UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 2006
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the transition period from ______________ to ____________________
Commission File Number: 001-11497
AUTOINFO, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-2867481
(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
6413 Congress Ave., Suite 260, Boca Raton, FL 33487
(Address of principal executive office)
(561) 988-9456
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |X|
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES |_| NO |X|
Number of shares outstanding of the Registrant's common stock as of October 31,
2006: 32,096,000 shares of common stock.
AUTOINFO, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information:
Item 1. Consolidated Financial Statements: Page
Balance Sheets
September 30, 2006 (unaudited) and December 31, 2005 (audited) .. 3
Statements of Income (unaudited)
Three and nine months ended September 30, 2006 and 2005 ......... 4
Statements of Cash Flows (unaudited)
Nine months ended September 30, 2006 and 2005 ................... 5
Notes to Unaudited Consolidated Financial Statements .............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk ........ 15
Item 4. Controls and Procedures ........................................... 15
Part II. Other Information ................................................ 15
Signatures ................................................................ 17
2
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2006 2005
------------- ------------
Unaudited Audited
ASSETS
Current assets:
Cash $ 1,050,000 $ 419,000
Accounts receivable, net of allowance for doubtful
accounts of $323,000 and $201,000 as of
September 30, 2006 and December 31, 2005,
respectively 15,480,000 12,735,000
Deferred income taxes (Note 2) 980,000 860,000
Other current assets 488,000 255,000
------------ ------------
Total current assets 17,998,000 14,269,000
Fixed assets, net of accumulated depreciation 281,000 292,000
Deferred income taxes (Note 2) 3,073,000 2,047,000
Other assets 1,269,000 38,000
------------ ------------
$ 22,621,000 $ 16,646,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Loan payable $ 2,114,000 $ 1,280,000
Accounts payable and accrued liabilities 8,994,000 7,235,000
------------ ------------
Total current liabilities 11,108,000 8,515,000
------------ ------------
Stockholders' Equity
Preferred stock - authorized 10,000,000 shares
$.001 par value; issued and outstanding - 0 shares
as of September 30, 2006 and December 31, 2005 -- --
Common stock - authorized 100,000,000 shares
$.001 par value; issued and outstanding -
32,052,000 shares as of September 30, 2006 and
31,624,000 shares as of December 31, 2005 32,000 32,000
Other capital 1,219,000 549,000
Deferred compensation (982,000) (413,000)
Additional paid-in capital 19,143,000 19,047,000
Deficit (7,899,000) (11,084,000)
------------ ------------
Total stockholders' equity 11,513,000 8,131,000
------------ ------------
$ 22,621,000 $ 16,646,000
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
Gross revenues $ 61,395,000 $ 47,728,000 $ 22,441,000 $ 17,336,000
Cost of transportation 48,384,000 38,350,000 17,877,000 13,940,000
------------ ------------ ------------ ------------
Net revenues 13,011,000 9,378,000 4,564,000 3,396,000
------------ ------------ ------------ ------------
Commissions 8,025,000 5,720,000 2,818,000 2,081,000
Operating expenses 2,759,000 2,286,000 960,000 749,000
------------ ------------ ------------ ------------
10,784,000 8,006,000 3,778,000 2,830,000
------------ ------------ ------------ ------------
Income from operations 2,227,000 1,372,000 786,000 566,000
Interest expense 63,000 42,000 39,000 3,000
------------ ------------ ------------ ------------
Income before income taxes 2,164,000 1,330,000 747,000 563,000
Income taxes (benefit) (Note 2) (1,021,000) (84,000) (239,000) (17,000)
------------ ------------ ------------ ------------
Net income $ 3,185,000 $ 1,414,000 $ 986,000 $ 580,000
============ ============ ============ ============
Net income per share:
Basic $ .10 $ .04 $ .03 $ .02
Diluted $ .09 $ .04 $ .03 $ .02
Weighted average number of common shares:
Basic 31,856,000 31,475,000 31,997,000 31,609,000
Diluted 35,876,000 33,924,000 36,732,000 33,722,000
The accompanying notes are an integral part of these
consolidated financial statements.
