UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended October 31, 2003
[ ] 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.)
110 East Douglas Road, Oldsmar, Florida 34677
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(Address of principal executive offices) (Zip Code)
Registrant's telephone Number, including area code: (813) 749-1020
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
Indicate by check whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [ X ] No
Indicate the number of shares outstanding of each of the Issuer's classes
of common stock, $.001 Par Value, as of November 30, 2003 was 23,569,342.
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
INDEX TO FORM 10-Q
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PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 2
Balance Sheets 3
Statements of Operations 4
Statement of Stockholders 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 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Item 4. Controls and Procedures 16
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Certifications 19
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The consolidated financial statements of eAutoclaims.com, Inc. and Subsidiary
(collectively the "Company") included herein were prepared, without audit,
pursuant to rules and regulations of the Securities and Exchange Commission.
Because certain information and notes normally included in financial statements
prepared in accordance with generally accepted accounting principles were
condensed or omitted pursuant to such rules and regulations, these financial
statements should be read in conjunction with the financial statements and notes
thereto included in the audited financial statements of the Company as included
in the Company's Form 10-KSB for the year ended July 31, 2003.
2
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
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October 31, 2003 July 31, 2003
(unaudited)
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ASSETS
Current Assets:
Cash $ 546,770 $ 226,161
Accounts receivable, less allowance for doubtful accounts
of $205,000 1,195,245 1,198,764
Due from related parties 105,571 111,821
Prepaid expenses and other current assets 56,356 52,832
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets 1,903,942 1,589,578
Property and Equipment, net of accumulated depreciation
of $1,164,721 and $1,034,701 respectively 996,815 1,033,551
Goodwill 1,093,843 1,093,843
Other Assets 49,350 40,540
Deferred Income Tax Asset, net of valuation
allowance of $6,310,000 and $6,315,000 respectively - -
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets $ 4,043,950 $ 3,757,512
============================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses $ 6,326,406 $ 6,259,323
Loans payable - stockholders 98,594 117,993
Current portion of capital lease obligation 30,302 33,925
Convertible debenture, net of unamortized discount 206,093 170,878
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 6,661,395 6,582,119
Capital Lease Obligation 80,565 86,325
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Total liabilities 6,741,960 6,668,444
Stockholders' Deficiency:
Convertible preferred stock - $.001 par value; authorized 5,000,000 shares,
issued and outstanding 247 shares, aggregate liquidation preference
of $1,235,000 1 1
Common stock - $.001 par value; authorized 50,000,000 shares, issued
and outstanding 23,569,342 shares and 22,828,955 shares respectively 23,570 22,829
Additional paid-in capital 18,686,067 18,459,225
Accumulated deficit (21,407,648) (21,392,987)
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Stockholders' Deficiency (2,698,010) (2,910,932)
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficiency $ 4,043,950 $ 3,757,512
============================================================================================================================
See Notes to Consolidated Financial Statements
3
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
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Three-month Three-month
Period ended Period ended
October 31, 2003 October 31, 2002
(unaudited) (unaudited)
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Revenue:
Collision repairs management $ 7,378,412 $ 7,256,193
Glass repairs 400,310 171,528
Fleet repairs management 216,482 217,761
Fees and other revenue 695,306 519,344
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Total revenue 8,690,510 8,164,826
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Expenses:
Claims processing charges 7,122,706 6,856,469
Selling, general and administrative 1,427,540 2,066,515
Depreciation and amortization 130,022 118,694
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Total expenses 8,680,268 9,041,678
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Net income (loss) $ 10,242 $ (876,852)
====================================================================================================================================
Adjustment to net loss to compute loss per common share:
Preferred stock dividends (24,903) (26,333)
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Net loss applicable to common stock $ (14,661) $ (903,185)
Loss per common share - basic and diluted $ 0.00 $ (0.05)
====================================================================================================================================
Weighted-average number of common shares outstanding - basic and diluted 23,458,463 18,782,334
====================================================================================================================================
See Notes to Consolidated Financial Statements
