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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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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
ACCESSITY CORP.
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(f/k/a DriverShield Corp; f/k/a driversshield.com Corp and f/k/a
First Priority Group Inc (Name of small business issuer in its charter)
New York 11-2750412
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12514 West Atlantic Boulevard
Coral Springs, Florida 33071 (954-752-6161)
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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 May 14, 2003, the issuer had outstanding a total of 10,869,073 shares of
common stock.
Transitional Small Business Format (check one) Yes [_] No [X]
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ACCESSITY CORP.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTERLY PERIOD ENDED MARCH 31, 2003
CONTENTS
PAGE
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
As of March 31, 2003 (Unaudited) .......................... 3
Condensed Consolidated Statements of
Operations and Comprehensive Income
(Loss)(Unaudited) for the Three
Months ended March 31, 2003 and 2002 ...................... 4
Condensed Consolidated Statements of Cash
Flows (Unaudited) for the Three Months
ended March 31, 2003 and 2002 ............................. 5
Notes to Condensed Consolidated Financial
Statements ................................................ 7
Item 2. Management's Discussion and Analysis ........................... 12
Item 3. Controls and Procedures ........................................ 14
PART II. OTHER INFORMATION .............................................. 15
Item 1. Legal Proceedings .............................................. 15
Item 6. Exhibits and Reports on Form 8-K ............................... 15
Certifications ................................................. 17
ITEM 1. FINANCIAL STATEMENTS
----------------------------
ACCESSITY CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2003
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 111,613
Accounts receivable, trade 175,025
Investments 5,276,127
Prepaid expenses and other current assets 107,621
------------
Total current assets 5,670,386
Property and equipment, net of accumulated depreciation 645,866
Restricted certificate of deposit 300,000
Security deposits 51,961
------------
Total assets $ 6,668,213
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 117,648
Accrued expenses and other current liabilities 451,484
Current portion of capital lease obligation 32,919
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Total current liabilities 602,051
------------
Obligations under capital lease, net of current portion 11,744
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Shareholders' equity:
Common stock, $.015 par value, authorized 30,000,000
shares; issued 11,746,991 176,205
Preferred stock, $.01 par value, authorized 1,000,000
shares; 1,000 issued and outstanding; liquidation
preference of $1.25 million 10
Additional paid-in capital 10,845,639
Accumulated other comprehensive loss, unrealized holding
loss on investment securities (5,478)
Deficit (3,257,476)
------------
7,758,900
Less common stock held in treasury, at cost, 877,918 shares 1,704,482
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Total shareholders' equity 6,054,418
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Total liabilities and shareholders' equity $ 6,668,213
============
See notes to condensed consolidated financial statements.
3
ACCESSITY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Three Months Ended,
------------------------------
MARCH 31 March 31
2003 2002
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Revenue:
Collision repairs and fees $ 141,260 $ 478,659
Automobile affinity services 235,138 354,524
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Total revenues 376,398 833,183
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Operating expenses:
Collision repair expenses 97,514 421,315
Sales and marketing 191,808 232,547
General and administrative 538,347 854,060
Non-cash compensation (Note 6) -- 181,502
Depreciation and amortization 84,331 89,021
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Total operating expenses 912,000 1,778,445
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(535,602) (945,262)
Investment and other income, net of interest expense 42,163 80,810
------------ ------------
Loss from continuing operations before provision for income taxes (493,439) (864,452)
Provision for income (tax) benefit (Note 9) -- 345,781
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Loss from continuing operations (493,439) (518,671)
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Discontinued operations (Note 3):
Gain on disposal of subsidiary, (net of income taxes
of $2,432,947) -- 3,649,421
Income from discontinued operations, (net of income taxes
of $17,490) -- 26,235
------------ ------------
Income from discontinued operations -- 3,675,656
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Net Income (loss) $ (493,439) $ 3,156,985
Other comprehensive loss - unrealized loss on marketable
securities, net of reclassification adjustments (19,682) (7,859)
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Comprehensive income (loss) $ (513,121) $ 3,149,126
============ ============
Basic and diluted earnings (loss) per common share:
Continuing operations $ (0.05) $ (0.05)
Discontinued operations 0.00 0.34
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Total $ (0.05) $ 0.29
============ ============
Weighted average number of common shares outstanding 10,869,073 10,879,643
Effect of dilutive securities, stock options and warrants -- --
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Weighted average diluted common shares outstanding 10,869,073 10,879,643
============ ============
See notes to condensed consolidated financial statements.
