UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended April 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-23903
EAUTOCLAIMS.COM, INC.
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(Exact name of registrant as specified in charter)
Nevada 95-4583945
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
110 East Douglas Road, Oldsmar, Florida 34677
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(Address of principal executive offices) (Zip Code)
Registrant's telephone Number, including area code: (813) 749-1020
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
[ X ] Yes [ ] No
The number of shares outstanding of the Issuer's Common Stock, $.001 Par
Value, as of April 30, 2002 was 18,072,926.
Transitional Small Business Disclosure Format:
[ ] Yes [ X ] No
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
INDEX TO FORM 10-QSB
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PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 2
Balance Sheets 3
Statements of Operations 4
Statement of Stockholders Equity (Deficiency) 5
Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Signatures 15
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The consolidated financial statements of eAutoclaims.com, Inc. and Subsidiary
(collectively the "Company") included herein were prepared, without audit,
pursuant to rules and regulations of the Securities and Exchange Commission.
Because certain information and notes normally included in financial statements
prepared in accordance with generally accepted accounting principles were
condensed or omitted pursuant to such rules and regulations, these financial
statements should be read in conjunction with the financial statements and notes
thereto included in the audited financial statements of the Company as included
in the Company's Form 10-KSB for the year ended July 31, 2001.
2
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
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April 30, 2002 July 31, 2001
(unaudited)
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ASSETS
Current Assets:
Cash $ 136,549 $ 485,092
Accounts receivable, less allowance for doubtful accounts
of $126,000 and $60,000, respectively 1,736,392 1,208,409
Due from related parties 190,081 154,853
Prepaid expenses and other current assets 177,456 126,693
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Total current assets 2,240,478 1,975,047
Property and Equipment, net of accumulated depreciation
of $442,000 and $232,000, respectively 968,436 545,015
Goodwill, net of accumulated amortization
of $405,000 and $241,000, respectively 1,148,536 1,312,615
Other Assets 395,465 365,000
Deferred Income Tax Asset, net of valuation
allowance of $5,054,000 and $4,171,000 respectively
--------------------------------------------------------------------------------------------------------------------
Total Assets $ 4,752,915 $ 4,197,677
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses 5,456,853 $ 3,074,653
Deferred software subscription revenue 232,755 111,670
Convertible debentures, net of unamortized discount of $555,551 at July 31, 2001 94,449
Loans payable - stockholders 135,000 179,000
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Total current liabilities 5,824,608 3,459,772
Stockholders' Equity:
Convertible preferred stock - $.001 par value; authorized 5,000,000 shares,
520 shares issued and 268 shares and 520 shares outstanding, respectively
aggregate liquidation preference of $1,340,000 and $2,600,000, respectively 1 1
Common stock - $.001 par value; authorized 50,000,000 shares, issued
and outstanding 18,072,926 shares and 11,711,877 shares respectively 18,073 11,712
Additional paid-in capital 17,502,400 16,051,679
Accumulated deficit (18,592,167) (15,325,487)
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Stockholders' equity (1,071,693) 737,905
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Total Liabilities and Stockholders' Equity $ 4,752,915 $ 4,197,677
====================================================================================================================
See Notes to Consolidated Financial Statements
3
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
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Three-month Three-month Nine-month Nine-month
Period Ended Period Ended Period Ended Period Ended
April 30, 2002 April 30, 2001 April 30, 2002 April 30, 2001
(unaudited) (unaudited) (unaudited) (unaudited)
--------------------------------------------------------------------------------------------------------------
Revenue:
Collision repairs management $ 7,229,585 $ 5,521,511 $ 21,341,121 $ 10,904,535
Glass repairs 186,377 554,054 786,483 1,523,842
Fleet repairs management 202,565 398,917 931,215 927,582
Fees and other revenue 430,939 204,876 1,162,662 477,522
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Total revenue 8,049,466 6,679,358 24,221,481 13,833,481
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Expenses:
Claims processing charges 6,814,781 5,624,181 20,507,428 11,481,692
Selling, general and administrative 1,965,496 5,418,519 5,506,829 8,154,219
Depreciation and amortization 145,096 111,096 374,376 298,400
Amortization of beneficial conversion
feature on convertible debentures and
fair value of warrants issued in
connection with debentures 555,551
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Total expenses 8,925,373 11,153,796 26,944,184 19,934,311
--------------------------------------------------------------------------------------------------------------
Net loss $ (875,907) $ (4,474,438) $ (2,722,703) $ (6,100,830)
==============================================================================================================
Adjustments to net loss to compute loss per common share:
Preferred stock dividends (37,686) (42,000) (135,977) (88,838)
Deduction relating to Series A
Convertible Preferred Stock -- -- (408,000) (3,490,234)
--------------------------------------------------------------------------------------------------------------