4
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
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Three month period ended October 31, 2003
(unaudited) Additional
Preferred Stock Common Stock Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficiency
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 2003 247 $ 1 22,828,955 $22,829 $18,459,225 $(21,392,987) $(2,910,932)
Issuance of common stock for services 148,990 150 64,183 64,333
Accrued dividends on preferred stock - - (24,903) (24,903)
Issuance of common stock for cash 591,397 591 162,659 163,250
Net income 10,242 10,242
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Balance at October 31, 2003 247 $ 1 23,569,342 $23,570 $18,686,067 $(21,407,648) $(2,698,010)
====================================================================================================================================
5
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
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Three-month Three-month
Period ended Period ended
October 31, 2003 October 31, 2002
(unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 10,242 $(876,852)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 130,022 118,694
Amortization of discount on debentures 35,215
Common stock issued for services 26,831 118,870
Changes in operating assets and liabilities:
Decrease in accounts receivable 3,519 48,346
Decrease (increase) in due from related parties - (6,250)
(Increase) in prepaid expenses and other current assets (3,524) (23,324)
Decrease in other assets 28,691 -
Increase in accounts payable and accrued expenses 42,180 860,420
Increase in deferred software subscription revenue - 29,529
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Net cash provided by operating activities 273,176 269,433
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Cash flows from investing activity:
Purchases of property and equipment (93,285) (175,884)
Payments from related parties 9,000
Payments to related parties (2,750)
Principal payments on shareholder loans (19,399)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (106,434) (175,884)
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Cash flows from financing activities:
Proceeds from sale of common stock 163,250
Proceeds from exercise of stock options 93
Principal payments on capital lease (9,383)
Net cash provided by financing activities 153,867 93
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Net increase in cash 320,609 93,642
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Cash at beginning of period 226,161 44,655
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Cash at end of period $ 546,770 $ 138,297
========================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 17,390 $ 9,226
========================================================================================================================
Supplemental disclosure of noncash investing and financing activities:
========================================================================================================================
Issuance of stock for preferred stock dividends $ 9,632
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Accrued dividends on preferred stock $ 24,903 $ 26,333
========================================================================================================================
Equipment acquired by capital lease $ 126,207
========================================================================================================================
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 October 31, 2003 and its results of operations for the
three-month periods ended October 31, 2003 and 2002 and cash flows for the
three-month periods ended October 31, 2003 and 2002. Results of operations for
the three-month period ended October 31, 2003 are not necessarily indicative of
the results that may be expected for the year ending July 31, 2003.
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.
The company accounts for its employee incentive stock option plans using the
intrinsic value method in accordance with the recognition and measurement
principles of Accounting Principles Board Opinion No 25, "Accounting for Stock
Issued to Employees," as permitted by SFAS No. 123. Had the Company determined
compensation expense based on the fair value at the grant dates for those awards
consistent with the method of SFAS 123, the Company's net income (loss) per
share would have been increased to the following pro forma amounts:
Three-month period ended
October 31,
2003 2002
Net income (loss) as reported 10,242 $ (876,852)
Deduct total stock based employee
compensation expense determined under
fair value based methods for all awards $ (91,114) $ (199,931)
------------------------------
Pro forma net loss $ (80,872) $ (1,076,783)
==============================
Basic net loss per share as reported $.00 $(.05)
Diluted net loss per share as reported $.00 $(.05)
Pro forma basic loss per share $.00 $(.06)
Pro forma diluted loss per share $.00 $(.06)
7
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Note 2 - Per share calculations
Basic loss per share is computed as net loss available to common
stockholders' divided by the weighted- average number of common shares
outstanding for the period. Diluted loss per share reflects the potential
dilution that could occur from common shares issuable through stock-based
compensation including stock options, restricted stock awards, warrants and
convertible securities. As of October 31, 2003 and 2002, 6,784,850 and 7,408,991
options, respectively, were excluded from the diluted loss per share
computation, as their effect would be antidilutive.