4
ACCESSITY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
------------------------------
MARCH 31 March 31
2003 2002
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Cash flows provided by (used in) operating activities:
Net income (loss) $ (493,439) $ 3,156,985
------------ ------------
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization (including bond premium
amortization) 93,342 103,486
Non-cash compensation -- 181,502
Gain on sale of subsidiary -- (6,082,368)
Loss on sale of investments 14,922 --
Options granted for services 8,955 8,945
Changes in assets and liabilities:
Accounts receivable (25,340) (294,342)
Prepaid expenses and other assets 233,116 33,787
Deferred tax asset -- 1,900,000
Investment in net assets of discontinued operations -- (60,022)
Accounts payable (181,567) 68,224
Accrued expenses and taxes payable (407,831) 265,425
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Total adjustments (264,403) (3,875,363)
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Net cash provided by (used in) operating activities (757,842) (718,378)
------------ ------------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment (21,220) (93,675)
Proceeds from sale of subsidiary, net -- 6,174,389
Proceeds from sale of investments 2,476,237 --
Purchase of investments (2,486,497) (5,029,203)
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Net cash provided by (used in) investing activities (31,480) 1,051,511
------------ ------------
Cash flows provided by (used in) financing activities:
Payments under capital lease (7,720) --
Proceeds from issuance of preferrred stock -- 1,000,000
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Net cash provided by (used in) financing activities (7,720) 1,000,000
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See notes to condensed consolidated financial statements.
5
ACCESSITY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
------------------------------
MARCH 31 March 31
2003 2002
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Net increase (decrease) in cash and cash equivalents (797,042) 1,333,133
Cash and cash equivalents at beginning of period 908,655 265,408
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Cash and cash equivalents at end of period $ 111,613 $ 1,598,541
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ $ 16,353
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Cash paid during the period for interest $ 1,473 $ --
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See notes to condensed consolidated financial statements.
6
ACCESSITY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The information contained in the condensed consolidated financial
statements for the three months ended March 31, 2003 and 2002 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.
On February 7, 2002 the Company sold its fleet services business (see Note
3). The accompanying financial statements reflect the results of this business
as Discontinued Operations.
This report may contain forward-looking statements that involve certain
risks and uncertainties. Factors may arise, including those identified in the
Company's Form 10-KSB for the year ended December 31, 2002, which could cause
the Company's operating results to differ materially from those contained in any
forward-looking statement.
2. BUSINESS OF THE COMPANY
-----------------------
The Company, a New York corporation, had been engaged in automotive repair
and collision management from its inception in 1983, but has begun to exit that
market and enter into new businesses. It divested its original business in
February 2002 (Note 3), which provided collision repair and fleet management
services primarily for numerous Fortune 500 companies.
The Company also offered collision repair management services during 2002
for the insurance industry through a website on the Internet. Revenues for such
services commenced in December 2001. However, under a strategic partnership
agreement, effective January 2, 2003 (see Note 4), the Company transferred the
operating responsibilities and management of this business to a third party and,
upon the completion of active or in-process claims that are currently the
Company's responsibility, it will no longer be engaged in collision repair
management, but will remain in the business through the licensing described in
Note 4. It will remain liable for warranties of auto repairs it provided,
however warranty costs have historically not been significant.
7
The Company's remaining automotive business provides automobile affinity
services for individuals which, to date, have been sold through large financial
institutions. The Company believes that it operates its automotive-related
businesses in one operating segment.
