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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to
Commission file number 0-21467
DRIVERSSHIELD.COM CORP.
(Exact name of small business issuer as specified in its charter)
(F/K/A FIRST PRIORITY GROUP, INC.)
New York 11-2750412
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
51 East Bethpage Road (516) 694-1010
Plainview, New York 11803
(Address of principal executive offices) (Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock par value $.015 per share
Preferred Stock Purchase Rights par value $.01 per share
Check whether the issuer (1) has 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. Yes |X| No
|_|
As of May 14, 2001, the issuer had outstanding a total of 10,696,988
shares of common stock.
Transitional Small Business Format (check one) Yes |_| No |X|
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DRIVERSSHIELD.COM CORP.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2001
CONTENTS
PAGE
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Part 1. FINANCIAL INFORMATION 3
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
As of March 31,2001 (Unaudited) 3
Condensed Consolidated Statements of Operations
(Unaudited) for the Three Months ended
March 31,2001 and 2000 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Three months ended
March 31,2001 and 2000 5
Notes to Condensed Consolidated Financial 7
Statements
Item 2. Management's Discussion and Analysis 9
Part 2. OTHER INFORMATION 12
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on 8-K 12
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
Item 1. Financial Statements
DRIVERSSHIELD.COM CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2001
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 283,142
Accounts receivable, net 1,838,031
Investment securities 1,506,328
Prepaid expenses and other current assets 68,414
-----------
Total current assets 3,695,915
Property and equipment, net of accumulated
depreciation of $930,776 816,780
Security deposits 27,738
-----------
Total assets $ 4,540,433
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 880,619
Accrued expenses and other current liabilities 748,438
Note payable 7,812
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Total current liabilities 1,636,869
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Shareholders' equity:
Common stock, $.015 par value, authorized 30,000,000
shares; issued 11,416,655 171,250
Preferred stock, $.01 par value, authorized 1,000,000
shares; none issued or outstanding --
Additional paid-in capital 9,372,641
Accumulated other comprehensive income, unrealized holding
gain on investment securities 7,717
Deficit (5,165,010)
-----------
4,386,598
Less common stock held in treasury, at cost,
719,667 shares 1,483,034
-----------
Total shareholders' equity 2,903,564
-----------
Total liabilities and shareholders' equity $ 4,540,433
===========
See notes to condensed consolidated financial statements.
3
DRIVERSSHIELD.COM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31, March 31,
2001 2000
------------ ------------
Revenue:
Collision repairs and fleet management services $ 3,780,287 $ 2,672,755
Subrogation and salvage service commissions 171,588 145,219
Automobile affinity services 474,246 423,070
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Total revenues 4,426,121 3,241,044
Cost of revenue (principally charges incurred at repair
facilities for services) 3,256,905 2,270,029
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Gross profit 1,169,216 971,015
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Operating expenses:
Selling 342,076 97,177
General and administrative 695,374 765,159
Depreciation and amortization 82,647 57,764
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Total operating expenses 1,120,097 920,100
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Income from Operations 49,119 50,915
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Other income (expense):
Investment and other income 44,615 35,197
Other expense - shares issued for restriction agreement (77,438) --
------------ ------------
(32,823) 35,197
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Income from before income taxes 16,296 86,112
Income taxes, all current 44 2,175
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Net income $ 16,252 $ 83,937
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Earnings per share:
Basic $ .00 $ .01
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Diluted .00 .01
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Weighted average number of common shares outstanding 10,570,599 8,620,464
Effect of dilutive securities, stock options and warrants 671,670 3,602,179
------------ ------------
Weighted average diluted common shares outstanding 11,242,269 12,222,643
------------ ------------
See notes to condensed consolidated financial statements.
