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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 September 30, 2001
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|_| 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.
-----------------------
(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
Plainview, New York 11803 (516) 694-1010
- ---------------------------------------- ---------------------------
(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 November 13, 2001, the issuer had outstanding a total of 10,796,988
shares of common stock.
Transitional Small Business Format (check one) Yes |_| No |X|
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DRIVERSSHIELD.COM CORP.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2001
CONTENTS
PAGE
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
As of September 30, 2001 (Unaudited) 3
Condensed Consolidated Statements of Operations
(Unaudited) for the Three Months ended
September 30, 2001 and 2000 4
Condensed Consolidated Statements of Operations
(Unaudited) for the Nine Months ended
September 30, 2001 and 2000 5
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Nine months ended
September 30, 2001 and 2000 6
Notes to Condensed Consolidated Financial 8
Statements
Item 2. Management's Discussion and Analysis 12
Part II. OTHER INFORMATION 17
Item 6. Exhibits and Reports on Form 8-K 17
Item 1. Financial Statements
DRIVERSSHIELD.COM CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2001
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 288,459
Accounts receivable, net 1,190,769
Investment securities 1,902,592
Prepaid expenses and other current assets 177,946
-----------
Total current assets 3,559,766
Property and equipment, net of accumulated
depreciation of $1,106,839 744,741
Security deposits 27,563
-----------
Total assets $ 4,332,070
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 889,287
Accrued expenses and other current liabilities 543,562
-----------
Total current liabilities 1,432,849
-----------
Shareholders' equity:
Common stock, $.015 par value, authorized 30,000,000
shares; issued 11,516,655 172,750
Preferred stock, $.01 par value, authorized 1,000,000
shares; none issued or outstanding --
Additional paid-in capital 9,728,852
Accumulated other comprehensive income, unrealized holding
gain on investment securities 8,468
Deficit (5,527,815)
-----------
4,382,255
Less common stock held in treasury, at cost,
719,667 shares 1,483,034
-----------
Total shareholders' equity 2,899,221
-----------
Total liabilities and shareholders' equity $ 4,332,070
===========
See notes to condensed consolidated financial statements.
3
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DRIVERSSHIELD.COM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended,
September 30, September 30,
2001 2000
------------ -------------
Revenue:
Collision repairs and fleet management services $ 2,978,568 $ 3,284,133
Subrogation and salvage service commissions 116,831 87,650
Automobile affinity member fees and services 420,809 500,464
------------ -----------
Total revenues 3,516,208 3,872,247
Cost of revenue (principally charges incurred at repair
facilities for services) 2,581,246 2,794,754
------------ -----------
Gross profit 934,962 1,077,493
------------ -----------
Operating expenses:
Sales and marketing 213,713 112,034
General and administrative 854,918 818,344
Non-cash compensation (note 6) (56,320) --
Depreciation and amortization 89,985 69,571
------------ -----------
Total operating expenses 1,102,296 999,949
------------ -----------
(167,334) 77,544
------------ -----------
Investment and other income 35,878 25,822
------------ -----------
Income (loss) from operations before
Income taxes (131,456) 103,366
Income taxes, all current 4,621 2,525
------------ -----------
Net income (loss) $ (136,077) $ 100,841
============ ===========
Earnings (loss) per share:
Basic $ (.01) $ .01
Diluted (.01) .01
------------ -----------
Weighted average number of common shares outstanding 10,768,727 10,465,757
Effect of dilutive securities, stock options and warrants -- 948,466
------------ -----------
Weighted average diluted common shares outstanding 10,768,727 11,414,223
============ ===========
See notes to condensed consolidated financial statements.