4
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
2006 2005
----------- -----------
Cash flows from operating activities:
Net income $ 3,185,000 $ 1,414,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in allowance for doubtful accounts 122,000 75,000
Depreciation and amortization 75,000 40,000
Deferred compensation expense 102,000 77,000
Deferred income taxes (1,146,000) (161,000)
Changes in assets and liabilities:
Accounts receivable (2,867,000) (2,017,000)
Other current assets (233,000) 389,000
Other assets (1,231,000) 30,000
Accounts payable and accrued liabilities 1,759,000 2,050,000
----------- -----------
Net cash provided by (used in) operating activities (234,000) 1,897,000
----------- -----------
Cash flows from investing activities:
Capital expenditures (66,000) (286,000)
----------- -----------
Net cash used in investing activities (66,000) (286,000)
----------- -----------
Cash flows from financing activities:
Exercise of stock options 97,000 21,000
Increase (decrease) in loan payable, net 834,000 (1,251,000)
----------- -----------
Net cash used in financing activities 931,000 (1,230,000)
----------- -----------
Net change in cash 631,000 381,000
Cash at beginning of period 419,000 38,000
----------- -----------
Cash at end of period $ 1,050,000 $ 419,000
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
5
AUTOINFO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Forward Looking Statements
Certain statements made in this Quarterly Report on Form 10-Q are
"forward-looking statements regarding the plans and objectives of management for
future operations. Such statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. The forward-looking statements included herein are
based on current expectations that involve numerous risks and uncertainties. Our
plans and objectives are based, in part, on assumptions involving judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control.
Although we believe that our assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the forward-looking statements
included in this report will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein
particularly in view of the current state of our operations, the inclusion of
such information should not be regarded as a statement by us or any other person
that our objectives and plans will be achieved. Factors that could cause actual
results to differ materially from those expressed or implied by forward-looking
statements include, but are not limited to, the factors set forth under the
headings "Business," and "Risk Factors" in our Annual Report on Form 10-K for
the year ended December 31, 2005 as filed with the Securities and Exchange
Commission. We undertake no obligation to revise or update publicly any
forward-looking statements for any reason.
Note 1. - Business and Summary of Significant Accounting Policies
Business
The Company, through its wholly-owned subsidiary, Sunteck Transport Co.,
Inc. (Sunteck), is a non-asset based transportation services company. As a
non-asset based provider of brokerage and contract carrier transportation
services, the Company does not own any equipment and its services are provided
through its strategic alliances with less than truckload, truckload, rail,
contract carriers, common carriers and independent owner-operators to service
customers' needs. The Company's brokerage and contract carrier services are
provided through a network of independent sales agents throughout the United
States and Canada. During its most recently completed fiscal year, the Company
generated revenue, net revenue and net income of approximately $68.0 million,
$13.6 million and $3.6 million, respectively.
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).
The consolidated financial statements, which are unaudited, have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). In management's opinion, these financial statements include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the results of operations for the interim periods
presented. The results of operations for the three and nine months ended
September 30, 2006 and 2005 are not necessarily indicative of results to be
expected for the entire year. Pursuant to SEC rules and regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance
6
with GAAP have been omitted from these statements. The consolidated financial
statements and notes thereto should be read in conjunction with the financial
statements and notes included in our Annual Report on Form 10-K for the year
ended December 31, 2005.
Principles of Consolidation
The consolidated financial statements include the accounts of the
AutoInfo, Inc. (the Company), its wholly-owned subsidiary Sunteck Transport Co.,
Inc. and its wholly-owned subsidiary Sunteck Transport & Logistics, Inc.,
collectively (Sunteck). All significant intercompany balances and transactions
have been eliminated in consolidation.
Revenue Recognition
As a third party transportation logistics provider, the Company acts as
the shippers' agent and arranges for a carrier to handle the freight. Gross
revenues consist of the total dollar value of services purchased by shippers.
Revenue is recognized upon the delivery of freight, at which time the related
transportation cost, including commission, is also recognized. At that time, the
Company's obligations are completed and collection of receivables is reasonably
assured.
Emerging Issues Task Force No. 99-19, "Reporting Revenues Gross as a
Principal Versus Net as an Agent" (EITF 99-19), establishes criteria for
recognizing revenues on a gross or net basis. The Company is the primary obligor
in its transactions, has all credit risk, maintains substantially all risk and
rewards, has discretion in selecting the supplier, and has latitude in pricing
decisions. Accordingly, the Company records all transactions at the gross
amount, consistent with the provisions of EITF 99-19.