During the periods presented, the Company provided collision and general
repair programs and appraisal services, for the insurance industry and insurance
carriers. The Company facilitated the repair process for insurance carriers by
installing its internet-based software at customer sites, which permits them to
enter new claims and to monitor the Company's activities. Once a claim was
initiated on the website, the Company commenced its efforts. This includes the
audit of repair estimates, negotiation of the repair price with one of its
suppliers selected from its network of approximately 2,000 providers, management
of time for completion of repair, selection or approval of part specifications,
and obtaining third party appraisals if required. The Company assumes the risks
and responsibilities of the vehicle repair process, from commencement to
completion, for its insurance clients. It warrants all repairs completed through
its network of repair facilities, for periods up to as long as the driver owns
the vehicles and issues warranty certificates for claims processed through its
supplier network. The Company records revenues gross in these circumstances,
having acted as the principal in the transaction.
During the third quarter of 2002, the Company began a new business, Sentaur
Inc. ("Sentaur") engaged in medical billing recovery, a new business segment.
The business seeks to recoup inappropriate discounts taken from hospital
billings by institutional or insurance payors. To date, the Company has signed
contracts with three hospitals, begun the detailed analytic process at the first
two, and commenced sending invoices on behalf of the first hospital. At March
31, 2003 the Company had begun the collection process, but had not yet recorded
revenues. This business incurred operating expenses of $123,000 during the
current quarter. At March 31, 2003 Sentaur did not have any significant assets
or liabilities.
Three of the Company's customers currently accounted for approximately 82%
of its 2003 revenues to date and 90% of its outstanding trade receivables at
March 31, 2003.
3. DISCONTINUED OPERATIONS AND PREFERRED STOCK SALE
------------------------------------------------
On February 7, 2002, following shareholder approval of the Stock Purchase
Agreement ("the Purchase Agreement"), the Company sold all of the outstanding
shares of its former wholly-owned subsidiary, driversshield.com FS Corp. ("FS"),
that operated the 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, received $1.0 million for the sale of 1000
shares of the Company's Series A Convertible Preferred Stock (the "Preferred
Shares") to PHH. 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).
The Preferred Shares have a liquidation preference of 125% of its original
investment value as provided in the Company's Certificate of Incorporation.
8
During the quarter ended March 31, 2002, the Company recorded a pretax gain
on the sale of FS of $6.1 million. The sale of FS impacted the Company's
consolidated balance sheet by reducing accounts receivable and accounts payable
and other accrued liabilities. Certain cash balances were also transferred to
PHH representing primarily customer deposits, prepayments, or funds received by
the Company pending repayments to its customers.
Of the gross proceeds paid by PHH, $175,000 was remitted into an escrow
account, for a one-year period, in the event indemnification obligations arose.
In January 2003 $163,000 was released, and the remaining amount was released in
April 2003.
Operating results during the quarter ended March 31, 2002, for the
discontinued fleet services operations from the period January 1, 2002 through
February 7, 2002, its date of sale, were as follows:
2002
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Revenues $ 1,087,658
Cost of sales (878,776)
Selling, general and administrative (165,157)
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Income from discontinued operations, pre-tax $ 43,725
============
In accordance with the Transition Services Agreement with PHH, the Company
managed FS operations from the date of its sale through June 30, 2002, and
received fees associated with those activities.
4. STRATEGIC PARTNERSHIP FOR INSURANCE BUSINESS
--------------------------------------------
In December 2002, the Company entered into a Strategic Partnership
Agreement (the "Partnership Agreement"), effective January 2, 2003, with
ClaimsNet, Inc. ("ClaimsNet"), a wholly-owned subsidiary of the CEI Group, Inc.
