SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-23903
eAUTOCLAIMS.COM, INC.
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(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.)
2708 Alt. 19 N., Suite 604, Palm Harbor, Florida 34683
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (727) 781-0414
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Check whether the issuer (1) 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.
[ X ] Yes [ ] No
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ X ]
State issuer's revenues for its most recent reporting period July 31,
2000........$1,746,884.
Aggregate market value of the voting stock held by non-affiliates of the
registrant at July 31, 2000 was $29,289,915.
TRANSFORMATION PROCESSING, INC.
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(Former name or former address, if changed since last report)
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FORM 10-KSB - Index
PART I
Page
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Item 1. Description of Business ......................................... 2
Item 2. Description of Property.......................................... 16
Item 3. Legal Proceedings................................................ 16
Item 4. Submission of Matters to a Vote of Security Holders.............. 16
PART II
Item 5. Market of the Registrant's Securities
and Related Stockholder Matters.................................. 17
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 20
Item 7. Financial Statements and Supplementary Data...................... 23
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures........................................ 23
PART III
Item 9. Directors and Executive Officers of the Registrant............... 23
Item 10. Executive Compensation........................................... 26
Item 11. Security Ownership of Certain Beneficial Owners and Management... 31
Item 12. Certain Relationships and Related Transactions................... 32
Item 13. Exhibits, Consolidated Financial Statements,
Schedules and Reports on Form 8-K................................ 34
Signatures....................................................... 36
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This Annual Report on Form 10-KSB and the documents incorporated herein by
reference contain forward-looking statements that have been made pursuant to the
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, estimates and
projections about our industry, management's beliefs, and assumptions made by
management. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict; therefore,
actual results and outcomes may differ materially from what is expressed or
forecasted in any such forward-looking statements.
PART I
ITEM 1. BUSINESS
General
eAutoclaims.com, Inc. ("eAutoclaims.com", the "Company" or "we") provides
Internet based collision claims administration services for automobile insurance
companies and corporate automobile fleet management companies. We provide an
infrastructure that links automobile insurance companies and self-insured fleet
owners with thousands of collision repair shops and support facilities located
throughout the United States. Our services provide our customers with a
cost-effective means of monitoring repairs and controlling expenses incurred in
the process of evaluating and paying collision claims. We derive our revenues
from administrative fees paid by our customers and by sharing in discounts
received by our customers from parts and service providers when processing
collision work through our system.
Our business model is similar to that of health maintenance organizations
("HMO's") and preferred provider organizations ("PPO's"). HMO's and PPO's seek
to control the cost of medical services by bringing the various health care
providers, such as doctors and hospitals, together in a single organization,
thereby exerting control over the costs of services paid for by the HMO or PPO.
EAutoclaims.com 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 parts and
services, and performing necessary repair services. We monitor the performance
of parts and service providers to help assure that the expectations of the
insurance company for quality, timeliness and cost are being met. As HMO's and
PPO's have relationships with many providers, we have established relationships
with approximately 2,000 body shops and over 4,000 glass shops throughout the
United States. Because of these relationships, we are typically able to obtain
lower cost parts and services for insurance companies and increase the volume of
work for repair shops that are part of our preferred provider network.
Products and Services
Our customers consist primarily of automobile insurance companies and owners of
large automobile fleets who have elected to self-insure collision damage to
their fleet vehicles. Most of our insurance industry customers are small to
mid-size insurance carriers that specialize in non-standard coverage.
Non-standard insurance coverage is insurance for private passenger automobile
risks that are typically rejected or canceled by standard market companies
because the insured have poor loss experience or a history of late payments of
premium.
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We outsource and manage the entire collision repair function for automobile
insurance companies and self-insuring fleet owners. eAutoclaims.com becomes, in
essence, the physical damage claims department for our customers. We control the
vehicle repair process from the time of reporting of the accident through the
vehicle's satisfactory repair. eAutoclaims.com has established a network of
thousands of collision shops. By using collision repair shops that are part of
our network, insurance companies and fleet owners can frequently obtain parts
and services at lower costs than otherwise available. We monitor and audit all
repair work to help assure that high quality work is performed at the negotiated
price. Most collision damage is transmitted to our hub and viewed using digital
photos over the Internet.
Our proprietary preferred provider network of approximately 2,000 collision
shops located throughout the United States has enabled eAutoclaims.com to enter
into the corporate automobile fleet collision repair management business. Many
fleet owners have found that the premiums charged by insurance companies
frequently exceed the cost of self-insurance. To avoid the cost of third-party
insurance coverage, many fleet owners self-insure their collision repair claims
for their vehicles. eAutoclaims.com earns fees from our fleet owner customers
and shares in rebates on repairs done by affiliated collision shops. As of
November 1, 2000, we had approximately 5,000 fleet vehicles under contract.
We strive to provide our insurance company customers with new and innovative
ways to control costs associated with processing collision claims without
raising insurance premiums and help our fleet customers control costs of
self-insuring their collision repairs. We help our clients lower their
automobile claims losses by providing the following:
- AuditTrail - We audit every claim that comes into the system. This allows
us to deliver the lowest available adjusted cost to out clients on every
repair.
- Technology - We have built the first customized web-based auto claim
assignment and delivery system for insurance companies and corporate
fleets. eAutoclaims.com uses state-of-the-art technology and security for
the transmission of files and records. In addition, we utilize digital
cameras, Internet communication, advanced data storage and scanners for
auto repair shops not yet equipped with digital cameras, to create a
defined audit trail and high capacity digital storage. We provide these
applications to our clients with their own private label that includes
their corporate colors and logos, which makes the claims process
transparent to both insurance company personnel and the insured.
- Shared Discounts - Unlike many other claims adjudicators, we share our
volume discounts with our clients based on submitted volume.
Service Process
The networking of digital repair facilities is critical to the speed in
processing auto claims and the ability to provide an Internet-based solution. In
comparison to other companies, eAutoclaims.com services are implemented quickly
and economically by converting thousands of network shops to digital technology.
Use of eAutoclaims.com's proprietary Bricks-to-Click(TM) software ensures
quicker turnaround time on claims processing, which results in lower fixed
costs. We provide complementary "private label claim Web sites" for our
insurance customers and private label collision shops.
Collision Claims Management
Our principal service consists of the administration of auto collision claims
for insurance companies, managing general agents and corporate fleets.
eAutoclaims.com believes that it provides a complete outsourcing service for
insurance companies in relation to automobile repairs. These services are as
follows:
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1. Centralized accident reporting.
2. Copy of accident report (Accord format).
3. Policyholder directed to eAutoclaims.com network repair center.
4. Estimate and photographs/digital image to any location overnight or same
day upload.
5. Every claim audited by in-house physical damage experts.
6. Assignment of independent field appraiser when necessary.
7. Part expediting as needed.
8. Computerized tracking and follow-up system to minimize repair time.
9. Replacement rental vehicles.
10. A lifetime guarantee (for as long as the insured owns the vehicle) on all
physical damage body repairs and administration of manufacturer or
installer's warranty on replacement parts.
eAutoclaims.com has over 2,000 affiliated repair and 4,100 auto glass vendors
facilities in its network. We manually audit all collision damage claims at our
data hub using remote digital photographs transmitted over the Internet.
Fleet Management Services
Similar to the services offered to its insurance company customers,
eAutoclaims.com offers its collision claims management services to fleet
management organizations. Our fleet management business help large fleet
organizations to control the costs of self-insuring collision repair claims on
their corporate fleets. Many large fleet owners have found that "middleman"
insurance companies charge premiums beyond the cost of self-insurance.
By keeping repair costs under control, fleet owners are able to self-insure
their corporate fleets. eAutoclaims.com receives discounts up to 15% from the
collision shop invoice as compensation for establishing collision repair
volumes.
Useful Features and Benefits of our System
- eAutoclaims.com (TM) Internet-based process allows our clients to assign
their customers directly to the nearest network collision shop.
- Provides a way for our insurance company clients to control loss
development curves without raising premiums.
- Insurance companies are able to establish lower loss claims reserves. This,
in turn, is used to free up capital and surplus allowing for additional
premiums at lower premium rates.
- Our comprehensive claim administration and settlement process provides for
lower paid claim costs with reduced down times.
- eAutoclaims.com helps reduces fraudulent claims through our process of
claims investigation.
- Because of the faster settlement time our services provide, our insurance
company clients are able to save costs because the amount of time that they
are required to provide rental vehicles to their customers is reduced.
The automotive insurance marketplace has been rapidly expanding and increasingly
fragmented in recent years. While the preferred automobile insurance markets
have been receding, the non-standard markets have been growing. We believe that
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the current market environment provides an opportunity for an Application
Service Provider, such as eAutoclaims.com, to establish itself as a cost
effective provider of claims management.
eAutoclaims.com was founded to service the needs of automobile insurance
companies in the function of controlling collision claims costs for auto
accident repairs. The insurance industry simply has too much overhead and
excessive infrastructure to cost effectively manage internal collision repairs.
eAutoclaims.com increases the insurer's information about the nature of the
claim and accelerates the process toward completion, which in turn, provides the
insurance company efficiencies that they might not achieve through internal
claims processing. The automobile insurance industry has traditionally responded
to increasing collision repair costs by increasing the premium costs to the
consumer. EAutoclaims.com's method of controlling repair costs and reducing the
times for these repairs allows the insurance industry to have an alternative
other than raising insurance premium rates.
Direct Repair Policies
We are currently implementing a strategy to become the preferred provider of
Direct Repair Policies (DPR) for the auto industry. A DRP will enable our
insurance company customers the ability to offers their insurance customer a
reduced premium policy in exchange for agreeing to use eAutoclaims.com
affiliated collision shops. Additionally, repair work performed under the DPR is
guaranteed for so long as the customer owns the automobile.
The foundation of the DRP is our proprietary network of up to 4,000 affiliated
preferred provider facilities and vendors across North America. Historically,
insurance companies have passed the escalating costs of collision repair to the
consumer through rate increases. The DRP program allows insurance companies to
introduce lower premium prices to the consumer in exchange for a requirement to
use only the preferred provider network. DRP can be tailored to help insurance
companies develop specialized insurance coverage for specific industries, such
as taxicabs, limousine services, corporate fleets and affinity groups such as
AARP or professional associations.
Auto Collision Repair
The total current annual market for all non-standard automobile repair work
completed in the United States on insured vehicle's is approximately $60 billion
(Source: ISO 1995 year end results). The collision repair industry is currently
comprised of more than 55,000 highly fragmented facilities. Consolidation
pressures in the collision repair industry have caused many independent
insurance companies to merge or become acquired by larger insurance companies. A
consistent volume of automobile claims helps these providers maintain lower
premium rates and remain profitable.
Insurance Company Outsourcing
Users of risk/loss management products are looking for quality and productivity
improvements. Developments in these products have resulted in the need to apply
a one-stop service that uses new computer technology in the adjudication of
collision claims. Our service offers the insurer a single point of focus and
assists them in closing claims files as quickly and cost effectively as
possible.
Current claims adjusting networks are highly fragmented, comprised of thousands
of independent networks, single independents, and in-house insurance company
claims departments. No one has taken the time or effort to streamline this
process for the middle and small direct writer auto insurance companies. Key
points in defining the outsourcing market segment are states that have no fault
or mandatory insurance regulations. Insurance coverage in these states is
typically provided by small and regional auto insurers who will naturally be
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interested in anything that will allow them to lower paid loss ratio. The
company offers an additional cost benefit to the insurer, because of the savings
realized, which will provide the carrier with the option of maintaining premiums
at competitive levels.
Design Overview
Bricks to Clicks (TM) and eAutoFleet (TM): The Core Service
Clicks
We operate our Bricks-to-Clicks(TM) and eAutoFleet(TM) web site supported by an
electronic and manual processing center where claims are processed according to
the desires of our customer. By providing insurance/fleet companies with access
to eAutoclaims.com web site, the carrier is able to tap into eAutoclaims.com
database of network repair facilities. This direct web access allows the carrier
to assign the insured to a network repair facility from the very first contact
of the claim. Upon assigning the policyholder to a network shop, the insurance
company uses our program to notify the network repair facility and
eAutoclaims.com of the new claim. All repair work is monitored and audited by
our data center to help assure that high quality work is performed at a price
negotiated with the repair facility. This negotiation involves obtaining parts
and labor at the best available price and completing the repair work in the
shortest time necessary to bring the vehicle to its original condition. We
provide a private label application to each of our insurance company clients in
which the insurance company's logos and colors are prominently displayed.
Because of this, both the insurance company's customer and its claims handler,
although operating through our Internet site, appear to be working from the
company's proprietary Internet site .
The eAutoclaims.com insurance/fleet company client also offers the
policyholder/driver the opportunity to file their claim online. The online
policyholder/driver will is able to select a network shop after completing all
the necessary claims information. Upon selecting the submit button, our web site
notifies the insurance company staff adjuster, the network body shop and
eAutoclaims.com of the claim and provides information regarding the claim. The
policyholder/driver is left with the impression of having dealt directly with
the insurance/fleet company's proprietary web site.
Bricks
In both of the above applications, the user is working on the eAutoclaims.com
web site. Once the "Clicks" application is complete, the "Bricks" or "manual"
application begins. eAutoclaims.com manually contacts the network shop to ensure
top quality service when the policyholder/driver arrives for their estimate. The
eAutoclaims.com professional customer service representative contacts the driver
if they do not show-up for their shop appointment or if the shop does not
transmit the estimate in a timely manner.
The network shop uploads the estimate to eAutoclaims.com sending an auto-notice
to both the assigned eAutoclaims.com claims coordinator and the eAutoclaims.com
auditor. The claim is then audited and an agreed upon price is obtained from the
network repair facility. Once this process has been completed, the claim is
posted to the insurance/fleet company's web site, or "Data Repair Center",
providing notice to the insurance/fleet company's assigned claims handler and
providing them with digital photographs of the damage, repair estimate and, when
completed, an invoice for parts and service.
Throughout the Bricks to Clicks(TM) & eAutoFleet(TM) process, the
consumer/driver can be given access to log on to the insurance/fleet company's
eAutoclaims.com web site to view the status of their claim on a site that
appears to be the proprietary site of the insurance/fleet company.
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eAutoclaims.com is compensated based on a per-claims-fee from the insurance or
fleet company upon execution of a Services Agreement. In addition, we retain a
portion of any discounts we negotiate with affiliated collision repair shops.
Discounts are correlated to volumes experienced by collision repair shops.
Insurance/fleet companies are solicited through proposals that reasonably assure
them a reduced paid claims cost, lower administration costs, lower lost
adjustment expense, and the potential to develop Direct Repair Networks--the
ability to issue "Direct Repair Auto Insurance Policies."
Sales and Marketing
We believe that a strong sales and marketing organization is essential to
effectively selling and marketing our services. We are working to establish
recognition of our corporate identity and service offerings through
advertisements in trade publications, direct mail, promotion activities, web
site presence, trade show participation and other media events.
eAutoclaims.com sells directly to its customers through a direct sales force. We
anticipate hiring additional sales representatives to provide additional
coverage in the Southeast, Northeast and the West Coast of the United States.
eAutoclaims.com has chosen to use a direct sales force because its products
require considerable customer education and post-sales support directly from the
company. eAutoclaims.com's price point, pricing structure and profits are such
that its costs of sales warrant a "person-to-person" selling strategy.
Customer Service
eAutoclaims.com recognizes that its continued growth will be dependent upon its
ability to consistently deliver customer centered service at competitive prices.
