial Instruments The following disclosures of fair value were determined by management using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Cash, 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, 2004 Quarter Ended ------------------------------------------------------------------ Mar 31 June 30 Sep 30 Dec 31 ------------ ------------ ------------ ------------ Gross revenues $ 8,159,000 $ 10,960,000 $ 12,938,000 $ 14,435,000 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net income $ 176,000 $ 271,000 $ 278,000 $ 741,000 ============ ============ ============ ============ Basic net income per share $ .006 $ .009 $ .009 $ .023 ------------ ------------ ------------ ------------ Diluted net income per share $ .005 $ .008 $ .008 $ .022 ============ ============ ============ ============
Year Ended December 31, 2003 Quarter Ended -------------------------------------------------------------- Mar 31 June 30 Sep 30 Dec 31 ----------- ----------- ----------- ----------- Gross revenues $ 5,141,000 $ 6,102,000 $ 7,552,000 $ 8,376,000 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income $ 79,000 $ 108,000 $ 172,000 $ 941,000 =========== =========== =========== =========== Basic and diluted net income per share $ .003 $ .004 $ .006 $ .032 =========== =========== =========== ===========
Note 9 - Supplemental Disclosure of Cash Flow Information Cash paid for interest in 2004 and 2003 was $59,000 and $131,000, respectively. The Company paid no income taxes in 2004 and 2003. EX-10.(K) 2 d63000_ex10-k.txt AMENDMENT TO EMPLOYMENT AGREEMENT EXHIBIT 10K AMENDMENT TO EMPLOYMENT AGREEMENT AMENDMENT as of May 7, 2004 to the AGREEMENT ("Agreement") dated as of December 6, 2000 by and between AutoInfo, Inc., a Delaware corporation ("Auto") and Harry M. Wachtel, an individual residing at 10324 El Caballo Court, Del Rey, Florida 33446 ("Wachtel") The following modifications to the Agreement are hereby effective January 1, 2004: Pursuant to paragraph 4 - Compensation - Salary shall be increased to $205,000 per year. Pursuant to paragraph 5 - Bonus - the Bonus shall be based on the Operating Profit up to $1,250,000. All other terms and provisions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT to be duly executed and delivered as of the day and year first above written. AUTOINFO, INC. By: /s/ William I. Wunderlich -------------------------- William I. Wunderlich Title: Chief Financial Officer /s/ Harry Wachtel ------------------ Harry M. Wachtel EX-10.(L) 3 d63000_ex10-l.txt AMENDMENT TO EMPLOYMENT AGREEMENT EXHIBIT 10L AMENDMENT TO EMPLOYMENT AGREEMENT AMENDMENT as of May 7, 2004 to the AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") dated as of December 6, 2000 by and between AutoInfo, Inc., a Delaware corporation ("Auto") and William I. Wunderlich residing at 7565 NW 125th Way, Parkland, Florida 33076 ("Wunderlich") The following modifications to the Agreement are hereby effective January 1, 2004: Pursuant to paragraph 5 - Bonus - the Bonus shall be based on the Operating Profit up to $1,250,000. All other terms and provisions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT to be duly executed and delivered as of the day and year first above written. AUTOINFO, INC. By: /s/ Harry Wachtel ------------------ Harry Wachtel, President /s/ William I. Wunderlich ------------------------- William I. Wunderlich EX-10.(N) 4 d63000_ex10-n.txt REGISTRATION RIGHTS AGREEMENT EXHIBIT 10N AUTOINFO, INC. 6413 Congress Ave, Suite 240 Boca Raton, Florida 33487 October 4, 2004 Kinderhook Partners, LP 1 Executive Drive, Suite 160 Fort Lee, NJ 07024 Vinodray R. Shah 50 Hilltop Road Longmeadow, MA 01106 This letter constitutes an agreement between Kinderhook Partners, LP, Vinodray Shah and/or their affiliates (each a "Purchaser" and collectivley, the "Purchasers") and AutoInfo, Inc. ("AutoInfo" or the "Company"). 1. AutoInfo acknowledges that the Purchasers have agreed to buy from certain stockholders of the Company who are signatories hereto (individually, a "Seller" and collectively, the "Sellers") up to 750,000 shares of AutoInfo common stock (the "AutoInfo Shares") pursuant to a Stock Purchase Agreement of even date herewith. AutoInfo further acknowledges that it is a condition to the Stock Purchase Agreement that the Company enter into this agreement with the Purchasers and that transactions contemplated by the Stock Purchase Agreement are in the best interests of the Company. 