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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 June 30, 2001
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|X| 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
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DRIVERSSHIELD.COM CORP.
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(Exact name of small business issuer as specified in its charter)
(F/K/A FIRST PRIORITY GROUP, INC.)
New York 11-2750412
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
51 East Bethpage Road
Plainview, New York 11803 (516) 694-1010
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(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 August 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
SIX MONTHS ENDED JUNE 30, 2001
CONTENTS
PAGE
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
As of June 30,2001 (Unaudited) 3
Condensed Consolidated Statements of Operations
(Unaudited) for the Three Months ended
June 30, 2001 and 2000 4
Condensed Consolidated Statements of Operations
(Unaudited) for the Six Months ended
June 30, 2001 and 2000 5
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Six months ended
June 30, 2001 and 2000 6
Notes to Condensed Consolidated Financial 8
Statements
Item 2. Management's Discussion and Analysis 11
Part II. OTHER INFORMATION 15
Item 6. Exhibits and Reports on Form 8-K 15
Item 1. Financial Statements
DRIVERSSHIELD.COM CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2001
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 743,685
Accounts receivable, net 1,437,113
Investment securities 1,527,915
Prepaid expenses and other current assets 93,497
-----------
Total current assets 3,802,210
Property and equipment, net of accumulated
depreciation of $1,016,854 766,061
Security deposits 27,563
-----------
Total assets $ 4,595,834
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 990,191
Accrued expenses and other current liabilities 668,999
Note payable 7,812
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Total current liabilities 1,667,002
-----------
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 9,627,717
Accumulated other comprehensive income, unrealized holding
gain on investment securities 4,634
Deficit (5,391,735)
-----------
4,411,866
Less common stock held in treasury, at cost,
719,667 shares 1,483,034
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Total shareholders' equity 2,928,832
-----------
Total liabilities and shareholders' equity $ 4,595,834
===========
See notes to condensed consolidated financial statements.
3
DRIVERSSHIELD.COM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
June 30, June 30
2001 2000
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Revenue:
Collision repairs and fleet management services $ 3,493,399 $ 2,882,976
Subrogation and salvage service commissions 152,635 72,801
Automobile affinity services 396,482 455,257
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Total revenues 4,042,516 3,411,034
Cost of revenue (principally charges incurred at repair
facilities for services) 3,028,957 2,433,484
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Gross profit 1,013,559 977,550
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Operating expenses:
Sales and marketing 218,268 97,523
General and administrative 771,727 835,605
Non-cash compensation (Note 5) 246,121 --
Depreciation and amortization 86,078 57,409
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Total operating expenses 1,322,194 990,537
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(308,635) (12,987)
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Investment and other income 81,914 29,690
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Income (loss) from operations before
income taxes (226,721) 16,703
Income taxes, all current -- 2,525
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Net income (loss) $ (226,721) $ 14,178
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Earnings (loss) per share:
Basic $ (.02) $ .00
Diluted (.02) .00
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Weighted average number of common shares outstanding 10,696,988 10,192,434
Effect of dilutive securities, stock options and warrants -- 1,518,192
------------ ------------
Weighted average diluted common shares outstanding 10,696,988 11,710,626
------------ ------------
See notes to condensed consolidated financial statements.
4
DRIVERSSHIELD.COM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended
June 30, June 30,
2001 2000
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Revenue:
Collision repairs and fleet management services $ 7,349,176 $ 5,555,731
Subrogation and salvage service commissions 324,222 218,020
Automobile affinity services 795,238 878,327
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Total revenues 8,468,636 6,652,078
Cost of revenue (principally charges incurred at repair
facilities for services) 6,285,863 4,703,513
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Gross profit 2,182,773 1,948,565
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Operating expenses:
Sales and marketing 441,609 194,700
General and administrative 1,585,839 1,600,763
Non-cash compensation (Note 5) 246,121 --
Depreciation and amortization 168,725 115,173
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Total operating expenses 2,442,294 1,910,636
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(259,521) 37,929
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Other income (expense):
Realized loss on investment -- (1,518)
Investment and other income 126,529 66,405
Shares issued for restriction agreement (Note 6) (77,438) --
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Total other income 49,091 64,887
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Income (loss) from operations before
income taxes (210,430) 102,816
Income taxes, all current 42 4,700
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Net income (loss) $ (210,472) $ 98,116
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Earnings (loss) per share:
Basic $ (.02) $ .01
Diluted (.02) .01
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Weighted average number of common shares outstanding 10,634,143 9,406,449
Effect of dilutive securities, stock options and warrants -- 2,560,186
------------ ------------
Weighted average diluted common shares outstanding 10,634,143 11,966,635
------------ ------------
See notes to condensed consolidated financial statements.
