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 January 31, 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.
--------------------
(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.)
2708 Alt. 19 N., Suite 604, Palm Harbor, Florida 34683
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(Address of principal executive offices) (Zip Code)
Registrant's telephone Number, including area code: (727) 781-0414
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 January 31, 2002 was 13,867,606.
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
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 15
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The consolidated financial statements of eAutoclaims.com, Inc. and Subsidiaries
(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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January 31, 2002 July 31, 2001
(unaudited)
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ASSETS
Current Assets:
Cash $ 506,482 $ 485,092
Accounts receivable, less allowance for doubtful accounts
of $60,000 832,971 1,208,409
Due from related parties 176,654 154,853
Prepaid expenses and other current assets 138,781 126,693
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Total current assets 1,654,888 1,975,047
Property and Equipment, net of accumulated depreciation
of $351,814 and $231,920, respectively 774,978 545,015
Goodwill, net of accumulated amortization
of $350,423 and $241,037, respectively 1,203,229 1,312,615
Other Assets 402,025 365,000
Deferred Income Tax Asset, net of valuation
allowance of $4,709,000 and $4,171,000 respectively - -
---------------------------------------------------------------------------------------------------------------------
Total Assets $ 4,035,120 $ 4,197,677
=====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable and accrued expenses 4,062,922 $ 3,074,653
Deferred software subscription revenue 158,609 111,670
Convertible debentures, net of unamortized discount of $555,551
as of July 31, 2001 94,449
Loans payable - stockholders 135,000 179,000
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Total current liabilities 4,356,531 3,459,772
Stockholders' Equity (Deficiency):
Convertible preferred stock - $.001 par value; authorized 5,000,000 shares,
520 shares issued and 478 shares and 520 shares outstanding, respectively
aggregate liquidation preference of $2,390,000 and $2,600,000, respectively 1 1
Common stock - $.001 par value; authorized 50,000,000 shares, issued
and outstanding 13,867,606 shares and 11,711,877 shares respectively 13,868 11,712
Additional paid-in capital 17,343,294 16,051,679
Accumulated deficit (17,678,574) (15,325,487)
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Stockholders' equity (deficiency) (321,411) 737,905
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Total Liabilities and Stockholders' Equity (Deficiency) $ 4,035,120 $ 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 Six-month Six-month
Period Ended Period Ended Period Ended Period Ended
January 31, 2002 January 31, 2001 January 31, 2002 January 31, 2001
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(unaudited) (unaudited) (unaudited) (unaudited)
Revenue:
Collision repairs management $ 7,487,381 $ 4,071,128 $14,111,536 $ 5,383,024
Glass repairs 174,057 426,106 600,106 969,788
Fleet repairs management 407,176 293,741 728,650 528,665
Fees and other revenue 412,480 143,881 731,723 272,646
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Total revenue 8,481,094 4,934,856 16,172,015 7,154,123
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Expenses:
Claims processing charges 7,198,805 4,087,769 13,692,647 5,857,511
Selling, general and administrative 1,672,842 1,387,204 3,541,333 2,735,700
Depreciation and amortization 117,915 96,222 229,280 187,304
Amortization of beneficial conversion
feature on convertible debentures and fair
value of warrants issued in
connection with debentures - - 555,551 -
------------------------------------------------------------------------------------------------------------------------
Total expenses 8,989,562 5,571,195 18,018,811 8,780,515
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Net loss $ (508,468) $ (636,339) $(1,846,796) $ (1,626,392)
========================================================================================================================
Adjustments to net loss to
compute loss per common share:
Preferred stock dividends (45,862) (30,685) (98,291) (46,838)
Deduction relating to Series A
Convertible Preferred Stock - (1,713,908) (408,000) (3,490,234)
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Net loss applicable to common stock $ (554,330) $(2,380,932) $(2,353,087) $ (5,163,464)
========================================================================================================================
Loss per common share - basic and diluted $ (0.04) $ (0.21) $ (0.18) $ (0.46)
========================================================================================================================
Weighted-average number of common shares
outstanding - basic and di1uted 13,280,782 11,193,181 12,769,285 11,163,128
========================================================================================================================
See Notes to Consolidated Financial Statements
4
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
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Six month period ended January 31, 2002
---------------------------------------
Additional Stockholders'
Preferred Stock Common Stock Paid-in Accumulated Equity
Shares Amount Shares Amount Capital Deficit (Deficiency)
------------------------------------------------------------------------------------------------------------------------------------
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 323,000 323 2,907 3,230
Issuance of common stock
for amounts due to shareholders 91,667 92 43,908 44,000
Issuance of common stock
for services 137,523 138 65,102 65,240
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 11,128 11 4,440 4,451
Issuance of common stock