("CEI"), a Pennsylvania corporation, in which ClaimsNet assumed the
responsibilities of operations and management of DriverShield CRM, the business
that provided insurance carriers with collision repair management for their
insureds. The Company is currently processing only those claims that were
initiated prior to the effective date, and ClaimsNet has assumed responsibility
for new repairs. The Company granted an exclusive license of its technology,
including its website software, that enables insurance customers to access the
vehicle claims management system via the Internet, and a non-transferable
license of its network of repair facilities, as well as training of its
processing methodologies, in order for ClaimsNet to fulfill its obligations
under the Partnership Agreement. ClaimsNet agreed to pay royalties to the
Company equivalent to 25% of vendor referral fees for repairs initiated and
completed, beginning in March 2003, and 50% of administrative fees, as defined,
on all existing customers, beginning in February 2003, as well as 15% of all
administrative and vendor referral fees for all new customers that use the
licensed technology to have their vehicles repaired. For the quarter ended March
31, 2003 the Company recorded $8,000 in royalties. However, based on the volume
of repairs that were commenced and were in process in March, the Company
believes that the royalty will be higher in future periods based on completed
repairs. As part of the agreement, the Company also accrued $12,000 in personnel
costs that the Company agreed to assume during the initial months of this
transition.
9
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 reflect the potential dilution that could occur if
common stock equivalents, such as preferred stock, stock options and warrants,
were exercised. For the three months ended March 31, 2003 and 2002,
respectively, approximately 4,600,000 and 5,400,000 of stock options, warrants
and convertible preferred stock were excluded from the earnings per share
calculations, as their inclusion would have been anti-dilutive. These options,
warrants and preferred shares could be dilutive in the future.
6. NON-CASH COMPENSATION 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 (110% of the fair market value in the case of an affiliate). In addition,
in September 2002 the Company granted a five-year extension to the life of
certain fully vested options that had expired. 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. There was no charge or credit during the current
quarter as the price per share of the Company's common stock continued to trade
at levels below the exercise prices. For the three months ended March 31, 2002,
there was an expense of $182,000.
7. INVESTMENTS
-----------
Investments at March 31, 2003 consist of available-for-sale securities that
had a fair market value of $5,276,127.
8. PROFORMA INFORMATION
--------------------
Proforma information, assuming that the disposal of FS occurred at the
beginning of the earliest quarterly period presented, has not been presented
since the disposal of FS has been accounted for as discontinued operations, and
such amounts have been reclassified from continuing operations.
9. INCOME TAXES
------------
At December 31, 2002, the Company had operating loss carry forwards of
approximately $2,000,000 and had established a valuation allowance for the full
amount of its deferred tax asset as it is more likely that the Company will not
be able to realize the tax benefits. To the extent the Company is profitable in
the future periods such carry forwards may be available to offset future taxable
earnings. To the extent the Company is not profitable it would not be able to
realize this benefit.
10
10. FLORIDA OFFICE LEASE AND RELATED PARTY TRANSACTION
--------------------------------------------------
The 7,300 square foot building in Coral Springs, Florida which the Company
leases for its headquarters is owned and operated by B & B Lakeview Realty
Corp., whose three shareholders, Barry Siegel, Barry Spiegel and Ken Friedman,
are members of the Company's board of directors. In accordance with the terms of
the lease the Company paid required rentals of approximately $33,000 in the
current quarter.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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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, 2002) and that actual
results may differ materially from those in the forward-looking statements as a
result of various factors. Except for the historical information and statements
contained in this Report, the matters and items set forth in this Report are
forward looking statements.
THREE MONTHS ENDED MARCH 31, 2003 (THE "2003 QUARTER") COMPARED TO THREE MONTHS
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ENDED MARCH 31, 2002 (THE "2002 QUARTER").
------------------------------------------
The 2003 Quarter reflected a net loss of $493,000 compared to net income of
$3,157,000 in the 2002 Quarter. Loss from continuing operations was $493,000
versus a loss of $519,000 in the 2002 Quarter. Basic and diluted loss per share
from continuing operations was $(.05) per share in both the 2003 and 2002
Quarter. Basic and diluted earnings per share from discontinued operations, was
$.34 in the 2002 Quarter. The 2002 earnings from discontinued operations reflect
the impact of the sale of the fleet business. There were no discontinued
operations in the 2003 Quarter.