Provision For Doubtful Accounts
The Company continuously monitors the creditworthiness of its customers
and has established an allowance for amounts that may become uncollectible in
the future based on current economic trends, its historical payment and bad debt
write-off experience, and any specific customer related collection issues.
Cash
From time to time, the Company has on deposit at financial institutions
cash balances which exceed federal deposit insurance limitations. The Company
has not experienced any losses in such accounts and believes it is not exposed
to any significant credit risk on cash.
Fixed Assets
Fixed assets as of September 30, 2006 and December 31, 2005, consisting
predominantly of furniture, fixtures, equipment and computer system development
costs, were carried at cost net of accumulated depreciation. Depreciation of
fixed assets was provided on the straight-line method over the estimated useful
lives of the related assets which range from three to five years.
Income Per Share
Basic income per share is based on net income divided by the weighted
average number of common shares outstanding. Common stock equivalents
outstanding were 4,735,000 and 2,113,000, and 4,020,000 and 2,449,000, for the
three and nine month periods ended September 30, 2006 and 2005, respectively.
7
Use of Estimates
The preparation of these financial statements in conformity with GAAP
requires management to make certain estimates and assumptions. These estimates
and assumptions affect the reported amounts of assets, liabilities and
contingent liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the periods presented. The Company
believes that all such assumptions are reasonable and that all estimates are
adequate, however, actual results could differ from those estimates.
Income Taxes
The Company utilizes the asset and liability method for accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and future benefits to be
recognized upon the utilization of certain operating loss carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Stock-Based Compensation
On January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123R, "Share-Based Payment" (SFAS 123R) utilizing the modified
prospective transition method. SFAS 123R requires employee stock options to be
valued at fair value on the date of grant and charged to expense over the
applicable vesting period. Under the modified prospective method, compensation
expense is recognized for all share based payments issued on or after January 1,
2006 and for all share payments issued to employees prior to January 1, 2006
that remain unvested.
The Company's results of operations for the nine months ended September
30, 2006 include an additional $8,000 in operating expense related to the
adoption of SFAS 123R. In accordance with the modified prospective method, the
consolidated financial statements for prior periods have not been restated to
reflect, and do not include, the impact of SFAS 123R.
Adoption of SFAS 123R did not change the Company's accounting for share
based payments issued to non-employees.
Note 2- Income Taxes
For the three and nine month periods ended September 30, 2006 and 2005,
the provision for income taxes consisted of the following:
Nine Months Ended September 30,
-----------------------------------------------------------
2006 2005
-----------------------------------------------------------
Current Deferred Current Deferred
-----------------------------------------------------------
Tax expense before application of
operating loss carryforwards $ 855,000 $ -- $ 529,000 $ --
Tax expense (benefit) of operating
loss carryforwards (730,000) 730,000 (452,000) 452,000
Change in valuation allowance -- (1,876,000) -- (613,000)
-----------------------------------------------------------
Income tax expense (benefit) $ 125,000 $(1,146,000) $ 77,000 $(161,000)
-----------------------------------------------------------
8
Three Months Ended September 30,
---------------------------------------------------------
2006 2005
---------------------------------------------------------
Current Deferred Current Deferred
---------------------------------------------------------
Tax expense before application of
operating loss carryforwards $ 299,000 $ -- $ 222,000 $ --
Tax expense (benefit) of operating
loss carryforwards (255,000) 255,000 (190,000) 190,000
Change in valuation allowance -- (538,000) -- (239,000)
---------------------------------------------------------
Income tax expense (benefit) $ 44,000 $(283,000) $ 32,000 $ (49,000)
---------------------------------------------------------
Deferred taxes are comprised of the following at September 30, 2006 and
December 31, 2005:
September 30, December 31,
2006 2005
------------- ------------
Deferred tax assets:
Net operating loss carryforward $ 4,142,000 $ 4,872,000
----------- -----------
Gross deferred tax assets 4,142,000 4,872,000
Less: valuation allowance (89,000) (1,965,000)
----------- -----------
Deferred tax asset $ 4,053,000 $ 2,907,000
=========== ===========
The deferred tax asset represents expected future tax savings resulting
from the Company's net operating loss carryforward. As of December 31, 2005, the
Company has a net operating loss carryforward of approximately $14.3 million for
federal income tax purposes which expire through 2014. Utilization of this
benefit is primarily subject to the extent of future earning of the Company, and
may be limited by, among other things, shareholder changes, including the
possible issuance by the Company of additional shares in one or more financing
or acquisition transactions. The Company has established a valuation allowance
for the portion of the possible tax savings not likely to be realized by the end
of the carryforward period.
