SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
--------------------------------
(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, 2000
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 0-14786
AUTOINFO, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-2867481
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6401 Congress Avenue - Suite 230
Boca Raton, FL 33487
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(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-K 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-K or any amendment to this
Form 10-K. |_|
As of March 20, 2001, 27,297,923 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 20, 2001 (based upon the
closing price on the OTC Bulletin Board of the National Association of
Securities Dealers of $0.04 on that date) was approximately $700,000.
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-K Annual Report
TABLE OF CONTENTS
Page
----
PART I........................................................................3
Item 1: Business..........................................................3
Item 2: Properties.......................................................10
Item 3. Legal Proceedings................................................10
Item 4. Submission of Matters to a Vote of Security Holders.............10
PART II......................................................................11
Item 5. Price Range of Common Stock......................................11
Item 6. Selected Consolidated Financial Data.............................11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................12
Item 8. Financial Statements and Supplementary Data......................18
Item 9. Disagreements on Accounting and Financial Disclosure.............18
PART III.....................................................................19
Item 10: Directors and Executive Officers.................................19
Item 11: Executive Compensation...........................................20
Item 12: Security Ownership of Certain Beneficial Owners and Management...20
Item 13: Certain Relationships and Related Transactions...................21
PART IV......................................................................22
Item 14: Exhibits, Financial Statements and Reports on Form 8-K...........22
FORWARD LOOKING STATEMENT INFORMATION
Certain statements made in this Annual Report on Form 10-K 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," "Certain Factors That May Affect
Future Growth" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
2
PART I
Item 1: BUSINESS
Overview of business
As a result of our acquisition of Sunteck Transport, Inc. ("Sunteck") in
December 2000, we are a full service third party transportation logistics
provider. Our services include ground transportation coast to coast, local pick
up and delivery, warehousing, air freight and ocean freight. We have strategic
alliances with less than truckload (LTL), truckload, air, rail and ocean common
carriers to service our customers' needs.
We have full service offices in Florida, New Jersey (opened October 2000)
and Missouri (opened February 2001) and independent sales agents in New York,
Georgia, New Jersey, Ohio and California to service our customers'
transportation needs. 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.
Company background
During 1998, we ceased to operate as an automobile finance company. On
January 29, 1999, our wholly-owned subsidiary, CarLoanCo., Inc., filed a
voluntary petition under Chapter 7 of the United States Bankruptcy Code. At the
time of the filing, it had no assets.
During 1999, we negotiated the termination of our executive office lease
in Montvale, New Jersey and relocated to temporary space in Stamford,
Connecticut as part of our continuing effort to reduce operating expenses and
preserve corporate capital. Our main business focus became the challenge to seek
out business opportunities in furtherance of our plan to rebuild the company and
create shareholder value. These efforts were inhibited by our negative net worth
and subordinated debt of $9.3 million. Therefore, we commenced discussions with
our noteholders regarding the restructuring of this debt to enhance the
possibility of consummating a transaction to return the company to operating
status and create shareholder value.
As a result, 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 providing for the issuance of one share of our common stock and
a cash payment of $0.03 for each dollar of approximately $9.5 million of
outstanding unsecured debt.
On June 22, 2000, we entered into a Merger Agreement with Sunteck, a full
service third party transportation logistics provider, and it's wholly owned
subsidiary, Ubidfreight.com, in exchange for, upon closing, 10 million shares of
our common stock, which constituted approximately 37% of the proposed
outstanding common stock of reorganized AutoInfo under our Chapter 11
reorganization plan. The consummation of the transaction was contingent upon,
among other things, (a) the approval of the Merger Agreement and our Disclosure
Statement by the United States Bankruptcy Court, (b) the approval of the
Disclosure Statement by our unsecured creditor class, (c) the entry of an order
confirming the Reorganization Plan and (d) securing additional financing.
Sunteck, which was formed in 1997, is a full service third party
transportation logistics provider. Its services include ground transportation
coast to coast, local pick up and delivery, warehousing, air freight and ocean
freight. Sunteck has developed strategic alliances with less than truckload
(LTL), truckload, air, rail
3
and ocean common carriers to service its customers' needs. Sunteck's personnel
have in excess of forty years of freight industry experience.
On June 27, 2000, our Amended Disclosure Statement and Amended Plan of
Reorganization (the "Reorganization Plan") was approved by the Bankruptcy Court.
On August 1, 2000, we announced that the Reorganization Plan had been
confirmed by the Honorable Adlai S. Hardin, Jr., United States Bankruptcy Judge
to become effective, without further action by the Court, upon the closing of
the Sunteck merger.
On December 7, 2000 we announced that we had secured $575,000 in new
financing in the form of ten year 12% Convertible Debentures (the "Debentures")
and had consummated the acquisition of Sunteck in exchange for 10 million shares
of our common stock. As a result, our Reorganization Plan became effective. The
$575,000 financing was provided by certain officers, directors and other parties
and will be used as working capital to support planned business expansion. The
Debentures are convertible into common stock at the option of the debenture
holder at a conversion price of $0.25 per share and are redeemable, at the
option of the holder, after December 31, 2003. Harry Wachtel, president of
Sunteck, became our president and chief executive officer and William Wunderlich
became our executive vice president and chief financial officer. In addition,
the board of directors was reconstituted to be comprised of Harry M. Wachtel
(chairman), Mark Weiss, Thomas Robertson and Peter Einselen.
All documents on file in our bankruptcy proceeding, case no. 00-10368,
including the Sunteck merger agreement, can be viewed on the Bankruptcy Court's
Internet site at: http://ecf.nysb.uscourts.gov/index.html.
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.
The present market for freight moved by truck is estimated by management
to exceed $350 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 (LTL) shipments) - air
freight (time sensitive in nature) - rail freight (non time sensitive in nature
and usually less expensive than truck) - 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.
4
o Outsourcing Companies have found it to be more cost
effective and efficient to eliminate
company owned truck fleets and rely upon
others to handle their trucking /
shipping needs.
o Logistics Small to medium size businesses, with
less frequent shipping requirements,
utilize logistics providers (freight
brokers, etc.) to manage all aspects of
the transportation, warehousing and
delivery needs.
The market for third party logistics providers, estimated by management to
exceed $100 billion per year, is highly fragmented. It is comprised primarily of
full service logistics providers, freight brokers, independent sales agents and
sales reps. 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 reps vary from experienced
people with years of freight industry experience and established client
relationships to telemarketing personnel cold calling shippers and dispatchers.
Operations and systems
We presently process 600 - 750 orders per month. Our sales agents in
Florida, New Jersey and Missouri as well as our independent sales agent / reps
in New York, New Jersey, Georgia, Ohio and California receive customers freight
requirements daily. Operations departments in each of our operating offices in
Florida, New Jersey and Missouri make appropriate carrier arrangements for the
pick-up and timely delivery of customers' freight.
All orders are entered into a customized freight order and tracking system
which enables us to monitor the status of all orders, generate customer billing
and provide detailed transactional reports. We use these reports to monitor
customer logistics and transportation usage, track customer and carrier
historical data, generate detailed financial and accounting data and provide our
customers with details of the supply chain activity.
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 the
business done with each customer. We service customers ranging from Fortune 100
to small businesses in a variety of industries. During 2000, no customer
accounted for more than 10% of our revenues. We perform a credit check on all
customers to ensure credit worthiness.
Since inception in 1997, Sunteck has achieved revenue growth through the
addition of sales agents and independent sales agent / reps, the opening of new
operations offices in New Jersey and Missouri, an increase in the number of
customers serviced and the expansion of logistics and supply chain services
provided.
Each operations office markets our full range of services to existing
customers and pursues new customers within their local markets 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 based upon our sales agents individual knowledge and experience.
Agents and reps move their client affiliation to other service providers
as a result of financial considerations, location and benefits. We will provide
significant advantages and opportunities over traditional small regional third
party logistics providers and build a network of operating offices and sales
agents.
5
We will concentrate our initial growth model on sales agents in strategic
markets. As this agent network is established and continues to expand, we
believe that significant other opportunities will emerge. Larger sales agents
offices often have their own equipment (truck space) which presents the ability
to maximize available freight and load capacity thereby increasing the gross
margins above historical levels. In addition, sales reps will be added to
regional operating office sales agent locations to increase market penetration.
Since reps work on a commission basis, this expansion essentially comes at no
additional overhead outlay.
Significant opportunities for expansion and growth include 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.
A third strategic target are agents who operated their own trucks, usually
on a leased basis. These agents require support and back office services. We
have identified a number of such agent groups and discussions are in progress.