Net loss applicable to common stock $ (913,593) $ (4,516,438) $ (3,266,680) $ (9,679,902)
Loss per common share - basic and
diluted $ (0.06) $ (0.40) $ (0.24) $ (0.87)
==============================================================================================================
Weighted-average number of common
shares outstanding-basic and diluted 15,520,183 11,236,149 13,666,098 11,189,990
==============================================================================================================
See Notes to Consolidated Financial Statements
4
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
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Nine-month period ended April 30, 2002
Additional
Preferred Stock Common Stock Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
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Balance at July 31, 2001 520 $ 1 11,711,877 $ 11,712 $16,051,679 $(15,325,487) $ 737,905
Issuance of common stock
upon exercise of options 326,000 326 2,934 3,260
Issuance of common stock
for amounts due to shareholders 91,667 92 43,908 44,000
Issuance of common stock
for services 229,992 230 115,860 116,090
Issuance of common stock
upon conversion of debentures 942,855 943 649,057 650,000
Issuance of common stock
in conjunction with lease 97,927 98 92,933 93,031
Issuance of common stock
for interest on debentures 23,028 23 9,188 9,211
Issuance of common stock
for preferred dividends payable 441,537 441 133,049 133,490
Issuance of common stock
upon conversion of preferred stock (252) 4,208,043 4,208 (4,208)
Recognition of beneficial conversion
feature on convertible preferred stock 408,000 (408,000)
Accrued dividends on preferred stock (135,977) (135,977)
Net loss (2,722,703) (2,722,703)
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Balance at April 30, 2002 268 $ 1 18,072,926 $ 18,073 $17,502,400 $(18,592,167) $(1,071,693)
==============================================================================================================================
See Notes to Consolidated Financial Statements
5
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
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Nine-month Nine-month
Period ended Period ended
April 30, 2002 April 30, 2001
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Cash flows from operating activities:
Net loss $ (2,722,703) $ (6,100,830)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 374,376 298,400
Amortization of discount on debentures 555,551
Common stock issued for services 116,090 332,554
Common stock issued for interest 9,211
Common stock issued for rent and option to purchase facility 43,659
Issuance of compensatory stock options 3,344,000
Allowance for doubtful accounts 66,132 30,000
Changes in operating assets and liabilities net of acquisition:
(Increase) in accounts receivable (594,115) (558,637)
(Increase) in due from related parties (35,228) (58)
(Increase) in prepaid expenses and other current assets (1,391) (9,403)
(Increase) in other assets (30,465) (119,985)
Increase in accounts payable and accrued expenses 2,379,713 2,183,600
Increase in deferred software subscription revenue 121,085
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Net cash provided by (used in) operating activities 281,915 (600,359)
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Cash flows from investing activity:
Purchases of property and equipment (633,718) (389,657)
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Cash used in investing activity (633,718) (389,657)
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Cash flows from financing activities:
Net proceeds from issuance of preferred stock 1,349,944
Proceeds from exercise of stock options 3,260 750
Increase in deferred offering costs (148,225)
Principal payments on stockholder loans (106,000)
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Cash provided by financing activities 3,260 1,096,469
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Net increase (decrease) in cash (348,543) 106,453
Cash at beginning of period 485,092 239,979
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Cash at end of period $ 136,549 $ 346,432
==============================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 19,343 $ 14,334
==============================================================================================================================
Supplemental disclosure of noncash investing and financing activities:
Accrued dividends on convertible preferred stock $ 88,838
==============================================================================================================================
Conversion of debentures to common stock $ 650,000
==============================================================================================================================
Issuance of common stock for amount due to shareholders $ 44,000
==============================================================================================================================
Issuance of stock for payment of rent and purchase option $ 49,373
==============================================================================================================================
Issuance of stock for dividends payable $ 133,490
==============================================================================================================================
See Notes to Consolidated Financial Statements
6
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Note 1 - Basis of presentation
The accompanying unaudited consolidated financial statements contain all
adjustments (consisting only of those of a normal recurring nature) necessary to
present fairly the financial position of eAutoclaims.com, Inc. and it's wholly
owned subsidiary as of April 30, 2002 and its results of operations and its cash
flows for the nine-month periods ended April 30, 2002 and 2001 and the results
of operations for the three-month periods ended April 30, 2002 and 2001. Results
of operations for the nine and three-month periods ended April 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
July 31, 2002.