4
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DRIVERSSHIELD.COM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended,
September 30, September 30,
2001 2000
------------- -------------
Revenue:
Collision repairs and fleet management services $ 10,243,952 $ 8,817,414
Subrogation and salvage service commissions 441,051 305,675
Automobile affinity member fees and services 1,299,836 1,401,239
------------ ------------
Total revenues 11,984,839 10,524,328
Cost of revenue (principally charges incurred at repair
facilities for services) 8,867,109 7,498,267
------------ ------------
Gross profit 3,117,730 3,026,061
------------ ------------
Operating expenses:
Sales and marketing 655,321 306,734
General and administrative 2,440,757 2,419,109
Non-cash compensation (note 6) 189,801 --
Depreciation and amortization 258,710 184,746
------------ ------------
Total operating expenses 3,544,589 2,910,589
------------ ------------
(426,859) 115,472
------------ ------------
Other income (expense):
Realized loss on investment -- (1,518)
Investment and other income 162,407 92,227
Other expense (shares issued for restriction agreement) (77,438) --
------------ ------------
Total other income 84,969 90,709
------------ ------------
Income (loss) from operations before
Income taxes (341,890) 206,181
Income taxes, all current 4,663 7,225
------------ ------------
Net income (loss) $ (346,553) $ 198,956
============ ============
Earnings (loss) per share:
Basic $ (.03) $ .02
Diluted (.03) .02
------------ ------------
Weighted average number of common shares outstanding 10,679,497 9,767,145
Effect of dilutive securities, stock options and warrants -- 1,990,619
------------ ------------
Weighted average diluted common shares outstanding 10,679,497 11,757,764
============ ============
See notes to condensed consolidated financial statements.
5
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DRIVERSSHIELD.COM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended,
September 30, September 30,
2001 2000
------------- -------------
Cash flows provided by operating activities:
Net income (loss) $ (346,553) $ 198,956
----------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 258,710 184,746
Shares issued for restriction agreement 77,438 --
Shares issued for consulting services 150,000 --
Non-cash compensation (note 6) 189,801 --
Options granted for services 40,082 49,421
Gain on sale of assets (3,198) --
Realized loss on investment -- 1,518
Changes in assets and liabilities:
Accounts receivable 622,978 (510,904)
Prepaid expenses and other current assets (78,873) 9,813
Security deposit and other assets 175 5,285
Accounts payable (264,685) 113,479
Accrued expenses and other current liabilities (94,601) 1,093
----------- ---------
Total adjustments 897,827 (145,549)
----------- ---------
Net cash provided by operating activities 551,274 53,407
----------- ---------
Cash flows used in investing activities:
Purchase of property and equipment (195,449) (399,288)
Proceeds from sale of assets 15,600 --
Purchase of investment securities (1,108,188) (35,937)
Proceeds from sale of investments -- 300,000
----------- ---------
Net cash (used in) investing activities (1,288,037) (135,225)
----------- ---------
Cash flows provided by (used in) financing activities:
Repayment of note payable (14,644) (35,869)
Proceeds from disgorgement of short-swing profits -- 75,097
Proceeds from issuance of common stock -- 9,000
----------- ---------
Net cash provided by (used in) financing activities (14,644) 48,228
----------- ---------
See notes to condensed consolidated financial statements.
6
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DRIVERSSHIELD.COM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued) Nine Months Ended,
September 30, September 30,
2001 2000
------------- -------------
Net increase (decrease) in cash and cash equivalents (751,407) (33,590)
Cash and cash equivalents at beginning of period 1,039,866 542,359
------------ ------------
Cash and cash equivalents at end of period $ 288,459 $ 508,769
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 4,663 $ 7,225
============ ============
See notes to condensed consolidated financial statements.
7
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DRIVERSSHIELD.COM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2001
(Unaudited)
1. BASIS OF PRESENTATION
The information contained in the condensed consolidated financial
statements for the nine month periods ended September 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 nine month periods ending September 30, 2000 and 2001, there were
no significant non-owner sources of income or expense. Accordingly, separate
statements of comprehensive income have not been presented.
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.
8
3. RESULTS OF OPERATIONS
The unaudited results of operations for the three and nine months ended
September 30, 2001, are not necessarily indicative of the results to be expected
for the full year.
4. PROPOSED SALE OF COLLISION REPAIR AND FLEET SERVICES BUSINESS AND RELATED
TRANSACTIONS
Sale of Subsidiary
On October 29, 2001 the Company entered into a Stock Purchase Agreement ("the
Purchase Agreement") to sell all of the outstanding shares of, a wholly-owned
subsidiary, driversshield.com FS Corp. ("FS"), its collision repair and fleet
services business, to PHH Vehicle Management Services, LLC, d/b/a PHH Arval
("PHH"), a subsidiary of the Cendant Corporation (NYSE, symbol CD) for $6.3
million in cash and, pursuant to the Preferred Stock Purchase Agreement, agreed
to sell $1.0 million of the Company's convertible preferred stock to PHH. The
Purchase Agreement is subject to the approval of the Company's shareholders and
certain other performance conditions.