Competition
The transportation industry is highly competitive and highly fragmented.
Our primary competitors are other non-asset based as well as assets based third
party logistics companies, freight brokers, carriers offering logistics services
and freight forwarders. We also compete with customers' / shippers internal
traffic / transportation departments as well as carriers internal sales and
marketing departments directly seeking shippers' freight.
We generally compete only 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 regulation have
affected the industry and caused changes in the operating practices and the cost
of providing transportation services. We can not 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 and
the maintenance of a $100,000 contingent cargo insurance policy. We are in the
process of registering with the DOT to provide motor carrier transportation
services. Among the requirements of this licensing is the requirement to
maintain certain minimum insurance coverages.
Risk and liability
We do not assume liability for loss or damage to freight. As a third party
logistic provider, 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.
6
Executive officers of the registrant
We currently have two executive officers. Harry M. Wachtel serves as
president and chief executive officer and has served in these capacities since
December 7, 2000. William I. Wunderlich serves as executive vice president and
chief financial officer and has served as executive vice president since
December 2000 and as chief financial officer since October 1992. In addition,
Mr. Wunderlich served as our president from January 1999 through December 7,
2000. For information regarding Mr. Wachtel and Mr. Wunderlich's prior business
experience, see Item 10 of this report.
CERTAIN FACTORS THAT MAY AFFECT FUTURE GROWTH
A purchase of our common stock is speculative and involves a high degree
of risk. You should carefully consider the risks described below together with
all of the other information included or incorporated by reference in this
report before making an investment decision. The risks and uncertainties
described below are not the only ones we face. If any of the following risks
actually occur, our business, financial condition or operating results could be
harmed. In such case, the trading price of our common stock could decline and
you could lose all or part of your investment.
We have experienced operating losses in the current and prior years and we
anticipate that we will continue to generate losses for the foreseeable future.
Our operations to date have not been profitable. As of December 31, 2000,
we had an accumulated deficit of $17.8 million. We expect to continue operating
at a loss during the current fiscal year as we implement our new business plan.
These losses are primarily attributable to costs associated with scaling up
Sunteck's business as well as our general and administrative expenses. Other
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.
We cannot assure you that our revenues will increase sufficiently to offset our
operating costs or that, even if they do, that our operations will ever be
profitable.
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. At this time, we do not believe that revenues will
reach the level required to sustain our operations and growth plans in the near
term. Therefore, we are actively pursuing additional financing alternatives.
However, we do not have any commitments for additional financing and we cannot
assure you that any additional financing will be available or, if available,
will be offered on acceptable terms. Any additional equity financing may be
dilutive to stockholders, and debt financings, if available, may involve
restrictive covenants that further limit our ability to make decisions that we
believe will be in our best interests. In the event we cannot obtain additional
financing on terms acceptable to us when required, our ability to expand
Sunteck's operations may be materially adversely affected.
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 and we will need to hire qualified sales and marketing
7
personnel, develop additional sales and marketing programs and establish sales
channels in order to expand Sunteck's operations. Qualified sales and marketing
personnel in this area may be difficult to attract and we cannot assure you that
we will be able to hire them. In addition, 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 large 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, hire 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, hire and retain highly qualified
marketing, sales and administrative personnel. Competition for qualified
personnel in these areas is intense and we will be competing for their services
with companies that have substantially greater resources than we do. We cannot
assure you that we will be able to identify, attract and retain employees 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.
Our stock price is volatile and could be further affected by events not within
our control.
The trading price of our common stock has been volatile and will continue
to be subject to:
8
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 conversion of outstanding
debentures or the exercise of outstanding options.
To date, we have granted options covering approximately 1.1 million shares
of our common stock. In addition, we have $575,000 of outstanding debentures
convertible at the option of the holders into 2.3 million shares of our common
stock. We have agreed with these debenture holders to register the shares
underlying the debentures. As a result of the actual or potential sale of these
shares into the market, our common stock price may decrease. In that event we
would probably find it more difficult to obtain additional financing.
Concentration of ownership
As of December 31, 2000, our president, Harry Wachtel is our largest
stockholder, owning approximately 37% of the issued and outstanding shares of
our common stock. As a result, Mr. Wachtel effectively controls all our affairs,
including the election of directors and any proposals regarding a sale of the
Company or its assets or a merger.
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
stock. The existence of authorized but unissued common 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.
Absence of dividends to shareholders.
We have never declared a dividend on our common stock. We do not
anticipate paying dividends on the common stock in the foreseeable future. We
anticipate that earnings, if any, will be reinvested in the expansion of our
business.
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
9
presence of these provisions in the certificate of incorporation could prevent
us from recovering monetary damages.
The liquidity of our stock is severely reduced because we are classified as a
"penny stock".
The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any non-Nasdaq equity security that has a
market price (as therein defined) of less than $5.00 per share or with an
exercise price of less than $5.00 per share. If our securities were subject to
the existing rules on penny stocks, the market liquidity for our securities
could be severely adversely affected. For any transaction involving a penny
stock, unless exempt, the rules require substantial additional disclosure
obligations and sales practice obligations on broker-dealers where the sale is
to persons other than established customers and accredited investors (generally,
those persons 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 the common stock and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a risk disclosure document mandated by
the Commission relating to the penny stock market. The broker-dealer also must
disclose the commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market-maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. Consequently, the
"penny stock" rules may restrict the ability of broker-dealers to sell our
common stock and accordingly the market for our common stock.
Patents, trademarks and copyrights
"AUTOINFO" is our registered trademark and service mark.
Employees
We currently have 14 full-time employees and 8 independent sales agents.
None of our employees are represented by a labor union.
Item 2: PROPERTIES
We lease approximately 1,400 square feet of space for our executive
offices and the headquarters of Sunteck at 6401 Congress Avenue, Boca Raton,
Florida. This lease runs through February 2004 and provides for an annual rental
of $21,000. We lease 1,100 square feet for our operating office at 120 White
Horse Pike, Haddon Heights, New Jersey. This lease runs through October 2002 and
provides for an annual rental of $15,000. We lease 1,100 square feet for our
operating office at 239 Chesterfield Industrial Blvd., Chesterfield, Missouri.
The lease runs through February 2002 and provides for an annual rental of
$13,000.
Item 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
Item 5. PRICE RANGE OF COMMON STOCK
Our common stock is traded on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. under the symbol AUTO. The following
table sets forth, for the periods indicated, the high and low closing bid
quotations per share for our common stock. Quotations represent interdealer
prices without an adjustment for retail markups, markdowns or commissions and
may not represent actual transactions:
Year Ended December 31, 2000 High Low
---------------------------------- ------ ------
First quarter $0.688 $ 0.08
Second quarter 0.30 0.125
Third quarter 0.21 0.10
Fourth quarter 0.125 0.02
Year Ended December 31, 1999 High Low
---------------------------------- ------ ------
First quarter $ 0.07 $ 0.04
Second quarter 0.125 0.04
Third quarter 0.07 0.04
Fourth quarter 0.18 0.03
As of March 20, 2001, the closing bid price per share for our common
stock, as reported by NASDAQ was $0.04. As of March 20, 2001, we had
approximately 1,750 stockholders of record.
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.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of our selected consolidated financial data for
the years ended December 31, 1996, 1997, 1998, 1999 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 and in the consolidated financial statements
included elsewhere in this report 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.
11
000's omitted, except for per share data Year ended December 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Statement of Operations Data:
Revenues $ 3,389 $ 3,457 $ 2,388 $ 384 $ --
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations
before income taxes (91) 92 (2) (11) --
Income taxes (benefit) (10) 16 -- -- --
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations (81) 76 (2) (11) --
Income (loss) from discontinued
operations 9,471 (1,109) (9,935) (11,122) (19,100)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 9,390 $ (1,033) $ (9,937) $ (11,133) $ (19,100)
---------- ---------- ---------- ---------- ----------
Basic income (loss) per share (a) (b)
From continuing operations $ .00 $ .00 $ .00 $ .00 $ --
From discontinued operations .51 (.06) (.56) (.63) (1.08)
---------- ---------- ---------- ---------- ----------
Net income (loss) per share, basic $ .51 $ (.06) $ (.56) $ (.63) $ (1.08)
---------- ---------- ---------- ---------- ----------
Diluted income (loss) per share (a) (b)
From continuing operations $ .00 $ .00 $ .00 $ .00 $ --
From discontinued operations .48 (.06) (.56) (.63) (1.08)
---------- ---------- ---------- ---------- ----------
Net (loss) income per share, diluted $ .48 $ (.06) $ (.56) $ (.63) $ (1.08)
---------- ---------- ---------- ---------- ----------
000's omitted As at December 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Balance Sheet Data:
Cash and short term investments $ 941 $ 1,072 $ 2,441 $ 8,887 $ 8,698
Accounts receivable 720 428 376 78,640 45,814
Total assets 1,740 1,530 3,180 96,832 74,451
Total liabilities of continuing
operations 1,481 500 11,756 96,530 60,405
Liabilities of discontinued operations
subject to compromise -- 10,624 -- -- --
Retained earnings (deficit) (17,783) (27,173) (26,141) (16,203) (5,071)
Stockholders' equity 259 (9,594) (8,576) 1,301 12,327
----------
(a) The common stock equivalents for the year ended December 31, 2000 were
1,304,000.