Our Bricks-to-Clicks(TM) system is designed to ensure that the claims process
flows smoothly and seamlessly. The Company's "bricks" follow-up on claims
assignments helps to ensure that all details of the claim will be verified to
our quality standards.
To ensure that our employees are fully trained in the latest in customer service
techniques and to help attain our goal of becoming known as one of the best
customer service organizations in the industry, we have implemented a "Customer
Service Professional" certification as part of our Associate Development
Program.
To monitor our performance, we have implemented customer service survey
follow-up telephone calls to maintain our own Customer Service Index (CSI). This
program involves sending surveys to the drivers who have used eAutoclaims.com's
repair facilities with questions related to their satisfaction with
eAutoclaims.com and the service of its collision shops. We also survey customers
that have selected other repair shops over those who are part of our network.
This information is utilized in evaluating and training our staff. We also use
these surveys as a tool in evaluating the quality of our network collision
shops.
Employees
As of November 1, 2000, eAutoclaims.com, Inc. had 65 full-time employees. There
is no union contract relating to any of our employees nor does the company
anticipate there to be unionization of its employees. We believe that our
relationship with our employees is generally good.
Intellectual Property
We rely on various intellectual property laws and contractual restrictions to
protect our proprietary rights in products and services. These include
confidentiality, invention assignment and nondisclosure agreements with our
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employees, contractors, suppliers and strategic partners. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our intellectual property without our authorization. In addition, we
intend to pursue the registration of our trademarks and service marks in the
U.S. However, effective intellectual property protection may not be available
for our online services.
We have licensed various proprietary rights to third parties. We attempt to
ensure that these licensees maintain the quality of our services. However, these
licensees may nevertheless take actions that materially adversely affect the
value of or proprietary rights or reputation. We also rely on technologies that
we license from third parties. These licenses may not continue to be available
to us on commercially reasonable terms in the future. As a result, we may be
required to obtain substitute technology of lower quality or at greater cost,
which could materially adversely affect our business, results of operations and
financial condition.
We use various service marks, including eAutoclaims.com, Bricks and Clicks and
eAutoFleet.com. In May 2000, we filed federal service mark applications for
"eAutoclaims.com" and "Bricks to Clicks". We intend to file a federal service
mark application for eAutoFleet.com in the near future. We maintain a website
located at www.eAutoclaims.com. We also own approximately 30 URL internet domain
names, including Premier Express Claims.com, eAutoFleet.com, HMO for your
Car.com and eProcessclaims.com.
In July 2000, EAUTO, LLC, a Texas entity, asserted that the Company's use of its
EAUTOCLAIMS.COM mark and website violated its federally registered EAUTO service
mark. The Company denied this assertion since the marks are different, the
services offered by the Company are different than those offered by EAUTO, Inc.
and there is no likelihood of confusion among relevant consumers. When EAUTO,
Inc. refused to withdraw its assertions of trademark infringement, the Company
filed a lawsuit styled EAUTOCLAIMS.COM, Inc. v. EAUTO, L.L.C., Case No.
8:00CV-1855-T-26*, in the United States District Court of the Middle District of
Florida, Tampa Division seeking a judicial declaration that the Company's use of
its EAUTOCLAIMS.COM mark and website are lawful. On October 25, 2000, our
attorneys received EAuto LLC's motion to dismiss for lack of personal
jurisdiction and improper venue or alternatively a motion to transfer venue and
memorandum or law in support of such motions. We intend to object to such
motions.
There can be no assurance that other third parties will not claim infringement
by us with respect to our current or future technologies. We expect that
participants in our markets will be increasingly subject to infringement claims
as the number of services and competitors in our industry segment grows. Any
such claim, with or without merit, could be time-consuming, result in costly
litigation, cause service upgrade delays or require us to enter into royalty or
licensing agreements. Such royalty or licensing agreements might not be
available on terms acceptable to us or at all. As a result, any such claim of
infringement against us could have a material adverse effect upon our business,
results of operations and financial condition.
We also developed a proprietary insurance claims processing software system,
which we license and market to our customers under the brand name "Bricks to
Clicks(TM)". This system allows insurance agents access to competitive pricing
structures and to determine competitive repair costs. Upon determining the most
competitive repair cost for their geographic region, the insurance agent can
process the claim to completion and provide proceeds to the insured to have the
damaged vehicle repaired. Processing the claim in this manner and providing the
insured with proceeds, facilitates a cash base repair transaction, which
typically costs less than bill-and-pay systems. We intend to apply for a process
patent for this software. There is no assurance that our participated patent
application will be accepted or that other parties may claim infringement or
otherwise object to this patent application.
Operations and Technology
We have internally designed and developed our own web based technology platform
using proprietary software and systems in combination with commercially
available licensed technologies and software. Our network topology is designed
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to facilitate expansion by the addition of servers for dedicated processes
without interrupting our current operating systems.
eAutoclaims.com has spent considerable time and effort evaluating possible
hardware providers. After reviewing the industry leaders, service capabilities,
available technology and web experience, eAutoclaims.com has chosen Dell
Computer Corporation as our hardware provider. Dell Computer Corporation has
assigned a three member "Business Alliance Solution" team to
eAutoclaims.com(TM). After making the decision to work together, we have
executed a joint Non-Disclosure Agreement. Dell Computer Corporation is sharing
with eAutoclaims.com new hardware technology for our proprietary "Bricks to
Clicks (TM)" web service.
Our core hardware and server architecture are based on Dell Poweredge servers.
We maintain individual servers for Web content delivery, data base storage and
retrieval, mail storage and management, fax generation and delivery and back
room operations. Our client and customer workstations require Windows 98 or
higher operating systems with a tendency towards 500 mhz systems using 128
megabytes of memory and a 17 inch monitor. Our dedicated development servers can
operate demonstration CD ROMs to disseminate new applications and custom
formatted presentations for our sales and marketing personnel.
Our primary software is proprietary and licensed as the "Bricks to Clicks(TM)"
Internet Claims System. We also have developed a proprietary eAutoFleet "Bricks
to Clicks(TM)" Internet Claims System which is patterned after the insurance
company model but has distinct differences for capturing loss information and
related reports. So "Business-Intellectual Property."
As demand for our services increase we will need to add additional servers to
our network to deliver content and information. Our internet network is based on
100 mbs Ethernet connectivity. Although recent trends in network switch
technology and hubs have substantially reduced expansion costs we will require
substantial capital to scale up our network to meet anticipated demand for our
services. Our current internet network was constructed to support up to 300
local users without reclosing.
Our technology systems are designed to address important security concerns:
- Prevention of Access to Data by Unauthorized Personnel
Only personnel in our Information and Technology department are allowed access
to stored data. Our Information and Technology department provides indirect
access to our clients via controlled program codes. We protect our servers
against viruses and malicious programs with anti-virus software that is updated
monthly at our clients' workstations. Our email server is also protected by
anti-virus software, with virus definition updates conducted weekly.
Notwithstanding such safeguards and procedures, a successful unauthorized access
to sensitive data or a virus attack on systems such as ours is possible. A
malicious unauthorized access or effective virus could adversely affect our
business.
- Protection from Catastrophic Events
eAutoClaims.com takes the following precautions to help assure continuous
service in the event of catastrophic events such as fire, water intrusion or
loss of power:
- All data and program code is backed up nightly to a magnetic tap
array. One month of historical data is maintained onsite in a
fireproof safe. If a fire were to destroy our facility, we would be
able to deploy a fresh data set to our remotely hosted server within a
matter of hours.
- An additional copy of historical data is stored on a development
server outside of the production server area nightly to provide double
redundancy protection.
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- The NOC (Network Operation Center) is separately housed within the
facility and has a dedicated power supply and air-handling unit.
- The fire suppression system is computer
friendly.
- A clone of our application and database content is maintained on a
server located in Win Gap, Pennsylvania and can be activated within
one hour if necessary. In the event a hurricane threatens our
location, we can deploy our content, notify our clients, and migrate
our operation to our remote site well ahead of any impact to our area.
Notwithstanding these efforts, a significant catastrophic event could interrupt
our service for a substantial period of time, which would adversely affect our
business prospects.
We anticipate that we will continue to devote significant resources to product
development in the future as we add new features and functionality to our Web
site and services. The market in which we compete is characterized by rapidly
changing technology, evolving industry standards, frequent new service and
product announcements and enhancements and changing customer demands.
Accordingly, our future success will depend on our ability to:
- adapt to rapidly changing technologies;
- adapt our services to evolving industry standards;
- continually improve the performance, features and reliability of our
service in response to competitive service and product offerings and
evolving demands of the marketplace.
Our failure to adapt to such changes would have a material adverse effect on our
business, results of operations and financial condition. In addition, the
widespread adoption of new Internet, networking or telecommunications
technologies or other technological changes could require substantial
expenditures by us to modify or adapt our services or intrastructure. This could
have a material adverse effect on our business, results of operations and
financial condition.
Governmental Regulation
We are not currently subject to direct federal, state or local regulation other
than regulations applicable to businesses generally or directly applicable to
electronic commerce. Certain jurisdictions could adopt laws directed at the auto
insurance industry, which could effect our business in an unforeseen and adverse
manner. It is possible that a number of laws and regulations may be adopted with
respect to the Internet. These laws may cover issues such as user privacy,
freedom of expression, pricing, content and quality of products and services,
taxation, advertising, intellectual property rights and information security.
Furthermore, the growth of electronic commerce may prompt calls for more
stringent consumer protection laws. Several states have proposed legislation to
limit the uses of personal use information gathered online or require online
services to establish privacy policies. The Federal Trade Commission has also
initiated actions against online service providers regarding the manner in which
personal information is collected from users and provided to third parties. We
do not currently provide personal information regarding our users to third
parties. However, the adoption of such consumer protection laws could create
uncertainty in Web usage and reduce the demand for our products and services.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity
and export or import matters. The vast majority of such laws were adopted prior
to the advent of the Internet. As a result, they do not contemplate or address
the unique issues of the Internet and related technologies. Changes in laws
intended to address such issues could create uncertainty in the Internet market
place. Such uncertainty could reduce demand for our services or increase the
cost of doing business as a result of litigation costs or increased service
delivery costs.
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In addition, because our services are available over the Internet in multiple
states and foreign countries, other jurisdictions may claim that we are required
to qualify to do business in each such state or foreign country. We are
qualified to do business only in Nevada and California. Our failure to qualify
in a jurisdiction where we are required to do so could subject us to taxes and
penalties. It could also hamper our ability to enforce contracts in such
jurisdictions. The application of laws or regulations from jurisdictions whose
laws do not currently apply to our business could have a material adverse effect
on our business, results of operations and financial condition.
Corporate History
Prior to eAutoclaims.com Merger
We were originally incorporated in Nevada on August 7, 1996, under the name
Samuel Hamann Graphix, Inc. for the purpose of merging with a California
corporation, which had the same name, with us being the surviving entity under a
change of domicile merger. Through a series of transactions more fully described
in our Form 10-KSB for fiscal year end July 31, 1999, to which reference is
hereby made, we changed our name to Transformation Processing, Inc. and became
the surviving entity of a merger with our wholly owned subsidiary organized
under the laws of the Province of Ontario, Canada. At that time we provided
computer related services using software developed by one of our founders.
On August 23, 1999, our prior management filed a Notice of Intent for
Division/Proposal Proceedings under the Bankruptcy and Insolvency Act of Canada,
which is a method of reorganizing the financial affairs of a business to reduce
or eliminate debt (the "Proposal"). On November 25,1999, the Superior Court of
Justice for the Province of Ontario issued an Order approving our Proposal. The
Proposal required Thomson Kernaghan & Co., Ltd. to deposit $375,000 with the
trustee to satisfy obligations to our creditors under the Proposal. On May 8,
2000, BDO Dunwoody Limited, our Proposal trustee, executed a Certificate of Full
Performance indicating we had fully performed under the Proposal, which
essentially discharges and compromises our debt that existed prior to August 23,
1999. On May 31, 2000, the trustee received its discharge by an Order of the
Canadian court.
eAutoclaims.com Merger
On May 25, 2000, the stockholders of Transformation Processing, Inc., a Nevada
corporation ("TPI"), approved the Merger Agreement and Plan of Reorganization
dated April 26, 2000 (the "Merger Agreement"), between TPI and eAutoclaims.com,
Inc., a privately owned Delaware corporation ("eAutoclaims").
In accordance with the terms of the Merger Agreement, 100% of eAutoclaims Common
Stock, or 5,980,000 shares, were exchanged for 5,980,000 TPI common shares. Each
issued and outstanding share of eAutoclaims Common Stock converted into one
share of TPI Common Stock. In addition, options to acquire 425,000 common shares
of eAutoclaims were exchanged or reserved for options to acquire 425,000 common
shares of TPI.
Articles of Merger were filed in the State of Nevada on May 31, 2000, and a
Certificate of Merger was filed in the State of Delaware on June 8, 2000.
Pursuant to the terms of the Merger Agreement, the Board of Directors and
management of eAutoclaims became the directors and management of TPI. The
Articles of Merger contains a provision changing our name to eAutoclaims.com,
Inc. In July 2000 our stock symbol changed to "EACC".
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In connection with the eAutoclaims.com merger, Thomson Kernaghan & Co., Ltd.
("Thomson Kernaghan"), agreed to accept 4,100,000 shares of TPI Common Stock in
exchange for all outstanding debentures, cash advances, interest, warrants and
penalties that TPI owed to Thomson Kernaghan and for any equity of
eAutoclaims.com, Inc., the Delaware corporation. Since our merger with
eAutoclaims.com, Thomson Kernaghan, as agent, has continued to fund our working
capital needs through the issuance of our Series A Preferred Stock. As of
November 1, 2000, we have sold $1,300,000 of our Series A Preferred Stock. See
"Market of the Registrants Securities and Related Stockholder Matters -
Preferred Stock" and "Certain Relationships and Related Transactions".
If you would like to review additional information regarding the eAutoclaims.com
merger, please refer to the following documents and filings:
- Agreement and Plan of Merger, dated May 25, 2000, filed as Exhibit 3.5 to
this Form 10-KSB for fiscal year ended July 31, 2000.
- Form 8-K, Items 1 and 5, filed on or about July 5, 2000.
- Form 8-K, filed on or about August 15, 2000, containing combined financial
statements.
Special Considerations
The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us may also adversely
impact our business operations. If any of the following risks actually occur,
our business, financial condition, or operating results could be negatively
affected.
Our limited operating history makes evaluating our business and prospects
difficult. We have a limited operating history on which you can base an
evaluation of our business and future prospects. We have not achieved
profitability and we may never be profitable. If we do achieve profitability in
any period, we cannot be certain that we will sustain or increase such
profitability on a quarterly or annual basis. You should carefully consider our
prospects in light of the risks and difficulties frequently encountered by early
stage companies in new and rapidly evolving markets. There is a risk that we
will not be able to accomplish our objectives. Failure to achieve any of our
objectives could negatively affect our business, financial condition and results
of operations.
The market for insurance auto collision claims service and corporate automobile
fleet management is extremely competitive. Because insurance auto collision
claims service and corporate automobile fleet management is highly competitive
and has low barriers to entry, we cannot assure you that we will be able to
compete effectively. We expect competition to intensify as current non-Internet
competitors expand their market into the Internet and new competitors, utilizing
the Internet, enter the market. We cannot assure you that we will be able to
compete successfully against current or future competitors, or that competitive
pressures we face will not harm our business, operating results, or financial
condition.