Note 3 - Equity Transactions
In August 2003, the Company raised a total of $165,000 from the sale of
equity securities. The Company paid finder's fees and legal fees of $1,750 for a
net of $163,250. In exchange for these funds the Company issued 591,397 shares
of common stock at $0.279 per share.
During the three-months ended October 31, 2003, the Company issued 148,990
shares of common stock to two directors in exchange for their services. Of the
shares of common stock issued 121,849 was a prepayment of an annual retainer for
the fiscal year ending July 31, 2004. These shares are being expense over the
year. The remaining 27,141 shares of common stock were for director services
rendered during the three-months ended October 31, 2003. The Company charged
operations $26,831, which was equal to the fair market value of the shares when
earned.
During the three-month period ended October 31, 2003, the Company issued
additional options to The President and CEO, in accordance with his contract, to
purchase 25,000 shares of common stock where the exercise price of the options
are equal to or greater than the fair market value of the Company's common stock
on the date of the grant. Additionally, options to purchase 352,686 shares of
common stock were canceled.
On October 23, 2003, the Company entered into an agreement to restructure
the preferred stock terms with the existing preferred stockholders. The
agreement provides the Company an opportunity to purchase a certain number of
preferred shares each month should we choose to do so. If the Company does not
purchase preferred shares in a month, and the holders elect to convert some
preferred shares, the holders must give the Company four days notice to arrange
a block trade in order to minimize the impact of the sale of converted shares in
the open market. The agreement also sets a minimum conversion price of $0.20 per
share for the conversion of preferred shares to common shares.
8
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4 - Salary Commitments
During the quarter ended April 30, 2003 the Company entered into new or
amended employment agreements with five of its officers for two years. Minimum
annual commitments under the new agreements are as follows:
Fiscal years ended:
July 31, 2004 $624,700
July 31, 2005 $549,900
July 31, 2006 $148,300
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Total $1,322,900
==========
Note 5 - 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 23,569,342 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.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements contained in this Report on Form 10-Q, 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-Q. 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-Q will prove to be accurate.
GENERAL
eAutoclaims provide Internet based collision claims services for automobile
insurance companies, Managing General Agents (MGA) and third party claims
administrators (TPA) and self-insured automobile fleet management 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 controlling the cost of
the repair and 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 approximately
2,500 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.
Our product, eJusterSuite, provides both outsourcing and ASP (application
service provider) solutions. The outsourcing solution requires eAuto personnel
to audit and coordinate the vehicle repair. The ASP solution allows the customer
to use our technology independent of our personnel; thereby, providing a
solution for 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 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
10
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 of the service partner to obtain and process the transaction, even
after paying our transaction fee. This revenue provides additional margin
without the additional personnel and operating costs.
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 92% of the revenue for the
three-months ended October 31, 2003. 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-months ended October 31, 2003, 8% of the revenue
has been received from claims processing fees and other income. Other income
consists mostly of the sale of estimating software, fees from service partners
(ASP fees) and subrogation income.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and the results of
our operations are based upon our consolidated financial statements and the data
used to prepare them. The Company's financials have been prepared in accordance
with accounting principles generally accepted in the United States. On an
ongoing basis we re-evaluate our judgments and estimates including those related
to revenues, bad debts, long-lived assets, and income taxes. We base our
estimates and judgments on our historical experience, knowledge of current
conditions and our beliefs of what could occur in the future considering
available information. Actual results may differ from these estimates under
different assumptions or conditions. Our estimates are guided by observing the
following critical accounting policies.