Based upon available objective evidence, including the Company's
continuing profitability, management believes it is more likely than not that
forecasted taxable income will be sufficient to utilize the majority of the net
operating loss carryforward before its expiration in 2014. However, there can be
no assurance that the Company will meet its expectations of future income.
9
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.
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. We undertake no obligation to revise or update publicly any forward
looking statements for any reason. Examples of forward looking statements
include, but are not limited to (i) projections of revenues, income or loss,
earnings per share, capital expenditures, dividends, capital structure and other
financial items, (ii) statements of our plans and objectives with respect to
business transactions and enhancement of shareholder value, (iii) statements of
future economic performance, and (iv) statements of assumptions underlying other
statements and statements about our business prospects.
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with our financial
statements and the notes thereto appearing elsewhere in this report.
Overview
Through our wholly-owned subsidiary, Sunteck Transport Co., Inc.
(Sunteck), we are a non-asset based transportation services company, providing
transportation capacity and related transportation services to shippers
throughout the United States, and to a lesser extent, Canada. As a non-asset
based provider of brokerage and contract carrier transportation services, we do
not own any equipment and our services are provided through our strategic
alliances with less than truckload, truckload, rail, contract carriers common
carriers and independent owner-operators to service our customers' needs. Our
non-asset based services include ground transportation coast to coast, and local
pick up and delivery. Our business services emphasize safety, information
coordination and customer service and are delivered through a network of
independent commissioned sales agents and third party capacity providers
coordinated by us. The independent commissioned sales agents typically enter
into non-exclusive contractual arrangements with Sunteck and are responsible for
locating freight and coordinating the transportation of the freight with
customers and capacity providers. The third party capacity providers consist of
independent contractors who provide truck capacity to us, including
owner-operators who operate under our contract carrier license, air cargo and
railroads. Through this network of agents and capacity providers, Sunteck
operates a transportation services business with revenue, net revenue and net
income of approximately $68.0 million, $13.6 million and $3.6 million,
respectively, during our most recently completed fiscal year and approximately
$61.4 million, $13.0 million and $3.2 million, respectively, during the nine
months ended September 30, 2006.
Our brokerage services are provided through a network of independent sales
agents throughout the United States and Canada. Our services include arranging
for the transport of customers' freight from the shippers location to the
designated destination. We do not own any trucking equipment and rely on
independent carriers for the movement of customers' freight. We seek to
establish long-term relationships with our customers and provide a variety of
logistics services and solutions to eliminate inefficiencies in our customers'
supply chain management.
Our contract carrier services are also provided through a network of
independent sales agents and independent owner-operators throughout the United
States. We do not own any trucking equipment; our independent owner-operators
lease onto our operating authority and transport freight under the Sunteck name.
During the nine months ended September 30, 2006 compared to 2005, the
growth of our business is readily measured by (i) the number of transactions we
have processed, which increased for the respective nine month periods from
39,600 in 2005 to 44,350 in 2006, an increase of 12%, and (ii) the average
revenue dollars per load, which increased by 15% in 2006 as compared to 2005.
This is the result of several factors including an increase in truckload
business
10
versus less than truckload at higher per load revenues, the addition of sales
agents hauling heavy equipment at higher per load revenues and, to a lesser
degree, a general increase in prices. The net revenue percentage increased by 8%
in 2006 as compared to 2005. This is primarily the result of revenue mix and, to
a lesser degree, a general increase in prices.
During the three months ended September 30, 2006 compared to 2005, the
growth of our business is readily measured by (i) the number of transactions we
have processed, which increased for the respective three month periods from
13,300 in 2005 to 15,750 in 2006, an increase of 18%, and (ii) the average
revenue dollars per load, which increased by 9% in 2006 as compared to 2005.