Many of our competitors will have, and potential competitors may have, more
experience, larger technical staffs, larger customer bases, and greater
financial and other resources than we have. In addition, competitors may be able
to develop service that is superior to our service, that achieves greater
customer acceptance or that significantly improves functionality as compared to
our existing and future products and services.
The Internet could become subject to regulations that affect our business. Our
business relies on the Internet and other electronic communications gateways. We
intend to expand our use of these gateways. To date, the use of the Internet has
been relatively free from regulatory restraints. However, legislation,
regulations, or interpretations may be adopted in the future that constrain our
own and our customers' abilities to transact business through the Internet or
other electronic communications gateways. There is a risk that any additional
regulation of the use of such gateways could have a material adverse effect on
our business, financial condition, and operating results.
We depend on key personnel and will need to recruit new personnel. As we attempt
to expand our customer base, we will need to add additional key personnel as we
continue to grow. If we cannot attract and retain enough qualified and skilled
staff, the growth of our business may be limited. Our ability to provide
services to clients and expand our business depends, in part, on our ability to
attract and retain staff with professional experiences that are relevant to
technology development and other functions we perform. Competition for personnel
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with these skills is intense. Some technical job categories are under conditions
of severe shortage in the United States. In addition, restrictive immigration
quotas could prevent us from recruiting skilled staff from outside the United
States. We may not be able to recruit or retain the caliber of staff required to
carry out essential functions at the pace necessary to sustain or expand our
business.
We believe our future success will depend in part on the following:
- the continued employment and performance of our senior management,
- our ability to retain and motivate our officers and key employees, and
- our ability to identify, attract, hire, train, retain, and motivate other
highly skilled technical, managerial, marketing, and customer service
personnel.
If the Protection of our Trademarks and Proprietary Rights is Inadequate, our
Business will be Serious Harmed. The steps we take to protect our proprietary
rights may be inadequate. We regard our copyrights, servicemarks, trademarks,
trade dress, trade secrets and similar intellectual property as critical to our
success. We rely on trademark and copyright law, trade secret protection and
confidentiality or license agreements with our employees, customers, partners
and others to protect our proprietary rights. We have filed service mark
applications for eAutoclaims.com and Bricks to Clicks. We are involved in
litigation regarding the rights to use the name eAutoclaims.com. Effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which we will sell our products and services
online. Furthermore, the relationship between regulations governing domain names
and laws protecting trademarks and similar proprietary right is unclear.
Therefore, we may be unable to prevent third parties from acquiring domain names
that are similar to, infringe upon or otherwise decrease the value of our
trademarks and other proprietary rights.
We may not be able to protect our proprietary technology. Despite any
precautions we may take, a third party may be able to copy or otherwise obtain
and use our software or other proprietary information without authorization or
develop similar software independently. We cannot assure you that the steps we
have taken or will take will prevent misappropriation of our technology.
Litigation may be necessary in the future to determine the validity and scope of
the proprietary rights of others, or defend against claims of infringement or
invalidity. This litigation, whether successful or unsuccessful, could result in
substantial costs and diversions of resources, either of which could harm our
business.
We may infringe intellectual property rights of third parties. Litigation
regarding intellectual property rights is common in the software and technology
industries. We may in the future be the subject of claims for infringement,
invalidity, or indemnification claims based on such claims of other parties'
proprietary rights. These claims, with or without merit, could be time consuming
and costly to defend or litigate, divert our attention and resources, or require
us to enter into royalty or licensing agreements. There is a risk that such
licenses would not be available on reasonable terms, or at all. Although we
believe we have the ability to use our intellectual property to operate and
market our existing services without incurring liability to third parties, there
is a risk that our products and services infringe the intellectual property
rights of third parties.
Our products and technology depend on the continued availability of licensed
technology from third parties. We license and will continue to license certain
technology and software from third parties. These licenses are integral to our
business. If any of these relationships were terminated or if any of these third
parties were to cease doing business, we would be forced to spend significant
time and money to replace the licensed software. We cannot assure you that we
would be able to replace these licenses. This could have a material adverse
effect on our business, financial condition, and operating results.
We are dependent on third parties and certain relationships. We are heavily
dependent upon the collision repair shops and support facilities in our
Preferred Provider Network ("PPN") to adequately and promptly service our
customers' needs. The Company will rely on its ability to enter into agreements
collision repair shops and support facilities. The Company's business is also
generally dependent upon its ability to obtain the services of programmers and
website designers and other persons and entities necessary for the development
and maintenance of its website. There can be no assurance that the Company will
obtain the services of any such person or entities on satisfactory terms, if at
all, or that the Company will maintain such services.
Certain risks exist regarding capacity constraints of our website and system
development risks. A key element of the Company's strategy is to generate a high
volume of traffic on, and use of, its website. Accordingly, the satisfactory
performance, reliability and availability of its website's
transaction-processing systems and network infrastructure are critical to our
reputation and its ability to attract and retain customers, as well as maintain
adequate customer service levels. Our revenues will depend on the number of
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customers who use our website and the volume of claims that it processes. Any
system interruptions that result in the unavailability of the website or reduced
claim fulfillment performance would reduce the volume of services supplied and
the attractiveness of our service offerings and could also adversely affect
consumer perception of us. We may experience periodic system interruptions from
time to time. Any substantial increase in the volume of traffic on the Website
or the number of claims submitted by customers will require us to expand and
upgrade further its technology, transaction-processing systems and network
infrastructure. There can be no assurance that we will be able to accurately
project the rate or timing of increases, if any, in the use of the website or
expand and upgrade its systems and infrastructure to accommodate such increases
on a timely basis.
We need the infrastructure necessary to support the growth of the internet. The
Internet and other online services may not be accepted as a viable commercial
marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. To the extent that the
Internet and other online services continue to experience significant growth in
the number of users, their frequency of use or an increase in their bandwidth
requirements, there can be no assurance that the infrastructure for the Internet
and other online services will be able to support the demands placed upon them.
Furthermore, the Internet has experienced certain outages and delays as a result
of damage to portions of its infrastructure. Such outages and delays, could
adversely affect Internet sites and the level of traffic on our networks. In
addition, the Internet or other online services could lose their viability due
to delays in the development or adoption of new standards and protocols required
to handle increased levels of Internet or other online service activity, or due
to increased governmental regulation. Changes in or insufficient availability of
telecommunications services to support the Internet or other online services
also could result in slower response times and adversely affect usage of the
Internet and other online services generally and eAutoclaims.com in particular.
If use of the Internet and other online services does not continue to grow or
grows more slowly than expected, if the infrastructure for the Internet and
other online services does not effectively support growth that may occur, or if
the Internet and other online services do not become a viable commercial
marketplace, our business, prospects, financial condition and results of
operations would be materially adversely affected. Moreover, critical issues
concerning the commercial use and government regulation of the Internet
(including security, cost, ease of use and access, intellectual property
ownership and other legal liability issues) remain unresolved and could
materially and adversely impact both the growth of the Internet and the
Company's business, results of operations and financial condition.
We must keep pace with rapid technological change. To remain competitive, we
must continue to enhance and improve the responsiveness, functionality and
features of its website. The online commerce industry is characterized by rapid
technological change, changes in user and customer requirements and preferences,
frequent new product and service introductions embodying new technologies and
the emergence of new industry standards and practices that could render its
business model and proprietary technology and systems obsolete. Our future
success will depend, in part, on its ability to license leading technologies
useful in its business, enhance its existing services, develop new services and
technologies that address the increasingly sophisticated and varied needs of its
prospective customers, and respond to technological advances and emerging
industry standards and practices on a cost-effective and timely basis. The
development of a website and other proprietary technology entails significant
technical and business risks. There can be no assurance that we will
successfully use new technologies effectively or adapt its proprietary
technology transaction-processing systems to customer requirements or emerging
industry standards. If we are unable, for technical, legal, financial or other
reasons, to adapt in a timely manner in response to changing market conditions
or customer requirements, our business, prospects, financial condition and
results of operations would be materially adversely affected.
We are dependent on the continued growth of online commerce. Our future revenues
and any future profits will be dependent upon the widespread acceptance and use
of the Internet and other online services as an effective medium of commerce by
consumers. No standards have yet been widely accepted for the measurement of the
effectiveness of Internet sales, and there can be no assurance that such
standards will develop sufficiently to support Internet sales as a purchasing
medium. Rapid growth in the use of and interest in the Internet, and other
online services is a recent phenomenon, and there can be no assurance that
acceptance and use will continue to develop or that a sufficiently broad base of
consumers will adopt, and continue to use, the Internet and other online
services as a medium of commerce. Demand and market acceptance for recently
introduced services and products over the Internet are subject to a high level
of uncertainty and there exist few proven services and products. We rely, and
will continue to rely, on consumers who have historically used traditional means
of commerce to purchase merchandise. For us to be successful, these consumers
must accept and utilize novel ways of conducting business and exchanging
information. There can be no assurance that our customers will accept the
Internet as a means to purchase the Company's services or that our customers
will adopt its systems as a means to purchase services.
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Protection of our domain name is uncertain. eAutoclaims.com currently holds
various Web domain names relating to its business, including the domain name:
"eAutoclaims.com." Governmental agencies and their designees generally regulate
the acquisition and maintenance of domain names. For example, in the United
States, the National Science Foundation has appointed Network Solutions, Inc. as
the current exclusive registrar for the ".com", ".net" and ".org" generic
top-level domains. The regulation of domain names in the United States and in
foreign countries is subject to change in the near future. Such changes in the
United States are expected to include a transition from the current system to a
system that is controlled by a non-profit corporation and the creation of
additional top-level domains. Governing bodies may establish additional
top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, we may be unable to acquire
or maintain relevant domain names in all countries in which we conduct business.
Furthermore, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear. Therefore,
we may be unable to prevent third parties from acquiring domain names that are
similar to, infringe upon or otherwise decrease the value of our proprietary
rights. We are currently involved in litigation involving our rights to the
domain name and servicemark of eAutoclaims.com.
Officers and directors may be able to influence stockholder actions. Executive
officers and directors, in the aggregate, beneficially own approximately 12.0%
of our outstanding voting stock. These stockholders acting together may be able
to significantly influence matters requiring approval by our stockholders,
including the election of directors, and the approval of mergers or other
business combination transactions in a manner that could conflict with our other
stockholders.
Our Certificate of Incorporation limits director liability. As permitted by
Nevada law, the Company's Certificate of Incorporation limits the liability of
directors to the Company or its stockholders for monetary damages for breach of
a director's fiduciary duty except for liability in certain instances. As a
result of the Company's charter provision and Nevada law, stockholders may have
limited rights to recover against directors for breach of fiduciary duty.
There is no assurance that there will be an active trading market for our stock.
There has been a limited public market for our Common Stock and there can be no
assurance that an active trading market in our securities will develop or be
maintained. In addition, the stock market in recent years has experienced
extreme price and volume fluctuations that have particularly affected the market
prices of many smaller companies. The trading price of the Common Stock is
expected to be subject to significant fluctuations in response to variations in
quarterly operating results, changes in analysts' earnings estimates, and
announcements of technological innovations by us or our competitors, general
conditions in our industry and other factors. These fluctuation, as well as
general economic and market conditions, may have a material or adverse effect on
the market price of our Common Stock.
Penny stock regulations may impose certain restrictions on marketability of our
stock. The Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define a "penny stock" to be any equity security
that has a market price (as defined) of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exceptions. As a result,
our Common Stock is subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of such
securities and have received the purchaser's written consent to the transaction
prior to the purchase. Additionally, for any transaction involving a penny
stock, unless exempt, the rules require the delivery, prior to the transaction,
of a risk disclosure document mandated by the Commission relating to the penny
stock market. The broker-dealer must also disclose the commission payable to
both the broker-dealer and the registered representative, current quotations for
the securities and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell our securities.
We have never paid dividends on our Common Stock and do not expect to pay any in
the foreseeable future. We have not paid any dividends on our Common Stock since
inception and do not intend to pay dividends on our Common Stock in the
foreseeable future. Any earnings that the Company may realize in the foreseeable
future will be retained to finance our growth.
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Sales of outstanding shares, exercise of options and registration of additional
securities may adversely affect the market price of our stock. A significant
number of our common shares will be available for resale under Rule 144. Our
employees and directors own a significant number of options, and we plan to file
a Form S-8 registration statement, which will allow our employees and directors
to resell the shares underlying options. Our financing agreements with Thomson
Kernaghan require us to register under the Securities Act the common shares
underlying our Preferred Stock and the warrants issued to those purchasers and
the placement agent. Accordingly, the sale of any of these securities may, in
all likelihood, adversely affect the prevailing market price of our securities.
There is no set floor price on the conversion feature of our Series A Preferred
Stock, which may cause the price of our Common Stock to decrease and result in
substantial dilution to our stockholders. Moreover, our ability to obtain
additional equity capital may be adversely affected by the restrictions imposed
upon us under the agreements relating to the issuance of our Series A Preferred
Stock.
The forward-looking information in this Form 10-KSB may prove inaccurate. This
Form 10-KSB contains forward-looking statements and information that are based
on management's beliefs as well as assumptions made by, and information
currently available to, management. When used in this Form 10-KSB (including
Exhibits), words such as "anticipate," "believe," "estimate," "expect," and,
depending on the context, "will" and similar expressions, are intended to
identify forward-looking statements. Such statements reflect our current views
with respect to future events and are subject to certain risks, uncertainties
and assumptions, including the specific risk factors described above. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, believed, estimated or expected. We do not intend to update these
forward-looking statements and information.
ITEM 2. DESCRIPTION OF PROPERTY
Our main offices are located at 2708 Alternate 19 North, Suite 604, Palm Harbor,
Florida 34683. On October 17, 2000, we entered into a 36-month lease for
approximately 11,780 square feet. Monthly rent of approximately $13,300,
commences on December 1, 2000 and terminates on November 30, 2003. We may cancel
this lease after the 15th month with 90 days prior written notice and a buyout
payment of approximately $13,500. The monthly rent may be increased annually by
the greater of 5% or increases in the Consumer Price Index. PEC also leases and
occupies an office for its call center, which is located at 720 Gracern Road,
Suite 420, Columbia, South Carolina 29210. The monthly base rent is $4,250. This
lease expires on November 30, 2003. If we continue to experience growth, new
offices will be required. Office space occupancy in the Tampa Bay area is at an
extremely high level. There is no assurance we will be able to locate suitable
office space on reasonable or comparable terms. Furthermore, if we are required
to move, our services may be interrupted, which could adversely affect our
business.
ITEM 3. LEGAL PROCEEDINGS
See "Description of Business" - "Corporate History Prior to eAutoclams.com
Merger" and "Patents, Trademarks & Copyrights" for a description of prior
reorganization proceeding and current trademark infringement litigation. From
time to time, we may be involved in litigation relating to claims arising out of
our ordinary course of business. On or about October 23, 2000, we received a
demand letter from a website developer for $135,000 alleging breach of contract.
Our management believes that we are entitled to a refund of $15,000. It is too
early to predict the ultimate outcome of this dispute. We believe that there are
no other claims or actions pending or threatened against us, the ultimate
disposition of which would have a material adverse effect on us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Shareholders owning a majority of our outstanding common shares approved the
merger with eAutoclaims.com, Inc.-Delaware through an action by written consent
on or about May 31, 2000.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Value
Our Common Stock is traded on the OTCBB under the symbol "EACC". The following
table sets forth, the high and low bid prices of the Common Stock for the
periods shown as reported by the National Quotation Bureau. The bid prices
quoted on the OTCBB reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not represent actual transactions. All share
amounts are stated without taking into account the 25 for 1 reverse stock split
that occurred in October 1999.