The Company derives revenue primarily from collision repairs, glass repairs and
fleet repairs. Revenue is recognized when an agreement between the Company and
its customer exists, the repair services have been completed, the Company's
revenue is fixed and determinable and collection is reasonably assured.
The Company records revenue gross when the Company is the primary obligor in its
arrangements, the Company has latitude in establishing price, the Company
controls what services are provided and where the services will take place, the
Company has discretion in supplier selection, the Company is involved in the
determination of product or service specifications and the Company has credit
risk. The Company records revenue net when situations occur whereby the supplier
(not the Company) is the primary obligor in an arrangement, the amount the
Company earns is fixed or the supplier (and not the Company) has credit risk.
Note 2 - Per share calculations
Basic loss per share is computed as net loss divided by the weighted-average
number of common shares outstanding for the period. Potential common shares have
not been included in diluted loss per share since the effect would be
anti-dilutive.
Note 3 - Equity Transactions
On July 31, 2001, 100 shares of preferred stock were redeemable at the Company's
option at 120% of face value, plus accrued dividends by August 15, 2001. Since
the Company did not redeem the preferred stock, its terms became identical to
the Company's other preferred stock. An increase to accumulated deficit and the
net loss available to common shareholders of $100,000 was recorded during the
year ended July 31, 2001 and $408,000 has been recorded during the nine-month
period ended April 30, 2002 representing the beneficial conversion feature.
On September 20, 2001, two shareholders and officers of the Company converted
$44,000 of debt owed to them by the Company into 91,667 shares of common stock.
During the nine-month period ended April 30, 2002 $650,000 of debentures which
were issued in June and July of 2001 were converted into 942,855 shares of
common stock in accordance with the debenture agreements. In addition, accrued
interest of approximately $9,200 on those debentures was converted to 23,028
shares of common stock. Additionally 1,150,000 warrants were issued at a strike
price of $0.63 per share. During the nine-month period ended April 30, 2002 the
Company charged operations $389,400, representing the amortization of the
7
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
beneficial conversion feature attributable to the debentures and $166,151
representing the amortization of the fair value of the warrants attached to the
debentures.
During the nine-month period ended April 30, 2002, the Company entered into an
agreement for the lease of a new office facility that called for the issuance of
97,927 shares of common stock for three months rent and a five year purchase
option of the property at a pre-established price. During the nine-month period
ended April 30, 2002, $43,659 was charged to operations for the stock issued
relating to the purchase option. The $49,372 associated with the rent was
recorded as prepaid rent and will be charged to operations as the rent expense
is incurred.
During the nine-months ended April 30, 2002, the Company issued 186,326 shares
of common stock in exchange for $87,280 of legal services.
During the nine-months ended April 30, 2002, the Company issued additional
options to employees and members of the Company's Board of Directors to purchase
1,492,000 shares of common stock where the exercise prices of the options are
equal to or greater than the fair market value of the Company's common stock on
the date of each grant. Additionally, options to purchase 226,350 shares of
common stock were canceled.
During the nine-months ended April 30, 2002, employees exercised 326,000 options
to purchase shares of eAutoclaims stock.