REVENUES FROM CONTINUING OPERATIONS
-----------------------------------
Revenues were $376,000 in the 2003 Quarter, versus $833,000 in the 2002
Quarter, representing a decrease of $457,000 or 55%. The Company's revenues
decreased by $338,000 from its insurance industry clients from $479,000 in the
2002 Quarter to $141,000 in the 2003 Quarter. The Company transferred the
operating responsibility of its CRM business to Claimsnet, effective January
2003; the revenues it recorded are predominantly those remaining claims in
process that it is completing. Thereafter the Company will only record the
royalty fees it is to receive under its agreement with Claimsnet. In the 2003
Quarter, Affinity Services sales decreased $120,000 or 34%, to $235,000, as
compared to $355,000 for the same period in 2002, reflecting a percentage of
members that did not renew their memberships.
OPERATING INCOME AND EXPENSES FROM CONTINUING OPERATIONS
--------------------------------------------------------
Pretax loss from continuing operations was $493,000 in the 2003 Quarter
compared to a loss of $864,000 in the 2002 Quarter, a decrease in losses of
$371,000. The comparative amounts are described below.
Collision repair and claim fee revenues from insurance carriers, net of
collision repair costs, decreased $15,000 to $43,000 in the 2003 Quarter versus
$58,000 in the 2002 Quarter despite the large reduction in revenues described
above. The Company received a one-time contract termination fee of $21,000
during the 2003 Quarter. Affinity service revenues decreased by $120,000, as
noted above.
12
Selling expenses decreased by $41,000 (18%), to $192,000 in the 2003
Quarter, from $233,000 in the 2002 Quarter. This was the result of increased
costs for marketing, personnel and related travel activities of Sentaur of
approximately $111,000, the Company's medical billing recovery business, offset
by the elimination of costs of its CRM insurance industry business ($150,000),
which is now operated by Claimsnet.
General and administrative expenses decreased by $316,000 (37%), from
$854,000 in the 2002 Quarter to $538,000 in the 2003 Quarter resulting primarily
from the $250,000 bonus provided to the CEO upon the sale of the fleet business
in 2002, and the remainder for various costs no longer incurred due to the
reduced scale of operations. The non-cash charges associated with recording the
impact of variable stock option grants resulted in a credit of $182,000 in the
2002 Quarter; there was no comparable charge or credit in the 2003 Quarter.
Investment and other income, net, decreased $39,000 from $81,000 in the
2002 Quarter to $42,000 in the 2003 Quarter primarily resulting from decreased
interest income caused by declining rates, lower investment balances and a loss
on a sale of investments of $14,000.
DISCONTINUED OPERATIONS
-----------------------
Income from discontinued operations in the 2002 Quarter was $3,675,000
reflecting the operations of the fleet business that was sold in February 2002.
There was $26,000 in income from business activities of the fleet operations,
and the Company recorded $3,649,000 on the gain on the sale of the business.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of March 31, 2003 the Company had cash and cash equivalents of $112,000.
The Company also holds 203,766 shares of highly liquid, Salomon Smith Barney
Adjustable Rate Government Income Fund valued at $1,993,000 and also holds
liquid notes in the amount of $3,283,000, for a total of $5,388,000 of cash and
liquid investments. Working capital of the Company as of March 31, 2003, was
$5,068,000 and its working capital ratio was 9:1.
In connection with the Company's rental of office space in Florida, in July
2002, the Company established a $300,000 certificate of deposit with a Florida
bank for the five and a half year term of the lease, as a guarantee of its
future rental commitments. Such amounts were excluded from liquidity and working
capital, described above, and presented as restricted cash. The certificate of
deposit declines as the remaining rental commitment declines, as follows; the
balance of the certificate will be $200,000 after the 36th month, $100,000 after
the 48th month, and zero after 60 months.
The Company's Board of Directors approved a stock repurchase program
whereby the Company may purchase up to 500,000 shares of its common shares
traded on the Nasdaq SmallCap Market. Since the repurchase program was approved,
during the third quarter of 2002, the Company acquired 93,000 shares at a cost
of $93,000.
