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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, 2004
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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 10, 2004 the issuer had outstanding a total of 2,237,414 shares
of common stock.
Transitional Small Business Format (check one) Yes[_] No[X]
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ACCESSITY CORP.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2004
CONTENTS
PAGE
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
As of March 31, 2004 (Unaudited) 3
Condensed Consolidated Statements of Operations and
Comprehensive Loss
(Unaudited) for the Three Months ended
March 31, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Three Months ended
March 31, 2004 and 2003 5
Notes to Condensed Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis 13
Item 3. Controls and Procedures 15
Part II. OTHER INFORMATION 16
Item 6. Exhibits and Reports on Form 8-K 16
Certifications 17
2
ITEM 1. FINANCIAL STATEMENTS
----------------------------
ACCESSITY CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2004
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 108,686
Accounts receivable 101,757
Investments 3,952,979
Prepaid expenses and other current assets 124,669
------------
Total current assets 4,288,091
Investments --
Property and equipment, net of accumulated depreciation 381,226
Restricted certificate of deposit 300,000
Security deposits and other assets 53,549
------------
Total assets $ 5,022,866
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 126,498
Accrued expenses and other current liabilities 329,553
Capital lease obligation 11,769
------------
Total current liabilities 467,820
------------
Shareholders' equity:
Common stock, $.015 par value, authorized 30,000,000
shares; issued 2,419,398 36,291
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 11,101,178
Accumulated other comprehensive loss, unrealized holding
loss on investment securities (38,924)
Deficit (4,814,067)
------------
6,284,488
Less common stock held in treasury, at cost,
181,984 shares 1,729,442
------------
Total shareholders' equity 4,555,046
------------
Total liabilities and shareholders' equity $ 5,022,866
============
See notes to condensed consolidated financial statements.
3
ACCESSITY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
Three Months Ended,
MARCH 31 March 31
2004 2003
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Revenue:
Collision repairs, fees and royalties $ 40,578 $ 141,260
Hospital fees 185,673 --
------------ ------------
Total revenues 226,251 141,260
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Operating expenses:
Collision repair expenses -- 97,514
Sales and marketing 106,239 139,077
General and administrative 525,366 497,082
Depreciation and amortization 58,920 84,265
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Total operating expenses 690,525 817,938
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(464,274) (676,678)
Investment and other income, net of interest expense 40,285 42,163
------------ ------------
Loss from continuing operations (423,989) (634,515)
Discontinued operations (Note 5):
Income from affinity services subsidiary (no tax effect) -- 141,076
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Net loss (423,989) (493,439)
Other comprehensive gain (loss) - unrealized gain (loss) on
marketable securities, net of reclassification adjustments (1,139) (19,682)
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Comprehensive loss $ (425,128) $ (513,121)
============ ============
Basic and diluted earnings (loss) per common share:
Continuing operations $ (0.19) $ (0.29)
Discontinued operations 0.00 0.06
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Net Loss $ (0.19) $ (0.23)
============ ============
Basic and diluted weighted average number of common shares outstanding 2,237,414 2,173,815
============ ============
See notes to condensed consolidated financial statements.
4
ACCESSITY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
MARCH 31 March 31
2004 2003
------------ ------------
Cash flows provided by (used in) operating activities:
Net income (loss) $ (423,989) $ (493,439)
------------ ------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization (including bond premium
amortization) 58,920 93,342
Loss on sale of investments 3,696 14,922
Options granted for services -- 8,955
Changes in assets and liabilities:
Accounts receivable 54,339 (25,340)
Prepaid expenses and other assets (10,368) 233,116
Accounts payable 74,301 (181,567)
Accrued expenses and other current liabilities (89,347) (407,831)
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Total adjustments 91,541 (264,403)
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Net cash provided by (used in) operating activities (332,448) (757,842)
------------ ------------
Cash flows provided by (used in) investing activities:
Purchase of property and equipment (1,125) (21,220)
Proceeds from sale of investments 400,000 2,476,237
Purchase of investments (44,699) (2,486,497)
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Net cash provided by (used in) investing activities 354,176 (31,480)
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Cash flows provided by (used in) financing activities,
payments under capital lease (8,617) (7,720)
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Net increase (decrease) in cash and cash equivalents 13,111 (797,042)
Cash and cash equivalents at beginning of period 95,575 908,655
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Cash and cash equivalents at end of period $ 108,686 $ 111,613
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 521 $ 1,473
============ ============
See notes to condensed consolidated financial statements.