4
DRIVERSSHIELD.COM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31, March 31,
2001 2000
------------ ------------
Cash flows provided by operating activities:
Net income $ 16,252 $ 83,937
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Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 82,647 57,764
Shares issued for restriction agreement 77,438 --
Gain on sale of assets (3,198) --
Realized loss on investment -- 1,518
Options granted for services 22,172 30,592
Changes in assets and liabilities:
Accounts receivable (24,284) (34,306)
Prepaid expenses and other current assets 30,660 (11,818)
Security deposit and other assets -- 755
Accounts payable (273,353) (63,876)
Accrued expenses and other current liabilities 110,275 8,982
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Total adjustments 22,357 (10,389)
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Net cash provided by operating activities 38,609 73,548
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Cash flows provided by (used in) investing activities:
Purchase of property and equipment (91,425) (88,214)
Proceeds from sale of assets 15,600 --
Purchase of investments (712,676) (14,854)
Proceeds from sale of investments -- 300,000
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Net cash provided by (used in) investing activities (788,501) 196,932
------------ ------------
Cash flows provided by (used in) financing activities:
Repayment of note payable (6,832) --
Proceeds from disgorgement of short-swing profits -- 75,097
Proceeds from issuance of common stock -- 9,000
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Net cash provided by (used in) financing activities (6,832) 84,097
------------ ------------
See notes to condensed consolidated financial statements.
5
DRIVERSSHIELD.COM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Net increase (decrease) in cash and cash equivalents (756,724) 354,577
Cash and cash equivalents at beginning of period 1,039,866 542,359
------------ ------------
Cash and cash equivalents at end of period $ 283,142 $ 896,936
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Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 44 $ 2,175
------------ ------------
Supplemental disclosure of non-cash financing activities:
Common shares issued in connection with share
restriction agreement $ 77,438
------------
See notes to condensed consolidated financial statements.
5
DRIVERSSHIELD.COM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2001
(Unaudited)
1. BASIS OF PRESENTATION
The information contained in the condensed consolidated financial
statements for the three month periods ended March 31, 2001 and 2000 is
unaudited, but includes all adjustments, consisting of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
the financial position and the results of operations for these periods.
The financial statements and notes are presented in accordance with the
requirements of Form 10-QSB, and do not contain certain information included in
the Company's annual statements and notes. These financial statements should be
read in conjunction with the Company's annual financial statements as reported
in its most recent annual report on Form 10-KSB.
Certain prior period amounts have been reclassified to conform to the
current period classification.
This report may contain forward-looking statements that involve certain
risks and uncertainties. Factors may arise, including those identified in the
Company's Form 10-KSB for the year ended December 31, 2000, which could cause
the Company's operating results to differ materially from those contained in any
forward-looking statement.
For the three month period ending March 31, 2001, there were no
significant non-owner sources of income or expense. Accordingly, a separate
statement of comprehensive income has not been presented herein.
2. BUSINESS OF THE COMPANY
The Company, a New York corporation, is engaged in the administration and
provision of vehicle maintenance and repair management, including collision and
general repair programs, appraisal services, subrogation services, vehicle
salvage and vehicle rentals; and the administration of automotive collision
repair referral services for self insured fleets, insurance companies, and
automotive related benefits for affinity group members.
The Company's office is located at 51 East Bethpage Road, Plainview, New
York 11803 and its telephone number is (516) 694-1010.
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3. RESULTS OF OPERATIONS
The unaudited results of operations for the three months ended March 31,
2001 are not necessarily indicative of the results to be expected for the full
year.
4. EARNINGS PER SHARE
Basic earnings per share is computed by dividing earnings by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share reflects the potential dilution that could occur if common stock
equivalents, such as stock options and warrants, were exercised
5. POTENTIAL ACQUISITION
In May 2001, the Company signed a letter of intent to merge Code
Technologies, Inc., ("Code") a private company into driversshield.com Corp.
through a stock transaction. Thereafter, Code would become a subsidiary of the
Company. The letter of intent also contemplates that Pegasus Capital Advisors,
L.P. ("Pegasus"), the controlling investor in Code and party to the letter of
intent, will obtain $5 million in equity capital simultaneous with the merger to
assist in the marketing and development of the businesses. Pegasus will also
offer the Company further access to financial institutions as well as its ties
within the automotive and insurance industries. Code has developed and launched
a wireless in-vehicle communication system for vehicle safety and security
combining GPS communication (global positioning) with other technologies for
location tracking, vehicle monitoring and security, and a variety of other
information. The transaction is subject to the favorable due diligence by both
parties, and shareholder approval.
6. SHARES ISSUED IN EXCHANGE FOR RESTRICTION AGREEMENT AND OTHER CONSIDERATION
In March 2001, the Company issued 175,000 shares of its common stock to an
individual shareholder in consideration for the lock up of certain shares owned
by this individual, and the right to purchase this individual's shares under the
same terms and conditions as previously granted to another group. The new shares
were issued with a restrictive legend precluding their transferability for
twelve months from the date of issue. Additionally, restrictions were placed
upon the transfer of other shares held by this individual through December 31,
2001. The Company recorded this transaction, in the accompanying financial
statements, as a non-operating, non-cash expense of the period.