During the nine-months ended April 30, 2002, the Company issued 28,841 shares of
common stock to four directors in exchange for their services. The Company
charged operations $13,750, which was equal to the fair market value of the
shares when earned.
On October 1, 2001, the Company entered into a contract with a public relations
consultant for services. This agreement calls for the Company to issue options
to purchase 21,429 shares of common stock, which were issued on November 1,
2001. On February 28, 2002, the Company also issued 37,650 shares of common
stock to a company in partial payment of public relations consulting services.
For the nine-months ended April 30, 2002, 18,825 of these shares were earned
resulting in a charge to operations of approximately $15,000.
On January 31, 2002, 42 shares of preferred stock with a face value of $210,000,
plus dividends of approximately $26,000 were converted into 551,629 shares of
common stock. On March 27, 2002, 210 shares of preferred stock with a face value
of $1,050,000, plus dividends of approximately $108,000 were converted into
4,097,951 shares of common stock.
Note 4 - Additional information
The Company's records and the records of its transfer agent differ with respect
to the number of outstanding shares of the Company's common stock. According to
the transfer agent, the number of shares of common stock outstanding is
approximately 31,500 shares greater than the 18,072,926 indicated by the
Company's records. The Company believes that its records are correct and is in
the process of resolving this difference. The number of shares outstanding
reflected in the Company's financial statements do not include these shares or
any adjustment that might be necessary to resolve this difference.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements contained in this Report on Form 10-QSB, that are not purely
historical, are forward-looking information and statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These include statements regarding our expectations,
intentions, or strategies regarding future matters. All forward-looking
statements included in this document are based on information available to us on
the date hereof. It is important to note that our actual results could differ
materially from those projected in such forward-looking statements contained in
this Form 10-QSB. The forward-looking statements contained herein are based on
current expectations that involve numerous risks and uncertainties. Assumptions
relating to the foregoing involve judgments regarding, among other things, our
ability to secure financing or investment for capital expenditures, future
economic and competitive market conditions, and future business decisions. All
these matters are difficult or impossible to predict accurately and many of
which may be beyond our control. Although we believe that the assumptions
underlying our forward-looking statements are reasonable, any of the assumptions
could be inaccurate and, therefore, there can be no assurance that the
forward-looking statements included in this form 10-QSB will prove to be
accurate.
GENERAL
We provide Internet based collision claims administration services for
automobile insurance companies. Our business strategy is to use the Internet to
streamline and lower the overall costs of automobile repairs and the claims
adjustment expenses of our clients. We believe that our proprietary web-based
software products and services make the management of collision repairs more
efficient by facilitating the gathering and distribution of information required
in the automobile repair process.
eAutoclaims controls the vehicle repair process from the reporting of the
accident through the satisfactory repair of damage. We bring together and
coordinate the activities of the insurance company, its insured, and the various
parties involved in evaluating a claim, negotiating the cost of the repair, and
performing necessary repair services. We have contracted with over 3,200 body
shops throughout the United States to repair vehicles. These shops, referred to
as our "provider network," provide us 10% to 15% discount on the vehicle repair
because of the volume of repairs we provide to them. Because we audit every line
of every repair estimate and because we share a portion of the volume discount
with our customer, we are able to lower the average cost being paid by our
customer.
We have also introduced our latest product, eJusterSuite. This new product
expands our potential customer base as well as provides significant new features
to our current customer base. Our long-standing Bricks-to-Clicks product is
solely an outsourcing solution that requires eAuto personnel to audit and
coordinate the vehicle repair. eJusterSuite allows both the outsourcing solution
and a true application service provider (ASP) solution whereby the insurance
company can use our technology independent of our personnel. The ASP solution
allows us to market our product to the largest insurance companies that already
have the staff to process and control the claims process, while paying us a fee
for every transaction that is run through our system. The ASP model will provide
margin without the associated personnel and operating costs.