Revenue recognition
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 in the areas of collision and fleet
repairs. It also records at gross in certain glass repair transactions. Revenue
is recorded at gross in these areas when:
o The Company is the primary obligor in its arrangements. The Company is
responsible for the quality of the repair and must satisfy the
customer if the body shop fails to repair the vehicle properly.
o The Company has latitude in establishing price. The price is
established based on the Company's audit of the repair estimate
submitted by the repair facility. The repair facility cannot begin the
repair until an agreed upon price is established between the facility
and the Company for the repair.
o The Company has discretion in supplier selection. Through the use of
software, the Company prioritizes which repair facility is used based
on the efficiency and effectiveness of the repair facility, and
o The Company has credit risk. The Company is responsible to pay the
repair facility even if the customer does not pay for the repair.
The Company records revenue net of the repair costs when the supplier, not
the Company, is the primary obligor in an arrangement, the amount the Company
earns is fixed or the supplier has credit risk. This occurs when the repair has
been performed before it is referred to the Company. When they receive notice of
the transaction, they call the glass repair facility to ask them to become part
of our network and to negotiate a better price on the repair. If the Company is
11
able to negotiate a better price for the customer they keep a portion of the
added discount. In that situation the revenue is recorded net of the repair
costs even though the Company pays for the entire claim and are reimbursed by
the insurance company, since they did not have the risk of loss and are not
responsible for the repair.
The Company maintains an allowance for doubtful accounts for losses that
they estimate will arise from the customers' inability to make required
payments. Collectibilty of the accounts receivable is estimated by analyzing
historical bad debts, specific customer creditworthiness and current economic
trends. At October 31, 2003 the allowance for doubtful accounts was $205,000.
Accounting for Income taxes
The Company records a valuation allowance to reduce its deferred tax assets
to the amount that is more likely than not to be realized. While we consider
historical levels of income, expectations and risks associated with estimates of
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, in the event that we
determine that we would be able to realize deferred tax assets in the future in
excess of the net recorded amount an adjustment to the deferred tax asset would
increase income in the period such determination was made. Likewise, should we
determine that we would not be able to realize all or part of the net deferred
tax asset in the future, an adjustment to the deferred tax asset would be
charged to income in the period such determination was made. We have recorded
valuation allowances against our deferred tax assets of $6,310,000 at October
31, 2003. The valuation allowance consists mainly of net operating losses
previously realized and stock compensation currently not deductible. The
valuation allowance was necessary because the use of these deductions is not
reasonably assured since the company just recently reached profitability.
Valuation of long-lived assets
The Company identifies and records impairment on long-lived assets,
including goodwill, when events and circumstances indicate that such assets have
been impaired. The Company periodically evaluates the recoverability of its
long-lived assets based on expected undiscounted cash flows, and recognizes
impairment, if any, based on expected discounted cash flows. Factors we consider
important which could trigger an impairment review include the following:
o Significant negative industry trends
o Significant underutilization of the assets
o Significant changes in how we use the assets of our plans for their use.
Goodwill was amortized using the straight-line method over 7 years through
July 31, 2002. As of August 1, 2002 no additional amortization was recorded as a
result of the change in accounting standards as described below in "recently
issued financial accounting standards." At each balance sheet date, the Company
evaluates the period of amortization of intangible assets. The factors used in
evaluating the period of amortization include: (i) current operating results,
(ii) projected future operating results, and (iii) any other material factors
that effect the continuity of the business. No charge for impairment of this
asset was considered to be necessary as of October 31, 2003.
12
RESULTS OF OPERATIONS
For the three months ended October 31, 2003 compared to the three-months ended
October 31, 2002.
Revenue
Total revenue for the three-months ended October 31, 2003 was $8.7 million,
which is a 6% increase from the $8.2 million of revenue for the three-months
ended October 31, 2002. Collision repair management revenue increased 2% from
$7.3 million to $7.4 million for the three-months ended October 31, 2003
compared to the three-months ended October 31, 2002, respectively. The increases
in total revenue and collision repair management revenue are primarily the
result of the increase in claims from our second largest customer. Another
factor in the revenue trend is that in order to concentrate on profitability,
the Company has eliminated customers who are not profitable because they have
not provided the volume committed to in their contract. The Company continues to
pursue collision repair management outsource business. However, the Company has
placed a greater focus in higher margin products.