8
Item 2. Management's Discussion and Analysis or Plan of Operation
Forward Looking Statements - Cautionary Factors
The following discussion and analysis should be read in conjunction with
the Company's Financial Statements and the notes hereto appearing elsewhere in
this report. This report contains forward-looking statements within the meaning
of the Private Securities Litigation Act of 1995. The company cautions that
forward-looking statements are not guarantees of future performance and involve
certain risks and uncertainties (including those identified in "Risk Factors" in
the company's Form 10-KSB for the year ended December 31, 2000) and that actual
results may differ materially from those in the forward-looking statements as a
result of various factors. Except for the historical information and statements
contained in this Report, the matters and items set forth in this Report are
forward looking statements.
Three Months ended March 31, 2001 (the "2001 Quarter") Compared to Three Months
ended March 31, 2000 (the "2000 Quarter").
The 2001 Quarter reflected net income of $16,000 compared to net income of
$84,000 in the 2000 Quarter, a decrease of $68,000. The decrease in net income,
while revenues increased by 37% as described below, is principally the result of
a non-recurring, non-cash charge to income of $77,000 (see Note 6 to the
Financial Statements). Excluding this, net income actually increased $10,000, to
$94,000 in the 2001 Quarter from $84,000 in the 2000 Quarter. This increase
resulted despite additional expenses incurred by the Company's wholly-owned
subsidiary, driversshield.com CRM ("CRM"), relating to the scale up of its sales
and marketing efforts. The Company made these additional expenditures for CRM
from internally generated cash flow. Basic and fully diluted earnings per share
was $.00 per share in the 2001 Quarter, versus $.01 in the 2000 Quarter.
Revenues
Revenues were $4,426,000 in the 2001 Quarter, versus $3,241,000 in the
2000 Quarter, representing an increase of $1,185,000 or 37%. The Company's
revenues increased $1,134,000, from $2,818,000 to $3,952,000, from its collision
repair and fleet management services, including subrogation and salvage
commissions. This represented an increase of 40% for the 2001 Quarter, as
compared to the 2000 Quarter. The increase in revenues for collision repair and
fleet management services reflects expansion of the client base that was added
to the fleet program during the second quarter of 2000, as well as growth from
existing customers. In the 2001 Quarter, Affinity Services sales increased
$51,000 or 12% to $474,000 as compared to $423,000 for the same period in 2000
reflecting marketing efforts that resulted in greater participation in the
Company's membership services programs.
9
Operating Income and Expenses
Consolidated net income, excluding the charge of $77,000 described above,
increased by $10,000 to $94,000 in the 2001 Quarter from $84,000 in the 2000
Quarter. The increase in revenues of $1,185,000, described above, resulted in an
increase in gross profit of $198,000. The gross profit percentage decreased from
30% in the 2000 Quarter to 26% in the 2001 Quarter due to a lower percentage of
the Company's revenues arising from Affinity services, which carry higher
margins. The direct costs of services related to revenues (principally charges
from automotive repair facilities) were $3,257,000 in the 2001 Quarter, as
compared to $2,270,000 for the same period in 2000, representing an increase of
$987,000 or 43%, while the increase in revenues was 37% in the aggregate.
Selling, general and administrative expenses increased by $175,000 (20%),
to $1,037,000 in the 2001 Quarter, from $862,000 in the 2000 Quarter. The
increase in these operating expenses is mainly attributable to the additional
personnel for marketing and selling activities of CRM and their related travel
expenses, and professional fees.
Investment and other income increased by $10,000 in the 2001 Quarter, from
$35,000 in the 2000 Quarter to $45,000 due primarily to improved cash
management.
Liquidity and Capital Resources
As of March 31, 2001, the Company had cash and cash equivalents of
$283,000. The Company also held 152,899 shares of Salomon Smith Barney
Adjustable Rate Government Income Fund securities valued at $1,506,000 at March
31, 2001. The Company increased its investment in this fund by $713,000 in the
2001 Quarter. Working capital of the Company as of March 31, 2001, was
$2,059,000 versus $1,935,000 at December 31, 2000. The Company's operating
activities generated $39,000 of cash for the three months ended March 31, 2001
as compared to 2000, when the Company's operating activities generated $ 74,000
of cash. In the aggregate of all activities, cash decreased $ 757,000 for the
three months ended March 31, 2001, however $713,000 of this decrease resulted
from the additional investment in the Smith Barney fund, described above. This
fund is highly liquid.