upon conversion of preferred stock (42) 491,229 491 (491) -
Issuance of common stock
for dividends payable 60,400 60 25,759 25,819
Recognition of beneficial
conversion feature on preferred stock 408,000 (408,000) -
Accrued dividends on preferred stock (98,291) (98,291)
Net loss (1,846,796) (1,846,796)
------------------------------------------------------------------------------------------------------------------------------------
Balance at January 31, 2002 478 $ 1 13,867,606 $ 13,868 $ 17,343,294 $ (17,678,574) $ (321,411)
====================================================================================================================================
See Notes to Consolidated Financial Statements
5
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
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Six-month Six-month
Period Ended Period Ended
January 31, 2002 January 31, 2001
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Cash flows from operating activities:
Net loss $ (1,846,796) $ (1,626,392)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 229,280 187,304
Amortization of discount on debentures 555,551
Common stock issued for services 65,240 212,293
Common stock issued for interest 4,451
Common stock issued for rent and option to purchase facility 43,659
Increase in allowance for doubtful accounts 30,000
Changes in operating assets and liabilities net of acquisition:
Increase (decrease) in accounts receivable 375,438 (631,495)
(Increase) decrease in due from related parties (21,801) 43,817
Decrease in prepaid expenses and other current assets 37,284 48,183
Increase in other assets (37,025) (12,741)
Increase in accounts payable and accrued expenses 915,797 1,570,270
Increase in deferred software subscription revenue 46,939
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Net cash provided by (used in) operating activities 368,017 (178,761)
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Cash flows from investing activity:
Purchases of property and equipment (349,857) (239,400)
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Cash used in investing activity (349,857) (239,400)
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Cash flows from financing activities:
Net proceeds from issuance of preferred stock 1,099,944
Proceeds from stock options 3,230 740
Principal payments on stockholder loans (107,200)
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Cash provided by financing activities 3,230 993,484
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Net increase in cash 21,390 575,323
Cash at beginning of period 485,092 239,979
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Cash at end of period $ 506,482 $ 815,302
===================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 13,701 $ 9,236
===================================================================================================================
Supplemental disclosure of noncash investing and financing activities:
===================================================================================================================
Receivable in connection with preferred stock $ 250,000
===================================================================================================================
Conversion of debentures to common stock $ 650,000
===================================================================================================================
Issuance of common stock for amount due to shareholders $ 44,000
===================================================================================================================
Issuance of common stock for payment of rent and purchase option $ 49,373
===================================================================================================================
Issuance of common stock for preferred stock dividends $ 25,819
===================================================================================================================
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 January 31, 2002 and its results of operations and its
cash flows for the six-month periods ended January 31, 2002 and 2001 and the
results of operations for the three-month periods ended January 31, 2002 and
2001. Results of operations for the six and three-month periods ended January
31, 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 six-month
period ended January 31, 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 six-month period ended January 31, 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 $4,000 on those debentures was converted to 11,128
shares of common stock. During the six-month period ended January 31, 2002 the
Company charged operations $389,400, representing the amortization of the
beneficial conversion feature attributable to the debentures and $166,151
representing the amortization of the fair value of the warrants attached to the
debentures.
7
During the six-month period ended January 31, 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 the first three months rent and a five year
purchase option of the property at a pre-established price. During the six-month
period ended January 31, 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 six-month period ended January 31, 2002, the Company issued 120,035
shares of common stock in exchange for $55,240 of legal services.
During the six-month period ended January 31, 2002, the Company issued
additional options to employees and members of the Company's Board of Directors
to purchase 506,000 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, during the six-month
period ended January 31, 2002 options to purchase 157,950 shares of common stock
issued to former employees were canceled. During the six-month period ended
January 31, 2002 options to purchase 323,000 shares of common stock were
exercised.
During the six-month period ended January 31, 2002, the Company issued 17,488
shares of common stock to four directors in exchange for their services. The
Company charged operations $10,000, 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 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.