2. AutoInfo represents and warrants: (a) it is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified to do business and is in good standing in each jurisdiction in which such qualification is required by law; except where the failure to so qualify would not have a material adverse effect on the Company; (b) it has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts; (c) it has the full right, power and authority to enter into this agreement and perform the transactions contemplated hereunder; (d) this agreement has been duly executed and delivered on behalf of AutoInfo and constitutes the valid and binding obligation of AutoInfo, enforceable in accordance with its terms; (e) the execution, delivery and performance of this agreement, and compliance with the provisions hereof by AutoInfo, do not and will not, with or without the passage of time or the giving of notice or both, (i) violate any provision of law, statute, ordinance, rule or regulation or any ruling, writ, injunction, order, judgment or decree of any court, administrative agency or other governmental body, or (ii) result in any breach of any of the terms, conditions or provisions of, or constitute a default (or give rise to any right of termination, cancellation or acceleration) under any note, indenture, mortgage or lease, or any other material contract or other instrument, document or agreement, to which AutoInfo is a party or by which it or any of its property is bound or affected; (f) AutoInfo is not a party to, subject to or bound by any agreement or any judgment, order, writ, prohibition, injunction or decree of any court or other governmental body which would prevent the execution or delivery of this agreement; (g) all consents, approvals or authorizations of, or registrations, filings or declarations with, any governmental authority, stock exchange or market, AutoInfo's board of directors and shareholders, or any other person, required in connection with the execution, delivery and performance of this agreement or the transactions contemplated hereby have been obtained by AutoInfo and are in full force and effect; and (h) there are no actions, investigations, demands, suits or proceedings pending or threatened against or affecting AutoInfo, or affecting the rights of AutoInfo to enter into this agreement or consummate the transactions contemplated hereby. 3. AutoInfo covenants and agrees as follows: (a) to file a registration statement on or before March 31, 2005 (the "Filing Date") on Form SB-2, or such other form that is appropriate, covering the resale of the AutoInfo Shares (the "Registrable Securities"). AutoInfo will cause the registration statement to become effective on or before June 30, 2005 (the "Effectiveness Date"); provided that, if (1) the registration statement is not filed by the Filing Date, (2) the registration statement is not declared effective by the Effectiveness Date, or (3) prior to the time that the Registrable Securities may be resold pursuant to Rule 144, the registration statement shall cease to be available for use by the Purchasers due to the fault of AutoInfo (including, without limitation, by reason of a stop order, a material misstatement or omission in such registration statement or the information contained in such registration statement having become outdated), then each Seller shall pay to the Purchasers an amount equal to one percent (1%) of the purchase price paid to such Seller for the AutoInfo Shares purchased by the Purchasers. Thereafter, for every 30 days that pass during which any of the events described in clauses (1), (2), and (3) above is continuing (the "Blackout Period"), each Seller shall pay to the Purchasers an additional amount equal to one percent (1%) of the purchase price paid to such Seller for the AutoInfo Shares purchased by the Purchasers. Each such payment shall be due within five (5) days of the end of each calendar month of the Blackout Period until the termination of the Blackout Period and within five (5) days after such termination. Such payments shall be in partial compensation to the Purchasers, and shall not constitute the Purchasers' exclusive remedy for such events. The Blackout Period shall terminate upon (x) the filing of the registration statement in the case of clause (1) above; and (y) the effectiveness of the registration statement in the case of clauses (2) and (3) above. Notwithstanding anything to the contrary contained in this Agreement, provided that a registration statement covering the Registrable Securities has been filed and declared effective, no amounts shall be due and payable to the Purchasers as a result of blackout periods imposed by the Company due to (i) the Company being involved in a confidential proposed transaction involving a merger or acquisition, purchase or sale of assets, contractual agreement or negotiations therefor, (ii) an imminent public announcement by the Company of an updated or new product or technology or (iii) the financial statements included in the prospectus covering the Registrable Securities requiring updating and the required annual audited financial statements not being available; provided, however, that such blackout periods shall not exceed thirty (30) trading days in the aggregate per year nor more than twenty (20) consecutive calendar days. (b) if at any time prior to the two year anniversary of the date the Purchasers acquire the Registrable Securities, AutoInfo or any shareholder of AutoInfo proposes to register any of its common stock or any securities convertible into common stock under the Securities Act of 1933 (the "Securities Act") (other than pursuant to an offering of securities