5
ACCESSITY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2004
(UNAUDITED)
1. BASIS OF PRESENTATION
------------------------
The information contained in the condensed consolidated financial
statements for the three months ended March 31, 2004 and 2003 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 August 1, 2003, the Company sold its affinity service automobile
business (see Note 5). The accompanying financial statements reflect the results
of this business as Discontinued Operations. Accordingly, certain prior period
amounts have been reclassified.
Upon approval from its shareholders at the December 15, 2003 annual
shareholders meeting, the Company effected a one-for-for-five reverse common
stock split. The effective date of the stock split was January 7, 2004. All
references to common shares, options, warrants or other issues convertible into
common shares have been adjusted to reflect this stock split on a retroactive
basis. The number of authorized common shares and the par value were not
changed.
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, 2003, 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 exited the
automotive market and entered into a medical billing recovery business. It
divested its original automotive business in February 2002, which provided
collision repair and fleet management services primarily for numerous Fortune
500 companies.
The Company also offered collision repair management services during early
2003 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,
currently, is no longer engaged in collision
6
repair management. During the early part of 2003 it completed certain in-process
repairs that had been initiated by its customers in late 2002. It remains liable
for warranties of auto repairs it provided, however warranty costs have
historically not been significant.
In addition, the Company also sold its remaining automotive business,
effective August 1, 2003, that provided automobile affinity services for
individuals. A definitive agreement was completed for the sale of all of the
outstanding shares of its wholly owned subsidiary to the president of the
business (see Note 5). The Company believes that it operated its
automotive-related businesses in one operating segment.
During the 2003 period 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
permitted 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
included 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
assumed the risks and responsibilities of the vehicle repair process, from
commencement to completion, for its insurance clients. It warranted all repairs
completed through its network of repair facilities, for periods up to as long as
the driver owned the vehicles and issued warranty certificates for claims
processed through its supplier network. The Company recorded revenues gross in
these circumstances, having acted as the principal in the transaction. As
described in Note 5, this business is now managed by ClaimsNet, Inc.
("ClaimsNet").
During the third quarter of 2002, the Company began a new business, Sentaur
Corp. ("Sentaur") engaged in medical billing recovery, a new business segment.
The business provides benefits to the hospital segment of the healthcare
industry by recouping inappropriate discounts taken from hospital billings by
institutional or insurance payors. Sentaur began generating revenue during the
second quarter of 2003. Billings have been increasing, along with the number of
contracts it has received from hospitals. The Company records revenues net for
this business, having acted as an agent of the hospitals.
Three of the Company's customers currently accounted for approximately 84%
of its 2004 continuing revenues to date and four customers accounted for
approximately 83% of its outstanding trade receivables at March 31, 2004.
3. PREFERRED STOCK REPURCHASE
-----------------------------
In connection with the sale of the Company's former wholly-owned
subsidiary, driversshield.com FS Corp. ("FS"), its collision repair and fleet
services business, to PHH Vehicle Management Services, LLC, d/b/a PHH Arval
("PHH"), a subsidiary of the Cendant Corporation (NYSE, symbol CD) in February
2002 and, pursuant to the Preferred Stock Purchase Agreement, PHH acquired 1,000
shares of the Company's Series A Convertible Preferred Stock (the "Preferred
Shares") for $1.0 million. The Preferred Shares provided for conversion, at the
holder's discretion, into 100,000 shares of the Company's common stock (subject
to adjustments for stock splits, re-capitalization and anti-dilution
provisions).
7
Effective May 13, 2004, in exchange for certain mutual releases and the
extension of certain non-compete clauses in favor of PHH, the Company and PHH
have amended that Preferred Stock Agreement executed in February 2002, and
entered into a Stock Repurchase Agreement providing the Company, or its assigns,
with the right to repurchase these shares for $350,000. The repurchase of the
preferred shares by the Company is required only in the event that the
arbitration matter, described in Form 10-KSB for the fiscal year ended December
31, 2003, between the Company and Presidion Solutions, Inc. is successfully
concluded with an award granted and collected by the Company. PHH may exercise
its right to convert all of its preferred shares into common stock before the
Company elects to repurchase the stock through the termination date of September
15, 2004.
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, a wholly-owned subsidiary of the CEI Group, Inc. ("CEI"), a
Pennsylvania corporation, in which ClaimsNet assumed the responsibilities of
servicing the operations and management of DriverShield CRM, the business that
provided insurance carriers with collision repair management for their insureds.