eJusterSuite also provides significant new features to our current customers
because it builds in service partners that can provide the needed services such
as Independent adjustors, car rentals, tow trucks and accident reporting by only
clicking an Icon that is added to the screen of the customer's desk top in the
current system. The system automatically provides the service partner the
information already in our system via the Internet. The service partner will
systematically provided the requested services and pay us a fee for each
assignment they receive through our system. This process significantly reduces
the customers' time and cost to process claims as well as reduces the number of
9
mistakes that occur in a manual process. In most cases it also reduces the cost
of the service partner to obtain and process the transaction, even after paying
our transaction fee. This added revenue will provide additional margin without
the additional personnel and operating costs. As of April 30, 2002, one type of
service partners, independent adjustors, is contributing significant click fee
revenues. We currently have seven other types of service partners installed and
we expect to start collecting fees on these services in July 2002. These service
partners include car rentals, desk review, towing service, glass network, skip
trace service, police reports pick up and scene re-creation.
For our outsourcing customers, we approve all repair shops for inclusion in our
network and determine which repair shop will ultimately perform the repairs. We
receive a discount, ranging from 10% to 15%, from repair facilities that are
members of our provider network. The revenues generated from the vehicle repair
facilities through our provider network accounts for 95% of the revenue for both
the three-months and nine-months ended April 30, 2002, respectively. We are paid
on a per claims basis from our insurance and fleet company customers for each
claim that we process through our system. These fees vary from $10 to $60 per
claim depending upon the level of service required. For both the three-month and
nine-month periods ended April 30, 2002, 3% of the revenue has been received
from claims processing fees and other income.
RESULTS OF OPERATIONS
FOR THE NINE AND THREE-MONTHS ENDED APRIL 30, 2002 COMPARED TO THE NINE AND
THREE-MONTHS ENDED APRIL 30, 2001.
REVENUE
Total revenue for the nine-months ended April 30, 2002 was $24.2 million, which
is a 75% increase in excess of the $13.8 million of revenue for the nine-months
ended April 30, 2001. Total revenue for the three-months ended April 30, 2002
was $8 million. This represents a 21% increase over the $6.7 million of revenue
for three-months ended April 30, 2001. This increase in revenues from both the
nine and three-month increases are primarily the result of growth in revenues
attributed to our core collision repairs management business and the associated
fees. Collision repair management revenue increased 96% and 31% for the nine and
three-months ended April 30, 2002 compared to the nine and three-months ended
April 30, 2001, respectively. Fees and other revenue increased 143% and 110% for
the nine and three-months ended April 30, 2002 compared to the nine and
three-months ended April 30, 2001, respectively. Glass repairs revenue decreased
48% and 66% for the nine and three-months ended April 30, 2002 compared to the
nine and three-months ended April 30, 2001, respectively. This decrease is a
result of the loss of a major customer due to the maturing and increased
competition for the glass repair business. The customer was offered lower
pricing that, at that time, would have reduced margins below acceptable levels.
We have recently negotiated lower pricing from one of our larger glass vendors,
which will help our competitiveness in this market in the future. The glass
repair business complements our core business and allows our customers to use a
single source for all their repair needs. There was a 49% decrease in the fleet
repairs management revenue between the three-months ended April 30, 2002 and
2001. This decrease is a normal fluctuation in the fleet repair revenue due to
the actual accident rate experienced by our customers for this period. The
nine-months ended April 30, 2002 and 2001 the fleet repair revenue shows a
slight increase.
During the nine and three-months ended April 30, 2002, we derived 57% and 63% of
our revenues from one customer, respectively. This one customer, with whom we
have a five-year contract, is ranked in the top 25 automobile property and
casualty insurance companies in revenue in the United States. We also have one
customer that accounted for 14% and 12% of total revenue for the nine and
three-months ended April 30, 2002, respectively.
10
Total revenue for the three-months ended April 30, 2002 of $8.0 million
decreased $0.5 Million from $8.5 million for the three-months ended January 31,
2002. This decrease is a result of lower volume from our largest customer when
they had a premium increase. Management expects the claims volume from this
customer to return next quarter and has already done so in May 2002. The
decrease in revenue is also a result of two underwriters of our second largest
customer, a third party administrator, being placed into receivership. The
business of these two underwriters were picked up by another underwriter, and we
expect these claims to flow through our system again in the second quarter.