(b) The common stock equivalents for the years ended December 31, 1999, 1998,
1997 and 1996 were 745,000, 214,000, 62,000 and 17,000. The common stock
equivalents for these shares were not included in the calculation of
diluted income (loss) per common share because the effect would be
antidilutive.
Item 7. 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
12
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 "Certain Factors That May Affect Future Growth" 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
In December 1995, we acquired the operating assets of Falk Finance Company
("FFC"), a Norfolk, Virginia based specialty financial services company for
$5,125,000 in cash and the assumption of liabilities and debt approximating
$34,000,000. As a result, we became a specialized consumer finance company that
acquired and serviced automobile receivables from automobile dealers selling new
and used vehicles to non-prime customers.
During 1998, we ceased to operate as an automobile finance company. On
January 29, 1999, our wholly-owned subsidiary, CarLoanCo., Inc., filed a
voluntary petition under Chapter 7 of the United States Bankruptcy Code. At the
time of the filing, it had no assets.
During 1999, we negotiated the termination of our executive office lease
in Montvale, New Jersey and relocated to temporary space in Stamford,
Connecticut as part of our continuing effort to reduce operating expenses and
preserve corporate capital. Our main business focus became the challenge to seek
out business opportunities in furtherance of our plan to rebuild the company and
create shareholder value. These efforts were inhibited by our negative net worth
and remaining subordinated debt of $9.3 million. Therefore, we commenced
discussions with our noteholders regarding the restructuring of this debt to
enhance the possibility of consummating a transaction to return the company to
operating status and create shareholder value.
As a result, on February 2, 2000, we filed a disclosure statement and
reorganization plan (the "Plan") pursuant to Chapter 11 of Title 11 of the
United States Bankruptcy Code providing for the issuance of one share of our
common stock and a cash payment of $0.03 for each dollar of approximately $9.5
million of outstanding unsecured debt.
On June 22, 2000, we entered into a Merger Agreement with Sunteck
Transport, Inc. ("Sunteck"), a full service third party transportation logistics
provider, and it's wholly owned subsidiary, Ubidfreight.com, in exchange, upon
closing, for 10 million shares of our Common Stock, which will constitute
approximately 37% of the proposed outstanding Common Stock of reorganized
AutoInfo under its Chapter 11 reorganization plan. The consummation of the
transaction was contingent upon, among other things, the approval of the Merger
Agreement and AutoInfo's Disclosure Statement by the United States Bankruptcy
Court, approval of the Disclosure Statement by our unsecured creditor class, the
entry of an order confirming the Reorganization Plan and the securing of
additional financing.
Sunteck, which was formed in 1997, is a full service third party
transportation logistics provider. Its services include ground transportation
coast to coast, local pick up and delivery, warehousing, air freight and ocean
freight. Sunteck has developed strategic alliances with less than truckload
(LTL), truckload, air, rail and ocean common carriers to service its customers'
needs. Sunteck's personnel have in excess of forty years
13
of freight industry experience. Harry Wachtel, Sunteck's President and sole
shareholder, became Chairman of the Board, CEO and President of AutoInfo.
On June 27, 2000, we received the approval of our Amended Disclosure
Statement and Amended Plan of Reorganization (the "Plan") by the Bankruptcy
Court.
On August 1, 2000, we announced that the Plan had been confirmed by the
Honorable Adlai S. Hardin, Jr., United States Bankruptcy Judge to become
effective, without further action by the Court, upon the closing of AutoInfo's
merger with Sunteck Transport Co., Inc.
On December 7, 2000 we announced that we had secured new financing
totaling $575,000 in the form of ten year 12% Convertible Debentures (the
"Debentures") and had consummated the acquisition of Sunteck Transport Co., Inc.
("Sunteck"), in exchange for 10 million shares of AutoInfo Common Stock,
pursuant to the Merger Agreement dated June 22, 2000. As a result, AutoInfo's
Chapter 11 Reorganization Plan became effective. The $575,000 financing was
provided by certain officers, directors and other parties and will be used as
working capital to support planned business expansion. The Debentures are
convertible into the Common Stock of the Company at the option of the debenture
holder at a conversion price of $0.25 per share and are redeemable, at the
option of the holder, after three years. Harry Wachtel, president of Sunteck,
became president and chief executive officer of AutoInfo and William Wunderlich
became executive vice president and chief financial officer. In addition, the
board of directors was reconstituted to include Harry M. Wachtel (chairman),
Mark Weiss, Thomas Robertson and Peter Einselen.
Results of operations
For the year ended December 31, 2000
As described below, during 2000, we experienced operating results from our
Sunteck business which were consistent with the results from the prior year.
Revenues
Revenues consisting of freight fees and other related services revenue
totaled $3,389,000 for the year ended December 31, 2000, as compared with
$3,457,000 in the prior year.
Costs and expenses
Direct freight consisting primarily of delivery costs totaled $2,554,000
for the year ended December 31, 2000, as compared with $2,616,000 in the prior
year.
Commissions totaled $315,000 for the year ended December 31, 2000, as
compared with $263,000 in the prior year.
Operating expenses totaled $599,000 for the year ended December 31, 2000,
as compared with $537,000 in the prior year.
Loss (gain) on investments, primarily consisting of the gain or loss on
the sale of marketable securities, totaled a loss of $11,000 for the year ended
December 31, 2000 as compared with a gain of $50,000 in the prior year.
14
Income tax (benefit)
Income tax (benefit) of $10,000 for the year ended December 31, 2000 and
income taxes of $16,000 for the year ended December 31, 1999 relate to the
operating results of Sunteck prior to the date of acquisition.
Discontinued operations
Extraordinary item - gain on debt extinguishment
The gain on debt extinguishment for the year ended December 31, 2000
totaling $10,490,000 consists of the gain from the extinguishments of debt
pursuant to the our Reorganization Plan.
Loss from discontinued operations
The loss from discontinued operations totaling $1,019,000 for the year
ended December 31, 2000, as compared with $1,109,000 in the prior year, includes
our operating results prior to the merger with Sunteck. These costs consists
primarily of interest expense of $701,000 and $935,000 for the years ended
December 31, 2000 and 1999, respectively. In addition, the loss from
discontinued operations for the year ended December 31, 1999 includes the write
off of the net liabilities of our non-prime automobile subsidiary of $742,000
and an income tax benefit totaling $142,000 as a result of an audit by the
Internal Revenue Service of our tax returns for the years ended May 31, 1993
through 1998.
Net income (loss)
Net income totaled $9,390,000 for the year ended December 31, 2000, as
compared with a loss of ($1,033,000) in the prior year. The increase is related
directly to the gain from the extinguishments of debt pursuant to our
Reorganization Plan.
For the year ended December 31, 1999
Revenues
Revenues consisting of freight fees and other related services revenue
totaled $3,457,000 for the year ended December 31, 1999, as compared with
$2,388,000 in the prior year. The increase is the result of the business
expansion of Sunteck.
Costs and expenses
Direct freight consisting primarily of delivery costs totaled $2,616,000
for the year ended December 31, 1999, as compared with $1,691,000 in the prior
year. The increase is the result of the business expansion of Sunteck.
Commissions totaled $263,000 for the year ended December 31, 1999, as
compared with $366,000 in the prior year. The decrease is the result of
commissions paid to certain individuals as independent contractors for the year
ended December 31, 1998, who became our employees in 1999. Accordingly, their
compensation for the year ended December 31, 1999 is included in operating
expenses.
Operating expenses totaled $537,000 for the year ended December 31, 1999
as compared with $334,000 in the prior year. The increase is the result of the
business expansion of Sunteck.
