AUTEO MEDIA INC (AUTM.OB)
Quarterly Report (SEC form 10QSB)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion of our results of operations and financial condition in conjunction with our financial statements and related notes included elsewhere in this Quarterly
Report on Form 10-QSB. This discussion contains forward-looking statements based on current expectations that involve risks and uncertainties. Actual results and the timing of certain events
may differ significantly from those projected in such forward-looking statements due to a number of factors, including those discussed in the section entitled "Risk Factors" below.
OVERVIEW We are an automotive software and communications company offering online and point-of-purchase marketing, commerce and customer relationship systems to auto dealerships.
We capture revenue from dealerships at multiple stages in the process of marketing new and used vehicles to their buyers. Our California and Northwest Dealer Specialties business collects
automotive data and digital pictures and prints customized window labels on behalf of car dealerships. The data is sent to multiple automotive internet sites including the dealerships' in some
cases. The Company promotes and creates verbal and e-mail based communications between consumers and sellers of autos. Dealerships can track and manage these communications with its
customer relationship management system ContactAuto(tm). This software is Internet based and accessed through certain wireless, Internet ready devices. Auteo Media, Inc provides web site
management and hosting services through our Go2Dealer software system and Dealerhost data center. The Company provides inventory management and search system development for its
regional Internet portals of www.nwautos.com and the wireless version www.pocketauto.com. Additionally, the Company offers "plug-in" software tools such as Mypartlink for existing auto
dealership web sites to perform commerce transactions for their in-stock auto accessories.
We derive the majority of our revenues from dealerships paying us for our data collection and window label services. This revenue is collected at the time the service is provided and is not
dependant upon the sale of the vehicle. For the six months ended June 30, 2001 and 2000, revenues from all products and services were $675.4 thousand and $436.7 thousand, respectively. For
the three months ended June 30, 2001 and 2000, revenues from all products and services were $373 thousand and $225 thousand, respectively. We believe our ability to increase our revenues is
directly related to the number of subscribing dealers in our geographic areas and the number of new product and services we are able to effectively make available and market to them.
THREE MONTHS AND SIX MONTHS ENDED June 30, 2001 AND 2000
REVENUES Revenues increased to $675.4 thousand from $436.7 thousand for the six months ended June 30, 2001 and 2000 respectively. This represents an increase of $238.7 thousand or
55% for the six months ended. Revenues increased to $372.8 thousand from $224.9 thousand for the three months ended June 30, 2001 and 2000 respectively. This represents an increase of
$147.9 thousand or 66% for the three months ended. This growth can be attributed to market penetration in Washington and in California of our Dealer Specialties business unit and broader
acceptance of the Companies new products.
GROSS PROFIT Gross profit increased to $606.7 thousand from $384.0 thousand for the six months ended June 30, 2001 and 2000, respectively. This represents an increase of $222.7
thousand or 58% for the three months ended. Gross profit increased to $335.5 thousand from $188.4 thousand forthe three months ended June 30, 2001 and 2000, respectively. This represents
an increase of $147.1 thousand or 78% for the three months ended. This increase is attributed to the increase in revenues and profitability of new product lines.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased to $828.0 thousand from $516.9 thousand for the six months ended June 30, 2001 and 2000, respectively. This represents an increase of
$311.1 thousand or 60% for the six months ended. Selling, general and administrative expenses increased to $376.4 thousand from $305.1 thousand for the three months ended June 30, 2001
and 2000, respectively. This represents an increase of $71.3 thousand or 23% for the three months ended. This increase can be attributed to increased costs associated with the acquisition of
NWCarNet,lease payments for office space,labor costs to handle the increased demand for the Company's products in existing and new areas and research and development of the Company's
new products not reflected in the same period of 2000. The Company will continue to invest in the lucrative California market with the goal of achieving profitability in this region in 2001.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses increased to $37.9 thousand from $37.6 thousand for the six months ended June 31, 2001 and 2000, respectively. This represents a increase of $0.3
thousand or 0.8% for the six months ended June 30, 2001. This increase can be attributed to needs in equipment to support the Company's growth.
NET EARNINGS (LOSS)
Net loss decreased from $142.3 thousand for the three months ended June 30, 2000 to a net loss of $60.6 thousand for the three months ended June 30, 2001. Net loss increased from $169.1
thousand for the six months ended June 30, 2000 to a net loss of $259.0 thousand for the six months ended June 30, 2001. The decrease in earnings is the result of the Company increasing
market share in profitable geographic areas and product lines and effective expense management programs. The Company will continue investing in its expansion into the California market,
software development and improvements to existing services. The Company is curtailing its program to pay certain vendors with restricted shares of the Company stock in exchange for services.