13
The Company has no major expenditures that it currently anticipates for
capital equipment needs, however it is expending funds, and incurring losses, to
support its operations including the marketing and growth of its Sentaur
subsidiary in the development of medical billing recovery business. The funding
levels that occurred for Sentaur during the first quarter are expected to
continue at that level, or modestly higher, for the near term, but the Company
anticipates that revenues should begin to offset some of those expenditures
during the next few quarters. The Company cannot determine at this time when
Sentaur will become profitable. In addition, the Company has been pursuing
acquisition candidates and will continue to incur varying levels of expenses in
connection with each evaluation. These may range from minor amounts for such
expenses as an initial business trip or, more extensively, multiple trips for
due diligence, legal review and title searches. Should the Company complete an
acquisition, it may use a significant amount of its funds to either pay a
portion of the purchase price and/or expand the business it acquires. The
Company believes that its present cash position will enable it to continue to
support its operations for the next twelve months and for an extended period
thereafter depending on the extent of use of its funds to build existing
businesses or possible use of funds to develop or acquire new businesses.
DEFERRED INCOME TAXES
---------------------
At December 31, 2002, the Company had operating loss carry forwards of
approximately $2,000,000 and had established a valuation allowance for the full
amount of its deferred tax asset as it is more likely that the Company will not
be able to realize the tax benefits. To the extent the Company is profitable in
the future periods such carry forwards may be available to offset future taxable
earnings. To the extent the Company is not profitable it would not be able to
realize this benefit.
ITEM 3. CONTROLS AND PROCEDURES
----------------------------------
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act)
as of a date (the Evaluation Date) within 90 days prior to the filing date of
this report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of the Evaluation Date, our disclosure
controls and procedures were effective in timely alerting them to the material
information relating to us (or our consolidated subsidiaries) required to be
included in our periodic SEC filings.
CHANGES IN INTERNAL CONTROLS.
There were no significant changes made in our internal controls during the
period covered by this report, or to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
14
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
In January 2003 the Company was served with a complaint filed by Gerald
Zutler, our former President and Chief Operating Officer, alleging that the
Company breached his employment contract, fraudulent concealment of the
Company's intention to terminate its employment agreement with Mr. Zutler, and
discrimination on the basis of age and aiding and abetting violation of the New
York State Human Rights Law. Mr. Zutler is seeking damages aggregating $2.25
million, plus punitive damages and reasonable attorneys' fees. We believe that
the Company properly terminated Mr. Zutler's employment for cause and we intend
to vigorously defend this suit as we believe that Mr. Zutler's allegations are
without merit. Answer to the complaint was served by the Company on February 28,
2003, and no discovery has yet been conducted. The Company has filed a claim
with its carrier under its Directors &, Officers, Insured Entity and Employment
Practices Liability policy but does not know if the carrier will cover this
claim under the policy; the policy has a $50,000 deducible and a liability limit
of $3 million per policy year.
The Company filed a Demand for Arbitration against Presidion Solutions,
Inc. alleging that Presidion breached the terms of the Memorandum of
Understanding between Accessity and Presidion dated January 17, 2003. The
Company is seeking a Break-up Fee of $250,000 pursuant to the terms of the
Memorandum of Understanding alleging that Presidion breached the Memorandum of
Understanding by wrongfully terminating the Memorandum of Understanding.
Additionally, the Company is seeking its out of pocket costs of due diligence
amounting to approximately $37,000. Presidion has filed a counterclaim against
Accessity alleging that Accessity had breached the Memorandum of Understanding
and therefore owes Presidion a Break-up Fee of $250,000. We believe that the
claim alleged by Presidion is without merit. The dispute will be settled by a
single arbiter and the case will be heard before the American Arbitration
Association in Broward County, Florida.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(B) REPORTS ON FORM 8-K
None
15
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.
ACCESSITY CORP.