15
The gain on investments for the year ended December 31, 1999 primarily
consisted of the gain on the sale of marketable securities.
Income taxes
Income taxes totaling $16,000 for the year ended December 31, 1999 relate
to the operating results of Sunteck prior to the date of acquisition.
Loss from discontinued operations
The loss from discontinued operations was $1,109,000 for the year ended
December 31, 1999 as compared with $13,624,000 in the prior year. During 1998,
we ceased to operate as an automobile finance company. The loss from
discontinued operations for the year ended December 31, 1999 consisted primarily
of interest expense on our subordinated debt.
Net income (loss)
Net loss totaled $1,033,000 for the year ended December 31, 1999 as
compared with a loss of $9,937,000 in the prior year. The decrease in the loss
is related directly to the loss from discontinued operations for the year ended
December 31, 1998.
For the year ended December 31, 1998
Revenues
Revenues consisting of freight fees and other related services revenue
totaled $2,388,000 for the year ended December 31, 1998 as compared with
$384,000 in the prior year. The increase is the result of the business expansion
of Sunteck which was formed during the fourth quarter on 1997.
Costs and expenses
Direct freight consisting primarily of delivery costs totaled $1,691,000
for the year ended December 31, 1998 as compared with $264,000 in the prior
year. The increase is the result of the business expansion of Sunteck which was
formed during the fourth quarter on 1997.
Commissions totaled $366,000 for the year ended December 31, 1998 as
compared with $91,000 in the prior year. The increase is the result of the
business expansion of Sunteck which was formed during the fourth quarter on
1997.
Operating expenses totaled $334,000 for the year ended December 31, 1998
as compared with $39,000 in the prior year. The increase is the result of the
business expansion of Sunteck which was formed during the fourth quarter on
1997.
Discontinued operations
Extraordinary item --gain on debt extinguishments
The gain on debt extinguishment for the year ended December 31, 1998
totaling $3,689,000 consists of $1,703,000 from the extinguishment of our $2
million of 7.55% subordinated notes, in exchange for two off-balance sheet
assets and our long distance telephone service business and $1,986,000 as the
result of a discount granted by our warehouse lender in final settlement of
amounts outstanding under our warehouse
16
facility. The two off-balance sheet assets consisted a preferred stock
investment in ComputerLogic, Inc. and an equity interest in a start-up
corporation pursuing a roll-up transaction of new car dealerships. Our preferred
stock investment in ComputerLogic was written off in May 1995 due to the poor
financial condition of ComputerLogic and its failure to make timely dividend
payments.
Loss from discontinued operations
The loss from discontinued operations was $13,624,000 for the year ended
December 31, 1998. During 1998 we ceased to operate as an automobile finance
company.
Net income (loss)
Net loss was $9,937,000 for the year ended December 31, 1998 as compared
with a loss of $11,133,000 in the prior year. The decrease in the loss is
related directly to the gain on debt extinguishment for the year ended December
31, 1998.
Trends and uncertainties
In December 2000, as a result of our acquisition of Sunteck, we became a
full service third party transportation logistics provider. Our services include
ground transportation coast to coast, local pick up and delivery, warehousing,
air freight and ocean freight. We have strategic alliances with less than
truckload (LTL), truckload, air, rail and ocean common carriers to service our
customers' needs. The transportation industry is highly competitive and highly
fragmented. Our primary competitors are other non-asset based as well as asset
based third party logistics companies, freight brokers, carriers offering
logistics services and freight forwarders. We also compete with customers' /
shippers internal traffic / 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.
Our operations to date have not been profitable. As of December 31, 2000,
we had an accumulated deficit of $17.8 million. We expect to continue operating
at a loss during the current fiscal year as we implement our new business plan.
These losses are primarily attributable to costs associated with scaling up
Sunteck's business as well as our general and administrative expenses. Other
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.
We cannot assure you that our revenues will increase sufficiently to offset our
operating costs or that, even if they do, that our operations will ever be
profitable.
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. At this time, we do not believe that revenues will
reach the level required to sustain our operations and growth plans in the near
term. Therefore, we are actively pursuing additional financing alternatives.
However, we do not have any commitments for additional financing and we cannot
assure you that any additional financing will be available or, if available,
will be offered on acceptable terms. Any additional equity financing may be
dilutive to stockholders, and debt financings, if available, may involve
restrictive covenants that further limit our ability to make decisions that we
believe will be in our best interests. In the event we cannot obtain additional
17
financing on terms acceptable to us when required, our ability to expand
Sunteck's operations may be materially adversely affected.
Liquidity and capital resources
At December 31, 2000, we had outstanding $575,000 of subordinated
convertible debentures. The debentures are convertible into common stock at the
option of the debenture holder at a conversion price of $0.25 per share and are
redeemable, at the option of the holder, after December 31, 2003.
At December 31, 2000, we had liquid assets of approximately $941,000.
The total amount of debt outstanding as of December 31, 2000 and 1999 was
$676,000 and $9.4 million, respectively. This following table presents our debt
instruments and their weighted average interest rates as of December 31, 2000
and 1999, respectively:
December 31,
----------------------------------------------------
2000 1999
------------------------ -------------------------
Weighted Weighted
Balance Average Rate Balance Average Rate
--------- ------------ ---------- ------------
Subordinated Debt $575,000 12.0% $9,350,000 12.0%
Other Debt $101,000 25.6 $ 50,000 7.75
Inflation and changing prices had no material impact on our revenues or
the results of operations for the year ended December 31, 2000.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this
report beginning on page F-1.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
18
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information with respect to our directors and executive
officers:
PETER C. EINSELEN, age 60, has been a director since January 1999. Mr.
Einselen has served as senior vice president of Andersen & Strudwick, a
brokerage firm, since 1990. From 1983 to 1990, Mr. Einselen was employed by
Scott and Stringfellow, Incorporated, a brokerage firm.
THOMAS C. ROBERTSON, age 55, has been a director since January 1999. Mr.
Robertson has been president, chief financial officer and a director of Andersen
& Strudwick, a brokerage firm since 1988. Mr. Robertson has been president of
Gardner & Robertson, a money management firm, since 1997.
HARRY WACHTEL, age 42, 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, age 41, 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.
WILLIAM WUNDERLICH, age 53, 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.
Option grants during the year ended December 31, 2000
Our Compensation Committee did not grant any options during the year ended
December 31, 2000.
Aggregate year-end option values
Shown below is information with respect to unexercised options granted
under our Option Plans to the Named Executives and held by them at December 31,
2000. No options were exercised by the Named Executives during 2000.
Number of Unexercised Options at Values of Unexercised In-the-Money Options at
12/31/00 12/31/00 (1)
-------- ------------
Name Exercisable / Unexercisable Exercisable / Unexercisable
---- --------------------------- ---------------------------
William Wunderlich 895,000 / 0 $0 / $0
(1) Based on the closing price as quoted on the OTC Bulletin Board on December
31, 2000.
19
Director Compensation
We do not pay any directors' fees. Directors are reimbursed for the costs
relating to attending board and committee meetings.
Item 11: EXECUTIVE COMPENSATION
The following table sets forth for the years ended December 31, 2000, 1999
and 1998, information concerning compensation paid for services awarded to,
earned or paid to our chief executive officer and all other executives receiving
compensation in excess of $100,000.
All other
Name and principal position Year Salary compensation(1)
--------------------------- ---- ------ ---------------
Harry Wachtel, president and
chief executive officer 2000(2) $ 10,096 --
William Wunderlich, executive 2000 $ 144,960 $4,575
vice president and chief 1999 $ 150,000 $4,575
financial officer 1998 $ 150,000 $4,575
----------
(1) Represents amount contributed to the Company's 401(k) deferred
compensation plan..
(2) Mr. Wachtel joined us in December 2000.
Employment Agreements
Messrs. Wachtel and Wunderlich are employed by us pursuant to employment
agreements which expire in December 2003. These agreements provide for minimum
annual compensation of $175,000 and $75,000, respectively.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table, together with the accompanying footnotes, sets forth
information, as of March 13, 2000, regarding stock ownership of all persons
known by us to own beneficially 5% or more of our outstanding common stock, all
directors, and all directors and executive officers as a group.