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 13,867,606 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 are in the process of rolling out 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. The new eJusterSuite product 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
mistakes that occur in a manual process. In most cases it also reduces the cost
9
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 January 31, 2002 only one
type of service partner, independent adjustors, was fully integrated into our
system. The associated click fees for independent adjustors generated $73,665 of
revenue for the quarter ended January 31, 2002, which is included in fees and
other revenue on the consolidated statements of operation.
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% and 96% of the revenue
for the three-months and six-months ended January 31, 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 the three-month and
six month periods ended January 31, 2002, 5% and 4%, respectively, of the
revenue has been received from claims processing fees and other income.
RESULTS OF OPERATIONS
FOR THE SIX AND THREE-MONTHS ENDED JANUARY 31, 2002 COMPARED TO THE SIX AND
THREE-MONTHS ENDED JANUARY 31, 2001.
REVENUE
Total revenue for the six-months ended January 31, 2002 was $16.2 million, which
is a 126% increase in excess of the $7.2 million of revenue for the six-months
ended January 31, 2001. Total revenue for the three-months ended January 31,
2002 was $8.5 million. This represents a 72% increase over the $4.9 million of
revenue for three-months ended January 31, 2001, and a 10% increase in over the
$7.7 million of revenue for the three-months ended October 31, 2001. This
increase in revenues from both the six 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 162% and 84% for the six and three-months ended January 31, 2002
compared to the six and three-months ended January 31, 2001, respectively. Fees
and other revenue increased 168% and 187% for the six and three-months ended
January 31, 2002 compared to the six and three-months ended January 31, 2001,
respectively. Glass repairs revenue decreased 38% and 59% for the six and
three-months ended January 31, 2002 compared to the six and three-months ended
January 31, 2001, respectively. This decrease is a result of the maturing and
increased competition for the glass repair business. We have recently negotiated
lower pricing from one of our larger glass vendors, which will help our
competitiveness in this market. The glass repair business complements our core
business and allows our customers to use a single source for all their repair
needs.
During the six and three-months ended January 31, 2002, we derived 54% and 63%
of our revenues from one customer, respectively. This one customer, with which
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 13% and 16% of total revenue for the six and
three-months ended January 31, 2002, respectively.
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
10
the six and three-months ended January 31, 2002 was $13.7 million and $7.2
million, respectively. Both of these totals were 85% of total revenue, compared
to 82% and 83% of revenue for the six and three-months ended January 31, 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 over 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 six-months ended January 31,
2002 totaled $3.5 million compared to $2.7 million for the six-months ended
January 31, 2001. The SG&A expenses for this period were 22% of total revenue in
the current year, which is a reduction from the 38% of total revenue in the
previous year. For the three-months ended January 31, 2002, the SG&A expenses
totaled $1.7 million compared to $1.4 million for the three-months ended January
31, 2001. This represents a decrease in these expenses compared to total revenue
from 2001 to 2002 of 28% to 20%. The decreases in SG&A expenses for both the six
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 six and three-month periods ended January 31, 2002, payroll and
benefits related expenses totaled $2.4 million and $1.2 million, respectively.
These expenses for the six and three-month periods ended January 31, 2001
totaled $1.6 million and $0.9 million, respectively.
SG&A expenses also include non-cash charges of approximately $118,000 and
$34,000 for the six and three-month period ended January 31, 2002, respectively.
These non-cash charges include approximately $44,000 of stock issued to purchase
an option to buy an office facility and approximately $65,000 of common stock
issued to pay professional fees and board of director fees. Total non-cash
charges for the six and three-months ended January 31, 2001 that were included
SG&A expense included approximately $212,000 and $114,000, 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 $23,000 and $7,000 for the six and three-months ended January 31,
2002, respectively, compared to approximately $9,000 and $7,000 for the six and
three-months ended January 31, 2001, respectively. Interest income from cash
reserves totaled approximately $17,000 and $8,000 for the six and three-months
ended January 31, 2002, respectively, compared to approximately $4,000 and
$3,000 for the six and three-months ended January 31, 2001, respectively.
11
DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment of approximately $120,000 and $63,000 was
recognized in the six and three-month periods ended January 31, 2002,
respectively. This is compared to approximately $68,000 and $36,000 for the six
and three-months ended January 31, 2001.