High Bid Low Bid
-------- -------
Fiscal Year Ended July 31, 1998
First Quarter (August 1, 1997 to October 31, 1997) 0.75 0.30
Second Quarter (November 1, 1997 to January 31, 1998) 0.75 0.38
Third Quarter (February 1, 1998 to April 30, 1998) 2.19 0.28
Fourth Quarter (May 1, 1998 to July 31, 1998) 1.75 0.75
Fiscal Year Ended July 31, 1999
First Quarter (August 1, 1998 to October 31, 1998) 0.78 0.63
Second Quarter (November 1, 1998 to January 31, 1999) 11.25 5.50
Third Quarter (February 1, 1999 to April 30, 1999) 7.75 2.25
Fourth Quarter (May 1, 1999 to July 31, 1999) 4.25 1.50
Fiscal Year Ended July 31, 2000
First Quarter (August 1, 1999 to October 31, 1999) 4.12 0.22
Second Quarter (November 1, 1999 to January 31, 2000) 3.06 1.50
Third Quarter (February 1, 2000 to April 30, 2000) 9.31 1.50
Fourth Quarter (May 1, 2000 to July 31, 2000) 6.63 2.75
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 50,000,000 shares of Common Stock,
$.001 par value ("Common Stock"), and 5,000,000 of preferred stock, $.001 par
value ("Preferred Stock"), issuable in series. The following description of our
capital stock does not purport to be complete and is subject to and qualified in
its entirety by our Certificate of Incorporation and Bylaws, and by the
provisions of applicable Nevada law. Our transfer agent is Equity Transfer
Services, Inc., 120 Adelaide West, Suite 420, Toronto, Ontario, M5H 4C3.
Common Stock
As of October 31, 2000, there were approximately 11,310,378 shares of our Common
Stock outstanding, held of record by approximately 150 stockholders. In
addition, as of October 31, 2000, there were 463,922 shares of Common Stock
subject to outstanding warrants issued to the agent and purchasers of our Series
A Preferred Stock at exercise prices of between $3.00 and $4.50. As of October
31, 2000, we have reserved 905,500 shares of our Common Stock underlying options
issued to our employees and consultants with exercise prices of between $2.00
and $12.50. We have also deposited 292,500 shares of our Common Stock in escrow
in connection with the conversion rights of our outstanding Series A Convertible
Preferred Stock, which shares are included in the number of currently
outstanding shares.
The holders of Common Stock are entitled to one vote per share for the selection
of directors and all other purposes and do not have cumulative voting rights.
The holders of our Common Stock are entitled to receive dividends when, as, and
if declared by our Board of Directors, and in the event of our liquidation to
receive pro-rata, all assets remaining after payment of debts and expenses and
liquidation of the preferred stock. Holders of our Common Stock do not have any
pre-emptive or other rights to subscribe for or purchase additional shares of
capital stock, no conversion rights, redemption, or sinking-fund provisions.
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Preferred Stock and Related Warrants
Our Board of Directors (without further action by the shareholders) has the
option to issue from time to time authorized un-issued shares of Preferred Stock
and determine the terms, limitations, residual rights, and preferences of such
shares. The Company has the authority to issue up to 5,000,000 shares of
Preferred Stock pursuant to action by its Board of Directors. As of October 31,
we had 260 shares of Series A Preferred Stock outstanding.
We entered into a Securities Purchase Agreement and related agreements effective
June 27, 2000, with Thomson Kernaghan, as agent (the "Agent"), relating to the
issuance of our Series A Preferred Stock. The following discussion is only a
summary of certain of the terms and provisions of the Securities Purchase
Agreement, Registration Rights Agreement, Security Agreement, Certificate of
Designation for our Series A Preferred Stock, Purchaser's Warrants and Agent's
Warrants, each of which is filed as an exhibit to this Form 10-KSB, to which
reference is hereby made.
Each time we issue our Series A Preferred Stock we are required to also issue to
the purchaser warrants (the "Purchaser's Warrants") to purchase the number of
shares of our Common Stock determined by dividing 30% of the dollar amount of
our Preferred Stock issued to that purchaser by 130% of the closing bid price of
our Common Stock on the day immediately preceding the issuance of our Preferred
Stock. We are also required to issue warrants to the Agent (the "Agent's
Warrants") equal to 10% of the number of our Common Stock that our Preferred
Stock would be convertible into if the Series A Preferred Stock were convertible
into our Common Stock, assuming the conversion date was the date the Preferred
Stock was issued at an exercise price of $4.50. We are required to register the
shares underlying the Purchaser's Warrants and Agent's Warrants simultaneously
with the registration of the shares of our Common Stock underlying the Series A
Preferred Stock. All Purchaser's Warrants and Agent's Warrants are immediately
exercisable, and have five (5) year exercise period.
On August 28, 2000, we netted approximately $890,000 (net of the Agent's selling
commission and legal fees) in a transaction in which we privately placed to a
group of accredited investors 200 shares of our Preferred Stock at $5,000 per
share. In connection with their purchase of the Preferred Stock, these investors
were issued Purchaser's Warrants to purchase 300,000 shares of our Common Stock
at $3.00 per share. On October 3, 2000, we netted an additional $270,000 from
the issuance of 60 shares of our Preferred Stock. In connection with this
placement, we issued Purchaser's Warrants to acquire 90,000 shares of our Common
Stock at $3.33 per share.
We paid the Agent in these transactions a selling commission of 10% of the
purchase price of the Preferred Stock issued, $130,000, and issued the Agent
warrants to purchase 73,922 shares of our Common Stock at a price of $4.50 per
share.
The Series A Preferred Stock carries a cumulative preferred dividend of 8% per
annum and a liquidation preference of $5,000 per share. Each share of Series A
Preferred Stock is convertible into shares of our Common Stock at a per share
price equal to the lesser of (i) 120% of the closing bid price of a share of our
Common Stock on the trading day immediately preceding the date we issued our
Series A Preferred Stock, or (ii) 75% of the average of the three lowest closing
bid prices of the Common Stock during the twenty trading days preceding the date
of conversion. If they have not previously been converted, each share of Series
A Preferred Stock will automatically convert into shares of our Common Stock two
(2) years from issuance of the Series A Preferred Stock. We have the right to
redeem the Series A Preferred Stock at a price of $5,500 per share upon giving
not less than thirty days prior written notice to holders. Upon receipt of our
notice of conversion, a holder of the Series A Preferred Stock may elect to
convert the shares into Common Stock at any time prior to the date of redemption
as specified in our notice. As part of this transaction, we agreed to file a
registration statement covering all of the shares of our Common Stock
purchasable upon conversion of the Series A Preferred Stock. We are subject to
certain penalty provisions if the registration statement covering these shares
is not declared effective within 180 days of the day we issued our Series A
Preferred Stock. This penalty equals 2% per month of the amount of Series A
Preferred Stock issued, not to exceed 10%.
To secure our obligations with respect to the Series A Preferred Stock and the
Purchase Warrants, we have deposited 292,500 shares of our Common Stock with the
Agent. If we fail to timely deliver certificates for our Common Stock upon
conversion of the Series A Preferred Stock or exercise of the Purchase Warrants,
the Agent is authorized to transfer such shares to the purchaser.
The agreements we entered into in connection with the issuance of the Series A
Preferred Stock contain numerous affirmative and negative covenants, which may
adversely affect our ability to attract other sources of capital or grow our
business. We cannot incur debt outside the normal course, acquire other
businesses, pay dividends, sell assets or issue our securities so long as our
Series A Preferred Stock remains unpaid. The Agent has no obligation to acquire
any additional shares of our Series A Preferred Stock.
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In the future, our Board of Directors has the authority to issue additional
shares of our Preferred Stock in series with rights, designations and
preferences as determined by the Board of Directors. When any shares of our
Preferred Stock are issued, certain rights of the holders of our Preferred Stock
may affect the rights of the holders of Common Stock. The authority of the Board
of Directors to issue shares of our Preferred Stock with characteristics which
it determines (such as preferential voting, conversion, redemption and
liquidation rights) may have a deterrent effect on persons who might wish to
make a takeover bid to purchase our shares at a price, which might be attractive
to our shareholders. However, the Board of Directors must fulfill its fiduciary
obligation to our shareholders in evaluating an takeover bid.
Certain Provisions of the Certificate of Incorporation and Bylaws
Our Certificate of Incorporation provides that no director shall be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director except as limited by Delaware law. Our Bylaws
provide that we shall indemnify to the full extent authorized by law each of its
directors and officers against expenses incurred in connection with any
proceeding arising by reason of the fact that such person is or was an agent of
the corporation.
Insofar as indemnification for liabilities may be invoked to disclaim liability
for damages arising under the Securities Act of 1933, as amended, or the
Securities Act of 1934 (collectively, the "Acts"), as amended, it is the
position of the Securities and Exchange Commission that such indemnification is
against public policy as expressed in the Acts and are therefore, unenforceable.
Dividends
We have not paid any cash dividends on its common or preferred stock and do not
anticipate paying any such cash dividends in the foreseeable future. Earnings,
if any, will be retained to finance future growth.
Shares Eligible for Future Sale
As of October 31, 2000, we had outstanding approximately 11,310,378 shares of
Common Stock. Of these shares, approximately 5,164,242 shares of Common Stock
are freely tradable without restriction or limitation under the Securities Act,
except for any shares purchased by "affiliates" or persons acting as
"underwriters" as these terms are defined under the Securities Act.
The 6,146,136 shares of Common Stock held by existing shareholders that are
"restricted" within the meaning of Rule 144 adopted under the Securities Act
(the "Restricted Shares"), may not be sold unless they are registered under the
Securities Act or sold pursuant to an exemption from registration, such as the
exemptions provided by Rule 144 and Rule 701 promulgated under the Securities
Act. The Restricted Shares were issued and sold by us in private transactions in
reliance upon exemptions from registration under the Securities Act and may only
be sold in accordance with the provisions of Rule 144 or Rule 701 of the
Securities Act, unless otherwise registered under the Securities Act. We are
obligated to register the Preferred Stock and shares of our Common Stock issued
upon the conversion of our Preferred Stock and expect to file a registration
statement in the near future.
In general, under Rule 144 as currently in effect, any person (or persons whose
shares are aggregated), including an affiliate, who has beneficially owned
shares for a period of at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
(1) 1% of the then-outstanding shares of Common Stock; and
(2) the average weekly trading volume in the Common Stock during
the four calendar weeks immediately preceding the date on
which the notice of such sale on Form 144 is filed with the
Securities and Exchange Commission.
Sales under Rule 144 are also subject to provisions relating to notice and
manner of sale and the availability of current public information about us. In
addition, a person (or persons whose shares are aggregated) who has not been an
affiliate of us at any time during the 90 days immediately preceding a sale, and
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<PAGE>
who has beneficially owned the shares for at least two years, would be entitled
to sell such shares under Rule 144(k) without regard to the volume limitation
and other conditions described above. While the foregoing discussion is intended
to summarize the material provisions of Rule 144, it may not describe all of the
applicable provisions of Rule 144, and, accordingly, you are encouraged to
consult the full text of that Rule.
In addition, our employees, directors, officers, advisors or consultants who
were issued shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144, and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions.
We are required to register the shares of Common Stock underlying conversion
features of our Series A Preferred Stock along with the shares of Common Stock
underlying the Agent's Warrants and Purchaser's Warrants. We expect to file a
registration statement relating to such registration rights in the near future.
The sale of our Common Stock underlying this registration statement may also
adversely affect the market price of our Common Stock, result in substantial
dilution to our stockholders and might also adversely affect our ability to
raise additional capital.
The possibility of future sales by existing stockholders under Rule 144 or
otherwise will, in the future, have a depressive effect on the market price of
our Common Stock, and such sales, if substantial might also adversely affect our
ability to raise additional capital.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
IMPORTANT NOTE ABOUT FORWARD-LOOKING STATEMENTS
The following discussion and analysis should be read in conjunction with our
audited financial statements as of July 31, 2000 and the notes thereto, all of
which financial statements are included elsewhere in this form 10-KSB. In
addition to historical information, the following discussion and other parts of
this Form 10-KSB contain forward-looking information that involves risks and
uncertainties. Our actual results could differ materially from those anticipated
by such forward-looking information due to factors discussed under "Business"
and elsewhere in this Form 10-KSB.
The statements that are not historical constitute "forward-looking statements".
Said forward-looking statements involve risks and uncertainties that may cause
the actual results, performance or achievements of the Company and its
subsidiaries to be materially different from any future results, performance or
achievements, express or implied by such forward-looking statements. These
forward-looking statements are identified by their use of such terms and phrases
as "expects", "intends", "goals", "estimates", "projects", "plans",
"anticipates", "should", "future", "believes", and "scheduled".
The variables which may cause differences include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; operating costs; advertising and promotional efforts; the
existence or absence of adverse publicity; changes in business strategy or
development plans; the ability to retain management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employment benefit costs;
availability and costs of raw materials and supplies; and changes in, or failure
to comply with various government regulations. Although the Company believes
that the assumptions underlying the forward-looking statements contained herein
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-KSB will prove to be accurate.
In light of the significant uncertainties inherent in the forward-looking
statements included herein the inclusion of such information should not be
regarded as a representation by the Company or any person that the objectives
and expectations of the Company will be achieved.
OVERVIEW
On May 31, 2000, eAutoclaims.com, Inc. acquired and merged with Transformation
Processing, Inc. in a reverse merger transaction by exchanging approximately
5,980,000 shares of Common Stock, or approximately 55% of our then outstanding
Common Stock after giving effect for the Merger. eAutoclaims.com, Inc. was
considered the acquirer for accounting purposes. Transformation Processing was
reorganized and its business operations ceased prior to the effective date of
the merger.
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Our business operations changed in May 2000 due to the merger with
eAutoclaims.com, Inc. With the merger of eAutoclaims.com, Inc., we have become a
business-to-business e-commerce company that uses the Internet to streamline and
lower the overall costs of automotive repair paid by insurance companies. We are
establishing ourselves as the preeminent Application Service Provider ("ASP")
for the automobile insurance industry and the corporate fleet management
industry, providing a seamless back-end infrastructure that links thousands of
collision repair shops and support facilities. eAutoclaims.com, Inc. provides a
proprietary, cost-effective and highly advanced Bricks-to-Clicks(TM) Internet
Claims Application & eAutoFleet (TM) for the processing and ultimate repair of
damaged vehicles filed as insured automobile claims. We generate revenues from
administrative fees and discounts earned by processing collision work through
our proprietary system.
On July 20, 2000, eAutoclaims.com, Inc. acquired Premier Express Claims, Inc., a
privately owned South Carolina corporation ("PEC"). PEC is an administrative
claims processing company that provides third party administrative processing
and recovery services to insurance companies located throughout the United
States. eAutoclaims.com, Inc. acquired 100% of the issued and outstanding shares
of PEC capital stock for $200,000 in cash, 320,000 shares of its Common Stock,
and $130,000 in the form of promissory notes.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JULY 31, 2000
The accompanying financial statements reflect the operations of eAutoclaims.com
for its period of inception (December 7, 1999) to July 31, 2000 and the
operations of Premier Express Claims, Inc. from it acquisition date (July 20,
2000) to July 31, 2000. In the fiscal year ended July 31, 1999 and prior to the
merger, Transformation Processing, Inc. ceased its business operations. As a
result of this treatment, the financial statements for the fiscal year ended
July 31, 2000 reflect the historic operations of eAutoclaims.com. Financial
statements for the fiscal year ended July 31, 1999 are not included in this Form
10-KSB, but are included in the Form 10-KSB for the fiscal year ended July 31,
1999. Comparisons of fiscal year operating results are not meaningful and have
been excluded from the following discussion.