During 2003 the Company processed 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. As consideration, ClaimsNet remits a share of the profits
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 as15% of
all administrative and vendor referral fees for all new customers that use the
licensed technology to have their vehicles repaired. The term of the partnership
is for a five year period with a two year renewal. The contract also grants
ClaimsNet an option to purchase this business, pursuant to a formula, beginning
January 1, 2007.
For the quarters ended March 31, 2004 and 2003 the Company recorded fees
from ClaimsNet of $40,000 and $8,000 respectively. As part of the agreement,
during the quarter ended March 31, 2003, the Company also accrued $12,000 for
certain personnel costs during the transition. There were no comparable costs in
the 2004 Quarter.
5. DISCONTINUED OPERATIONS OF AUTOMOBILE AFFINITY SERVICES BUSINESS AND SALE TO
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RELATED PARTY
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Upon approval of its board of directors, the Company negotiated a Stock
Purchase Agreement ("the ADS Agreement"), effective August 1, 2003, for the sale
of all of the outstanding shares of its wholly owned subsidiary, DriverShield
ADS Corp. ("ADS") to an employee who is the president of this business. Under
the terms of the ADS Agreement the Company received a one-time fee of $10,000 on
September 30, 2003, plus it received reimbursement for its legal fees of
approximately $10,000 incurred for this sale. As a component of the transaction,
the individual purchaser also agreed to forego all future rights to receive
compensation and other benefits associated with his employment contract,
8
which was to expire in December 2004, but terminated on July 31, 2003. All of
the employees and related costs of the ADS business were borne by the purchaser
as of the effective date, and the Company has no continuing management of, or
responsibility for, the operations. The net liabilities of the business at the
closing date, of approximately $31,000, consisting of primarily accounts
receivable and payable, were retained by the Company.
The purchaser of the ADS business, Barry J. Spiegel, was one of the four
members of the Board of Directors of the Company, and a significant shareholder,
who had retained his seat on the Board of Directors. With the completion of this
transaction, the Company had exited from all operating activities of its various
automotive businesses. Mr. Spiegel resigned from the Board of Directors in May
2004.
The operating results of the affinity services business have been presented
as discontinued operations in the accompanying financial statements. The Company
recorded a net gain of $10,000 on the transaction in the quarter ended September
30, 2003.
Operating results during the quarter ended March 31, 2003, for the
discontinued affinity services operations were as follows:
Three Months Ended
March 31,
2003
------------
Revenues $ 235,000
Cost of sales, selling, general and
administrative expenses (94,000)
------------
Income from discontinued operations, pre-tax $ 141,000
6. EARNINGS (LOSS) PER SHARE
----------------------------
Basic earnings (loss) per common 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, 2004 and 2003,
respectively, approximately 501,000 and 920,000 of potentially dilutive common
stock equivalents were excluded from the earnings per share calculations, as
their inclusion would have been anti-dilutive.
7. STOCK-BASED COMPENSATION PLANS
---------------------------------
The Company issues stock options to its employees and outside directors
pursuant to stockholder-approved stock option programs, and accounts for
stock-based compensation plans under the intrinsic value method of accounting as
defined by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. No stock-based employee
compensation cost is reflected in net income (loss) for the three months ended
March 31, 2004 and 2003, as all options granted under these plans had an
exercise price equal to the fair market value of the underlying common stock on
the date of grant. See Note 8 for variable priced stock options. For pro forma
disclosures, the estimated fair value of the option is amortized over the
vesting period, which
9
range from immediate vesting to three years. The following table illustrates the
effect on net income (loss) and earnings (loss) per share if we had accounted
for our stock option and stock purchase plans under the fair value method of
accounting under Statement 123, as amended by Statement 148:
Three Months Ended
March 31,
2004 2003
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Net income (loss), as reported ($ 423,989) ($ 493,439)
Deduct: Total stock-based employee
compensation expense
determined under fair value-
based method for all awards,
net of related tax effects ($ 85,753 ) ($ 140,234)
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Pro forma net income (loss) ($ 509,742) ($ 633,673)
========== ==========
Earnings (loss) per share:
Basic, as reported ($ .19) ($ .23)
Basic, pro forma ($ .23) ($ .29)
Diluted, as reported ($ .19) ($ .23)
Diluted, pro forma ($ .23) ($ .29)
8. NON-CASH COMPENSATION FOR VARIABLE PRICED OPTIONS
----------------------------------------------------
In October 1999 the Company repriced certain options previously granted to
employees and third parties, representing the right to acquire 440,000 shares of
common stock. The original grants gave holders the right to purchase common
shares at prices ranging from $5.00 to $6.20; these were repriced to prices
ranging from $3.75 to $4.15 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 Interpretation 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.