Fees and other revenue increased 34% for the three-months ended October 31,
2003 compared to the three-months ended October 31, 2002. This increase is
mainly a result of the increase in the sale of estimating software to the repair
facilities on the eAutoclaims network and an increase in file handling fees from
customers and click fees from service partners.
Glass repair revenues increased 133% for the three-months ended October 31,
2003 compared to the three-months ended October 31, 2002. This increase is do to
sales generated by new customers. We negotiated lower pricing from one of our
larger glass vendors, which has helped 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 three-months ended October 31, 2003, we derived 50% and 14% of
our revenues from two customers. We have recently received information that the
largest customer has sold one-half of their U.S. auto physical damage business
and will possibly sell the other half. There is no assurance that the Company
will continue to process the claims from the portion of the business that has
been sold. If not, the impact of the change is not expected to start until March
2004, at which time the Company would expect one-twelfth of that portion of the
business to decrease, or a decrease of approximately 2.4% of the Company's gross
revenue each month, until the total decrease is approximately 29% by February
2005. Currently, new customers are being rolled out on the Company's
application, which will start to mitigate the loss of business before the
Company feels the effect of the change. The Company's management expects that
additional customers that are currently testing the Company's outsourcing
solution will come on board and make up for the lost business from this
customer. Because of the competitive nature of our business and the uncertainty
of bring on enough business to offset the loss of business, we may be unable to
replace revenues quickly enough to sustain profitability. However, the company's
management will cut expenses in the event we are unable to sustain
profitability.
Claims Processing Charges
Claims processing charges include the costs of collision and glass repairs
paid to repair shops within our repair shop network. Claims processing charges
for the three-months ended October 31, 2003 was $7.1 million. This was 89% of
total repair revenue, compared to 90% for three-months ended October 31, 2002.
Claims processing charges are primarily the costs of collision repairs paid by
eAutoclaims to its collision repair shop network.
13
We are dependent upon our third party collision repair shops for
insurance claims repairs. eAutoclaims currently has approximately 2500
affiliated repair facilities in its network for claims repairs. This is a
decrease of approximately 500 shops over the last six months. This decrease is a
result of a combination of poor performance of some shop network members,
the
Company's decision to reduce network shop coverage in certain geographical areas
in order to increase the number of claims assigned to the best shops in those
areas, and late payments to shops. Management believes that these shops can be
replaced with other qualified shops and has started to do so. We electronically
and manually audit individual claims processes to their completion using remote
digital photographs transmitted over the Internet. However, if the number of
shops or the quality of service provided by collision repair shops fall below a
satisfactory level leading to poor customer service, this could have a harmful
effect on our business.
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. SG&A expenses for the three-months ended
October 31, 2003 totaled $1.4 million compared to $2.1 million for the
three-months ended October 31, 2002. The decrease in SG&A expenses of
approximately $639,000 is a result of the more efficient use of resources
through technology and the restructuring of the corporate structure.
Payroll and benefit related expenses for the three-months ended October 31,
2003 and 2002 totaled approximately $975,000 and $1,314,000, which is
approximately a 26% decrease. This decrease is the result of personnel and
salary cuts made during the last fiscal year.
SG&A expenses also include non-cash charges of approximately $62,000 for
the three-month period ended October 31, 2003. These non-cash charges for the
three-month period ended October 31, 2003 include approximately $35,000 of
amortization of debenture discount and approximately $27,000 of common stock
issued to pay fees to directors. Total non-cash charges for the three-month
period ended October 31, 2002 of approximately $119,000 consists of stock issued
for legal fees and investor relation fees.