RESEARCH AND DEVELOPMENT
The Company completed work on key components of its development program, including; Go2Dealer(tm), DealerHost(tm) and www.nwautos.com. These products are available for sale with
addition to revenues occurring from its ContactAuto Customer Relationship Managment software and DealerHost hosting services. The Company will continue to improve upon its products and
services as it adds new customers but is dedicated toward expanding research and development spending to compliment its current product line.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2001, the Company incurred negative cash flow from operations of $201.0 thousand compared to negative cash generated from operations of $140.5
thousand for the six months ended June 30, 2000. The net cash used in operating activities was primarily attributed to increased costs related to the expanding of the business as noted in the
results of operations. Net cash used in investing activities for the six months ended June 30, decreased from $69.9 thousand in 2000 to $43.6 thousand in 2001. The decrease is attribute to the
Company requiring less equipment to support its growth. Net cash provided by financing activities for the six months ended June 30, was $375.0 thousand in 2001 compared to net cash
provided by financing activities of $312.9 thousand in 2000. The Company commenced a private placement of its common stock for $0.53 per share of 144k Restricted Stock during the first
quarter of 2001, which resulted in receipt of $400,000 from stock subscriptions.
At June 30, 2001, the total of our current assets was $320.4 thousand compared to $142.2 at December 31,2000, an increase of 125%. Cash and receivables for the same period was $293.0
versus $114.7 December 31, 2000, an increase of 154%. Current liabilities increased to $208.9 thousand in June 30, 2001 from $194.6, an increase of 7%. Capital requirements vary materially
from those currently planned. The Company is not currently seeking additional financing.
LEASE AND LEASEHOLD IMPROVEMENTS
The Company continues to maintain its lease dated April 15, 2000, with Teachers Insurance & Annuity Association of America, Inc. Terms of the Lease were for a period of five years at a
monthly rate of $6,508 for years one and two, increasing approximately 10% thereafter. The premises are for 5,446 square feet of which approximately 500 is warehouse space. The space is
required to house development, administrative and marketing personnel.
ACQUISITION
On March 15, 2001, the Company acquired substantially all of the assets of NW Carnet, Inc. d.b.a. NWCarnet, consisting primarily of computer equipment and software, in exchange for 30,000
shares of the Company's common stock. The total acquisition cost of $19,686 equaled the fair value of assets acquired. Auteo Media acquired two technologies in auto dealer web site
development and in auto part commerce that fit strategically with our existing product offering. Additionally, the Company acquired approximately 25 customers of NWCarNet. Auteo Media will
continue to pursue companies for acquisition that fit our product and services portfolio.
RISK FACTORS
In addition to the factors discussed in the "Overview" and "Liquidity and Capital Resources" sections of Item 6. "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this Annual Report on Form 10-KSB, the following additional factors may affect our future results.
WE ARE OPERATING AT A LOSS AND CANNOT ASSURE THAT WE WILL BE PROFITABLE. IF WE
CONTINUE TO LOSE MONEY WE MAY BE FORCED TO DECREASE CERTAIN OPERATIONS. Our potential for future profitability must be considered in light of the risks,
uncertainties, expenses and difficulties frequently encountered by companies in the early stages of development, particularly companies in new and rapidly evolving markets.
WE CURRENTLY ANTICIPATE THAT OUR CASH, CASH EQUIVALENTS AND SHORT-TERM
INVESTMENTS WILL BE SUFFICIENT TO MEET OUR ANTICIPATED NEEDS FOR WORKING CAPITAL
AND OTHER CASH REQUIREMENTS AT LEAST FOR THE NEXT 12 MONTHS. We may need to raise additional funds sooner, however, in order to fund more rapid expansion, to
develop new or enhance existing services or products, to respond to competitive pressures or to acquire complementary products, businesses or technologies. There can be no assurance that
additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, our ability to fund our expansion, take
advantage of potential acquisition opportunities, develop or enhance services or products or respond to competitive pressures would be significantly limited. Such limitation could have a material
adverse effect on our business, results of operations, financial condition and prospects.
COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL PERFORMANCE.
Our market is competitive not only because certain business activities are Internet related with minimal barriers to entry, but also because we compete directly with other companies in the offline
environment.
IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO TRAIN AND RETAIN ADDITIONAL HIGHLY
QUALIFIED SALES, MARKETING, MANAGERIAL AND TECHNICAL PERSONNEL OUR BUSINESS MAY
SUFFER. The Company is greatly dependant upon its President and CEO, Steve Van Leeuwen and would be at additional risk should he depart intentionally or unintentionally without an
appropriate successor assigned.
OUR SUCCESS IS DEPENDANT ON KEEPING PACE WITH ADVANCES IN TECHNOLOGY. If we are unable to keep such pace consumers may stop using our services and revenues
will decrease.