Date: May 14, 2003 By: Barry Siegel
--------------------------------
Chairman of the Board, Secretary
and Chief Executive Officer
Date: May 14, 2003 By: Philip B. Kart
--------------------------------
Senior Vice President, Treasurer
and Chief Financial Officer
16
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
PURSUANT TO REGULATION SS.240.15D-14 AS PROMULAGATED
BY THE SECURITIES AND EXCHANGE COMMISSION
IN CONNECTION WITH THE QUARTERLY REPORT OF DRIVERSHIELD CORP. (THE "COMPANY") ON
FORM 10-QSB FOR THE PERIOD ENDED MARCH 31, 2003, AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION ON THE DATE HEREOF (THE "REPORT"), I, BARRY SIEGEL,
CHAIRMAN OF THE BOARD, SECRETARY AND CHIEF EXECUTIVE OFFICER OF THE COMPANY,
CERTIFY, PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002 PURSUANT TO REGULATION SS.240.15D-14 AS
PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION, THAT:
(1) I have reviewed the Report being filed;
(2) Based on my knowledge, the 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 the Report;
(3) Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the issuer as of,
and for, the periods presented in the Report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (as such term
is defined in paragraph (c) of this section) for the issuer and have:
(i) Designed such disclosure controls and procedures to ensure that
material information relating to the issuer, including its consolidated
subsidiaries, is made known to them by others within those entities,
particularly during the period in which the periodic Reports are being
prepared;
(ii) Evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the
Report ("Evaluation Date"); and
(iii) Presented in the Report their conclusions about the effectiveness of
the disclosure controls and procedures based on their evaluation as of the
Evaluation Date;
(5) I and the other certifying officers have disclosed, based on their most
recent evaluation, to the issuer's auditors and the audit committee of the board
of directors (or persons fulfilling the equivalent function):
17
(i) All significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to record,
process, summarize and report financial data and have identified for the
issuer's auditors any material weaknesses in internal controls; and
(ii) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer's internal controls;
and
(6) The registrant's other certifying officers and I have indicated in the
Report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of their most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
BY /S/ BARRY SIEGEL
--------------------------------
BARRY SIEGEL
CHAIRMAN OF THE BOARD, SECRETARY
AND CHIEF EXECUTIVE OFFICER
18
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
PURSUANT TO REGULATION SS.240.15D-14 AS PROMULAGATED
BY THE SECURITIES AND EXCHANGE COMMISSION
IN CONNECTION WITH THE QUARTERLY REPORT OF DRIVERSHIELD CORP. (THE "COMPANY") ON
FORM 10-QSB FOR THE PERIOD ENDED MARCH 31, 2003, AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION ON THE DATE HEREOF (THE "REPORT"), I, PHILIP KART,
SENIOR VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER OF THE COMPANY,
CERTIFY, PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002 PURSUANT TO REGULATION SS.240.15D-14 AS
PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION, THAT:
(1) I have reviewed the Report being filed;
(2) Based on my knowledge, the 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 the Report;
(3) Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the issuer as of,
and for, the periods presented in the Report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (as such term
is defined in paragraph (c) of this section) for the issuer and have:
(i) Designed such disclosure controls and procedures to ensure that
material information relating to the issuer, including its consolidated
subsidiaries, is made known to them by others within those entities,
particularly during the period in which the periodic Reports are being
prepared;
(ii) Evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the
Report ("Evaluation Date"); and
(iii) Presented in the Report their conclusions about the effectiveness of
the disclosure controls and procedures based on their evaluation as of the
Evaluation Date;
(5) I and the other certifying officers have disclosed, based on their most
recent evaluation, to the issuer's auditors and the audit committee of the board
of directors (or persons fulfilling the equivalent function):
19
(i) All significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to record,
process, summarize and report financial data and have identified for the
issuer's auditors any material weaknesses in internal controls; and
(ii) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer's internal controls;
and
(6) The registrant's other certifying officers and I have indicated in the
Report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of their most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
BY /S/ PHILIP KART
--------------------------
PHILIP KART
SENIOR VICE PRESIDENT, TREASURER
AND CHIEF FINANCIAL OFFICER
20
INDEX OF EXHIBITS
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
21