CLAIMS PROCESSING CHARGES
Claims processing charges include the costs of collision and glass repairs paid
to repair shops within our repair shop network. Claims processing charges for
the nine and three-months ended April 30, 2002 was $20.5 million and $6.8
million, respectively. Both of these totals were 85% of total revenue, compared
to 83% and 84% of revenue for the nine and three-months ended April 30, 2001.
This increase in the percentage of the claims processing charges over the same
periods last year was mostly caused by volume discounts extended to our largest
customer. We expect this percentage of claims process charges to revenues to
decrease as the click fee revenue increases as a result of the eJusterSuite
product implementation.
We are dependent upon our third party collision repair shops for insurance
claims repairs. eAutoclaims currently includes approximately 3,200 repair
vendors' facilities in its network for insurance claims repairs. We
electronically and manually audit individual claims processes to their
completion using remote digital photographs transmitted over the Internet.
However, if the quality of service provided by a collision repair shop falls
below a satisfactory standard leading to poor customer service, this could have
a harmful effect on our business. We control our service requirements by
continually monitoring customer service levels and providing staff inspections
of our network shops and, if required, establish similar relationships with
other collision repair shops.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES
SG&A expense is mainly comprised of salaries and benefits, facilities related
expenses, telephone charges, legal and other professional fees, advertising
costs, and travel expenses. SGA expenses for the nine-months ended April 30,
2002 totaled $5.5 million compared to $8.2 million for the nine-months ended
April 30, 2001. The SG&A expenses for this period were 23% of total revenue in
the current year, which is a reduction from the 59% of total revenue in the
previous year. For the three-months ended April 30, 2002, the SG&A expenses
totaled $2.0 million compared to $5.4 million for the three-months ended April
30, 2001. This represents a decrease in these expenses compared to total revenue
from 2001 to 2002 of 81% to 24%. The decreases in SG&A expenses for both the
nine and three-month periods are attributed to our substantial revenue growth
and the economies of scale realized from our established infrastructure. We
expect the percentage of SG&A expenses to total revenue to continue to decrease
as revenues continue to increase.
During the nine and three-month periods ended April 30, 2002, payroll and
benefits related expenses totaled $3.8 million and $1.4 million, respectively.
These expenses for the nine and three-month periods ended April 30, 2001 totaled
$2.7 million and $1.1 million, respectively. As of May 20, 2002, the management
has taken salary and expense cuts that will save the Company approximately
$103,000 per quarter.
During the three-months ended April 30, 2002, the Company incurred additional
moving costs of approximately $10,000 when we moved to a new location. Although
the new location was double the space for approximately the same cost per month,
the company had to pay double rent adding approximately $50,000 of
non-reoccurring rent expense to the three-months ended April 30, 2002.
11
Additionally, during the three-months ended April 30, 2002 the Company incurred
approximately $37,000 to start a marketing campaign to introduce the top 500
insurance agencies, managing general agents and third party administrators to
the Company's new product, eJusterSuiteTM. This campaign was initiated to
rapidly increase revenues from the new product.
SG&A expenses also include non-cash charges of approximately $169,000 and
$51,000 for the nine and three-month period ended April 30, 2002, respectively.
These non-cash charges for the nine months ended April 30, 2002 include
approximately $44,000 of stock issued to purchase an option to buy an office
facility. It also includes approximately $125,000 and $51,000 of common stock
issued to pay legal fees, investor relations consultant fees and board of
director fees. Total non-cash charges for the nine and three-months ended April
30, 2001 that were included SG&A expense included approximately $3,713,000 and
$3,514,000, respectively, in charges incurred pertaining to consulting
agreements for investor relations services, legal, and professional consultants.
Also included in the SG&A is interest expense related to loans from two
officers/shareholders and two capital leases. This interest expense totals
approximately $29,000 and $6,000 for the nine and three-months ended April 30,
2002, respectively, compared to approximately $14,000 and $5,000 for the nine
and three-months ended April 30, 2001, respectively. Interest income from cash
reserves totaled approximately $25,000 and $9,000 for the nine and three-months
ended April 30, 2002, respectively, compared to approximately $16,000 and $5,000
for the nine and three-months ended April 30, 2001, respectively.
DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment of approximately $210,000 and $90,000 was
recognized in the nine and three-month periods ended April 30, 2002,
respectively. This is compared to approximately $119,000 and $51,000 for the
nine and three-months ended April 30, 2001.
Amortization of the goodwill associated with the acquisitions of Premier Express
Claims, Inc. totaled approximately $164,000 and $55,000 for the nine and
three-months ended April 30, 2002, respectively. This is compared to
approximately $179,000 and $60,000 for the nine and three-months ended April 30,
2001.
NET LOSS
The net loss for the nine-months ended April 30, 2002 totaled $2.7 million
compared to $6.1 million for the nine-months ended April 30, 2001, a 55%
decrease. Non-cash expenses created approximately $1.1 million and $4.3 million
of those losses, respectively. The largest non-cash expense for the nine-months
ended April 30, 2002 of approximately $556,000 resulted from the amortization of
the debenture discount. See the description of the other non-cash expenses
above.
The net loss for the three-months ended April 30, 2002 totaled approximately
$876,000 compared to $4,474,000 for the three-months ended April 30, 2001, an
80% decrease. Non-cash expenses created approximately $196,000 and $3,910,000 of
those losses, respectively. The net loss before non-cash expenses increased by
approximately $115,000, or 20%. This increase is a result of non-reoccurring
moving expenses of approximately $60,000, a marketing campaign of approximately
$37,000 and excess payroll that was built up to handle additional revenue before
our two largest clients had a down-turn in claims processed, which is expected
to be temporary as described above. The cash loss for the nine-months ended
April 30, 2002 decreased by approximately $168,000, or 9%, from the nine-months
ended April 30, 2001.
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Liquidity and Capital Resources
At April 30, 2002, we had cash of approximately $137,000, approximately a
$349,000 decrease from July 31, 2001, and a working capital deficiency of
approximately $3.6 million. The primary source of our working capital during the
nine-month period ended April 30, 2002, was from cash flow generated by
operations. We collect cash from our customers approximately 30 days before we
pay the repairs shops. Consequently, increased revenue generates cash to support
operations. However, there is no assurance that we will be able to continue to
provide cash through operations.
We are working on additional equity funding of approximately $2,000,000 with
multiple sources. If we are unable to obtain this funding, we will not be able
to add sales personnel to increase our growth as rapidly as we have planned.
There is no assurance that we will be able to obtain this funding
Convertible debentures, totaling $650,000 were converted into equity as of
September 30, 2001. In addition, 42 of the 520 preferred stock shares were
converted into 551,629 shares of common stock on January 31, 2002, including
accrued interest. Another 210 shares of the 520 preferred stock shares were
converted into 4,097,951 shares of common stock on March 27, 2002, including
accrued interest.
We believe that, assuming that a funding closes, the net proceeds from this
funding, together with cash generated from operations, will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures and
will allow us to continue the rapid expansion of our business. However, we may
need to raise additional funds as we pursue other business or technology
acquisitions or experience operating losses that exceed our current
expectations. We cannot assure you that we will be able to raise such funds or
such funds will be available to us on favorable terms. If we raise additional
funds through the issuance of our equity for debt securities, such securities
may have rights, preferences or privileges senior to those of the rights of our
Common Stock and our stockholders may experience additional dilution.
We are currently restricted from raising other additional debt or equity without
the consent of the holders of our Series A Preferred Stock. Thomson Kernaghan
has exclusive rights to provide any future equity line financing for two years
ending May 31, 2003.
eAutoclaims' operations provided cash of approximately $282,000 for the
nine-months ended April 30, 2002 compared to operations using approximately
$600,000 in cash for the nine-months ended April 30, 2001. Management expects
operations to provide a significant source of cash during the upcoming fiscal
quarter as it funds its operating businesses. There is no assurance we will
continue to sustain our growth. Our business has grown significantly since our
inception. This estimate is a forward-looking statement that involves risks and
uncertainties. The actual time period may differ materially from that indicated
as a result of a number of factors so that we cannot assure that our cash
resources will be sufficient for anticipated or unanticipated working capital
and capital expenditure requirements for this period. In order to sustain our
growth, we will require substantial additional capital. If we raise additional
funds through the issuance of our securities, these securities may have rights,
preferences or privileges senior to those of our Common Stock, and our
stockholders may experience additional dilution to their equity ownership.