This is the result of several factors including an increase in truckload
business versus less than truckload at higher per load revenues, the addition of
sales agents hauling heavy equipment at higher per load revenues and, to a
lesser degree, a general increase in prices. The net revenue percentage
increased by 4% in 2006 as compared to 2005. This is primarily the result of
revenue mix and, to a lesser degree, a general increase in prices.
During the next twelve months, we plan to continue to offer our brokerage
and contract carrier transportation services and expand our agent network. We
are presently profitable and have adequate available lines of credit to satisfy
our working capital requirements during the next twelve months.
Results of operations
For the three and nine months ended September 30, 2006 and 2005
During the three and nine month periods ended September 30, 2006, we
continued to implement our strategic growth business plan consisting primarily
of the expansion of client services, the opening of regional operations centers
in key geographical markets, and the addition of independent sales agents
providing brokerage and contract carrier services. Our net revenues (gross
revenues less cost of transportation) are the primary indicator of our ability
to source, add value and resell service that are provided by third parties and
are considered to be the primary measurement of growth. Therefore, the
discussion of the results of operations below focuses on the changes in our net
revenues. The increases in net revenues and all related cost and expense
categories are the direct result of our business expansion.
The following table represents certain statement of operation data as a
percentage of net revenues:
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
------- ------- ------- -------
Net revenues 100.0% 100.0% 100.0% 100.0%
------- ------- ------- -------
Commissions 61.7% 61.3% 61.7% 61.0%
Operating expenses 21.0% 22.0% 21.2% 24.4%
Interest expense .9% .1% .5% .4%
Income taxes (5.2%) (.5%) (7.9%) (.9%)
------- ------- ------- -------
Net income 21.6% 17.1% 24.5% 15.1%
======= ======= ======= =======
11
Revenues
Three Months Ended September 30, 2006 Compared to 2005
For the three months ended September 30, 2006, gross revenues, consisting
of freight fees and other related services revenue, totaled $22,441,000 as
compared with $17,336,000 in the prior year period, an increase of 29%. Net
revenues were $4,564,000 as compared with $3,396,000 in the prior year period,
an increase of 34%.
Gross revenues from brokerage services increased to $19,351,000 from
$14,911,000 and net revenues increased to $4,108,000 from $3,013,000 in the
prior year period. This increase is the direct result of the continued expansion
of our agent network and customer base which resulted in a 17% increase in the
number of transactions processed and an increase of 11% in the average dollars
per load.
Gross revenues from contract carrier services increased to $3,090,000 from
$2,425,000 and net revenues increased to $456,000 from $383,000 which is a
direct result of a 23% increase in the number of transactions processed and an
increase of 4% in the average dollars per load.
Nine Months Ended September 30, 2006 Compared to 2005
For the nine months ended September 30, 2006, gross revenues, consisting
of freight fees and other related services revenue, totaled $61,395,000 as
compared with $47,728,000 in the prior year period, an increase of 29%. Net
revenues were $13,011,000 as compared with $9,378,000 in the prior year period,
an increase of 39%.
Gross revenues from brokerage services increased to $52,200,000 from
$40,422,000 and net revenues increased to $11,572,000 from $8,097,000 in the
prior year period. This increase is the direct result of the continued expansion
of our agent network and customer base which resulted in a 12% increase in the
number of transactions processed and an increase of 15% in the average dollars
per load.
Gross revenues from contract carrier services increased to $9,195,000 from
$7,306,000 and net revenues increased to $1,439,000 from $1,281,000 which is a
direct result of a 11% increase in the number of transactions processed and an
increase of 13% in the average dollars per load.
Costs and expenses
Commissions
For the three months ended September 30, 2006, commissions totaled
$2,818,000 as compared with $2,081,000 in the prior year period. As a percentage
of net revenues, commissions were 62% as compared with 61% in the prior year
period. For the nine months ended September 30, 2006, commissions totaled
$8,025,000 as compared with $5,720,000 in the prior year period. As a percentage
of net revenues, commissions were 62% as compared with 61% in the prior year
period. These increases are the result of the higher commission rates associated
with the expansion of the sales agent base in our brokerage services.