The Company anticipates that the transaction will be completed (the disposal
date), assuming the satisfaction of the aforementioned conditions and
affirmative shareholder vote, during January or February 2002. Thereafter, under
the terms of the Transition Services Agreement, PHH will contract with the
Company to continue to operate FS on behalf of PHH during the period commencing
on the closing date through such time that the FS business is transitioned into
the PHH organization, but no later than June 30, 2002. Both the Transition
Services Agreement, and the preferred stock investment which is described below,
are integrally related to the Purchase Agreement and conditioned upon the
completion of the sale of FS.
The Company expects that, upon closing, it will record a substantial gain on the
sale of FS. The components of assets and liabilities to be divested consist
primarily of accounts receivable and accounts payable and other accrued
liabilities. In the event that the transactions cannot be consummated, the
Company may be liable for a termination fee of $250,000.
Related Transactions
As noted above, the Company entered into a Preferred Stock Purchase Agreement in
which PHH will make a $1.0 million equity investment in the Company's Series A
Convertible Preferred Stock ("the Preferred Shares"). The Preferred Shares can
be converted, at the holder's discretion, into 500,000 shares of the Company's
common stock (subject to adjustments for stock splits, re-capitalization and
anti-dilution provisions). Other key terms of the Preferred Shares include:
voting rights together with the common shareholders on all matters, and,
separately on certain specified matters; a liquidation preference equal to 125 %
of their initial investment paid only in the event of dissolution of the
Company; the nomination of one board member; certain preemptive rights and
registration rights; and the approval of Preferred Shares for certain corporate
actions.
As part of the relationship with PHH, it is also contemplated that the Company
will enter
9
into a strategic alliance agreement with PHH whereby PHH will provide the
Company (for a predetermined fee) with information technology, website hosting,
supplier network management, backup systems support, and call-center operations
management for the Company's other business units, driversshield.com CRM Corp.,
(its Internet based insurance industry business) and driversshield.com ADS Corp
(its auto discount affinity services business).
5. 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.
For the three and nine month periods ended September 30, 2001 approximately
2,819,000 and 2,689,000 stock options and warrants, respectively, were excluded
from the calculation of diluted earnings per share as their inclusion would have
been antidilutive. These options and warrants could be dilutive in the future.
6. 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 $190,000, in
the accompanying financial statements, for the nine months ended September 30,
2001. For the three months ended September 30, 2001, the calculation resulted in
a credit of $56,000 due to a decrease in the price per common share from the
previous quarter.
7. 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 quarter
ended March 31, 2001.
10
8. SHARES ISSUED FOR CONSULTING ARRANGEMENT
In July 2001, the Company issued 100,000 shares of its common stock to an
individual in consideration of a consulting agreement covering a one-year period
ending June 30, 2002. The Company recorded the cost of the services based on the
price per share of its common stock at the date of their issuance, aggregating
$150,000, and is amortizing the cost over the term of the contract.
9. POTENTIAL ACQUISITION CANCELLED
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. through an exchange of stock. In August 2001, the
Company announced it had elected to terminate the letter of intent citing due
diligence issues associated with Code, and its intent to focus on its existing
opportunities with driversshield.com CRM, and its insurance industry product
offering.
11
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 September 30, 2001 (the "2001 Quarter") Compared to Three
Months ended September 30, 2000 (the "2000 Quarter").
The 2001 Quarter reflected a net loss of $136,000 compared to net income
of $101,000 in the 2000 Quarter. Excluding the positive, non-cash impact of
$56,000 for re-pricing certain stock options, the net loss for the 2001 Quarter
would have been $192,000. This decrease in net income from the prior year, of
$293,000, resulted from a reduction in sales, as described below, coupled with
increased expenses and investment relating to the Company's recently launched,
insurance-industry CRM business also described below. Basic and fully diluted
loss per share was $(.01) per share in the 2001 Quarter, versus earnings per
share of $.01 in the 2000 Quarter.
Revenues
Revenues were $3,516,000 in the 2001 Quarter, versus $3,872,000 in the
2000 Quarter, representing a decrease of $356,000 or 9%. The Company's revenues
decreased $277,000, from $3,372,000 to $3,095,000, from its collision repair and
fleet management service business, including subrogation and salvage
commissions. This represented a decrease of 8% for the 2001 Quarter, as compared
to the 2000 Quarter. The Company believes that the decrease was due, in part, to
a downturn in economic conditions because revenue decreases occurred for most of
its client base. In addition, the decrease was due to the September 11th World
Trade Center events. The Company's telephone-switch provider was located in a
damaged, and ultimately evacuated, building in downtown New York City. As a
result, the Company's phones were either inoperable or functioning erratically
for nearly one month thereafter, making it difficult or impossible for its
customers to communicate and commence claims. In the 2001 Quarter, Affinity
Services sales decreased $79,000 or 16%, to $421,000 as compared to $500,000 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.