5
DRIVERSSHIELD.COM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30, June 30,
2001 2000
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Cash flows provided by (used in) operating activities:
Net income (loss) $(210,472) $ 98,116
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Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 168,725 115,173
Shares issued for restriction agreement 77,438 --
Non-cash compensation 246,121 --
Gain on sale of assets (3,198)
Realized loss on investment -- 1,518
Options granted for services 31,127 39,967
Changes in assets and liabilities:
Accounts receivable 376,634 344,317
Prepaid expenses and other current assets 5,751 1,536
Security deposit and other assets -- 3,020
Accounts payable (163,781) (178,513)
Accrued expenses and other current liabilities 30,836 (47,873)
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Total adjustments 769,653 279,145
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Net cash provided by (used in) operating activities 559,181 377,261
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Cash flows used in investing activities:
Purchase of property and equipment (126,784) (119,855)
Proceeds from sale of asset dispositions 15,600 --
Purchase of investments (737,346) (25,302)
Proceeds from sale of investments -- 300,000
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Net cash provided by (used in) investing activities (848,530) 154,843
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Cash flows provided by (used in) financing activities:
Repayment of note payable (6,832) (11,956)
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) 72,141
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See notes to condensed consolidated financial statements.
6
DRIVERSSHIELD.COM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
June 30, June 30,
2001 2000
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Net increase (decrease) in cash and cash equivalents (296,181) 604,245
Cash and cash equivalents at beginning of period 1,039,866 542,359
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Cash and cash equivalents at end of period $ 743,685 $1,146,604
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Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 42 $ 4,700
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See notes to condensed consolidated financial statements.
7
DRIVERSSHIELD.COM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2001
(Unaudited)
1. BASIS OF PRESENTATION
The information contained in the condensed consolidated financial
statements for the six month periods ended June 30, 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 which 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 six month period ending June 30, 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.
8
3. RESULTS OF OPERATIONS
The unaudited results of operations for the three and six months ended
June 30, 2001, are not necessarily indicative of the results to be expected for
the full year.
4. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing earnings (loss) 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.
The assumption of exercise of stock options and warrants was excluded from
diluted earnings per share calculations for the three and six month periods
ended June 30, 2001, as their inclusion would have resulted in an antidilutive
effect. Common share equivalents, which were in the money, and would have been
used in such calculation had their effect not been anti-dilutive, were
approximately 2,689,000 and 2,529,000 for the three and six months periods,
respectively.
5. NON-CASH CHARGE FOR VARIABLE PRICED OPTIONS
In October 1999 the Company repriced certain options previously granted to
employees and third parties. The original grants gave holders the right to
purchase common shares at prices ranging from $1.00 to $1.24; these were
repriced to prices ranging from $.75 to $.83 per share. At the date of the
repricing, the new exercise price was equal to the fair market value of the
shares. Pursuant to FASB Interpetation No. 44, the Company accounts for these as
variable from the date of the modification until they are exercised, forfeited
or expired, and records the intrinsic value of such grants. Accordingly, the
Company recorded a non-cash charge for compensation costs totaling $246,000, in
the accompanying financial statements, during the second quarter ended June 30,
2001.
6. SHARES ISSUED IN EXCHANGE FOR RESTRICTION AGREEMENT AND OTHER CONSIDERATIONS
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 $77,000 during the first
quarter ended March 31, 2001.
7. POTENTIAL ACQUSITION
In May 2001, the Company signed a letter of intent to merge Code
Technologies, Inc., ("Code") a private company, into a wholly-owned subsidiary
of driversshield.com Corp.