REVENUE
Total Revenue for the year ended July 31, 2000 was approximately $1.7 million,
which consists of approximately $1.1 in collision repair management and
approximately $600,000 in fleet repair management and other repairs and fees.
eAutoclaims.com's operations from its date of inception (December 7, 1999) to
July 31, 2000 generated the majority of our revenues while Premier Express
Claims contributed approximately $90,000 in revenues from its acquisition date
(July 20, 2000) to July 31, 2000. Revenue is expected to increase in fiscal 2001
with the inclusion of the results of operations of both eAutoclaims.com and
Premier Express Claims for a full twelve months.
eAutoclaims.com, Inc. recognizes revenues by assuming the risk and completing
the repair of insurance claims for insurance companies and on corporately own
fleet vehicles. In addition to recognizing revenue associated with the repair of
insurance claims, we charge additional fees on a per-claims basis to our
insurance and corporate fleet customers pursuant to the terms of a Services
Agreement. eAutoclaims.com generates additional revenues by retaining a portion
of the discount received from its affiliated collision repair shops in return
for assurances of minimum volumes of collision repair business.
EXPENSES
Claims processing charges for the year ended July 31, 2000 were approximately
$1.5 million, or 84% of revenues. Claims processing charges include the costs of
collision repairs paid by eAutoclaims.com to its collision repair shop network.
We expect margins on claims repairs to remain low in the near future as we use
favorable pricing as a means to obtain increased market share.
We are dependent upon our third party collision repair shops for insurance
claims repairs. eAutoclaims.com, Inc. currently includes over 2,000 affiliated
repair and 4,100 auto glass vendors facilities in its network for insurance
claims repairs. We electronically audit individual claims processes to their
completion using remote digital photographs transmitted over the Internet.
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However, if the quality of service provided by a collision repair shop falls
below a satisfactory standard leading to poor customer service, this could have
a harmful effect on our business. We believe that we can control our service
requirements by continually monitoring customer service levels and, if required,
establish similar relationships with other collision repair shops.
Total selling, general and administrative expenses for the year ended July 31,
2000 were approximately $3.3 million, or 189% of revenue. Selling, general and
administrative expenses consisted of salaries and other personnel related
expenses, facilities related expenses, legal and other professional fees,
advertising costs, and travel expenses. The fiscal year ended July 31, 2000
included approximately a $2 million non-cash charge incurred pertaining to a
consulting agreement for investor relations services in which we issued
1,980,000 of restricted common shares at $1.00 per share value. In addition, we
incurred payroll expenses of approximately $735,000 and professional fees of
approximately $200,000.
Depreciation and amortization was approximately $63,000 for the year ended July
31, 2000. Depreciation of fixed assets represented approximately $56,000.
Amortization expense of approximately $7,000 reflects the amortization of
goodwill associated with our Premier Express Acquisition.
In the event that we continue to acquire other companies, amortization of
goodwill will continue to have an impact on our results of operations in the
future. Based on our previous acquisitions, future amortization of goodwill will
reduce net income from operations by approximately $237,000 in fiscal years
through 2007.
Interest income, net of interest expense was approximately $5,000 for the year
ended July 31, 2000. Interest expense related primarily to interest on
shareholder loans and capital leases and interest income resulted primarily form
interest earned on our cash reserves.
NET LOSS
We recorded a net loss of $3.1 million for the year ended July 31, 2000, because
the cost of revenues and expenses were not sufficient to cover revenues
generated. Contributing to the net loss were non-cash expenses of approximately
$2 million pertaining to a Consulting Agreement for investor relations services
in which we issued 1,980,000 of restricted common shares at $1.00 per share.
Also contributing to the net loss were non-cash expenses of approximately
$190,000 for employee options.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2000, we had a cash balance of $239,979 and working capital of
approximately $86,000. The primary source of our working capital during the year
ended July 31, 2000, was from the sale of stock to Thomson Kernaghan.
eAutoclaims.com's operations generated negative cash flow during the year ended
July 31, 2000, and management expects a significant use of cash during the
upcoming fiscal year as it funds its operating businesses. There is no assurance
we will continue to sustain our growth. Our business has grown significantly
since our inception. We believe that our current cash resources, access to
capital and cash flow from operations will be sufficient to sustain our
operations for at least 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. In order to sustain our growth, we will require substantial additional
capital. Although we are currently negotiating with two different funding
sources for additional capital, there is no assurance we will obtain such
capital. If we raise additional funds through the issuance of our securities,
these securities may have rights, preferences or privileges senior to those of
our Common Stock, and our stockholders may experience additional dilution to
their equity ownership.
Since July 31, 2000, we issued 160 shares of our Preferred Stock to raise
$800,000 (gross) in additional capital. We have an obligation to register these
shares of Common Stock underlying the Preferred Stock to provide these investors
future liquidity of their investment. We have escrowed 292,500 shares of Common
Stock underlying the conversion rights of all of our 260 shares of Preferred
Stock.
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We will need capital to implement our business objectives. We cannot provide any
assurance that we will be successful in raising such capital, and such
undertakings are difficult to complete. Although management is optimistic that
we will be successful in obtaining future financing, there is no assurance that
such financing will be available to meet our needs.
Our principle commitments at July 31, 2000 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.com does not deem its revenues to be seasonal.
ITEM 7. FINANCIAL STATEMENTS
The financial statements to be provided pursuant to this Item 7 begin on page
F-1 of this Report, following Part III hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and respective positions of the Executive Officers and Directors
of the Company are as follows:
Name Age Position
---- --- --------
Eric Seidel 37 Chief Executive Officer,
President and Director
Randal K. Wright 36 Chief Operating Officer,
Director
Scott Moore 39 Chief Financial Officer
Jeffrey D. Dickson 57 Chairman of the Board
of Directors
George Chajes 48 Director
David Jolley 62 Director
Christopher Korge 45 Director
Nicholas D. Trbovich, Jr. 40 Director
Because we are a small company, we are currently dependent on the efforts of a
limited number of management personnel. We believe that, given the development
stage of our business and the large amount of responsibility being placed on
each member of our management team, the loss of the services of any member of
this team at the present time would harm our business. Each member of our
management team supervises the operation and growth of one or more integral
parts of our business.
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Executive officers are elected by the Board of Directors and serve until their
successors are duly elected and qualify, subject to earlier removal by the Board
of Directors. Directors are elected at the annual meeting of shareholders to
serve for their term and until their respective successors are duly elected and
qualify, or until their earlier resignation, removal from office, or death. The
remaining directors may fill any vacancy in the Board of Directors for an
unexpired term.
Business Experience of Executive Officers and Directors
Eric Seidel has been a director and our chief executive officer and president
since June 1, 2000. From January 1, 2000 through May 31, 2000, Mr. Seidel was
the chief executive officer and president of eAutoclaims, Inc., which was the
privately held Delaware corporation, which merged with us. From September, 1997
through December, 1999, Mr. Seidel was employed as a senior executive officer of
First American AMO. From August, 1995 through June, 1997, Mr. Seidel was a
senior executive at Salex Corporation; a fleet management company serving
Fortune 500 companies, where, among other responsibilities he was responsible
for insurance company services. Mr. Seidel is a past president of the U.S.
Junior Chamber of Commerce.
Randal K. Wright became a director and our chief operating office in June 2000.
From October 1998 through May 2000, Mr. Wright was the founder and chief
executive officer of Premier Express Claims, Inc., which merged with us in June
2000. Mr. Wright has approximately 15 years of experience in the automotive
insurance servicing business.
Scott Moore became our chief financial officer effective September 1, 2000. From
December, 1988 through September, 2000, Mr. Moore was employed by in the
Certified Public Accounting firm of Harper Van Scoik & Company in Clearwater,
Florida. Prior to that time Mr. Moore was a senior accountant with Haskins &
Sells. Mr. Moore has 15 years of public accounting experience.
Jeffrey D. Dickson has been a director and the chairman of our board of
directors since June, 2000. From May, 1997 through November, 1999, Mr. Dickson
was the president and chief executive officer of First American AMO. From
February, 1995 through May, 1997, Mr. Dickson was the president and chief
operating officer of Salex Corporation. Mr. Dickson has served as an executive
vice president of the American Bankers Insurance Group and president of Interloc
Corp. Mr. Dickson was awarded a Masters of Business Administration degree from
Harvard University in 1979.
George Chajes has been a director since June, 2000. Since November, 1997, Mr.
Chajes has been a Vice President of Corporate Finance for First Delta in
Toronto. From March, 1996 through July, 1997, Mr. Chajes was the Manager of
Corporate Finance for St. James Securities, Inc. in Toronto. From November, 1994
through January, 1996, Mr. Chajes was the Director of Corporate Finance for
Pucetti Farrel Capital in Toronto.
David Jolley has been a director since June, 2000. Mr. Jolly is an independent
business consultant and has held various executive officer positions since being
awarded a Master of Business Administration from Stanford University in 1967.
From July 1998 through September, 1999, he was the Managing Partner of Crosbie &
Co. in Toronto. From January, 1997 through February, 1998, he was the Chief
Executive Officer of Bezk International in Ontario. From January, 1996 through
August, 1996, he was the President of Canadian Press, located in Toronto.
Christopher Korge has been a director since June, 2000. He is the managing
partner at the law firm of Korge & Powell, P.A. in Miami, Florida. He received
his J.D. degree from Temple School of Law in 1981 and B.S. in Business
Administration , from the University of Florida, in 1977. Mr. Korge's firm
represents numerous major corporations including Bell South, Bechtel, Inc.,
Montenay Power Corporation, Host Marriott and other Fortune 500 corporations.
Mr. Korge serves on numerous boards of directors and is a major shareholder in
various companies including two housing development companies, and one E
commerce company, Intune Group. He is Chairman of Intune. Mr. Korge is Finance
Vice Chairman of the Democratic National Committee. He is past Co-Chair of the
Democratic National Committee Business Council.
Nicholas D. Trbovich, Jr., has been a director since June, 2000. He is a
director and vice president of AMEX-listed Servotronics, Inc., President of TSV,
Inc., a (Servotronics development subsidiary) and President and CEO of Queen
Cutlery and of Ontario Knife Company (the U.S. Military's largest supplier of
edged tools and survival knives).
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Other Key Employees
In addition to the individuals identified above as "Executive Officers", the
following individuals are considered key employees and certain information with
respect to these key employees is described below:
Reed Mattingly, Sr. Vice President of Operations. Mr. Mattingly, formerly the VP
and General Manager of Premier Express Claims, which was recently acquired by
eAutoclaims.com. He has 11 years of experience in the automotive insurance
services business. Mr. Mattingly manages the overall day-to-day operations of
eAutoclaims.com's Call Center in Columbia, South Carolina and the Processing
Center in Palm Harbor, Florida. Mr. Mattingly is responsible for insuring
excellent customer service and overseeing the integration of new programs.
Previously, he had been instrumental in expanding a start-up auto glass shop
into a $5 million regional network. He had also built and managed a 24-hour/7
day national claim reporting call center. Companies under his management have
been known for a "high-tech, high-touch" approach to personalized customer
service. He earned a degree in Business Management from the University of South
Carolina.
Teresa McSherry, Vice President, Sales. Ms. McSherry manages market planning,
advertising, public relations, sales promotion, merchandising, facilitating
staff services, identifies sales markets and opportunities, she oversees sales
training to sales personnel, identifies and sets strategy for reaching sales
goals, elevating completion. Ms. McSherry has served as the Regional Vice
President for First American AMO in their Western Division for two years.
Responsible for setting new sales records with accounts such as Safeco Insurance
Company, PepsiCo Company and Gates Oil Company to name a few Ms. McSherry was
also responsible for all fleet sales, as Fleet Vice President, Ms. McSherry
trained all sales people in the fleet market.
Gaver Powers, Chief Information Officer. Mr. Powers manages and develops the
Company's technology projects. He is responsible for research in digital
transfer and applications related to web-based technology, oversees and manages
all web-related projects and internal operations systems. Mr. Powers is
overseeing and participating in the development of the new applications used by
eAutoclaims.com. Mr. Powers spent 21 years working on the NASA Space Shuttle
Fleet for Rockwell International; Lockheed Martin and the United Space Alliance,
with his most recent experience being in the area of Program Management, where
he served as a Vehicle Operations Chief/Assistant Operations Chief for the
orbiter Discovery.
Crystal Butterworth, General Manager. Ms. Butterworth manages the daily
operations of the Claims Service and Auditing Departments with responsibility
for the performance, productivity and functions of these departments. Ms.
Butterworth has over 15 years experience in the Insurance Industry, most
recently with the Hartford Insurance Company. She has been in the supervisory
management capacity for most of her career. She has an Adjusting License and
also holds a Senior Claims Law Associate designation (SCLA).
Vic Grechniw, EVP-SalvageConnection.com. Mr. Grechniw has been in the automotive
field for 20 years. His experience runs the gamut from fleet and government
vehicle sales to automotive fleet management. He was employed by a well-known
fleet management company for 10 years, during which time he held the position of
Operations Manager. Currently he spearheads the start-up of our Subrogation
Department. This department takes on a collections agency role that recovers
accident loss expenses. Clients consist of eAutoclaims.com's accident management
clients along with clients that use eAutoclaims.com's subrogation services as a
stand-alone product.
Election
Effective upon the merger between TPI and eAuto, all of the prior executive
officers and directors of TPI resigned and the above identified individuals were
appointed and elected as our executive officers and directors.
The Company's Bylaws fix the size of the Board of Directors at no fewer than
three and no more than nine members, to be elected annually by a plurality of
the votes cast by the holders of Common Stock, and to serve until the next
annual meeting of stockholders and until their successors have been elected or
until their earlier resignation or removal. Currently there are seven directors.
Committees of the Board and Meetings
Prior to the merger of TPI and eAuto, we did not have committees or regularly
scheduled board of directors meeting during fiscal year end July 31, 2000. Since
the eAutoclaims.com merger, we have held three board of directors meetings.
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Effective August 25, 2000, the Board of Directors established an Audit Committee
and a Compensation Committee. The Board of Directors has not established a
nominating committee. Each of the Audit and Compensation Committees is
responsible to the full Board of Directors. The functions performed by these
committees are summarized below:
Audit Committee. The Audit Committee makes recommendations to the Board of
Directors regarding the selection and retention of the independent auditors,
reviews the scope and results of the audit and reports the results to the Board
of Directors. In addition, the Audit Committee reviews the adequacy of internal
account, financial and operating controls and reviews the Company's financial
reporting compliance procedures. The members of the Audit Committee are Mr.
Dickson, Chairman, Mr. Trbovich and Mr. Korge.
Compensation Committee. The Compensation Committee reviews and approves the
compensation of the Company's officers, reviews and administers the Company's
stock option plans for employees and makes recommendations to the Board of
Directors regarding such matters. The members of the Compensation Committee are
Mr. Dickson, Chairman, Mr. Trbovich, and Mr. Chajes.
Director Compensation
Directors do not currently receive cash compensation for service on the board or
any committee of the Board, but directors may be reimbursed for their reasonable
expenses incurred in connection with attendance at Board and committee meetings.
All directors were originally issued options to acquire 2,000 common shares at
$2.00 per share and 20,000 common shares at $5.06 per share in consideration for
serving as a director. The exercise price of all such options was the fair
market value of the underlying shares of Common Stock as of the date of grant.