12
Operating Income and Expenses
Consolidated net loss, excluding the non-cash credit of $56,000 described
above, was $192,000 in the 2001 Quarter compared to net income of $101,000 in
the 2000 Quarter, a decrease of $293,000. The decrease in revenues of $356,000,
described above, resulted in a reduction in gross profit of $143,000. The gross
profit percentage declined from 28% in the 2000 Quarter to 27% 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
$2,581,000 in the 2001 Quarter, as compared to $2,795,000 for the same period in
2000, representing a decrease of $214,000 or 8%, while the decrease in revenues
was 9% in the aggregate.
Selling, general and administrative expenses, in the aggregate, increased
by $139,000 (15%), to $1,069,000 in the 2001 Quarter, from $930,000 in the 2000
Quarter. This was the result of increases in sales and marketing, of $102,000,
primarily activities of driversshield.com CRM, the Company's new insurance
industry business, and by increases in various general and administrative
expenses, of $37,000.
The Company recorded, in the 2001 Quarter, $56,000 as a non-cash
compensation credit for variable stock options; there was no comparable amount
in the 2000 Quarter. The credit resulted from a decrease in the stock price from
the preceding quarter.
Depreciation expense increased $20,000, from $70,000 in the 2000 Quarter
to $90,000 in the 2001 Quarter, primarily as a result of additional capital
expenditures supporting the Company's technology systems.
Investment and other income increased $10,000, from $26,000 in the 2000
Quarter to $36,000 in the 2001 Quarter, despite the reduction in interest rates,
primarily due to improved treasury management.
Nine Months ended September 30, 2001 (the "2001 Period") Compared to Nine Months
ended September 30, 2000 (the "2000 Period")
The 2001 Period reflected a net loss of $347,000 compared to net income of
$199,000 in the 2000 Period. Excluding two non-cash charges totaling $267,000,
described below, the net loss for the 2001 Period would have been $80,000. This
decrease in net income from the prior year, of $279,000, was the result of
additional selling and marketing expenses of $349,000, 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 $(.03) per share in the 2001 Quarter, versus $.02 per
share income in the 2000 Period.
Revenues
Revenues were $11,985,000 in the 2001 Period, versus $10,524,000 in the
2000 Period, representing an increase of $1,461,000 or 14%. The Company's
revenues
13
increased $1,562,000, from $9,123,000 to $10,685,000, from its collision repair
and fleet management services, including subrogation and salvage commissions.
This represented an increase of 17% 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 $101,000 to
$1,300,000 as compared to $1,401,000 for the same period in 2000, reflecting 7%
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 loss, excluding two non-cash charges of $190,000 and
$77,000 described below, decreased by $279,000, to a net loss of $80,000 in the
2001 Period from net income of $199,000 in the 2000 Period. The 14% increase in
revenues of $1,461,000, described above, resulted in an increase in gross profit
of $92,000. The gross profit percentage declined from 29% in the 2000 Period to
26% in the 2001 Period primarily 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 $8,867,000 in the 2001 Period, as compared to $7,498,000
for the same period in 2000, representing an increase of $1,369,000 or 18%,
while the increase in revenues was 14% in the aggregate.
Selling, general and administrative expenses increased, in the aggregate,
by $370,000 (14%), to $3,096,000 in the 2001 Period, from $2,726,000 in the 2000
Period. This was predominantly the result of increases in sales and marketing of
$349,000 attributable to marketing and selling activities of driversshield.com
CRM, the Company's insurance industry business. Minor increases in general and
administrative expenses totaled $22,000, or less than a 1% increase from the
prior year.
In addition, the Company recorded $190,000 as a non-cash compensation
charge for variable stock options; there was no comparable amount in the 2000
Period.
Depreciation expense increased $74,000, from $185,000 in the 2000 Period
to $259,000 in the 2001 Period, primarily as a result of additional capital
expenditures supporting the Company's technology systems.