9
through an exchange of stock. 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.
10
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 June 30, 2001 (the "2001 Quarter") Compared to Three Months
ended June 30, 2000 (the "2000 Quarter").
The 2001 Quarter reflected a net loss of $227,000 compared to net income
of $14,000 in the 2000 Quarter. Excluding the non-cash charge of $246,000 for
re-pricing certain stock options, net income for the 2001 Quarter would have
been $19,000. This increase in net income from the prior year, of $5,000,
resulted despite additional expenses and investment relating to the scale up of
the Company's recently launched, insurance-industry CRM business. Expenses which
included sales and marketing, and related website development costs, increased
by $81,000, as described below. Had the Company chosen not to pursue this new
business, the Company's net income would have increased nearly seven-fold. The
Company made these expenditures from its internally generated cash flow. Basic
and fully diluted loss per share was $.02 per share in the 2001 Quarter, versus
$.00 in the 2000 Quarter.
Revenues
Revenues were $4,043,000 in the 2001 Quarter, versus $3,411,000 in the
2000 Quarter, representing an increase of $632,000 or 19%. The Company's
revenues increased $691,000, from $2,956,000 to $3,647,000, due to its collision
repair and fleet management service business, including subrogation and salvage
commissions. This represented an increase of 23% 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 decreased
$59,000 or 13%, to $396,000 as compared to $455,000 for the same period in 2000,
reflecting a percentage of members that did not renew their memberships after
the significant increases in memberships that resulted from marketing efforts
during the prior year.
11
Operating Income and Expenses
Consolidated net income, excluding the charge of $246,000 described above,
was $19,000 in the 2001 Quarter compared to net income of $14,000 in the 2000
Quarter, an increase of $5,000. The increase in revenues of $632,000, described
above, resulted in an increase in gross profit of $36,000. The gross profit
percentage declined from 29% in the 2000 Quarter to 25% 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 $3,029,000 in the
2001 Quarter, as compared to $2,433,000 for the same period in 2000,
representing an increase of $596,000 or 24%, while the increase in revenues was
19% in the aggregate.
Selling, general and administrative expenses, in the aggregate, increased
by $57,000 (6%), to $990,000 in the 2001 Quarter, from $933,000 in the 2000
Quarter. This was the result of increases in sales and marketing, of $121,000,
primarily attributable to the scale up of marketing and selling activities of
driversshield.com CRM, the Company's new insurance industry business, offset in
part by decreases in general and administrative expenses, of $64,000, primarily
professional legal and accounting fees, and office supplies, offset in part by
higher computer support costs.
The Company recorded, in the 2001 Quarter, $246,000 as a non-cash
compensation charge for variable stock options; there was no comparable amount
in the 2000 Quarter.
Depreciation expense increased $29,000, from $57,000 in the 2000 Quarter
to $86,000 in the 2001 Quarter, primarily as a result of additional capital
expenditures supporting the Company's technology systems.
Investment and other income increased $52,000, from $30,000 in the 2000
Quarter to $82,000 in the 2001 Quarter due to improved treasury management, and
from a non-recurring recovery in the amount of $25,000.
Six Months ended June 30, 2001 (the "2001 Period") Compared to Six Months ended
June 30, 2000 (the "2000 Period")
The 2001 Period reflected a net loss of $210,000 compared to net income of
$98,000 in the 2000 Period. Excluding two non-cash charges totaling $323,000,
described below, the net income for the 2001 Period would have been $113,000.
This increase in net income from the prior year, of $15,000, occurred despite
additional selling and marketing expenses of $247,000, primarily related to the
scale up of the Company's recently launched insurance-industry CRM business. The
Company made these expenditures from its internally generated cash flow. Basic
and fully diluted loss per share was $.02 per share in the 2001 Quarter, versus
$.01 per share income in the 2000 Period.