in connection with an employee benefit, share dividend, share ownership or dividend reinvestment plan) and (a) the Registrable Securities are not then covered by an effective registration statement, and (b) the registration form to be used may be used by AutoInfo for the registration of the Registrable Securities, AutoInfo shall give prompt written notice to the Purchasers of its intention to effect such a registration (each a "Piggyback Notice") and, shall include in such registration all Registrable Securities with respect to which AutoInfo has received written request from the Purchasers for inclusion therein within ten (10) days after the date of sending the Piggyback Notice (the "Piggyback Registration") to the Purchasers. (c) in connection with any registration, AutoInfo will, as expeditiously as possible: (i) prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for a period of time required for the disposition of such securities by the Purchasers; (ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement until the such time as all of such securities have been disposed of; (iii) furnish to the Purchasers such number of copies of a summary prospectus or other prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents, as the Purchasers may reasonably request; (iv) register or qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions within the United States and Puerto Rico as the Purchasers shall reasonably request (provided, however, that it shall not be obligated to qualify as a foreign corporation to do business under the laws of any jurisdiction in which it is not then qualified or to file any general consent to service or process), and do such other reasonable acts and things as may be required of it to enable the Purchasers to consummate the disposition in such jurisdiction of the securities covered by such registration statement; (v) notify the Purchasers at any time when the Registration Statement contains an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and at the request of the Purchasers, prepare and furnish to such person(s) such reasonable number of copies of any amendment or supplement to the Registration Statement as may be necessary so that, as thereafter delivered to the purchasers of such shares, such Registration Statement shall not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (vi) keep the Purchasers informed of the Company's best estimate of the earliest date on which the offering documents will become effective, and promptly notify the Purchasers of (A) the effectiveness of such offering documents, (B) a request by the Commission for an amendment or supplement to such offering documents, (C) the issuance by the Commission of an order suspending the effectiveness of the offering documents, or of the threat of any proceeding for that purpose, and (D) the suspension of the qualification of any securities to be included in the offering documents for sale in any jurisdiction or the initiation or threat of any proceeding for that purpose; (vii) cause all Registrable Securities registered hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; and (viii) not less than three business days prior to the filing of the Registration Statement or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall furnish to the Purchasers and its counsel copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the reasonable review and comment of the Purchasers and their counsel. (d) all registrations (piggyback or otherwise) made by the Purchasers will be made solely at AutoInfo's expense, other than (x) the underwriters', broker-dealers' and placement agents' selling discounts, commissions and fees relating to the sale of the Purchasers' securities, (y) any costs and expenses of counsel, accountants or other advisors retained by the Purchasers and (z) all transfer, franchise, capital stock and other taxes, if any, applicable to the Purchasers' securities (collectively, "Purchasers' Expenses") which shall be paid by the Purchasers. (e) In the event of any registration of any Registrable Securities under the Securities Act pursuant to this agreement, the Company shall indemnify and hold harmless the holder of such Registrable Securities, such holder's directors and officers, and each other person who participated in the offering of such Registrable Securities and each other person, if any, who controls such holder or such participating person within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such holder or any such director or officer or participating person or controlling person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or any alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, (ii) any omission or any alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any other violation of any applicable securities laws, and in each of the foregoing circumstances shall reimburse such holder or such director, officer or participating person or controlling person for any legal or any other expenses reasonably incurred by such holder or such director, officer or participating person or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any actual or alleged untrue statement or actual or alleged omission made in such registration statement, preliminary prospectus, prospectus or amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such holder specifically for use therein. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such holder or such director, officer or participating person or controlling person, and shall survive the transfer of such securities by such holder. (f) In the event of any registration of any Registrable Securities under the Securities Act pursuant to this Agreement, each holder of Registrable Securities, by acceptance hereof, agrees to indemnify and hold harmless the Company, its directors and officers and each other person, if any, who controls the Company within the meaning of the Securities Act and any other holder against any losses, claims, damages or liabilities, joint or several, to which the Company or any such director or officer or any such person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or any alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any omission or any alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in either case only to the extent that such untrue statement or omission is (A) made in reliance on and in conformity with any information furnished in writing by such holder to the Company concerning such holder specifically for inclusion in the offering documents relating to such offering, and (B) is not corrected by such holder and distributed to the purchasers of shares within a reasonable period of time. Notwithstanding the provisions of this paragraph, no holder shall be required to indemnify any person pursuant to this paragraph or to contribute pursuant to paragraph (g) below in an amount in excess of the amount of the aggregate net proceeds received by such holder in connection with any such registration under the Securities Act. (g) If the indemnification provided for above from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this paragraph were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (h) In order to permit the Purchasers to sell the Registrable Securities, if they so desire, pursuant to any applicable resale exemption under applicable securities laws and regulations, AutoInfo shall: (i) comply with all rules and regulations of the Commission in connection with use of any such resale exemption; (ii) make and keep available adequate and current public information regarding the Company; and (iii) file with the Commission in a timely manner, all reports and other documents required to be filed under the Securities Act, the Securities Exchange Act of 1934 (the "Exchange Act"), or other applicable securities laws and regulations. All rights of the Purchasers under this paragraph 3 shall inure to the benefit of the Purchasers' successors and assigns, provided that any such successor or assign obtains Registrable Securities in compliance with all applicable laws. 4. The representations and warranties of each party contained herein shall survive the execution and delivery of this agreement. Each party shall indemnify, defend and hold harmless the other party from and against all liabilities, losses, and damages, together with all reasonable costs and expenses related thereto (including, without limitation, reasonable legal fees and expenses) based upon or arising out of any inaccuracy or breach of any representation and warranty or covenant contained herein. 5. Each party hereto agrees to take, or cause to be taken, from and after the date hereof, such further actions to execute, deliver and file, or cause to be executed, delivered and filed, such further documents and instruments as may be necessary in order to fully effectuate the purposes, terms and conditions of this agreement. 6. This agreement shall be governed by the laws of the State of New York without giving effect to choice of law principles. Any provision of this agreement which is illegal, invalid, prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity, prohibition or unenforceability without invalidating or impairing the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. This agreement shall bind each party and his or her successors and assigns. This agreement may be modified only with the written consent of all of the parties hereto. This agreement may be executed in any number of counterparts and all counterparts shall be construed together and shall constitute one and the same instrument. Kinderhook Partners, LP By: /s/ Stephen Clearman -------------------------------- Stephen Clearman, Managing Partner /s/ Vinodray R. Shah - ----------------------------------- Vinodray R. Shah AutoInfo, Inc. By:/s/ Harry Wachtel -------------------------------- Harry Wachtel, President The following individuals join in this Agreement with respect to their respective payment obligations set forth in Section 3 hereof. /s/ Harry Wachtel - ----------------------------------- Harry Wachtel /s/ William Wunderlich - ----------------------------------- William Wunderlich EX-10.