These options are immediately exercisable and have a five (5) year term. No
additional options or compensation are issued or paid for serving on committees.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows the compensation paid or accrued by us for the fiscal
years ended July 31, 1999 and 2000 to or for the account of our President and
Chief Executive Officer. No other executive officer or director received
benefits or annual salary and bonus of $100,000 or more during the stated
period. Accordingly, the summary compensation table does not include
compensation of other executive officers.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Securities
Restricted Underlying
Other Annual Stock Options/ LTIP All Other
Name of Individual Fiscal Salary Bonus Compensation Award(s) SARs Payouts Compensation
& Principal Position Year ($) ($) ($) ($) (#) ($) ($)
-------------------- ------ ---------- --------- --------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul G. Mighton(1) 1999 112,200 -- -- -- -- -- --
Chairman of the
Board and Chief
Executive Officer
Eric Seidel(2) 2000 76,920 -- -- -- 65,000 -- --
President and
Chief Executive
Officer
</TABLE>
The cost to us of personal benefits, including premiums for life insurance and
any other perquisites, to such executives do not exceed 10% of such executive's
annual salary and bonus.
(1) Mr. Mighton resigned effective May 31, 2000 in connection with our
merger with eAutoclaims.com-Delaware.
(2) Reflects compensation paid to Mr. Seidel from eAutoclaims.com-Delaware
from inception (December 7, 1999) through the date of the merger and
compensation paid to Mr. Seidel by us for the period June 1, 2000
through July 31, 2000. See "Employment Contracts and Other
Arrangements" below.
26
<PAGE>
Option/SAR Grants in Last Fiscal Year
Percent of Total
Number of Optionss/SARs
Securities Granted
Underlying to Employees/ Exercise
Options/SARs Directors or Base Expiration
Name of Individual Granted (1) In Fiscal Year Price(2) Date
---------------------- ----------- -------------- -------- ----------
Eric Seidel 65,000 9.02% $2.00 4/24/05
----------------------
(1) Each option granted has a term of 5 years. All options granted were
immediately vested and exercisable on May 31, 2000.
(2) Mr. Seidel's option was granted above the fair market value of our
Common Stock on April 24, 2000. Fair market value is based on the
closing sales price of the Common Stock as reported on the OTC
Electronic Bulletin Board on the business day preceding the date of
grant.
Aggregate Option/SAR Exercises in Last Fiscal Year and Fiscal Year End
Option/SAR Values
The following table provides information with respect to the named officer
concerning exercised and unexercised options in 2000.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Shares Options/SARs Options/SARs
Name of Acquired on Value at Fiscal Year End (#) at Fiscal Year End($)
Individual Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
---------- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Eric Seidel -0- -0- 65,000 $71,045
</TABLE>
---------------
(1) Value Realized represents the market value of the underlying
securities on the exercise date minus the exercise price of such
options.
(2) Based on the market value of the underlying securities of $3.093 at
July 31, 2000, minus the exercise price of such options.
Employment Contracts and Other Arrangements
We assumed an employment agreement with Eric Seidel, our President and Chief
Executive Officer, entered into between eAutoclaims.com-Delaware and Mr. Seidel,
effective February 1, 2000. Under this agreement, Mr. Seidel is entitled to an
annual base salary of $135,200, which will increase to $165,000 on February 1,
2001, and to $180,000 on February 1, 2002. On August 25, 2000, the Compensation
Committee increased Mr. Seidel's base salary to $150,000. Mr. Seidel is entitled
to bonus compensation as determined by the Compensation Committee, which at no
time may be less than 5% of our pre-tax profits. Mr. Seidel may elect to receive
part or all of his bonus, if any, in shares of our Common Stock valued at 90% of
the current market value. Mr. Seidel is entitled to reimbursement for ordinary,
necessary and reasonable business expenses incurred in connection with his
services. He may participate in any retirement, medical, dental, welfare and
stock option plans, life and disability insurance coverages and other benefits
afforded our employees. He is entitled to a $600 per month automobile allowance
and reimbursement of annual physical examinations. Mr. Seidel was granted
options to acquire 65,000 shares of our Common Stock immediately exercisable at
$2.00 per share for a term of 5 years. During the term of his agreement, Mr.
Seidel agrees not to compete with us. His agreement provides for a severance
payment equal to 100% of his annual based compensation then due under his
agreement in the event there is a "change of control" as defined in his
agreement, and Mr. Seidel is subsequently terminated without cause or he
voluntarily terminates employment within 60 days of the "change of control"
event.
In connection with the acquisition of Premier Express Services, Inc. ("PEC"), we
entered into an employment agreement with Randal K. Wright. Mr. Wright is
currently our Chief Operating Officer, and was a founder and president of PEC.
This agreement is effective July 1, 2000, and has a term of three (3) years.
Under this agreement, Mr. Wright is entitled to an annual base salary of
$110,000, which will increase to $120,000 as of July 1, 2001, and to $125,000
July 1, 2002. Mr. Wright is entitled to bonuses as determined by our
Compensation Committee, which may be paid in cash or shares of our Common Stock
on such terms as approved by our board of directors. Mr. Wright is entitled to
reimbursement for ordinary, necessary and reasonable business expenses in
connection with his services. He may participate in any retirement, medical,
dental, welfare and stock option plans, life and disability insurance coverages
and other benefits afforded our employees. He is entitled to a $700 per month
automobile allowance. Mr. Wright was issued options to acquire 65,000 shares of
our Common Stock at an exercise price of $2.00 per shares, which was the fair
market value of such shares as of the date of his agreement. The options granted
to Mr. Wright are fully vested and exercisable immediately. These options have
an exercise period of five (5) years from the date of his agreement. During the
term of his agreement and for a period of two (2) years after termination of his
agreement, Mr. Wright is subject to a non-competition and restrictive covenant
with us.
27
<PAGE>
We assumed an employment agreement with Gaver Powers, our Chief Information
Officer, entered into between eAutoclaims.com-Delaware and Mr. Powers, effective
February 1, 2000. This agreement has an initial term of three (3) years. Under
this agreement, Mr. Powers is entitled to an annual base salary of $90,000,
which will increase to $100,000 as of September 1, 2000, and will increase to
$105,000 as of February 1, 2001. Mr. Powers is entitled to bonus compensation as
determined by our board of directors or Compensation Committee. Mr. Powers is
entitled to reimbursement for ordinary, necessary and reasonable business
expenses incurred in connection with his services. He may participate in any
retirement, medical, dental, welfare and stock option plans, life and disability
insurance coverages and other benefits afforded to our employees. He is entitled
to a $400 per month automobile allowance. Mr. Powers was granted options to
acquired 60,000 shares of our Common Stock immediately exercisable at $2.00 per
share and options to acquire 45,000 shares of Common Stock exercisable at $2.38
for a term of 5 years. During the term of his agreement and for a one (1) year
period thereafter, Mr. Powers has agreed not to compete with us within a 100
mile radius of any area in which we engage in any element of our business.
On August 14, 2000, we entered into an employment agreement with M. Scott Moore,
our Chief Financial Officer. This agreement has a term of three (3) years, and
commences on September 11, 2000. Under this agreement, Mr. Moore is entitled to
an annual base salary of $125,000, which will increase to $135,000 on September
11, 2001, and to $145,000 on September 11, 2002. Mr. Moore is entitled to bonus
compensation as determined by the Company's board of directors or Compensation
Committee. Such bonuses may be paid in cash or issued in shares of our Common
Stock on such terms as approved by our board of directors. Mr. Moore is entitled
to reimbursement for ordinary, necessary and reasonable business expenses in
connection with his services. He may participate in any retirement, medical,
dental, welfare and stock options plans, life and disability insurance coverages
and other benefits afforded our employees. He is entitled to an automobile
allowance of $400 per month during the term of his agreement. Mr. Moore was
issued options to purchase 102,000 shares of our Common Stock at an exercise
price of $2.6875 per share, which was the fair market value of the closing price
of our shares as of the effective date of his agreement. These options vest in
1/3 installments over each year of employment. These options have a cashless
exercise provision and a maximum exercise period of 5 years. We have agreed to
pay directly all co-payments for his spouse and family, until such time as his
spouse and family qualify under our benefit plans. If Mr. Moore is terminated
with cause or we elect not to renew this agreement, then he is entitled to three
(3) months severance pay at his then current base salary. Mr. Moore has agreed
not to compete with us during the term of this agreement and for a period of two
(2) years after termination of this agreement.
Board Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors administers our executive
compensation program. The committee reviews, recommends and approves changes to
our compensation policies and programs, makes recommendations to the Board of
Directors as to the amount and form of executive officer compensation, and
administers our stock option plans.
General Compensation Philosophy. Our compensation programs are designed to
directly align compensation with our performance and increases in stockholder
value as measured by our stock price and to enable us to attract, retain and
reward executives and employees needed to accomplish our goals. The committee
believes that executive pay should be linked to our overall performance.
Therefore, we provide an executive compensation program, which includes base
pay, long-term incentive opportunities through the use of stock options and, in
some cases, cash bonuses.
The Compensation Committee is currently evaluating and studying the level of
equity participation by our employees and executives. The Compensation Committee
feels strongly that our employees and executives must have a greater equity
stake in order to more closely align the interest of our employees and
executives with our stockholders. Therefore, it is the intent of the
Compensation Committee to recommend that our executives and employees be issued
significantly more shares of our stock and options in the near future. It is
anticipated that any such issuance of our additional equity to employees and
executives will be performance based, and tied to the market value of our Common
Stock.
Base Salary. Base salary is designed primarily to be competitive with base
salary levels in effect at high technology companies that area of comparable
size and with which we compete for executive personnel. Base salary is set
annually based on job-related experience, individual performance and pay levels
of similar positions at comparable companies. Salaries for executive officers
28
<PAGE>
for 2000 were generally determined on an individual basis by evaluating each
executive's scope of responsibility, performance, prior experience and salary
history, as well as salaries for similar positions at comparable companies.
Cash Performance Awards. Cash performance awards, such as bonuses, will be tied
to the achievement of performance goals, financial or otherwise, established by
the committee. We had no formal management incentive plan in 2000.
Stock Options. In order to link the interests of our stockholders and senior
management, we issue stock options. We believe that the practice of granting
stock options is critical to retaining and recruiting the key talent necessary
at all employee levels to ensure our success. Stock options generally have value
for executive officers only if the price of our Common Stock increases above the
fair market value of a share of Common Stock on the grant date and the officer
remains in our employ for the period required for the options granted to such
person to vest.
The number of shares subject to stock options granted is within the discretion
of the Compensation Committee. In determining the size of stock option grants,
the Compensation Committee considers the officer's responsibilities, the
expected future contribution of the officer to the Company's performance and the
number of shares, which continue to be subject to vesting under outstanding
options. For 2000, options were granted to the executive officers based on their
positions and a subjective assessment of individual performances. In addition,
options were granted to certain executive officers as incentives for them to
become employees or to aid in their retention. Stock options typically have been
granted to executive officers when the executive first joins the Company. At the
discretion of the Committee, executive officers may also be granted stock
options to provide greater incentives to continue their employment with the
Company and to strive to increase the value of the Company's Common Stock.
Compensation for the Chief Executive Officer. Mr. Seidel's base salary for the
year 2000 was determined by the employment agreement we assumed with Mr. Seidel.
The Compensation Committee believes that the employment agreement terms are in a
manner consistent with the factors described above for all executive officers.
As part of Mr. Seidel's employment agreement, Mr. Seidel's base salary was
increased to an annual rate of $150,000 on August 25, 2000.
Internal Revenue Code Section 162(m) Limitation. Section 162(m) of the Internal
Revenue Code imposes a limit, with certain exceptions, on the amount that a
publicly held corporation may deduct in any year for the compensation paid or
accrued with respect to its five most highly compensated executive officers. In
general, it is the Committee's policy to qualify, to the maximum extent
possible, executives' compensation for deductibility under applicable tax laws.
Stock Options
We established the 1998 Stock Option Plan (the "1998 Plan"). The 1998 Plan is
intended to provide the employees and directors of the Company with an added
incentive to continue their services to the Company and to induce them to exert
their maximum efforts toward the Company's success. The 1998 Plan provides for
the grant of options to directors and employees (including officers) of the
Company to purchase up to an aggregate of twenty percent (20%) of the number of
shares of Common Stock in the capital of the Company issued and outstanding from
time to time less any shares of Common Stock reserved, set aside and made
available pursuant to the terms of the Company's employee share purchase plan
(the "Share Purchase Plan") and pursuant to any options for services rendered to
the Company. The number of shares of Common Stock subject to options granted to
any one person under the Plan, the Share Purchase Plan and options for services
rendered to the Company may not at any time exceed five percent (5%) of the
outstanding shares of Common Stock. The 1998 Plan is currently administered by
the Board of Directors. The Board determines, among other things, the persons to
be granted options under the 1998 Plan, the number of shares subject to each
option and the option price.
The 1998 Plan allows the Company to grant Non-Qualified Stock Options ("NQSOs")
not intended to qualify under Section 422(b) of the Internal Revenue Code of
1986, as amended (the "Code"). The exercise price of NQSO's may not be less than
the fair market value of the Common Stock on the date of grant. Options may not
have a term exceeding ten years. Options are not transferable, except upon the
death of the optionee.
Prior to our merger with eAutoclaims.com-Delaware, NQSO's to purchase 2,800,000
(pre-reverse stock split) shares of Common Stock were granted and 2,700,000 were
canceled as of July 31, 1998, leaving 4,000 post reverse stock split options
remaining.
29
<PAGE>
As of October 31, 2000, we have issued, or reserved for issuance, 1,369,422
shares of our Common Stock relating to outstanding options and warrants which
are categorized as follows:
Options issued to Directors 110,000 (1)
Options issued to Chief Executive Officer 65,000 (2)
Options issued in connection with acquisition of PEC 130,000 (3)
Options issued to Employees 531,500 (4)
Options issued to Consultants 65,000 (5)
Options Outstanding prior to eAutoclaims.com merger 4,000
Purchaser's Warrants 390,000 (6)
Agent's Warrants 73,922 (7)
-----------
Total 1,369,422
===========
(1) 2,000 of each director's options are immediately exercisable
at $2.00 per share. 20,000 director's options are immediately
exercisable at $5.06 per share. The exercise price is equal to
fair market value of the 20,000 shares as of June 22nd,
respectively, the dates at which these director's options were
authorized. See "Directors and Executive Officers - Director
Compensation".
(2) These options are immediately exercisable through April, 2005
at $2.00 per share. See "Directors and Executive Officers -
Employment Contracts and Other Matters".
(3) 65,000 options immediately exercisable at $2.00 per share were
issued to Randall K. Wright and Reed Mattingly. See "Executive
Compensation - Employment Contracts and Other Matters".
(4) Represents options issued to our employees at exercise prices
ranging from $2.00 to $3.37. 204,832 of these options are
currently exercisable. The remaining 326,668 options vest over
a 3 year term.
(5) 65,000 of these options are held by Mr. Dickson, our Chairman
of the Board of Directors and are immediately exercisable at
$2.00 per share. See "Certain Relationships and Related
Transactions".
(6) Represents warrants issued to the purchasers of our Series A
Preferred Stock. 300,000 of these warrants are exercisable at
$3.00 and 90,000 are exercisable at $3.33. See "Market for
Common Equity and Related Stockholder Matters - Preferred
Stock and Related Warrants".
(7) Represents warrants issued to Thomson Kernaghan, as Agent,
exercisable at $4.50. See "Market for Common Equity and
Related Stockholder Matters - Preferred Stock and Related
Warrants".