The Company believes that its present cash position will enable the
Company to continue to support its operations for the next twelve months.
The Company has a $10 million equity based funding commitment. This equity
facility enables the Company to draw down funds as needed, with a certain
minimum amount, on a monthly basis for a twelve month period following the
effective date of a registration statement. A registration statement for the
securities became effective on November 14, 2000. Pricing will be established
during the draw down periods pursuant to the volume-weighted average trading
price of the Company's common stock during a specified period preceding the draw
down. No funding has occurred to date under this agreement. Should the Company's
stock be delisted from the Nasdaq SmallCap market, the investment group engaged
in the funding has the option to terminate the facility.
10
On March 28, 2001 the Company received a Nasdaq Staff Determination
indicating that the Company failed to comply with the Minimum Bid price
requirement for continued listing on the Nasdaq SmallCap Market. The Company
requested a hearing before the Nasdaq Listing Qualifications Board to review the
Staff Determination. There will be a stay of delisting until a determination has
been reached based upon the outcome of the hearing.
In May 2001, the Company signed a letter of intent to merge a private
company, Code Technologies, Inc. ("Code") with driversshield.com Corp., and
thereafter Code would be a subsidiary of the Company. The merger is contemplated
as a stock exchange not requiring cash payments. The letter of intent also
contemplates that Pegasus Capital Advisors, L.P., the controlling investor in
Code, and a party to the letter of intent, will assist in obtaining $5 million
of equity for marketing and development of the businesses. The transaction is
subject to favorable due diligence of both parties and shareholder approval.
Deferred Income Taxes
The Company has an operating loss carry forward of approximately $4.7
million which is available to offset future taxable income. A valuation
allowance has been established for the full amount of the deferred tax benefit
and accordingly no deferred tax asset has been presented in the accompanying
financial statements. To the extent the Company is profitable in future periods,
such carry forwards may be utilized to offset taxable earnings. However, to the
extent the Company is not profitable it would not be able to realize this
benefit.
11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In September 1999, driversshield.com CRM Corp. ("CRM"), a wholly owned
subsidiary of driversshield.com Corp., entered into an agreement whereby EDS was
to develop and host the CRM's website through December 31, 2003. Additionally,
EDS was to assist CRM in marketing the Internet based automobile collision
managed care program to EDS' customers that provide auto insurance to its
insureds. CRM was to pay EDS no more than $350,000 for the initial development
costs of the website. Once the website was operational, CRM was to receive all
fees until it recovered the development costs paid to EDS, and thereafter, EDS
was to recover its development costs in excess of $350,000, if any, up to
$80,000. In the subsequent years, a revenue sharing arrangement provided EDS
with thirty percent (30%) to forty-two percent (42%), of the Net Revenue.
Throughout the term of this Agreement, EDS was to host and maintain the website,
process all transactions, maintain, secure and update all database functions,
design, develop and build a repair management call center, secure all
transmissions over the website, upgrade the site for additional functionality,
handle all accounting functions, fulfill customer material and introduce
electronic data interchange throughout the repair facility network at no
additional cost. driversshield.com Corp. had guaranteed performance of this
Agreement by CRM. The Company paid EDS $169,000 during 1999 and recorded an
additional $300,000 in 2000. It has not accrued invoices totaling an additional
$108,000.
In November, 2000 the CRM filed a $1 million claim, with the American
Arbitration Association, relating to its agreement with EDS for its website
development, contending, among other matters, excessive fees and failure to meet
the performance conditions of the agreement. EDS has filed a counterclaim
denying the allegations and seeking payment of its outstanding invoices of
$226,000. During January 2001, EDS unilaterally shut down the CRM's website,
which CRM has rebuilt, at its own expense from internally generated funds,
and is now fully functional. The matter is now pending arbitration.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on 8-K
None
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
driversshield.com Corp.
Date: May 14, 2001 By: /s/ Barry Siegel
--------------------------------------------
Chairman of the Board of Directors and Chief
Executive Officer
Date: May 14, 2001 By: /s/ Phil B. Kart
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Principal Financial and Accounting Officer
13