During the year ended December 31, 2003 all of these options, except for 6,667,
were either forfeited or expired, There was no charge or credit during the
current quarter, or comparable period in 2003, as the price per share of the
Company's common stock traded at levels below the exercise prices.
9. INVESTMENTS
--------------
Investments at March 31, 2004 consist of available-for-sale securities that
had a fair market value of $3,953,000.
10. PROFORMA INFORMATION
------------------------
Proforma information, assuming that the disposal of ADS occurred at the
beginning of the earliest quarterly period presented, has not been presented
since the disposal has been accounted for as discontinued operations, and such
amounts have been reclassified from continuing operations.
10
11. INCOME TAXES
----------------
At December 31, 2003, the Company had operating loss carry forwards of
approximately $3,600,000 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.
12. 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 to B & B Lakeview Realty of
approximately $33,000 in the current quarter. Pursuant to the lease agreement,
the Company is also required to pay various building maintenance, insurance and
other specified charges, as incurred, to other unrelated vendors. It was also
required to establish a $300,000 certificate of deposit as described in the
Liquidity and Capital Resources section of Managements Discussion and Analysis
or Plan of Operation.
13. SEGMENT INFORMATION
-----------------------
The Company currently reports two segments, medical and automotive. As
described in Note 4, however, the Company participates in the automotive segment
only through a profit-sharing arrangement; it no longer operates, or has
liability for, the current activities of the automotive segment, which function
under the managerial autonomy of ClaimsNet, pursuant to its contractual
arrangement with the Company. The Company manages these segments separately
since each serves different markets and users, as described in Note 2.
All of the Company's sales are made within the domestic United States.
Segment information follows.
Three Months Ended
March 31,
2004 2003
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Revenue:
Medical $ 186,000 $ --
Automotive 40,000 141,000
Consolidated total $ 226,000 $ 141,000
Segment profit (loss):
Medical(1) $ 10,000 $ (123,000)
Automotive(1) 16,000 (14,000)
Other/corporate(1) (450,000) (498,000)
---------- ----------
Consolidated total $ (424,000) $ (635,000)
Segment profit or (loss) reflects continuing operations before provision for
income taxes (benefit).
11
Identifiable assets at March 31, 2004:
Medical $ 104,000
Automotive 93,000
Other, corporate 4,826,000
----------
Consolidated total $5,023,000
(1) The Company does not allocate taxes, other income, interest income or
expense, or its corporate general and administrative expenses to its individual
segments. The segment profit (loss) shown above reflects those costs that are
directly and specifically identifiable with the operating activities of the
segment.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
-----------------------------------------------------------------
Forward Looking Statements - Cautionary Factors
The following discussion and analysis should be read in conjunction with
the Company's financial statements and the notes hereto appearing elsewhere in
this report. This report contains forward-looking statements within the meaning
of the Private Securities Litigation Act of 1995. The Company cautions that
forward-looking statements are not guarantees of future performance and involve
certain risks and uncertainties (including those identified in "Risk Factors" in
the Company's Form 10-KSB for the year ended December 31, 2003) 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, 2004 (THE "2004 QUARTER") COMPARED TO THREE MONTHS
-------------------------------------------------------------------------------
ENDED MARCH 31, 2003 (THE "2003 QUARTER").
------------------------------------------
The 2004 Quarter reflected a net loss of $424,000 compared to a net loss of
$493,000 in the 2003 Quarter. Loss from continuing operations was $424,000 in
the 2004 Quarter versus a loss of $635,000 in the 2003 Quarter; a reduction in
losses of 33%. Basic and diluted loss per share from continuing operations was
$.19 and $.29 per share in the 2004 and 2003 Quarters respectively. Basic and
diluted income per share from discontinued operations was $.06 in the 2003
Quarter and zero in the 2004 Quarter.
REVENUES FROM CONTINUING OPERATIONS
-----------------------------------
Revenues were $226,000 in the 2004 Quarter, versus $141,000 in the 2003
Quarter, representing an increase of $85,000 or 60%. The Company's revenues
decreased by $101,000 in its automotive segment, from $141,000 in the 2003
Quarter to $40,000 in the 2004 Quarter as a result of transferring the operating
responsibility of its CRM business to ClaimsNet, effective January 2003.
However, as described below, the significant reduction in infrastructure costs
eliminated the direct expenses and losses from this business segment (excluding
corporate overhead which the Company does not allocate to its operating units).