30
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 31, 2000, certain information
concerning those persons known to us, based on information obtained from such
persons, with respect to the beneficial ownership (as such term is defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of shares of Common Stock,
$.001 par value, of us by (i) each person known by the Company to be the owner
of more than 5% of the outstanding shares of Common Stock, (ii) each director
and executive officer of us and its subsidiaries, (iii) each executive officer
named in the Summary Compensation Table and (iv) all directors and officers as a
group:
<TABLE>
<CAPTION>
--------------------------------------- --------------------------- -------------------------
Name and Address of Beneficial Owner Amount and nature of Percentage of Class (2)
(1) Beneficial Ownership
--------------------------------------- --------------------------- -------------------------
<S> <C> <C>
Eric Seidel 465,000(3) 4.1%
Randal K. Wright 321,000(4) 2.8%
Scott Moore 102,000(5) .9%
Jeffrey D. Dickson 368,000(6)(7) 3.3%
George Chajes 22,000(7) *%
David Jolley 22,000(7) *%
Christopher Korge 37,000(7) *%
Nicholas D. Trbovich, Jr. 22,000(7) *%
Liviakis Financial
Communications, Inc. 2,019,000(8) 17.9%
Thomson Kernaghan & Co., Ltd.,
as Agent 1,389,589(9) 12.3%
Paul G. Mighton 16,500(10) *%
Dominium Capital Fund 734,114(11) 6.5%
Sovereign Partners, Ltd. 965,005(11) 8.5%
--------------------------------------- --------------------------- -------------------------
All Directors and Officers
as a Group 1,359,000 12.0%
--------------------------------------- --------------------------- -------------------------
</TABLE>
(1) Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. Each such person is
deemed to be the beneficial owner of shares of Common Stock held by
such person (but not held by any other person) on October 31, 2000, and
any shares of Common Stock which such person has the right to acquire
pursuant to securities exercisable or exchangeable for, or convertible
into, Common Stock, within 60 days from such date. The address of each
beneficial owner is in care of the Company, 2708 Alt. 19 N., Suite 604,
Palm Harbor, Florida 34683.
(2) Based on 11,310,378 shares of Common Stock outstanding at the close of
business on October 31, 2000. This amount excludes 292,500 shares held
in escrow underlying the conversion rights of our Series A Preferred
Stock and excludes 1,369,422 shares reserved for outstanding options
and warrants.
(3) 400,000 shares of our Common Stock were issued to Mr. Seidel as founder
shares. This amount also includes options to acquire up to 65,000
shares of our Common Stock, subject to certain conditions. See
"Executive Compensation - Employment Contracts and Other Matters".
(4) 256,000 shares of our Common Stock were issued to Mr. Wright in
connection with the Premier Express Services, Inc. merger. This amount
also includes options to acquire up to 65,000 shares of our Common
Stock, subject to certain conditions. See "Executive Compensation -
Employment Contracts and Other Matters".
(5) This amount represents options to acquire up to 102,000 shares of our
Common Stock issued to Mr. Moore pursuant to his Employment Agreement
to serve as our Chief Financial Officer. See "Executive Compensation -
Employment Contracts and Other Matters".
(6) 280,000 shares of our Common Stock were issued to Mr. Dickson as
founder shares. Also includes options to acquire up to 65,000 shares of
our Common Stock and 1,000 shares acquired in the open market. See
Directors and Executive Officers Director Compensation".
(7) This amount includes options to acquire up to 22,000 shares of our
Common Stock in connection with services as a director. "Directors and
Executive Officers - Director Compensation".
(8) Represents shares issued for consulting services. Includes 198,000
shares held by Jens Dalsgaard and 198,000 shares held by Anthony D.
Altavilla, both of whom are employees of Liviakis Financial
Communications, Inc. Also includes 39,000 shares we issued in
connection with our amendment to the Consulting Agreement. See "Certain
Relationships and Related Transactions".
31
<PAGE>
(9) Includes our shares and warrants held of record by Thomson Kernaghan or
by other entities, which are controlled by Thomson Kernaghan or which
Thomson Kernaghan has investment decision-making authority based upon
information obtained from Thomson Kernaghan, which is summarized as
follows:
<TABLE>
<CAPTION>
----------------------------- ------------------------------ ------------------------- ---------------------
Holder Number of Common Shares Number of Warrants Number of Preferred
Shares
----------------------------- ------------------------------ ------------------------- ---------------------
<S> <C> <C> <C>
Thomson Kernaghan nil 73,922
CALP II LP 596,676
Fetu Holdings, Ltd. 322,741
T K Holdings, Ltd. 43,750
VC Advantage, Ltd. 62,500 120,000 80
VC Advantage (Bermuda) 120,000 80
VMH Management 25,000
Gregory Badger 25,000
----------------- ------------ ------
Totals 1,075,667 313,922 160
========= ======= ===
----------------------------- ------------------------------ ------------------------- ---------------------
</TABLE>
Each of these entities has entered into an agreement, which provides
that such entity will not acquire any additional shares of our Common
Stock in the open market or convert our Preferred Stock into our Common
Stock if the effect of such a purchase or conversion would be to
increase such entities equity ownership position above 9.9%. Above
amount and percentages exclude shares of our Common Stock issuable upon
conversion of our Preferred Stock. See "Market for the Registrants
Securities and Related Stockholder Matters" and "Certain Relationships
and Related Transactions".
(10) Mr. Mighton is the former president and CEO. He resigned on
May 31, 2000 in connection with the eAutoclaims.com merger.
(11) Represents shares issued by TPI in connection with conversion of
debentures and the release of other obligations in connection with the
eAutoclaims.com merger. See "Certain Relationships and Related
Transactions".
* Less than .1%.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We are party to a Consulting Agreement with Liviakis Financial Communications,
Inc., a California corporation ("Liviakis"). The original agreement was
effective as of February 1, 2000. This agreement had a one (1) year term and
expires January 31, 2001. Liviakis agrees to assist and consult with us on
corporate finance matters and to represent us in investors communications and
public relations with existing shareholders, brokers, dealers and other
investment professionals as to our current and proposed activities.
In consideration for such services eAutoclaims.com-Delaware issued Liviakis
1,980,000 of its restricted common shares at $.01 per share. Each of these
shares were converted on a one (1) to one (1) basis into our Common Stock in
connection with the eAutoclaims.com merger. Liviakis instructed us to issue
198,000 of these shares to Jens Dalsgaard and 198,000 shares to Anthony D.
Altavilla, each of who is a Liviakis employee. On September 18, 2000, this
agreement was amended in two respects. First, the term of the agreement was
modified to commence as of May 1, 2000 and ending February 28, 2001. Second, in
addition to the 1,980,000 restricted common shares previously issued to Liviakis
we agreed to issue an additional 39,000 restricted common shares as of August
24, 2000 in satisfaction of our previous obligation to issue Liviakis 3,000
shares per month during the term of this agreement. All other terms and
conditions of this agreement remained unchanged.
As a result of the eAutoclaims.com merger, we assumed obligations under a
Consulting Agreement with Jeffrey D. Dickson. This agreement is effective
December 1, 1999 and terminates January 1, 2000. Mr. Dickson agreed to provide
Mr. Seidel, our Chief Executive Officer, day-to-day advisory services concerning
management, capitalization, corporate structure, organizational, industrial and
regulatory issues. In addition, Mr. Dickson agreed to serve as our Chairman of
the Board of Directors, as well as Chairman of our Audit and Compensation
Committees.
In consideration for these consulting services Mr. Dickson is entitled to an
annual consulting fee of $84,500, payable every two (2) weeks. In addition, Mr.
Dickson is entitled to a non-interest bearing $95,000 line of credit. As of
October 30, 2000, approximately $10,000 is outstanding under this arrangement.
All payments under the agreement with Mr. Dickson are made to First American
AMO, of which Mr. Dickson is the founder and CEO.
32
<PAGE>
On September 8, 2000, we entered into a Business Consulting Agreement with Titan
Group, LLC, a California limited liability company ("TTG"). This agreement has a
term of one (1) year and expires September 7, 2001. TTG agrees to provide us
business management, marketing consultation and advisory services to assist us
in developing market awareness through introductions to brokers, dealers,
institutional investors, investment bankers and financial newsletters. In
consideration for these services, we paid TTG $10,000 and agreed to issue TTG
65,000 shares of our restricted Common Stock.
On August 8, 2000, we entered into a Service Agreement with WE Securities, Inc.
("WE") to assist us in financial communications and investor relations. This
agreement has a term of three (3) months. In consideration for these services,
we agreed to issue WE 12,136 shares of our restricted Common Stock.
One of our directors, George Chajes, has provided us financial advisory
services. These services include preparation and review of our business plan,
due diligence review and organization of our corporate documents and
coordination of meetings with potential funding services. Mr. Chajes was paid
$25,000 for his services through October 31, 2000 plus expense reimbursements.
In addition, we have agreed to pay Mr. Chajes 2% of the amount of capital we
obtain through sources located and introduced to us by Mr. Chajes and 1% of the
capital raised by investment bankers introduced to us by Mr. Chajes.
In connection with the eAutoclaims.com merger, Thomson Kernaghan, as agent,
agreed to cancel all of its stockholdings and interests in eAutoclaims.com. In
addition, Thomson Kernaghan, as agent, agreed to cancel all outstanding
warrants, loans, penalties and other rights such that Thomson Kernaghan, as
agent, was the holder of 4,100,000 shares of our Common Stock contemporaneously
with the eAutoclaims.com merger. In effect, Thomson Kernaghan, as agent, agreed
to accept 4,100,000 shares in complete and total satisfaction of all obligations
due from eAutoclaims.com and/or TPI as of the merger date. Dominium Capital Fund
was entitled to 734,114 of these shares and Sovereign Partners, Ltd. was
entitled to 965,005 of these shares. All of the entities which are entitled to
the 4,100,000 shares of our Common Stock have entered into agreements not to
exercise warrants, convert our Preferred Stock, or acquire additional shares of
our Common Stock if such events would cause such entity to own greater than 9.9%
of our Common Stock. Therefore, these 4,100,000 shares are considered freely
tradable under the Securities Act.
Two executive officers of Thomson Kernaghan also are executive officers of the
general partner of VC Advantage Limited Partnership ("VC Advantage"), and are
executive officers of VMH International Ltd. ("VMH"), which is the general
partner of CALP II Limited Partnership ("CALP II"). An executive officer of
Thomson Kernaghan has signing authority for Fetu Holdings, Ltd. ("Fetu"). TK
Holdings Ltd. ("TKH") is the parent of Thomson Kernaghan. Gregg. Badger is an
officer and Director of Thomson Kernaghan. Accordingly, Thomson Kernaghan, VC
Advantage, CALP II, Fetu, TKH, VMH and Mr. Badger may be considered a group that
beneficially owns all of the shares beneficially owned by any of them. Under an
agreement with us, Thomson Kernaghan, VC Advantage, CALP II, Fetu, TKH, VMH and
Mr. Badger agreed not to have the right the right or power, directly or
indirectly, either alone or in concert with others, to (i) convert any security
of ours into Common Stock, or (ii) exercise or exchange any security of ours for
Common Stock, or (iii) exercise any other right or power to acquire Common Stock
if, after having given effect to the exercise of that right or power, considered
as a group, they shall be or shall be deemed to beneficially own (as defined in
Rule 13d-3 under the Exchange Act) more than 9.9% of our then outstanding Common
Stock.
Subsequent to the eAutoclaims.com merger, Thomson Kernaghan, as agent, has
facilitated the placement of $1,300,000 of our Preferred Stock. Thomson
Kernaghan, either directly or through entities it controls, is the holder of
1,075,667 shares of our Common Stock, 160 shares of our Preferred Stock. We
anticipate that the shares of Common Stock underlying our Preferred Stock will
be registered in the near future.
Thomson Kernaghan, either directly or through entities it controls, is also the
holder of warrants to acquire 240,000 shares of our Common Stock at exercise
prices of $3.00 and $3.30, which were issued to the purchasers of our Preferred
Stock. Thomson Kernaghan has been paid fees of $130,000 and is the holder of
73,922 Placement Agent Warrants at an exercise price of $4.50. All of these
warrants have five (5) year term from the date of issuance. See "Market of the
Registrants Securities and Related Stockholder Matters - Preferred Stock".
These warrants and the shares of our Common Stock issuable upon exercise of
these warrants have registration rights under the Securities Act. We intend to
file a selling shareholder Registration Statement on Form SB-2 within thirty
(30) days of filing this Form 10-KSB for the holders of our Preferred Stock,
33
<PAGE>
Purchaser's Warrants and Agent's Warrants. We are subject to certain penalties
if this Selling Shareholder Registration Statement is not filed and declared
effective within certain time frames as more fully described in the Registration
Rights Agreement, filed as Exhibit 10 to this Form 10-KSB to which reference is
hereby made.
We have entered into employment agreements with Eric Seidel, our Chief Executive
Officer, Randal K. Wright, our Chief Operating Officer, and Scott Moore, our
Chief Financial Officer. For description of these employment agreements and
related rights to our stock options, see "Executive Compensation - Employment
Contracts and Other Related Matters".
Eric Seidel, our Chief Executive Officer was issued 400,000 shares of our Common
Stock in connection with the eAutoclaims.com merger. Jeffrey E. Dickson, our
Chairman of the Board of Directors, was issued 280,000 shares of our Common
Stock as founder shares. Randal K. Wight was issued 256,000 shares of our Common
Stock in connection with the Premier Express Services, Inc. merger. Each of Mr.
Seidel, Mr. Dickson and Mr. Wright hold options, which allow each of them to
acquire up to 65,000 shares of our Common Stock at an exercise price of $2.00.
These options are immediately exercisable and expire in 2005. See "Security
Ownership of Certain Beneficial Owners and Management".
In August, 2000, we agreed to issue 50,000 shares of our Common Stock to Michael
T. Cronin, Esq., who is a partner in the law firm, which serves as our corporate
and securities counsel, in exchange for $100,000 of his services charged at
normal hourly rates. All other charges incurred by us for other employees of his
firm are paid in cash.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are amended/restated in their entirety to reflect our
merger with eAutoclaims.com.