Operating expenses
For the three months ended September 30, 2006, operating expenses totaled
$960,000 as compared with $749,000 in the prior year period. As a percentage of
net revenues, operating expenses were 21% as compared with 22% in the prior year
period. For the nine months ended September 30, 2006, operating expenses totaled
$2,759,000 as compared with $2,286,000 in the prior year period. As a percentage
of net revenues, operating expenses were 21% as compared with 24% in the prior
year period. These decreases are the direct result of management's ability to
leverage selling,
12
general and administrative expenses in connection with business expansion.
During 2006, we moved our headquarters increasing our space to 5,300 square
feet. We have increased administrative staff commensurate with the increase in
transaction volume. We presently have adequate facilities and management to
handle the present and anticipated transaction volume in 2006 and 2007 without a
significant increase in overhead.
Interest Expense
For the three months ended September 30, 2006, interest expense totaled
$39,000 as compared with $3,000 in the prior year period. For the nine months
ended September 30, 2006, interest expense totaled $63,000 as compared with
$42,000 in the prior year period. These increases are primarily the result of
increased borrowings pursuant to our line of credit and an increase in the
average interest rate during the periods.
Income tax
The income tax benefit of $239,000 for the three months ended September
30, 2006 consisted of $538,000 resulting from the anticipated future utilization
of an available federal tax loss carryforward, net of the amortization of
deferred tax benefit of $255,000 and state income taxes of $44,000. The income
tax benefit of $17,000 for the three months ended September 30, 2005 consisted
of $239,000 resulting from the anticipated future utilization of an available
federal tax loss carryforward, net of the amortization of deferred tax benefit
of $190,000 and state income taxes of $32,000.
The income tax benefit of $1,021,000 for the nine months ended September
30, 2006 consisted of $1,876,000 resulting from the anticipated future
utilization of an available federal tax loss carryforward, net of the
amortization of deferred tax benefit of $730,000 and state income taxes of
$125,000. The income tax benefit of $84,000 for the nine months ended September
30, 2005 consisted of $613,000 resulting from the anticipated future utilization
of an available federal tax loss carryforward, net of the amortization of
deferred tax benefit of $452,000 and state income taxes of $77,000.
Based upon available objective evidence, including our continuing
profitability, management believes it is more likely than not that forecasted
taxable income will be sufficient to utilize the majority of the net operating
loss carryforward before its expiration in 2014. Accordingly, the valuation
allowance was reduced by an additional $538,000 and $1,876,000 for the three and
nine months ended September 30, 2006, respectively.
Trends and uncertainties
The transportation industry is highly competitive and highly fragmented.
Our primary competitors are other non-asset based as well as asset based third
party logistics companies, freight brokers, carriers offering logistics services
and freight forwarders. We also compete with customers' and shippers' internal
traffic and transportation departments as well as carriers internal sales and
marketing departments directly seeking shippers' freight. We anticipate that
competition for our services will continue to increase. Many of our competitors
have substantially greater capital resources, sales and marketing resources and
experience. We cannot assure you that we will be able to effectively compete
with our competitors in effecting our business expansion plans. The most
significant trend contributing to our growth during the past four years has been
the expansion of our brokerage services agent network and expansion of our
contract carrier agent and owner operator network. Sales agents are independent
contractors and, as such, there are no assurances that we can either maintain
our existing agent network or continue to expand this network.
For the nine months ended September 30, 2006, we increased gross revenues
from $47.7 million to $61.4 million and had net income of $3,185,000 as compared
with $1,414,000 in the prior year. As of September 30, 2006, we had an
accumulated deficit of $8.0 million. Factors that could adversely affect our
operating results include:
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o the success of Sunteck in expanding its business operations;
and
o changes in general economic conditions.
Depending on our ability to generate revenues, we may require additional
funds to expand Sunteck's business operations and for working capital and
general corporate purposes. Any additional equity financing may be dilutive to
stockholders, and debt financings may involve restrictive covenants that further
limit our ability to make decisions that we believe will be in our best
interests. In the event we cannot obtain additional financing on terms
acceptable to us when required, our ability to expand Sunteck's operations may
be materially adversely affected.