Also included in the SG&A is interest expense related to a loan from a
shareholder and capital leases. This interest expense totals approximately
$17,000 for the three-months ended October 31, 2003 compared to approximately
$9,000 for the three-months ended October 31 2002. Interest income from cash
reserves totaled approximately $1,000 for the three-months ended October 31,
2003 compared to approximately $10,000 for the three-months ended October 31,
2002, respectively.
Depreciation
Depreciation of property and equipment of approximately $130,000 was
recognized in the three-month period ended October 31, 2003. This is compared to
approximately $119,000 for the three-month periods ended October 31, 2002.
Net Income/Loss
- ---------------
Net income for the three-months ended October 31, 2003 totaled
approximately $10,000 compared to a net loss of approximately $877,000 from the
three-month period ended October 31, 2002, an improvement of approximately
$887,000. These amounts include non-cash expenses of approximately $192,000 and
$237,000, respectively. This improvement is a result of reduced costs and higher
margins.
14
Liquidity and Capital Resources
At October 31, 2003, we had approximately $547,000 in cash. This is an
increase of approximately $320,000 from July 31, 2003. We have a working capital
deficiency of approximately $4.8 million. The primary source of our working
capital during the three-month period ended October 31, 2003, was from cash flow
generated by operations and the sale of $165,000 or equity securities. However,
there is no assurance that we will be able to continue to provide cash through
operations or the sale of additional securities.
In August 2003, the Company raised a total of $165,000 from the sale of
equity securities. The Company paid finder's fees and legal fees of $1,750 for a
net of $163,250. In exchange for these funds the Company issued 591,397 shares
of common stock at $0.279 per share. There were no warrants or other equity
kickers included in these transactions.
On October 27, 2003 the Company also received a commitment letter from a
current investor to invest an additional $1,000,000-$2,000,000 into eAutoclaims
if the funds were needed.
With the potential loss of business from our largest customer, additional
financing may be necessary. If revenues grow it will provide it's own working
capital, but because revenue growth is not guaranteed, we have solicited
proposals for additional financing. We cannot assure you that we will be able to
raise such funds or that such funds will be available to us on favorable terms.
If we raise additional funds for the issuance of our securities, such securities
may have rights, preferences or privileges similar to those of the rights of our
Common Stock and our stockholders may experience additional dilution.
We believe that cash generated from operations and additional financing, if
necessary, will be sufficient to meet our working capital requirements for the
next 12 months. 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.
Our principle commitments at October 31, 2003 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.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Currently, we do not have any significant market risk. Market risk is the
potential loss arising from adverse change in market rates in prices such as
foreign currency exchange and interest rates. We do not have any foreign
currency exchange rate exposure. We do not have any long-term debt from
financial institutions. We do not hold any derivatives or other financial
instruments for trading or speculative purposes. Our financial position is not
affected by fluctuations in currency against the U.S. dollar since all of our
sales and assets occur within the United States.
15
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of the design and operations of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as of October 31, 2003. Based on this
evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures were effective such that
the material information required to be included in our Securities and Exchange
Commission ("SEC") reports is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms relating to
eAutoclaims.com, Inc., including our consolidated subsidiaries, and was made
known to them by others within those entities, particularly during the period
when this report was being prepared.
(b) Changes in internal controls over financial reporting.
In addition, there were no significant changes in our internal control over
financial reporting that could significantly affect these controls during the
quarter ended October 31, 2003. We have not identified any significant
deficiency or materials weaknesses in our internal controls, and therefore there
were no corrective actions taken.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 2003, we received a letter requiring arbitration in the state of
California on our contract with Decision Support Services (DSS). We stopped
paying DSS because of their inability to deliver an agreed upon software product
that performed as represented. Their initial complaint alleged that the Company
owed them $250,000. We allege DSS owes us $110,000 for breach of contract. A
subsequent amendment to the claim increased the amount claimed by DSS to $2.3
million based upon what we believe is an incorrect interpretation of the
contract licensing fees and termination clause. The Company believes that their
alleged damages are grossly overstated. While we believe that there are
meritorious defenses against this action and that this matter will be vigorously
and aggressively defended, it is too early to predict the ultimate outcome of
this dispute.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS.