Amortization of the goodwill associated with the acquisitions of Premier Express
Claims, Inc. totaled approximately $109,000 and $55,000 for the six and
three-months ended January 31, 2002, respectively.
NET LOSS
Net loss for the six-months ended January 31, 2002 totaled $1.8 million compared
to $1.6 million for the six-months ended January 31, 2001, a 14% increase.
Non-cash expenses created approximately $903,000 and $430,000 of those losses,
respectively. The largest non-cash expense of approximately $556,000 resulted
from the amortization of the debenture discount in the six months ended January
31, 2002 as described above. The net loss before non-cash expenses decreased by
approximately $253,000, or 21%.
Net loss for the three-months ended January 31, 2002 totaled approximately
$508,000 compared to $636,000 for the three-months ended January 31, 2001, a 20%
decrease. Non-cash expenses created approximately $152,000 and $210,000 of those
losses, respectively. The net loss before non-cash expenses decreased by
approximately $70,000, or 16%. The decreases in both the six and three-month
losses are a result of the additional margin generated from the increased
revenue.
Liquidity and Capital Resources
At January 31, 2002, we had cash of approximately $506,000, approximately a
$21,000 increase over July 31, 2001, and a working capital deficiency of
approximately $2.7 million. The primary source of our working capital during the
six-month period ended January 31, 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.
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. We have also received a conversion notice to convert another
210 shares of preferred stock that will be converted into approximately 4.1
million common shares, including accrued interest.
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 the sales personnel to increase our growth as rapidly as we have planned.
In such event, we believe that our current cash resources, along with working
capital from operations will be sufficient to fund our business at least through
the year ended July 31, 2002. There is no assurance that we will be able to
obtain this funding.
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
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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 $368,000 for the
six-months ended January 31, 2002 compared to operations using approximately
$179,000 in cash for the six-months ended January 31, 2001. Management expects 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 January 31, 2002 consist of monthly operating
rental payments, compensation of employees and accounts and notes payable.
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.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to a 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. Our management believes that
we are entitled to a refund of $15,000. A complaint has been filed in Pinellas
County Circuit Court regarding this dispute. It is too early to predict the
ultimate outcome of this dispute. Management believes we have meritorious
defenses to this action.
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.
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 six-months ended January 31, 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 $4,000 on those debentures was converted to 11,128 shares of
common stock.
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 of stock for the first three months rent and a five year
purchase option of the property at a pre-established price. During the
three-month period ended October 31, 2001, $43,659 was charged to operations for
the stock issued relating to the purchase option. At January 31, 2002, the
remaining shares have not been earned.
During the six-months ended January 31, 2002, the Company issued 120,035 shares
of common stock in exchange for $55,240 of legal services.
During the six-months ended January 31, 2002, the Company issued additional
options to employees and members of the Company's Board of Directors to purchase
506,000 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 157,950 shares of
common stock were canceled.
In accordance with the Company's stock option plan, addition employee stock
options to purchase approximately 950,000 shares of stock at $0.75 per share
will be issued in March of 2002.
During the six-months ended January 31, 2002, employees exercised 323,000
options to purchase shares of eAutoclaims stock.
During the six-months ended January 31, 2002, the Company issued 17,488 shares
of common stock to four directors in exchange for their services. The Company
charged operations $10,000, which was equal to the fair market value of the
shares when earned.
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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 stock, which were issued on November 1, 2001.
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.
ITEM 5. OTHER INFORMATION
The Company entered into an agreement with 18 of its top management personnel to
compensate them if there is a change in control of the Company and they loose
their employment with the Company without cause. The compensation under this
agreement ranges from 200% to 299% of their annual salary, depending on the
level of management. The "Change in Control and Termination Agreement" has been
attached to this filing.
The events of September 11, 2001 and the federal actions thereafter have
affected the auto insurance industry and the equity financing industry. Although
our Company continues to succeed, these events have had a significant and
continuing impact on the progress of our company. The full extent of this effect
may not completely be determined within the next few months or quarters.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Change in Control and Termination Agreement
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: March 12, 2002 By: /s/ Eric Seidel
-----------------------------
Eric Seidel, Chief Executive Officer
By: /s/ Scott Moore
-----------------------------
Scott Moore, Chief Financial Officer
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