Investment and other income increased $70,000, despite a significant
reduction in interest rates, from $92,000 in the 2000 Period to $162,000 in the
2001 Period, primarily resulting from 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 first quarter of the
2001 Period. There was no comparable amount in the prior period.
14
Liquidity and Capital Resources
As of September 30, 2001, the Company had cash and cash equivalents of
$288,000. The Company also holds 193,156 shares of highly liquid, Salomon Smith
Barney Adjustable Rate Government Income Fund valued at $1,903,000 at September
30, 2001, for a total of $2,191,000 of cash and liquid investments. The
comparable amount at December 31, 2000 was $1,829,000, resulting in an increase
of $362,000 through September 30, 2001. Working capital of the Company as of
September 30, 2001, was $2,127,000 versus $1,935,000 at December 31, 2000, and
its working capital ratio at September 30, 2001 was 2.5:1. While the aggregate
of all cash activities in the Condensed Consolidated Statement of Cash flows
reflects a net reduction of $751,000 for the nine months ended September 30,
2001, $1,108,000 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 had a $10 million equity based funding commitment that expired
November 13, 2001. This equity facility enabled the Company to draw funds as
needed, with a certain minimum amount, on a monthly basis for a twelve month
period following the date of its registration statement, which became effective
on November 14, 2000. No funding occurred under this agreement. The Company has
been able to fund its operating needs from internally generated cash flow during
this period.
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., through an exchange of stock. The transaction was
subject to due diligence of both parties and shareholder approval. In August
2001, the Company announced it had elected to terminate the letter of intent
citing due diligence issues with Code, and its intent to focus on business
opportunities of driversshield.com CRM, and its insurance industry product
offering.
On October 29, 2001 the Company entered into a Stock Purchase Agreement
("the Purchase Agreement") to sell all of the outstanding shares of a
wholly-owned subsidiary, driversshield.com FS Corp. ("FS"), its collision repair
and fleet services business, to PHH Vehicle Management Services, LLC, d/b/a PHH
Arval ("PHH"), a subsidiary of the Cendant Corporation (NYSE, symbol CD) for
$6.3 million in cash and, pursuant to the Preferred Stock Purchase Agreement,
agreed to sell $1.0 million of the Company's convertible preferred stock to PHH.
The Purchase Agreement is subject to the approval of the Company's shareholders
and certain other performance conditions.
The Company anticipates that the transaction will be completed, assuming the
satisfaction of the aforementioned conditions and affirmative shareholder vote,
during January or February 2002. Thereafter, under the terms of the Transition
Services Agreement, PHH will contract with the Company to continue to operate FS
on behalf of PHH during the period commencing on the closing date through such
time that the FS business is transitioned into the PHH organization, but no
later than June 30, 2002. Both the Transition Services Agreement, and the
preferred stock investment which is described below, are integrally related to
the Purchase Agreement and conditioned upon the completion of the sale of FS.
15
The Company expects that, upon closing, it will record a substantial gain on the
sale of FS. The components of assets and liabilities to be divested consist
primarily of accounts receivable and accounts payable and other accrued
liabilities. In the event that the event that the transactions cannot be
consummated, the Company may be liable for a termination fee of $250,000.
The Preferred Stock Purchase Agreement provides that PHH will make a $1.0
million equity investment in the Company's Series A Convertible Preferred Stock
("the Preferred Shares"). The Preferred Shares can be converted, at the holder's
discretion, into 500,000 shares of the Company's common stock (subject to
adjustments for stock splits, re-capitalization and anti-dilution provisions).
Other key terms of the Preferred Shares include: voting rights together with the
common shareholders on all matters, and, separately on certain specified
matters; a liquidation preference equal to 125 % of their initial investment
paid only in the event of dissolution of the Company; the nomination of one
board member; certain preemptive rights and registration rights; and the
approval of the holders of the Preferred Shares for certain corporate actions.
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.
16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Stock Purchase Agreement dated October 29th, 2001 by and among PHH
Vehicle Management Services, LLC, and driversshield.com Corp., and
driversshield.com FS Corp.
(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: November 13, 2001 By: Barry Siegel
--------------------------------------
Chairman of the Board, Secretary and Chief
Executive Officer
Date: November 13, 2001 By: Philip B. Kart
--------------------------------------
Chief Financial Officer
17
INDEX OF EXHIBITS
10.1 Stock Purchase Agreement dated October 29, 2001 by and among PHH Vehicle
Management Services, LLC, and driversshield.com Corp., and
driversshield.com FS Corp.