Name of Shares of Common Stock Percentage
Beneficial Owner Beneficially Owned (1) Of Ownership
---------------- ---------------------- ------------
(i) Directors and Executive Officers
Harry Wachtel 10,800,000 38.4%
Thomas C. Robertson 110,000 *
Peter C. Einselen 100,000 *
Mark Weiss --
All executive officers and directors as
a group (6 persons) 12,025,000 41.1%
(ii) 5% Stockholders
James T. Martin 6,622,000 24.3%
----------
* Less than 1%
20
(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 is c/o
AutoInfo, Inc., 6401 Congress Avenue, Suite 230, Boca Raton, FL 33487. The
address for Mr. Martin is c/o Bermuda Trust Company, Compass Point Road, 9
Bermudian Road, Hamilton HM11, Bermuda.
(2) Includes 800,000 shares issuable upon the conversion of a convertible
subordinated debenture.
(3) Includes 100,000 shares issuable upon the conversion of a convertible
subordinated debenture.
(4) Includes 352,000 shares issuable upon the conversion of a convertible
subordinated debenture.
(5) Assumes that all currently exercisable options or warrants owned by
members of this group have been exercised and all convertible subordinated
debentures owned by this group have been converted.
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
21
PART IV
Item 14: EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
Financial Statements
The financial statements listed in the accompanying index to financial
statements on Page F-1 are filed as part of this report.
Exhibits
No. 3A Certificate of Incorporation of the Company, as amended.*
No. 3B Amended and Restated By-Laws of the Company. (5)
No. 4A Specimen Stock Certificate. (2)
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.*
No. 10J Employment Agreement between AutoInfo, Inc. and William
Wunderlich dated December 7, 2000.*
No. 21A Subsidiaries of the Registrant.*
No. 23A Consent of Dworken, Hillman, LaMorte & Sterczala, P.C.,
independent public accountants. *
----------
* 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.
22
(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.
23
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 28, 2001 on its behalf by the undersigned, thereunto duly authorized.
AutoInfo, Inc.
By: /s/ Harry M. Wachtel
-------------------------------
Harry M. Wachtel, President
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 and Chairman of the Board March 28, 2001
/s/ William I. Wunderlich
-------------------------
William I. Wunderlich Chief Financial Officer March 28, 2001
/s/ Mark Weiss
-------------------------
Mark Weiss Director March 28, 2001
/s/ Peter C. Einselen
-------------------------
Peter C. Einselen Director March 28, 2001
/s/ Thomas C. Robertson
-------------------------
Thomas C. Robertson Director March 28, 2001
24
AUTOINFO, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2000, 1998 and 1998 F-6
Notes to Consolidated Financial Statements F-7
Information required by schedules called for under Regulation S-X is either not
applicable or is included in the Consolidated Financial Statements or Notes
thereto.
F-1
Independent Auditors' Report
To the Shareholders
AutoInfo, Inc.
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of AutoInfo, Inc.
and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AutoInfo, Inc. and Subsidiaries
as of December 31, 2000 and 1999 and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Dworken, Hillman, LaMorte & Sterczala, P.C.
March 22, 2001
Bridgeport, Connecticut
F-2
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
ASSETS
2000 1999
------------ ------------
Current assets:
Cash $ 724,954 $ 636,736
Short-term investments (Note 4) 215,844 435,500
Accounts receivable, net of allowance for doubtful accounts
of $24,000 and $10,000 at December 31, 2000
and 1999, respectively (Note 5) 720,452 428,483
Other current assets 66,993 29,759
------------ ------------
Total current assets 1,728,243 1,530,478
Fixed assets, net of depreciation 11,654
------------ ------------
$ 1,739,897 $ 1,530,478
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable (Note 5) $ 101,096 $ --
Accounts payable 739,424 429,673
Accrued liabilities 65,841 70,690
------------ ------------
Total current liabilities 906,361 500,363
------------ ------------
Convertible subordinated debentures (Note 5) 575,000 --
------------ ------------
Liabilities of discontinued operations subject to compromise
(Note 3) -- 10,624,212
------------ ------------
Commitments and contingencies (Note 7)
Stockholders' equity (deficit): (Note 8)
Common Stock - authorized 100,000,000 shares, $.001
par value; issued and outstanding 27,297,923 and 17,756,953
at December 31, 2000 and 1999, respectively (Note 2) 27,298 87,570
Additional paid-in capital 18,014,523 17,763,431
Deferred compensation under stock
bonus plan -- (271,889)
Retained earnings (deficit) (17,783,285) (27,173,209)
------------ ------------
Total stockholders' equity (deficit) 258,536 (9,594,097)
------------ ------------
$ 1,739,897 $ 1,530,478
============ ============
See Accompanying Notes to Consolidated Financial Statements
F-3
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
Years Ended
December 31,
2000 1999 1998
------------ ------------ ------------
Revenues $ 3,388,733 $ 3,457,079 $ 2,388,402
------------ ------------ ------------
Costs and expenses:
Direct freight 2,554,206 2,616,303 1,690,573
Commissions 315,430 262,614 365,606
Operating expenses 598,769 536,741 334,226
Loss (gain) on investments (Note 4) 10,916 (50,486) --
------------ ------------ ------------
3,479,321 3,365,172 2,390,405
------------ ------------ ------------
(Loss) income from continuing operations before income taxes (90,588) 91,907 (2,003)
Income tax (benefit) (Note 6) (9,566) 15,750 --
------------ ------------ ------------
(Loss) income from continuing operations (81,022) 76,157 (2,003)
------------ ------------ ------------
Discontinued operations: (Note 3)
Extraordinary item - gain on debt extinguishments 10,489,785 -- 3,688,650
Loss from discontinued operations (1,018,839) (1,109,083) (13,623,623)
------------ ------------ ------------
Income (loss) from discontinued operations 9,470,946 (1,109,083) (9,934,973)
------------ ------------ ------------
Net income (loss) $ 9,389,924 $ (1,032,926) $ (9,936,976)
============ ============ ============
Basic per share data
Income (loss) from continuing operations $ .00 $ .00 $ .00
Income (loss) from discontinued operations .51 (.06) (.56)
------------ ------------ ------------
Net income (loss) per share $ .51 $ (.06) $ (.56)
============ ============ ============
Diluted per share data
Income (loss) from continuing operations $ .00 $ .00 $ .00
Income (loss) from discontinued operations .48 (.06) (.56)
------------ ------------ ------------
Net income (loss) per share $ .48 $ (.06) $ (.56)
============ ============ ============
Weighted average number of common and
common equivalent shares 18,490,874 17,959,860 18,009,097
------------ ------------ ------------
See Accompanying Notes to Consolidated Financial Statements
F-4
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Shares of Deferred
Common Additional Officer Compensation Retained
Stock Common Paid - In Note Under Stock Earnings
Outstanding Stock Capital Receivable Bonus Plan (Deficit)
------------ ------------ ------------ ------------ ------------ ------------
Balance, January 1, 1998,
as previously reported 7,996,752 $ 79,968 $ 18,233,362 $ (466,797) $ (342,873) $(16,192,318)
Acquisition of pooled entity 10,000,000 10,000 (9,000) (10,989)
------------ ------------ ------------ ------------ ------------ ------------
Balance, January 1, 1998,
as restated 17,966,752 89,968 18,224,362 (466,797) (342,873) (16,203,307)
Forfeiture of deferred shares (23,000) (230) (40,301) -- 40,531 --
Cancellation of officer note
Receivable (216,799) (2,168) (464,630) 466,797 -- --
Warrants issued -- -- 44,000 -- -- --
Amortization of deferred
Compensation -- -- -- -- 15,245 --
Net loss -- -- -- -- -- (9,936,976)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 17,756,953 87,570 17,763,431 -- (287,097) (26,140,283)
Amortization of deferred
Compensation -- -- -- -- 15,208 --
Net loss -- -- -- -- -- (1,032,926)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 17,756,953 87,570 17,763,431 -- (271,889) (27,173,209)
Amortization of deferred
Compensation -- -- -- -- 15,208 --
Shares issued pursuant to
Chapter 11 reorganization 9,540,970 9,541 181,279
Adjustment of par value (Note 8) (69,813) 69,813
Vesting of deferred
Compensation 256,681
Net income -- -- -- -- -- 9,389,924
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 27,297,923 $ 27,298 $ 18,014,523 $ -- $ -- $(17,783,285)
============ ============ ============ ============ ============ ============
See Accompanying Notes to Consolidated Financial Statements
F-5
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
December 31,
2000 1999 1998
------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $ 9,389,924 $ (1,032,926) $ (9,936,976)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization expenses 19,266 438,282
Amortization of deferred compensation 15,208 15,208 15,245
Restructuring charge -- 204,459 2,684,035
Investment in and advances to subsidiary -- (741,679) --
Losses (gains) on sales of securities (25,630) (42,814) --
Net unrealized holding loss (gain) (14,172) 72,128 --
Provision for credit losses -- -- 3,941,528
Loss on sale of automobile receivables -- -- 3,541,586
Extraordinary item - gain on debt extinguishments (10,176,711) -- (3,688,650)
Changes in assets and liabilities:
Accounts receivables, net (291,969) (52,055) 17,042,319
Other assets (37,234) 82,170 2,950,867
Refundable income taxes -- 3,411,211
Accounts payable and accrued liabilities 304,902 824,622 (1,298,721)
------------ ------------ ------------
Net cash provided by (used in) continuing operations (835,682) (651,621) 19,100,726
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (11,654) -- (2,864)
Proceeds from the sale of property and equipment -- 179,867
Proceeds from the sale of automobile receivables -- 53,737,647
Redemption of short-term investments 305,583 1,858,092 --
Purchases of short-term investments (46,125) (40,391) (40,446)
------------ ------------ ------------
Net cash provided by investing activities 247,804 1,817,701 53,874,204
------------ ------------ ------------
Cash Flows from financing activities:
Changes in advances from officer (70,086) (42,177)
Issuance of notes 575,000 -- --
Increase in (reduction of) borrowings 101,096 (617,295) (79,419,147)
Decrease (increase) in restricted cash -- -- 4,088,483
------------ ------------ ------------
Net cash provided by (used in) financing activities 676,096 (617,295) (75,372,841)
------------ ------------ ------------
Net increase (decrease) in cash 88,218 478,699 (2,397,911)
Cash at beginning of year 636,736 158,037 2,555,948
------------ ------------ ------------
Cash at end of year $ 724,954 $ 636,736 $ 158,037
============ ============ ============
See Accompanying Notes to Consolidated Financial Statements
F-6
AUTOINFO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Note 1 - Business and Summary of Significant Accounting Policies
Business
In December 1995, AutoInfo, Inc., (the "Company"), a Delaware corporation,
acquired the operating assets of Falk Finance Company ("FFC"), a Norfolk,
Virginia based specialty financial services company and, as a result, the
Company became a specialized consumer finance company that acquired and serviced
automobile receivables from automobile dealers selling new and used vehicles to
non-prime customers.