The revenues the Company recorded in the 2004 Quarter reflect referral fees
associated with claims processed by ClaimsNet. Offsetting this reduction in
revenues from its automotive segment were revenues of $186,000 from Sentaur, the
Company's new financial recovery business for hospitals. Sentaur had not
commenced billing and accordingly, there was no comparable amount in the 2003
Quarter.
OPERATING INCOME AND EXPENSES FROM CONTINUING OPERATIONS
--------------------------------------------------------
Pretax losses from continuing operations decreased 33%, to $424,000 in the
2004 Quarter compared to a pretax loss of $635,000 in the 2003 Quarter, a
decrease in losses of $211,000. The comparative amounts are described below.
Collision repair and fees earned relating to its automotive repair
business, net of collision repair costs, decreased to zero in the 2004 Quarter
versus $43,000 in the 2003 Quarter resulting from the transfer of the business
to ClaimsNet, described above.
13
Selling expenses decreased by $33,000 (24%), to $106,000 in the 2004
Quarter, from $139,000 in the 2003 Quarter. This was primarily the result of
reduced costs for marketing, personnel and related travel activities of Sentaur
and other corporate marketing activities, and the elimination of costs of its
CRM automotive industry segment.
General and administrative expenses increased by $28,000 (6%), from
$497,000 in the 2003 Quarter to $525,000 in the 2004 Quarter resulting primarily
from increased legal expenses relating to our claim against Presidion Solutions,
Inc. which was arbitrated in the 2004 Quarter. During the 2004 Quarter the
Company incurred legal expenses for three claims (as described in the Company's
December 31, 2003 10-KSB), two in which it is a plaintiff and one as a
defendant, totaling $130,000, versus $66,000 in 2003 the Quarter, an increase of
$64,000. Aside from legal costs, all other general and administrative expenses
in the aggregate declined by $36,000.
Depreciation declined $25,000, from $84,000 in the 2003 Quarter to $59,000
in the 2004 Quarter, resulting from assets which became fully depreciated.
Investment and other income, net, decreased $2,000 from $42,000 in the 2003
Quarter to $40,000 in the 2004 Quarter primarily resulting from decreased
interest income caused by declining rates and lower investment balances.
DISCONTINUED OPERATIONS
-----------------------
Discontinued operations in the 2003 Quarter, reflects the net operating
results of the affinity services subsidiary which was sold effective August 1,
2003. In the 2004 Quarter there were no discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of March 31, 2004 the Company had cash and cash equivalents of $109,000.
The Company also holds shares in a number of highly liquid mutual funds valued
at $3,953,000. Working capital of the Company as of March 31, 2004 was
$3,820,000 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 a restricted certificate of deposit.
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 has no major expenditures that it currently anticipates for
capital equipment, however it is expending funds due to operating losses,
including funding the growth of its Sentaur business unit. As Sentaur obtains
new hospital customers and seeks to expand its sales, it may require additional
funds for personnel expenses and software systems development, but this would
occur in anticipation of future revenue growth. We expect to use our resources
to support Sentaur's growth during 2004 and thereafter. Also, the Company
incurred an unusually high level of legal expense in the 2004 quarter in
14
connection with three claims; two of which the Company is the plaintiff and one
in which it is the defendant. We anticipate this level of legal costs will
decline.
In addition, the Company has spent considerable effort with its management
pursuing acquisition candidates, and is continuing 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 lien and judgment searches. Should we
complete an acquisition, we may use a significant amount of our funds to either
pay a portion of the purchase price and/or expand the business we acquire.
The Company believes that its present liquidity will enable it to continue
to support its operations, as they are currently configured for our continuing
business, 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.
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 ss.240.13a-15(e) or 240.15d-15(e) under the Exchange
Act) as of March 31, 2004. Based upon that evaluation required by section
ss.240.13a-15 or 240.15d-15 under the Exchange Act, the Chief Executive Officer
and Chief Financial Officer concluded that, 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.
15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------
(a) EXHIBITS
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer
32.2 Certification of Chief Financial Officer
(b) REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Accessity Corp.
Date: May 14, 2004 By: Barry Siegel
--------------------------------
Chairman of the Board, Secretary and
Chief Executive Officer
Date: May 14, 2004 By: Philip B. Kart
--------------------------------
Senior Vice President, Treasurer and
Chief Financial Officer
16
INDEX OF EXHIBITS
-----------------
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer
32.2 Certification of Chief Financial Officer
17