In August 2003, the Company raised a total of $165,000 from the sale of
equity securities. The Company paid finder's fees and legal fees of $1,750 for a
net of $163,250. In exchange for these funds the Company issued 591,397 shares
of common stock at $0.279 per share. There were no warrants or other
consideration included in these transactions.
During the three-months ended October 31, 2003, the Company issued 148,990
shares of common stock to two directors in exchange for their services. Of the
shares of common stock issued 121,849 was a prepayment of an annual retainer for
the fiscal year ended July 31, 2004. These shares are being expenses over the
year. The remaining 27,141 shares of common stock were for director services
rendered during the three-months ended October 31, 2003. The Company charged
operations $26,832, which was equal to the fair market value of the shares when
earned.
16
During the three-month period ended October 31, 2003, the Company issued
additional options to The President and CEO, in accordance with his contract, to
purchase 25,000 shares of common stock where the exercise price of the options
are equal to or greater than the fair market value of the Company's common stock
on the date of the grant. Additionally, options to purchase 352,686 shares of
common stock were canceled.
On October 23, 2003, the Company entered into an agreement to restructure
the preferred stock terms with the existing preferred stockholders. The
agreement provides the Company an opportunity to purchase a certain number of
preferred shares each month should we choose to do so. If the Company does not
purchase preferred shares in a month, and the holders elect to convert some
preferred shares, the holders must give the Company four days notice to arrange
a block trade in order to minimize the impact of the sale of converted shares in
the open market. The agreement also sets a minimum conversion price of $0.20 per
share for the conversion of preferred shares to common shares. Prior to this
amendment the preferred shares conversion had no minimum conversion price. For
additional information, see the Form 8K filed on November 17, 2003.
ITEM 3. Defaults Upon Senior Securities -
None.
ITEM 4. Submission of Matters to a Vote of Security Holders -
None.
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
31 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of The Sarbanes-Oxley Act of
2002.
32 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002.
32 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
October 9, 2003 - Item 5/Item 9 - Potential loss of business from Royal
& Sun Alliance
November 17, 2003 - Item 5 - Amendment to terms of preferred stock
17
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: December 12, 2003 By: /s/ Eric Seidel
------------------ ---------------------------------------------
Eric Seidel, Chief Executive Officer
By: /s/ Scott Moore
---------------------------------------------
Scott Moore, Chief Financial Officer
18
EXHIBIT 31
CERTIFICATIONS
I certify that:
1. I reviewed this annual report on Form 10-Q;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
materials respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the period presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Ac Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions);
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: December 12, 2003 /s/ Eric Seidel
-------------------- -----------------------
President and C.E.O.
Date: December 12, 2003 /s/ Scott Moore
------------------- ------------------------
Chief financial Officer
19
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of eAutoclaims.com, Inc. (the
"Company") on Form 10-Q for the period ending October 31, 2003 as filed with the
Securities and Exchange Commission on December 12, 2003 (the "Report"), I, Eric
Seidel, the President and CEO of the Company, certify, pursuant to 18 U.S.C. ss.
1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of eAutoclaims.com,
Inc.
/s/ Eric Seidel
- ------------------------
Print Name: Eric Seidel
Title: President & CEO
December 12, 2003
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of eAutoclaims.com, Inc. (the
"Company") on Form 10-Q for the period ending October 31, 2003 as filed with
the Securities and Exchange Commission on December 12, 2003 (the "Report"), I,
Scott Moore, the Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of eAutoclaims.com,
Inc.
/s/ Scott Moore
- ------------------------
Print Name: Scott Moore
Title: Chief Financial Officer
December 12, 2003
20