The Company experienced material operating losses during 1996, 1997 and
1998. As a result of these losses, the adverse changes in the non-prime
automobile finance industry and the deterioration in the Company's financial
condition, during 1998, the Company discontinued the operation of its non-prime
automotive finance business. The Company, among other actions, restructured
operations and significantly reduced overhead and successfully completed the
sale of approximately $58 million of automobile receivables and repaid $47
million under its warehouse line with CS First Boston Mortgage Capital Corp.
("CSFB") . Additionally, in conjunction with a July 1998 sale of approximately
$8 million of automobile receivables which collateralized the Company's
securitized notes, the remaining balance outstanding on these notes of
approximately $7 million was paid in full.
During the fourth quarter of 1998, the Company sold all remaining
repossessed vehicles, closed its Norfolk, Virginia operating facility, further
reduced overhead and completed the restructuring of outstanding debt under its
warehouse facility with CSFB and subordinated note holders. As of December 31,
1998, the Company ceased to operate as an automobile finance company. After the
sale of all of its automobile receivables, the Company owed CSFB approximately
$4.5 million under the warehouse facility. CSFB agreed to a reduction of $2.25
million, which resulted in a gain on extinguishment of approximately $2.0
million net of applicable expenses, and the Company paid the remaining balance
of approximately $2.3 million in cash. The Company also granted CSFB a five year
warrant to purchase 1,357,467 common shares at $ .03 per share. These warrants
were cancelled in December 2000 pursuant to the Company's reorganization plan.
Further, the holders of the Company's $8.2 million of 12% subordinated notes
(Note 5), due in 1999 and 2000, exchanged such notes for new notes totaling
approximately $9.35 million due in 2007 and 2008 (the "New Notes"). The New
Notes included accrued interest of approximately $1.15 million through December
31, 1998 converted to principal. Interest on these new notes was due quarterly
at the option of the Company at the rate of 10% if paid in cash and 12% if paid
in common shares of the Company. In addition, representatives of these note
holders designated three members of the Company's Board of Directors, one of
whom resigned in 1999.
On January 29, 1999, the Company's wholly-owned subsidiary, CarLoanCo.,
Inc. ("CLC"), filed a voluntary petition under Chapter 7 of the United States
Bankruptcy Code. At the time of filing, CLC had no assets. Accordingly, the
Investment in and advances to subsidiary has been written off to discontinued
operations as of December 31, 1999.
During 1999, the Company continued to reduce operating overhead by
negotiating the termination of its lease in Montvale, New Jersey and vacating
the premises.
F-7
On February 2, 2000, the Company filed a disclosure statement and
reorganization plan (the "Reorganization Plan") pursuant to Chapter 11 of Title
11 of the United States Bankruptcy Code.
On June 22, 2000, the Company entered into a Merger Agreement with Sunteck
Transport, Inc. ("Sunteck"), a full service third party transportation logistics
provider, and it's wholly owned subsidiary, Ubidfreight.com, in exchange, upon
closing, for 10 million shares of AutoInfo Common Stock, which will constitute
approximately 37% of the proposed outstanding Common Stock of reorganized
AutoInfo under its Chapter 11 reorganization plan. The consummation of the
transaction was contingent upon, among other things, the approval of the Merger
Agreement and AutoInfo's Disclosure Statement by the United States Bankruptcy
Court, approval of the Disclosure Statement by AutoInfo's unsecured creditor
class, the entry of an order confirming the Reorganization Plan and the securing
of a additional financing.
Sunteck, which was formed in 1997, is a full service third party
transportation logistics provider. Its services include ground transportation
coast to coast, local pick up and delivery, warehousing, air freight and ocean
freight. Sunteck has developed strategic alliances with Less than Truckload
(LTL), truckload, air, rail and ocean common carriers to service its customers'
needs. Sunteck's personnel have in excess of forty years of freight industry
experience. Harry Wachtel, Sunteck's President and sole shareholder, became
Chairman of the Board, CEO and President of AutoInfo.
On June 27, 2000, the Company's Amended Disclosure Statement and Amended
Plan of Reorganization (the "Plan") was approved by the Bankruptcy Court. The
Plan provided for the issuance of one share of our common stock and a cash
payment of $ 0.03 for each dollar of approximately $9.5 million of unsecured
debt.
On August 1, 2000, the Company announced that the Plan had been confirmed
by the Honorable Adlai S. Hardin, Jr., United States Bankruptcy Judge to become
effective, without further action by the Court, upon the closing of AutoInfo's
merger with Sunteck Transport Co., Inc.
On December 7, 2000, the Company announced that it obtained new financing
totaling $575,000 in the form of ten year 12% Convertible Debentures (the
"Debentures") and had consummated the acquisition of Sunteck Transport Co., Inc.
("Sunteck"), in exchange for 10 million shares of AutoInfo Common Stock,
pursuant to the Merger Agreement dated June 22, 2000. As a result, AutoInfo's
Chapter 11 Reorganization Plan, conditionally confirmed by the Bankruptcy Court
on August 1, 2000, became effective without further action by the Court. The
$575,000 financing was provided by certain officers, directors and other parties
and will be used as working capital to support planned business expansion. The
Debentures are convertible into the Common Stock of the Company at the option of
the debenture holder at a conversion price of $0.25 per share and are
redeemable, at the option of the holder, after December 31, 2003. Harry Wachtel,
President of Sunteck, became President and Chief Executive Officer of AutoInfo
and William Wunderlich became Executive Vice President and Chief Financial
Officer. In addition, the Board of Directors was reconstituted to include Harry
M. Wachtel (Chairman), Mark Weiss, Thomas Robertson and Peter Einselen.
All documents on file in our bankruptcy proceeding, case no. 00-10368,
including the Sunteck merger agreement can be viewed on the Bankruptcy Court's
Internet site at: http://ecf.nysb.uscourts.gov/index.html.
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").
F-8
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition
The Company recognizes revenues at the time goods are picked up at the
customers' location.
Provision for Doubtful Accounts
The Company has established an allowance for doubtful accounts based upon
historical trends.
Short-term Investments
Short-term investments as of December 31, 2000 and 1999 consisted of
marketable securities. Investments were carried at market value as of December
31, 2000 and 1999.
Fixed Assets
Fixed assets as of December 31, 2000, 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 (Loss) Per Share
Basic loss per share is based on net loss divided by the weighted average
number of common shares outstanding. Common stock equivalents outstanding were
antidilutive for the years ended December 31, 2000, 1999 and 1998.