OUR CURRENT REVENUES ARE STRONGLY DEPENDANT UPON OUR CONTRACTUAL RELATIONSHIP
WITH DEALER SPECIALTIES INTERNATIONAL, A TRADER PUBLISHING COMPANY. If our relationship were to discontinue we would suffer from loss of revenues and earnings.
OUR FOUNDERS, OFFICERS AND DIRECTORS AND THEIR AFFILIATES HAVE SUBSTANTIAL
CONTROL OF OUR VOTING STOCK
AND THE ABILITY TO SIGNIFICANTLY INFLUENCE AND IN ALL LIKELIHOOD MAKE DECISIONS
THAT COULD ADVERSELY AFFECT STOCKHOLDERS. Such decisions could adversely affect our stock price.
SALES OR THE PERCEPTION OF FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR
STOCK PRICE. SINCE THE MARKET PRICES FOR TECHNOLOGY-RELATED STOCKS ARE LIKELY TO
REMAIN VOLATILE, OUR STOCK PRICE MAY BE MORE ADVERSELY AFFECTED THAN OTHER
COMPANIES BY SUCH FUTURE SALES. We cannot assure that an active trading market will be sustained or that the market price of the common stock will not decline. Even if an active
trading market does develop, the market price of the common stock is likely to continue to be highly volatile and could be subject to wide fluctuations in response to various factors and
events.Further, the stock markets, and in particular the OTC Bulletin Board, have experienced extreme price and volume fluctuations that have particularly affected the market prices of equity
securities of many technology companies and have often been unrelated or disproportionate to the operating performance of such companies. These broad market factors may adversely affect the
market price of our common stock. In addition, general economic, political and market conditions such as recessions, interest rates or international currency fluctuations, may adversely affect the
market price of the common stock. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against
companies with publicly traded securities. Such litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources, which would have a material
adverse effect on our business, results of operations and financial condition.
OUR ABILITY TO COMPETE DEPENDS UPON OUR PROPRIETARY SYSTEMS AND TECHNOLOGY.
While we will rely on trademark, trade secret and copyright law, confidentiality agreements and technical measures to protect our proprietary rights, we believe that the technical and creative skills
of our personnel, continued development of our proprietary systems and technology, brand name recognition and reliable Web site maintenance
are more essential in establishing and maintaining a leadership position and strengthening our brand. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our services or to obtain and use information that we regard as proprietary. Policing unauthorized use of our proprietary rights is difficult. We cannot assure that the steps taken
by us will prevent misappropriation of technology or that the agreements entered into for that purpose will be enforceable. Misappropriation of our intellectual property or potential litigation
would have a material adverse effect on our business, results of operations and financial condition. Effective trademark, service mark, copyright and trade secret protection may not be available in
every country in which our products and services are made available online. In addition, litigation may be necessary in the future to enforce or protect our intellectual property rights or to defend
against claims or infringement or invalidity. As part of our confidentiality procedures, we generally enter into agreements with our employees and consultants and limit access to our trade secrets
and technology.
RISKS OF PENNY STOCK. THE COMPANY's common stock is considered to be a "PENNY STOCK" because it meets one or more of the definitions in Rule 3a51-1 under the Securities
Exchange Act of 1934: (i) it has a price less than five dollars per share; (ii) it is NOT traded on a recognized national exchange; (iii) it is NOT quoted on the NASD's automated quotation system
(NASDAQ), or even if it is, it has a price less than five dollars per share; or (iv) is issued by a company with net tangible assets less than $2,000,000, if in business more than three years
continuous- ly, or $5,000,000, if in business less than three years continuously, or with average revenues of less than $6,000,000 for the past three years. At such time as THE COMPANY meets
the relevant requirements, it may attempt to qualify for listing on either NASDAQ or a national securities exchange, but there can be no assurance of this.
BROKER-DEALER REQUIREMENTS MAY AFFECT TRADING. Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2 of the Securities and Exchange
Commission require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written
receipt of the document before effecting any transaction in a penny stock for the investor's account.
Potential investors in THE COMPANY's common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be "PENNY STOCK."
Moreover, Rule 15g-9 of the Securities and Exchange Commission requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling
any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and
investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and
experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer
made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor's financial situation, investment
experience and investment objectives. Compliance with these requirements may make it more difficult for investors in THE COMPANY's common stock to resell their shares to third parties or to
otherwise dispose of them.
OUR ACTUAL RESULTS COULD DIFFER FROM FORWARD-LOOKING STATEMENTS IN THIS REPORT.
This Annual Report contains forward-looking statements based on current expectations, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of many factors, including the risk factors set forth above and elsewhere in this Annual Report. The cautionary statements made in this Annual
Report should be read as being applicable to all forward-looking statements wherever they appear in this Annual Report. |