Our principle commitments at April 30, 2002 consist of monthly operating rental
payments, compensation of employees and accounts and notes payable.
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Inflation
We believe that the impact of inflation and changing prices on our operations
since the commencement of our operations has been negligible.
Seasonality
eAutoclaims does not deem its revenues to be seasonal.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 2001, the FASB issued Statement no. 142, "Goodwill and Other Intangible
Assets," which we must adopt as of August 1, 2002, that changes the accounting
for goodwill from an amortization method to an impairment-only approach. As of
August 1, 2002, eAutoclaims will cease the amortization of goodwill. This
statement also requires companies with goodwill recorded on their financial
statements to evaluate if the goodwill has been impaired and if a charge should
be recorded to write-off any impairment. We do not expect this statement to have
an impact on our financial statements except to cease recording amortization
expense of the goodwill.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to lawsuits and claims arising out of the conduct of its
business. Management believes that the probable resolution of such matters will
not materially affect the financial position, results of operations or cash
flows of the Company.
On or about October 23, 2000, we received a demand letter from a website
developer for $135,000 alleging breach of contract. On April 1, 2002 this demand
was legally dropped when the website developer signed a notice of voluntary
dismissal with prejudice.
We believe that there are no other claims or actions pending or threatened
against us, the ultimate disposition of which would have a material adverse
effect on us.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS.
During the nine-months ended April 30, 2002, employees exercised 326,000 options
to purchase shares of eAutoclaims stock.
On September 20, 2001, two shareholders and officers of the Company converted
$44,000 of debt owed to them by eAutoclaims to 91,667 shares of stock.
During the nine-months ended April 30, 2001 $650,000 of debentures, that were
issued in June and July of 2001, were converted to 942,855 shares of common
stock in accordance with the debenture agreements. In addition, accrued interest
of approximately $9,200 on those debentures was converted to 23,028 shares of
common stock. Additionally 1,150,000 warrants were issued at a strike price of
$0.63 per share.
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During the three-month period ended October 31, 2001, the Company entered into
an agreement for the lease of a new office facility that called for the issuance
of 97,927 shares During the three-month period ended October 31, 2001, $43,659
was charged to operations for the stock issued relating of stock for three
months of rent and a five year purchase option of the property at a
pre-established price. At April 30, 2002, the remaining shares have not been
earned.
During the nine-months ended April 30, 2002, the Company issued 186,326 shares
of common stock in exchange for $87,280 of legal services.
During the nine-months ended April 30, 2002, the Company issued additional
options to employees and members of the Company's Board of Directors to purchase
1,492,000 shares of common stock where the exercise prices of the options are
equal to or greater than the fair market value of the Company's common stock on
the date of each grant. Additionally, options to purchase 226,350 shares of
common stock were canceled.
During the nine-months ended April 30, 2002, the Company issued 28,841 shares of
common stock to four directors in exchange for their services. The Company
charged operations $13,750, which was equal to the fair market value of the
shares when earned.
On October 1, 2001, the Company entered into a contract with a public relations
consultant for services. This agreement calls for the Company to issue options
to purchase 21,429 shares of common stock, which were issued on November 1,
2001. On February 28, 2002, the Company also issued 37,650 shares of common
stock to a company in partial payment of public relations consulting services.
For the nine-months ended April 30, 2002, 18,825 of these shares were earned
resulting in a charge to operations of approximately $15,000.
On January 31, 2002, 42 shares of preferred stock with a face value of $210,000,
plus interest of approximately $26,000 were converted into 551,629 shares of
common stock. On March 27, 2002, 210 shares of preferred stock with a face value
of $1,050,000, plus dividends of approximately $108,000 were converted into
4,097,951 shares of common stock.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: June 14, 2002 By: /s/ Eric Seidel
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Eric Seidel, Chief Executive Officer
By: /s/ Scott Moore
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Scott Moore, Chief Financial Officer
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