(O) 5 d63000_ex10-o.txt 1ST AMEND TO REVOLVE CREDIT & SECURITY AGREE EXHIBIT 10O FIRST AMENDMENT TO REVOLVING CREDIT AND SECURITY AGREEMENT THIS FIRST AMENDMENT TO REVOLVING CREDIT AND SECURITY AGREEMENT (this "First Amendment") executed and delivered as of June 29, 2004, by and between WACHOVIA BANK, National Association (?Bank?), and among AUTOINFO, INC., a Delaware corporation, SUNTECK TRANSPORT CO., INC., a Florida corporation and SUNTECK TRANSPORT & LOGISTICS, INC., a Florida corporation (collectively, the "Borrower"). RECITALS: A. On May 23, 2003, Borrower and Bank, executed and delivered that certain Revolving Credit and Security Agreement (the Credit Agreement) under the terms of which Bank provided a line of credit to Borrower in the amount of $1,500,000. B. The parties desire to make certain changes to the terms of the Credit Agreement as described herein; NOW, THEREFORE, in consideration of the agreements set forth herein and other good and valuable consideration, the Bank and the Borrower hereby agree as follows: 1. Definitions. All capitalized terms used herein shall have the same meanings as used in the Credit Agreement, unless otherwise defined in this First Amendment and the rules of construction set forth in the Credit Agreement shall apply to this First Amendment. Any reference herein to the Credit Agreement shall mean the Credit Agreement as amended by this First Amendment. 2. Amendments. A. Eligible Accounts. The definition of Eligible Accounts in Exhibit 1 to the Credit Agreement is hereby amended and restated to read as follows: (i) Subsection (b) of the definition of Eligible Accounts is amended and restated to read as follows: (b) all Accounts owed by an Account Debtor if more than fifty percent (50%) of the Accounts owed by such Account Debtor to Borrower are deemed ineligible hereunder; (ii) Subsection (m) of the definition of Eligible Accounts is amended and restated to read as follows: (m) Accounts for which the total of all Accounts from an Account Debtor (together with the Affiliates of the Account Debtor) exceed ten percent (10%) of the total Accounts of Borrower (twenty percent (20%) with respect to MegaSys, Inc.), to the extent of such excess; B. Maximum Loan Amount. The definition of Maximum Loan Amount in Exhibit 1 to the Credit Agreement is hereby amended and restated to read as follows: Maximum Loan Amount means Two Million Five Hundred Thousand Dollars ($2,500,000). C. Termination Date. The definition of Termination Date in Exhibit 1 to the Credit Agreement is hereby amended and restated to read as follows: "Termination Date" means June 30, 2005 (unless extended in writing by Bank). D. Delivery of Certain Financial Information The references to "fifteen (15) days" in Sub-Sections 5.6 (a) and (f) of the Credit Agreement are hereby deleted and replaced by "twenty (20) days". Subsection 5.6(b) of the Credit Agreement is amended by : (i) deleting the reference to "fifteen (15) days" and inserting it with "thirty (30) days", and (ii) deleting the reference to "monthly" and replacing it with "quarterly". E. Other Covenants. Section 7 of the Credit Agreement entitled Other Covenants of Borrower is hereby amended as follows: (i) Current Ratio. Add the following as a new sentence at the end of the section entitled Current Ratio: "Current Ratio" shall mean the ratio of current assets to current liabilities. This ratio shall be calculated annually. (ii) Fixed Charge Coverage Ratio. In the section entitled, Fixed Charge Coverage Ratio delete "This covenant shall be computed quarterly on a rolling four quarters basis" and insert as a replacement: "This covenant shall be calculated annually". (iii) Total Liabilities to Effective Net Worth Ratio. Add the following as a new sentence at the end of the section entitled "Total Liabilities to Effective Net Worth Ratio": "This ratio shall be calculated annually". (iv) Capital Expenditures Requirement. Add the following at the end of the section entitled Capital Expenditures Requirement : "This covenant shall be calculated annually". (v) Subordinated Debt. Delete the section titled "Subordinated Debt" from Section 7 of the Credit Agreement. 3. Effectiveness. The effectiveness of this First Amendment shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 3: a. Delivery of Documents. The Bank shall have received counterparts of the following documents executed by the Borrower and dated as of the date hereof: (i) this First Amendment; (ii) that certain Renewal Revolving Promissory Note dated of even date herewith (iii) such documents, certificates, affidavits and acknowledgments as may be reasonably required by the Bank to consummate the transaction contemplated by this First Amendment. b. Other Conditions Precedent. Borrower shall pay Bank a commitment fee of $25,000.00 plus Banks reasonable attorneys fees and costs incurred in connection with the transaction contemplated by this First Amendment. 