Liquidity and capital resources
During the past two years, our sources for cash have been the cash flow
generated from operations and available borrowings under lines of credit.
At September 30, 2006, we had borrowings of $2,114,000 outstanding
pursuant to our $4,000,000 line of credit. The line of credit, obtained from a
bank in May 2003 and which was increased from $2,500,000 in September 2006, is
subject to the maintenance of certain financial covenants, is secured by
accounts receivable and other operating assets, and matures in September 2008.
We believe that we have sufficient working capital to meet our short-term
operating needs and that we will be able to increase, extend or replace the line
of credit on terms acceptable to us.
At September 30, 2006, we had liquid assets of approximately $1,050,000.
Available cash is used to reduce borrowings on our line of credit.
The total amount of debt outstanding as of September 30, 2006 and 2005 was
$2,114,000 and $747,000, respectively. The following table presents our debt
instruments and their weighted average interest rates as of September 30, 2006
and 2005, respectively:
Weighted Weighted
Average Average
Balance Rate Balance Rate
-------------------------------------------------------
2006 2005
-------------------------------------------------------
Line of Credit $ 2,114,000 7.32% $ 747,000 7.25%
Inflation and changing prices had no material impact on our revenues or
the results of operations for the period ended September 30, 2006. Higher fuel
prices have had no material impact on our revenues or the results of operations
for the period ended September 30, 2006 because, as a broker, we are able to
pass through to our customers any increased costs incurred. The higher cost of
fuel passed through as a fuel surcharge has become an industry standard and an
acceptable business practice.
Critical accounting policies
Preparation of our financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Note 1 of the Notes to Financial Statements
includes a summary of the significant accounting policies and methods used in
the preparation of our
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financial statements. The most significant areas involving management estimates
and assumptions are described below. Actual results could differ materially from
management's estimates under different assumptions or conditions.
Revenue Recognition
As a third party transportation logistics provider, we act as the
shippers' agent and arrange for a carrier to handle the freight. Gross revenues
consist of the total dollar value of services purchased by shippers. Revenue is
recognized upon the delivery of freight, at which time the related
transportation cost, including commission, is also recognized. At that time our
obligations are completed and collection of receivables is reasonably assured.
Emerging Issues Task Force No. 99-19, "Reporting Revenues Gross as a
Principal Versus Net as an Agent" (EITF 99-19), establishes criteria for
recognizing revenues on a gross or net basis. We are the primary obligor in our
transactions, have all credit risk, maintain substantially all risk and rewards,
have discretion in selecting the supplier, and have latitude in pricing
decisions. Accordingly, we record all transactions at the gross amount,
consistent with the provisions of EITF 99-19.
Income Taxes
The deferred tax asset represents expected future tax savings resulting
from our net operating loss carryforward. As of December 31, 2005, we had a net
operating loss carryforward of approximately $16.5 million for federal income
tax purposes which expire through 2014. Utilization of this benefit is primarily
subject to the extent of our future earnings, and may be limited by, among other
things, shareholder changes, including the possible issuance of additional
shares in one or more financing or acquisition transactions. We have established
a valuation allowance for the portion of possible tax savings not likely to be
realized by the end of the carryforward period.
Provision For Doubtful Accounts
We continuously monitor the creditworthiness of our customers and have
established an allowance for amounts that may become uncollectible in the future
based on current economic trends, our historical payment and bad debt write-off
experience, and any specific customer related collection issues.
Off-balance sheet arrangements
We do not have any off-balance sheet arrangements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
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CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) as of the end of the period covered by this report. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, our disclosure controls and
procedures are effective to ensure that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. Information required to be disclosed by us in the reports
we file or submit under the Exchange Act is accumulated and communicated to
management, including our principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.
There have not been any changes in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Part II
OTHER INFORMATION
Item 1 - 5: Inapplicable.
Item 6: Exhibits.
31A Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
31B Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
32A Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
32B Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
----------
*Filed as an exhibit hereto.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
authorized.
AUTOINFO, INC.
By: /s/ Harry Wachtel
-------------------------------------
Harry Wachtel
President and Chief Executive Officer
By: /s/ William Wunderlich
-------------------------------------
William Wunderlich
Executive Vice President and
Principal Financial Officer
Date: November 8, 2006
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