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. 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.
F-9
Stock-Based Compensation
The Company accounts for stock-based compensation issued to employees in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". The Company did not adopt the financial reporting
requirements of Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation," for stock based compensation
granted to employees in accordance with the provisions of SFAS 123 and
accordingly, the Company has disclosed in the notes to the financial statements
the pro forma net loss for the periods presented as if the fair value based
method was used.
Note 2 - Business Acquisition
On December 7, 2000, the Company, through a newly formed wholly owned
subsidiary, consummated the acquisition of Sunteck Transport Co., Inc.
("Sunteck"), in exchange for 10 million shares of AutoInfo Common Stock. The
acquisition has been accounted for under the pooling of interest method of
accounting and accordingly, the accompanying financial statements are presented
on a combined basis as if the acquisition occurred on January 1, 1998. (See Note
3)
Note 3 - Discontinued Operations
During 1998, the Company ceased to operate as a specialty consumer finance
company and discontinued its operations. On December 7, 2000 based upon the
acquisition of Sunteck, the Company commenced operations as a full service third
party transportation logistics provider. Accordingly, the results of operations
for the period January 1, 2000 through December 7, 2000 are presented as
discontinued operations and prior years have been restated.
Extraordinary item - gain on debt extinguishments
The extraordinary item for the year ended December 31, 2000 of $10.5
million consists of liabilities discharged, net of applicable expenses, in
connection with the confirmation of the Company's Reorganization Plan in
December 2000. The extraordinary item for the year ended December 31, 1998 of
$3.7 million consists of the gain on the settlement of its warehouse facility
with CSFB of $2.0 million and the gain on the settlement of the Company's $2
million 7.55% subordinated notes of $1.7 million.
F-10
(Loss) from discontinued operations
Summarized results of operations and financial position data of the discontinued
operations are as follows:
Period from
January 1,
through
December 7 Years Ended December 31,
2000 1999 1998
------------ ------------ ------------
Results of Operations:
Revenues $ 46,000 $ 96,000 $ 7,004,000
Loss before tax benefit (1,019,000) (1,251,000) (13,624,000)
Extraordinary item - gain on debt
extinguishments 10,490,000 -- 3,689,000
------------ ------------ ------------
Income tax benefit -- (142,000) --
------------ ------------ ------------
Income (loss) from
discontinued operations $ 9,471,000 $ (1,109,000) $ (9,935,000)
============ ============ ============
As of December 31,
1999
------------------
Balance Sheet
Cash $ 585,000
Short-term investments 399,000
Other assets 17,000
----------
Net book value of assets of
discontinued operations $1,001,000
==========
Note 4- Short-Term Investments
At December 31, 2000 and 1999, short-term investments, consisting
primarily of marketable securities, are classified as trading securities and are
reported at fair market value. Gains and losses on disposition of securities are
recognized on the specific identification method in the period in which they
occur. Unrealized holding gains and losses on trading securities based upon the
fair market value as of the balance sheet date, if material, would be included
in earnings in the period in which they occur.
Investment return is summarized as follows:
Years Ended
December 31,
2000 1999
-------- --------
Continuing operations:
Unrealized gain (loss) $ (7,672) $ 7,672
Gain (loss) on sale of securities (10,228) 42,814
Dividends 6,984
-------- --------
$(10,916) $ 50,486
======== ========
F-11
Discontinued operations:
Unrealized gain (loss) $ 21,844 $(79,800)
Gain (loss) on sale of securities 35,858 (45,632)
Dividends 34,620 64,980
-------- --------
$ 92,322 $(60,452)
======== ========
During the year ended December 31, 1998, gains and losses arising from the
disposition of marketable securities as well as unrealized gains and losses were
not material.
Note 5 - Debt
Loan Payable
In September 2000, Sunteck entered into an agreement with an asset based
lender. The agreement provides for a line of credit of $500,000. Advances are
based on 90% of acceptable accounts receivable (as defined) and bear interest at
.078% per day on outstanding balances. As of December 31, 2000, the net
outstanding advances amounted to $101,000 which are secured by accounts
receivable of $116,000.
Revolving Lines of Credit
During 1998, the Company discontinued the operation of its non-prime
automotive finance business. In November 1998, the Company entered into an
agreement with CSFB whereby the outstanding balance of approximately $4.5
million was reduced by $2.25 million, resulting in a gain of approximately $2.0
million, net of applicable expenses. The Company repaid the $2.3 million
remaining balance and issued 1,357,467 warrants to CSFB to purchase common
shares of the Company exercisable over a five year period. These warrants were
cancelled in December 2000 pursuant to the Company's Reorganization Plan.
Subordinated Notes and Other Debt
Subordinated notes and other debt consist of the following:
2000 1999
---------- ----------
Convertible subordinated debentures (1) $ 575,000 $ --
Subordinated and other notes (2) -- 9,394,000
---------- ----------
Total other notes $ 575,000 $9,394,000
---------- ----------
(1) In December 2000, the Company obtained new financing totaling $575,000 in
the form of ten year 12% Convertible Debentures (the "Debentures"). The
Debentures are convertible into the Common Stock of the Company at the option of
the debenture holder at a conversion price of $0.25 per share and are
redeemable, at the option of the holder, after December 31, 2003.
(2) On December 6, 1995, as part of the acquisition of Falk Finance Company
("FFC"), the Company assumed unsecured subordinated notes in the amount of
$9,800,000. In 1996, the Company redeemed $1,600,000 of these notes. In December
1998, the remaining subordinated notes, due in 1999 and 2000, were exchanged for
New Notes, including unpaid interest, totaling approximately $9.35 million due
in 2007 and 2008. These New Notes include accrued interest of approximately
$1.15 million through December 31, 1998. Interest on these new notes was due
quarterly at the option of the Company commencing March 31, 1999 at the rate of
10% if paid in cash and 12% if paid in common shares of the Company. Other notes
of $46,000 represents equipment installment notes payable. Pursuant to the
Company's Reorganization Plan confirmed in December 2000, these
F-12
noteholders received one share of our common stock and a cash payment of $ 0.03
for each dollar of outstanding debt.
Interest expense was $10,000, $954,000 and $4,685,000 for the years ended
December 31, 2000, 1999 and 1998, respectively. The Company paid interest of
approximately $4,000 for the year ended December 31, 2000 and $5,143,000 for the
year ended December 31, 1998. No interest was paid for the year ended December
31, 1999.
Note 6 - Income Taxes
For the years ended December 31, 2000, 1999, and 1998, the provision
(benefit) for income taxes consisted of the following:
Years Ended
December 31,
-------------------------------------
2000 1999 1998
----------- ----------- -------
From continuing operations
Federal ($ 9,566) $ 11,832 $ --
State -- 3,918 --
----------- ----------- -------
Income tax (benefit) ($ 9,566) $ 15,750 $ --
=========== =========== =======
Years Ended
December 31,
-------------------------------------
2000 1999 1998
----------- ----------- -------
From discontinued operations
Federal $ 2,840,000 $ (141,532) $ --
Benefit due to the utilization of net
operating loss carryovers (2,840,000) -- --
----------- ----------- -------
Income tax (benefit) $ -- $ (141,532) $ --
=========== =========== =======
The income tax benefit from discontinued operations for the year ended
December 31, 1999 resulted from an audit by the Internal Revenue Service of the
Company's tax returns for the years ended May 31, 1993 through May 31, 1998.
The following table reconciles the Company's effective income tax rate on
(loss) income from continuing operations to the Federal Statutory Rate for the
years ended December 31, 2000, 1999 and 1998:
Years Ended
December 31,
-------------------------------------
2000 1999 1998
----------- ----------- -------
Federal Statutory Rate (34.0)% 34.0% (34.0)%
Effect of:
Tax rates 15.6 (12.0) --
Depreciation carryforward (4.1)
Other 4.0 (5.0)
Valuation allowance against deferred
tax assets 3.3 34.0
----------- ----------- -------
(11.1)% 12.9% 0%
=========== =========== =======
F-13
The Company paid no income taxes for the years ended December 31, 2000,
1999 and 1998.