4. No Event of Default/Representations and Warranties. The Borrower certifies to the Bank that Borrower has kept, observed, performed and fulfilled each and every covenant, provision and condition of the Credit Agreement and each other Loan Document to which Borrower is a party on its part to be performed and that no Event of Default has occurred with respect to Borrower under the Credit Agreement or any other Loan Document to which Borrower is a party. The Borrower further certifies to Bank that, both immediately before and after giving effect to this First Amendment, the representations and warranties set forth in Article 4 of the Credit Agreement with respect to the Borrower, are true and correct in all material respects on and as of the date of this First Amendment. 5. Credit Agreement Confirmed. This First Amendment shall be deemed to be an amendment to the Credit Agreement, and the Credit Agreement, as amended hereby, is hereby ratified, approved and confirmed in each and every respect. 6. Miscellaneous. a. Invalidity. In the event that any one or more of the provisions contained in this First Amendment shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this First Amendment. b. Counterparts. This First Amendment may be executed in several counterparts, and it shall not be necessary that the signatures of all parties hereto be contained on any one counterpart hereof; each counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. c. Reference. From and after the effective date hereof, all references to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended by this First Amendment. d. Governing Law. This First Amendment shall be governed by and interpreted and enforced in accordance with the laws of the State of Florida. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed and delivered as of the date first above written. "BANK" WACHOVIA BANK, NATIONAL ASSOCIATION By: David C. Jackson ---------------- Name: David C. Jackson Title: Vice President "BORROWER" AutoInfo, Inc. By: William I. Wunderlich --------------------- Name: William I. Wunderlich Its: Chief Financial Officer Sunteck Transport Co., Inc. By: William I. Wunderlich --------------------- Name: William I. Wunderlich Its: Chief Financial Officer Sunteck Transport & Logistics, Inc. By: William I. Wunderlich --------------------- Name: William I. Wunderlich Its: Chief Financial Officer EX-21.(A) 6 d63000_ex21-a.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21A Subsidiaries of the Registrant Sunteck Transport Co., Inc. - Florida Sunteck Transport & Logistics, Inc. - Florida EX-23.(A) 7 d63000_ex23-a.txt CONSENT OF DWORKEN, HILLMAN, LAMORTE & STERCZALA EXHIBIT 23A CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation in the Annual Report on Form 10-KSB under the Securities Exchange Act of 1934 of AutoInfo, Inc. for the year ended December 31, 2004, of our report dated February 11, 2005 on the financial statements of AutoInfo, Inc. for the year ended December 31, 2004 by reference to the Registration Statement under the Securities Act of 1933 (File No. 33-34442) of AutoInfo, Inc. /s/ Dworken, Hillman, LaMorte & Sterczala, P.C. ----------------------------------------------- Shelton, Connecticut Dworken, Hillman, LaMorte & Sterczala, P.C. March 15, 2005 EX-31.A 8 d63000_ex31-a.txt SECTION 302 CERTIFICATION OF CEO Exhibit 31A AUTOINFO, INC. CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Harry Wachtel, certify that: 1. I have reviewed this annual report on Form 10-KSB of AutoInfo, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Harry Wachtel ----------------------------- Harry Wachtel Chief Executive Officer Date: March 15, 2005 EX-31.B 9 d63000_ex31-b.txt SECTION 302 CERTIFICATION OF CFO Exhibit 31B AUTOINFO, INC. CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, William Wunderlich, certify that: 1. I have reviewed this annual report on Form 10-KSB of AutoInfo, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ William Wunderlich --------------------------------- William Wunderlich Chief Financial Officer Date: March 15, 2005 EX-32.A 10 d63000_ex32-a.txt SECTION 906 CERTIFICATION OF CEO Exhibit 32A CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of AutoInfo, Inc. (the "Company") on Form 10-KSB for the year ending December 31, 2004 as filed with the Securities and Exchange Commission (SEC) on the date hereof (the "Report"), I, Harry Wachtel, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request. /s/ Harry Wachtel - ----------------- Harry Wachtel Chief Executive Officer March 15, 2005 EX-32.B 11 d63000_ex32-b.txt SECTION 906 CERTIFICATION OF CFO Exhibit 32B CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of AutoInfo, Inc. (the "Company") on Form 10-KSB for the period ending December 31, 2004 as filed with the Securities and Exchange Commission (SEC) on the date hereof (the "Report"), I, William Wunderlich, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request. /s/ William Wunderlich - ---------------------- William Wunderlich Chief Financial Officer March 15, 2005 -----END PRIVACY-ENHANCED MESSAGE-----