Revenues
Revenues were $8,469,000 in the 2001 Period, versus $6,652,000 in the 2000
Period, representing an increase of $1,817,000 or 27%. The Company's revenues
increased
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$1,900,000, from $5,774,000 to $7,674,000, from its collision repair and fleet
management services, including subrogation and salvage commissions. This
represented an increase of 33% for the 2001 Period, as compared to the 2000
Period. 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 Period Affinity Services sales decreased by $83,000 to
$795,000 as compared to $878,000 for the same period in 2000, reflecting 9% of
members that did not renew their memberships after the significant increase in
memberships that resulted from marketing efforts during the prior year.
Operating Income and Expenses
Consolidated net income, excluding two non-cash charges of $246,000 and
$77,000 described below, increased by $15,000, to net income of $113,000 in the
2001 Period from net income of $98,000 in the 2000 Period. The increase in
revenues of $1,817,000, described above, resulted in an increase in gross profit
of $234,000. The gross profit percentage declined from 29% in the 2000 Period to
26% in the 2001 Period 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 $6,286,000 in the 2001 Period, as compared to $4,704,000 for
the same period in 2000, representing an increase of $1,582,000 or 34%, while
the increase in revenues was 27% in the aggregate.
Selling, general and administrative expenses increased, in the aggregate,
by $232,000 (13%), to $2,028,000 in the 2001 Period, from $1,796,000 in the 2000
Period. However, this was the result of increases in sales and marketing of
$247,000 attributable primarily to marketing and selling activities of
driversshield.com CRM, the Company's insurance industry business, offset by
decreases in certain general and administrative expenses totaling $15,000.
In addition, the Company recorded $246,000 as a non-cash compensation
charge for variable stock options; there was no comparable amount in the 2000
Period.
Depreciation expense increased $54,000, from $115,000 in the 2000 Period
to $169,000 in the 2001 Period, primarily as a result of additional capital
expenditures supporting the Company's technology systems.
Investment and other income increased $61,000, from $66,000 in the 2000
Period to $127,000 in the 2001 Period due to improved treasury management, and
from a non-recurring recovery in the amount of $25,000.
Other expense of $77,000 reflected a non-recurring, non-cash charge for
the issuance of certain restricted shares recorded in the 2001 Period. There was
no comparable amount in the prior period.
13
Liquidity and Capital Resources
As of, June 30, 2001, the Company had cash and cash equivalents of
$744,000. The Company also holds 155,434 shares of highly liquid, Salomon Smith
Barney Adjustable Rate Government Income Fund valued at $1,528,000 at June 30,
2001, for a total of $2,272,000 of cash and liquid investments. The comparable
amount at December 31, 2000 was $1,829,000, resulting in an increase of $443,000
through June 30, 2001. Working capital of the Company as of June 30, 2001, was
$2,135,000 versus $1,935,000 at December 31, 2000, and its working capital ratio
at June 30, 2001 was 2.3:1. While the aggregate of all cash activities reflects
a net reduction of $296,000 for the six months ended June 30, 2001, $737,000 was
converted from excess cash into additional investment in the Smith Barney fund,
described above.
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 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.
In March 2001, the Company received a Nasdaq Staff Determination that it
had failed to meet the $1 minimum price requirement for continued listing on the
Nasdaq SmallCap Market and that its shares were subject to potential delisting.
The Company requested a hearing that occurred in May 2001, which resulted in the
Nasdaq Listing Qualifications Panel providing formal notification, in June 2001,
approving continued listing on the basis of the Company having met compliance
with all requirements.
In May 2001 the Company signed a letter of intent to merge a private
company, Code Technologies Inc. ("Code") into a wholly owned subsidiary of
driversshield.com Corp. The merger will be effected as an exchange of stock, not
requiring payment out of cash funds of the Company. The letter of intent also
contemplates that Pegasus Capital Advisors, L.P. will assist in obtaining $5
million of equity for marketing and development of the businesses. The
transaction is subject to due diligence of both parties and shareholder
approval.
Deferred Income Taxes
The Company has an operating loss carryforward 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 carryforwards 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.
14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None
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: August 14, 2001 By: Barry Siegel
------------------------------------------
Chairman of the Board, Secretary and Chief
Executive Officer
Date: August 14, 2001 By: Philip B. Kart
------------------------------------------
Chief Financial Officer
15