Deferred taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities and available tax credit
carrybacks. Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities were as follows:
December 31, December 31,
2000 1999
----------- -----------
Deferred tax assets:
Net operating loss carryforward $ 6,339,000 $ 9,179,000
----------- -----------
Gross deferred tax assets 6,339,000 9,179,000
Less: valuation allowance (6,339,000) (9,179,000)
----------- -----------
Deferred tax asset $ -- $ --
=========== ===========
The deferred tax asset is fully reserved for as the Company's management
does not expect such amounts to be realized. As of December 31, 2000, the
Company has a net operating loss carryforward of approximately $18.6 million for
federal income tax purposes which expires in 2014. The Company believes that it
has acted properly in application of the tax laws that have resulted in its net
operating loss carryforward. The requirements of the Internal Revenue Code and
related regulations, rulings, judicial authority and practice are subject to
different interpretations. The utilization of the net operating loss
carryforward may be limited by, among other things, shareholder changes
including the possible issuance by the Company of additional shares in one or
more financings or acquisitions.
Note 7 - Commitments and Contingencies
Leases
The Company is obligated under noncancellable operating leases for
premises expiring at various dates through January 2004. Future minimum lease
payments are $47,000, $37,000, $21,000 and $2,000 for the years ended December
31, 2001, 2002, 2003 and 2004, respectively. Rent expense for the years ended
December 31, 2000, 1999 and 1998 for continuing operations was $18,000, $10,000
and $10,000, respectively. Rent expense for the years ended December 31, 2000,
1999 and 1998 for discontinued operations was $9,000, $72,000 and $511,000,
respectively.
401(k) Plan
Through December 2000, the Company was obligated under its 401(k) Plan to
match fifty percent of employee contributions up to a maximum of three percent
of eligible compensation. 401(k) Plan expense for the years ended December 31,
2000, 1999 and 1998 was approximately $5,000, $5,000 and $49,000, respectively.
The Plan was terminated effective December 31, 2000.
Other Agreements
The Company has an 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
F-14
agreements expire in 2003 and provides for minimum annual compensation of
$175,000 and $75,000, respectively.
Litigation
The Company is not presently involved in any material litigation.
Note 8 - Stockholders' Equity
Common Stock
The Company's Reorganization Plan, which was confirmed in December 2000,
increased the number of authorized shares from 20 million to 100 million and
changed the par value from $ 0.01 to $ 0.001 per share.
Stock Bonus Plan
The Company, in 1987 and 1995, issued 410,000 and 15,000 shares,
respectively, of common stock pursuant to a restricted stock bonus plan to key
executives, directors and consultants.
These shares were scheduled to vest ratably every two years over a period
of 30 years. The unvested portion was subject, upon the occurrence of certain
events, to either forfeiture or accelerated vesting. Such shares were recorded
at their estimated fair market value at the date of the grant as determined by
the Board of Directors and are charged as compensation expense ratably over the
vesting period. During 1998, 23,000 shares were forfeited. As of December 31,
1999, 161,000 of such shares had vested and 219,000 remained subject to
forfeiture. In December 2000 in conjunction with the acquisition of Sunteck and
pursuant to the provisions regarding acceleration, the remaining 219,000 vested.
Warrants
In connection with the $2,016,536 Class B Notes issued in October 1996,
the Company issued three year warrants to purchase 159,095 shares of Common
Stock at a per share price of $2.70. These warrants were cancelled in December
2000 pursuant to the Company's Reorganization Plan.
In connection with the $100 million credit facility provided by CSFB in
December 1996, the Company issued 3 year warrants to purchase 125,000 shares of
Common Stock at a per share price of $3.70. In connection with the final
settlement with CSFB in November 1998, these warrants were canceled and replaced
with new warrants to purchase 1,482,467 shares of the Common Stock at a per
share price of $ .03. These warrants were cancelled in December 2000 pursuant to
the Company's Reorganization Plan.
Stock Option Plans
The Company has six stock option plans, its 1985 Plan, 1986 Plan, 1989
Plan, 1992 Plan, 1997 Plan and 1999 Plan (collectively the "Plans"). The Company
accounts for these Plans under APB Opinion No. 25, under which no compensation
cost has been recognized. Had compensation cost for these Plans been determined
consistent with SFAS No. 123, the Company's net loss and loss per share would
have been reduced to the following pro forma amounts:
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2000 1999 1998
---------- ----------- ------------
Net (loss) income:
As reported $9,389,924 $(1,032,926) $ (9,936,976)
Pro forma $9,389,924 $(1,035,853) $(10,066,127)
(Loss) earnings per share:
As reported $.48 $(0.06) $(.56)
Pro forma $.48 $(0.06) $(.56)
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. Pursuant to the Plans, a total of 2,842,500 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 grant will be issued under the 1986 Plan or the 1989 Plan. At December
31, 2000, options to purchase 995,000 shares of Common Stock were exercisable
pursuant to the Plans.
Weighted average fair value of options granted:
1999 $ .03
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
assumptions used for grants in 1999 and 1997, respectively: risk-free interest
rates of 6.00 and 6.52 percent; expected lives of 4 years for all options
granted; expected volatility of 161.8 and 33.0 percent. There were no grants in
2000 or 1998.
Option activity for the years ended December 31, 2000, 1999 and 1998 was
as follows:
Number of Weighted Average
Shares Exercise Price
--------- ---------------
Outstanding at January 1, 1998 1,244,833 2.36
Forfeited during the year (749,833) 2.24
--------- --------
Outstanding at December 31, 1998 (1) 495,000 .10
Granted during the year 500,000 .10
--------- --------
Outstanding at December 31, 1999 and 2000 995,000 $ .10
--------- --------
(1) In November 1998, all outstanding options were amended to reflect an
exercise price of $.10 per share.
Note 9 - 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
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different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
Cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities, loans payable and convertible subordinated debentures are
carried at amounts which reasonably approximate fair value.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for the purposes of these consolidated financial
statements since that date and current estimates of fair value may differ
significantly from the amounts presented herein.
Note 10 - Quarterly Results of Operations (Unaudited)
Year Ended December 31, 2000
Quarter Ended
---------------------------------------------------------------
Mar 31 June 30 Sep 30 Dec 31
------------ ------------ ------------ ------------
Revenues $ 693,422 $ 824,271 $ 687,439 $ 1,183,601
------------ ------------ ------------ ------------
(Loss) income from continuing
operations $ (25,554) $ (19,689) $ 14,653 $ (50,432)
Extraordinary item - gain on debt
extinguishments (70,927) (20,850) (1,567) 10,583,129
Loss from discontinued
operations (338,410) (301,735) (266,015) (112,679)
------------ ------------ ------------ ------------
Net (loss) income $ (434,891) $ (342,274) $ (252,929) $ 10,420,018
============ ============ ============ ============
Basic per share data:
(Loss) income from continuing
operations $ .00 $ .00 $ .00 $ .00
(Loss) income from discontinued
operations (.02) (.02) (.01) .51
------------ ------------ ------------ ------------
Net (loss) income $ (.02) $ (.02) $ (.01) $ .51
============ ============ ============ ============
Diluted per share data:
(Loss) income from continuing
operations $ .00 $ .00 $ .00 $ .00
(Loss) income from discontinued
operations (.02) (.02) (.01) .50
------------ ------------ ------------ ------------
Net (loss) income $ (.02) $ (.02) $ (.01) $ .50
============ ============ ============ ============
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Year Ended December 31, 1999
Quarter Ended
-----------------------------------------------------------
Mar 31 June 30 Sep 30 Dec 31
----------- ----------- ----------- -----------
Revenues $ 927,978 $ 884,400 $ 884,557 $ 760,144
----------- ----------- ----------- -----------
Income from continuing operations $ 33,091 $ 3,522 $ 8,394 $ 31,150
(Loss) income from discontinued
operations (479,618) (541,046) (304,782) 216,363(1)
----------- ----------- ----------- -----------
Net (loss) income $ (446,527) $ (537,524) $ (296,388) $ 247,513
=========== =========== =========== ===========
Basic per share data:
(Loss) income from continuing
operations $ .00 $ .00 $ .00 $ .00
(Loss) income from discontinued
operations (.03) (.03) (.02) .01
----------- ----------- ----------- -----------
Net (loss) income $ (.03) $ (.03) $ (.02) $ .01
=========== =========== =========== ===========
Diluted per share data:
(Loss) income from continuing
operations $ .00 $ .00 $ .00 $ .00
(Loss) income from discontinued
operations (.02) (.02) (.02) .01
----------- ----------- ----------- -----------
Net (loss) income $ (.02) $ (.03) $ (.02) $ .01
=========== =========== =========== ===========
(1) Income from discontinued operations for the quarter ended December 31, 1999
is primarily the result of the write-off of the investment in and advances to
former subsidiary.
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