Exhibit No. Description
---------- -----------
3.1 Articles of Incorporation of Samuel Hamann Graphix, Inc. (Nevada) as
amended.(1)
3.2 Articles of Merger between Samuel Hamann Graphix, Inc. (Nevada) and Samuel
Hamann Graphix, Inc. (California).(1)
3.3 By-laws of Transformation Processing Inc. (Nevada).(1)
3.4 Articles of Merger between of TPI (Ontario) and TPI (Nevada).(1)
3.5 Agreement and Plan of Merger by and between Transformation Processing,
Inc. and eAutoclaims.com, Inc., dated April 26, 2000. (3)
3.6 Articles of Merger of eAutoclaims.com, Inc., a Delaware corporation with
and into Transformation Processing, Inc., a Nevada corporation. (*)
3.7 Agreement and Plan of Merger by and among eAutoclaims.com, Inc., a Nevada
corporation, eAutoclaims.com Acquisition, a South Carolina corporation,
Premier Express Claims, Inc., a South Carolina corporation, and its
stockholders, dated June 8, 2000. (2)
3.8 First Amendment to Agreement and Plan of Merger with Premier Express
Claims, Inc., dated June 27, 2000. (2)
3.9 Articles of Merger or Share Exchange between Premier Express Claims, Inc.,
as the surviving corporation and eAutoclaims.com Acquisition Corporation,
filed July 20, 2000 with the Secretary of State of South Carolina. (*)
3.10 Promissory Note dated June 27, 2000 between eAutoclaims.com, Inc. and
Randal K. Wright and S. Reed Mattingly. (2)
3.11 Promissory Note dated June 16, 2000 between eAutoclaims.com, Inc. and
Randal K. Wright. (2)
3.12 Promissory Note dated June 16, 2000 between eAutoclaims.com, Inc. and S.
Reed Mattingly. (2)
4.1 The Registrants 1998 Stock Option Plan. (4)
10.1 Employment Agreement between eAutoclaims.com, Inc. and Eric Seidel dated
February 1, 2000 (*)
10.2 Employment Agreement between eAutoclaims.com, Inc. and Randal K. Wright
dated July 1, 2000 (2)
10.3 Employment Agreement between eAutoclaims.com, Inc. and S. Reed Mattingly
dated July 1, 2000. (2)
10.4 Employment Agreement between eAutoclaims.com, Inc. and M. Scott Moore
dated August 14, 2000 (*)
10.5 Employment Agreement between eAutoclaims.com, Inc. and Gaver Powers dated
April 13, 2000 (*)
10.6 Consulting Agreement between eAutoclaims.com, Inc. and Jeffrey D. Dickson
dated December 1, 1999 (*)
10.7 Consulting Agreement between eAutoclaims.com, Inc. and Liviakis Financial
Communications, Inc. dated February 1, 2000 (*)
10.8 Amendment No. 1 to Consulting Agreement between eAutoclaims.com, Inc. and
Liviakis Financial Communications, Inc. dated September 18, 2000 (*)
34
<PAGE>
10.9 Lease Agreement between eAutoclaims.com, Inc. and KWPH, Inc., dated
October 17, 2000 (*)
10.10 Service Agreement between eAutoclaims.com, Inc. and WE Securities, Inc.
dated August 8, 2000 (*)
10.11 Business Consulting Agreement between eAutoclaims.com, Inc. and TTG LLC
dated September 8, 2000 (*)
10.12 Commercial lease dated October 12, 1998 between Premier Express Claims,
Inc. and Stephenson Park Associates Limited. (*)
10.13 [Reserved]
10.14 Certificate of Full Performance of Proposal - Form 46 filed by BDO
Dunwoody Limited - Trustee dated May 8, 2000. (*)
10.15 Order of the Superior Court of Justice in the Matter of the Proposal of
Transformation Processing, Inc. dated November 25, 1999. (*)
10.16 Proposal of Transformation Processing, Inc. - Court File No. 32-107046
filed in the Superior Court of Justice dated October 14, 1999. (*)
10.17 Share Exchange Agreement between Transformation Processing, Inc. and
certain of its securities holders dated April 30, 2000. (*)
10.18 [Reserved]
10.19 Securities Purchase Agreement effective June 27, 2000 between Thomson
Kernaghan, as Agent and eAutoclaims.com, Inc. (*)
10.20 Certificate of Rights, Designations, Preferences and Limitations of Series
A Convertible Preferred Stock.(*)
10.21 Security Agreement between Thomson Kernaghan, as Agent and
eAutoclaims.com, Inc. (*)
10.22 Form of Purchasers Warrant. (*)
10.23 Form of Agents Warrant. (*)
10.24 Registration Rights Agreement. (*)
10.25 eAutoclaims.com, Inc. Agreement with Certain Securities Holders effective
May 31, 2000.
10.26 eAutoclaims.com, Inc. Agreement with Sovereign Partners, Ltd. effective
May 31, 2000.
10.27 eAutoclaims.com, Inc. Agreement with Dominium Capital Fund
21.1 Subsidiary of the Registrant.(*)
(1) Incorporated by reference from the Registrants Form 10-SB filed on March
12, 1998 and amended on August 31, 1998 and October 22, 1998.
(2) Incorporated by reference from the Registrants Form 8-K filed on July 25,
2000.
(3) Incorporated by reference from the Registrants Form 10-KSB for fiscal year
ended July 31, 1999.
(4) Incorporated by reference from the Registrants Form 10-KSB for fiscal year
ended July 31, 1998.
* Filed herewith.
(b) Reports on Form 8-K.
Item 1/Item 5 Form 8-K relating to approval of the Merger Agreement and
Plan of Reorganization by and between Transformation Processing, Inc. and
eAutoclaims.com, Inc. filed on July 5, 2000.
Item 2 Form 8-K relating to acquisition of Premier Express Services, Inc.
field on July 25, 2000.
Item 7 Form 8-K/A containing pro forma financial statements filed on or
about August 8, 2000.
Item 7 Form 8-K/A containing financial statements of acquired businesses
filed on August 15, 2000.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 10, 2000 eAUTOCLAIMS.COM, INC.
By: /s/ Scott Moore By: /s/ Eric Seidel
--------------- -----------------
Scott Moore Eric Seidel
Chief Financial Officer and Chief Executive Officer
Accounting Officer
36
<PAGE>
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000
<PAGE>
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Independent Auditor's Report F - 2
Consolidated Financial Statements:
Balance Sheet F - 3
Statement of Operations F - 4
Statement of Stockholders' Equity F - 5
Statement of Cash Flows F - 6
Notes to Consolidated Financial Statements F - 7 - F-15
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
eAutoclaims.com, Inc.
We have audited the accompanying consolidated balance sheet of eAutoclaims.com,
Inc. and Subsidiary as of July 31, 2000, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the period from December
7, 1999 (inception) to July 31, 2000. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of eAutoclaims.com,
Inc. and Subsidiary as of July 31, 2000 and the results of their operations and
their cash flows for the period from December 7, 1999 (inception) to July 31,
2000 in conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
October 13, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
-----------------------------------------------------------------------------------------
July 31, 2000
-----------------------------------------------------------------------------------------
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $ 239,979
Accounts receivable, less allowance for doubtful accounts of $30,000 578,729
Due from related parties 182,684
Prepaid expenses and other current assets 81,686
-----------------------------------------------------------------------------------------
Total current assets 1,083,078
Property and Equipment, net of accumulated depreciation of $55,731 285,212
Goodwill, net of accumulated amortization of $7,019 1,654,633
Other Assets 11,661
Deferred Income Tax Asset, net of valuation allowance of $1,121,000 -
-----------------------------------------------------------------------------------------
Total Assets $ 3,034,584
=========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 778,265
Loans payable - stockholders 218,365
-----------------------------------------------------------------------------------------
Total current liabilities 996,630
Loans Payable - stockholders, net of current maturities 66,635
-----------------------------------------------------------------------------------------
Total liabilities 1,063,265
-----------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock to be issued 500,000
Common stock - $.001 par value; authorized 50,000,000 shares, issued
and outstanding 10,790,367 shares 10,790
Common stock to be issued 1,320,000
Additional paid-in capital 3,216,286
Accumulated deficit (3,075,757)
-----------------------------------------------------------------------------------------
Stockholders' equity 1,971,319
-----------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 3,034,584
=========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
<TABLE>
<CAPTION>
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
-----------------------------------------------------------------------------------------
Period from December 7, 1999 (inception) to July 31, 2000
-----------------------------------------------------------------------------------------
<S> <C>
Revenue:
Collision repairs management $ 1,141,087
Fleet repairs management 483,846
Other repairs and fees 121,951
Interest income, net of interest expense of $2,641 4,826
-----------------------------------------------------------------------------------------
Total revenue 1,751,710
-----------------------------------------------------------------------------------------
Expenses:
Claims processing charges 1,471,509
General and administrative 3,293,208
Depreciation and amortization 62,750
-----------------------------------------------------------------------------------------
Total expenses 4,827,467
-----------------------------------------------------------------------------------------
Net loss $ (3,075,757)
=========================================================================================
Loss per common share - basic and diluted $ (.29)
=========================================================================================
Weighted-average number of common shares outstanding - basic and diluted 10,591,146
=========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
Period from December 7, 1999 (inception) to July 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Preferred Common Additional
Stock to Common Stock Stock to Paid-in Accumulated Stockholders'
Be Issued Shares Amount Be Issued Capital Deficit Equity
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founders - 7,500,000 $ 7,500 - $ 61,430 - $ 68,930
Issuance of common stock for cash - 2,850,000 2,850 - 987,150 - 990,000
Issuance of common stock for services - 1,980,000 1,980 - 1,978,020 - 1,980,000
Recapitalization of common stock prior
to reverse acquisition - (6,350,000) (6,350) - 6,350 - -
Issuance of common stock in reverse
acquisition - 4,810,367 4,810 - (4,810) - -
Shares of common stock to be issued
resulting from acquisition - - - $1,320,000 - - 1,320,000
Shares of preferred stock to be issued $500,000 - - - - - 500,000
Issuance of compensatory stock options - - - - 188,146 - 188,146
Net loss - - - - - $(3,075,757) (3,075,757)
------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 2000 $500,000 10,790,367 $10,790 $1,320,000 $3,216,286 $(3,075,757) $ 1,971,319
====================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
<TABLE>
<CAPTION>
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
-----------------------------------------------------------------------------------------
Period from December 7, 1999 (inception) to July 31, 2000
-----------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net loss $ (3,075,757)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 62,750
Common stock issued for services 2,028,630
Issuance of compensatory stock options 188,146
Allowance for doubtful accounts 30,000
Changes in operating assets and liabilities:
Increase in accounts receivable (397,535)
Increase in prepaid expenses and other current assets (187,829)
Increase in accounts payable and accrued expenses 513,239
-----------------------------------------------------------------------------------------
Net cash used in operating activities (838,356)
-----------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (259,605)
Acquisition of subsidiary, net of cash acquired (172,360)
-----------------------------------------------------------------------------------------
Cash used in investing activities (431,965)
-----------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from preferred stock to be issued 500,000
Proceeds from issuance of common stock 1,010,300
-----------------------------------------------------------------------------------------
Cash provided by financing activities 1,510,300
-----------------------------------------------------------------------------------------
Net increase in cash and cash equivalents and
cash and cash equivalents at end of period $ 239,979
=========================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,641
=========================================================================================
Supplemental schedule of noncash investing and financing activities:
Common stock to be issued in connection with
the acquisition of a subsidiary $ 1,320,000
=========================================================================================
Loans to stockholders in connection with the acquisition of a subsidiary $ 130,000
=========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. THE BUSINESS
AND BASIS OF
PRESENTATION:
On May 25, 2000, Transformation Processing, Inc. ("TPI")
acquired all of the outstanding common stock of
eAutoclaims.com, Inc., ("Nevada") a Nevada corporation. For
accounting purposes, the acquisition has been treated as a
recapitalization of Nevada with Nevada as the acquirer (the
"Reverse Acquisition"). Nevada merged into TPI and TPI
changed its name to eAutoclaims.com, Inc. (the "Company").
The historical financial statements prior to May 25, 2000
are those of Nevada. Accordingly, pro forma information is
not presented.
The Company adopted the fiscal year end of TPI. There was no
significant activity during the period from December 7, 1999
through December 31, 1999.
The Company was incorporated in 1999 as a
business-to-business e-commerce company that utilizes the
Internet to streamline and lower the overall costs of
automotive repair paid by insurance companies. The Company
is establishing itself as an Application Service Provider
("ASP") for the automobile insurance industry and the
corporate fleet management industry, providing a seamless
back-end infrastructure that links thousands of collision
repair shops and support facilities. The Company provides a
proprietary, cost-effective and highly advanced
Bricks-to-Clicks(TM) Internet Claims Application &
eAutoFleet(R) for the processing and ultimate repair of
damaged vehicles filed as insured automobile claims. The
Company generates revenue from administrative fees and
discounts earned by processing collision work through this
proprietary system.
2. SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES:
The accompanying consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary,
Premier Express Claims, Inc. ("Premier"). The consolidated
financial statements for the fiscal year ended July 31, 2000
include the results of Premier from July 20, 2000 (date of
acquisition) to July 31, 2000. All intracompany accounts and
transactions have been eliminated.
The Company maintains cash in bank deposit accounts which,
at times, exceed federally insured limits. The Company has
not experienced any losses on these accounts.
For purposes of the statement of cash flows, cash
equivalents consist of money market accounts.
Revenue is recognized as services are provided and
collection is probable. During the fiscal year ended July
31, 2000, most of the Company's consolidated revenue was
derived from automobile insurance companies.
Property and equipment are stated at cost. Additions and
improvements to property and equipment are capitalized.
Maintenance and repairs are expensed as incurred. When
property is retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized in
operations. Depreciation is computed on the straight-line
method over the estimated useful lives of the assets.
F-7
<PAGE>
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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. At July 31, 2000, no such impairment existed.
Goodwill is amortized using the straight-line method over 7
years (see Note 3). 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.
Deferred income tax assets and liabilities are recognized
for the estimated future tax consequences attributable to
differences between the financial statements carrying
amounts of existing assets and liabilities and their
respective income tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those
temporary differences are expected to be recovered or
settled.
Basic loss per common share ("EPS") is computed as net loss
divided by the weighted-average number of common shares
outstanding during the period. Potential common stock has
been excluded from the computation of diluted net loss per
share as their inclusion would be antidilutive.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could
differ from those estimates.
Management does not believe that any recently issued, but
not yet effective, accounting standards if currently adopted
would have a material effect on the accompanying financial
statements.
3. ACQUISITION:
On July 20, 2000, the Company acquired the outstanding
shares of Premier for $200,000 in cash, 320,000 shares of
the Company's common stock to be issued, and $130,000 in
promissory notes, payable within 60 days.
Premier is an administrative claims processing company that
provides third party administrative processing and recovery
services to insurance companies located throughout the
United States.
The acquisition has been treated as a purchase for
accounting purposes with the purchase price allocated to the
assets acquired and liabilities assumed based on a
preliminary determination of estimated fair values at the
date of acquisition. Such fair values were determined based
on appraisals and other estimates. The Company acquired
assets with a fair value of approximately $506,000 and
assumed liabilities of approximately $518,000. The excess of
cost over fair value of the assets acquired (goodwill)
amounted to approximately $1,662,000. The following
summarized pro forma consolidated statement of operations
(unaudited) assumes the acquisition of Premier as if it
occurred on December 7, 1999 (inception).
F-8
<PAGE>
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Revenue $ 3,866,899
===========================================================
Net loss $(3,118,627)
===========================================================
Loss per common share - basic and diluted $ (.29)
===========================================================
Weighted-average number of shares outstanding 10,895,012
===========================================================
This pro forma financial information is presented for
informational purposes only and is not necessarily
indicative of the operating results had the acquisition been
consummated as of the assumed date, nor is it necessarily
indicative of future operating results.
4. PROPERTY AND
EQUIPMENT:
At July 31, 2000, property and equipment, at cost, consists
of the following:
Estimated
Useful Life
------------------------------------------------------------
Computer software $ 61,762 3 years
Office equipment 244,422 3 years
Furniture and fixtures 34,759 10 years
------------------------------------------------------------
340,943
Less accumulated depreciation 55,731
------------------------------------------------------------
$285,212
============================================================
5. ACCOUNTS
PAYABLE AND
ACCRUED
EXPENSES:
At July 31, 2000, accounts payable and accrued expenses
consist of the following:
Accounts payable $593,664
Accrued payroll and vacation wages 184,601
------------------------------------------------------------
$778,265
============================================================
F-9
<PAGE>
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
6. LOANS PAYABLE
STOCKHOLDERS:
In conjunction with the acquisition of Premier, the Company
is now obligated to repay two loans to two stockholders, who
were former stockholders of Premier, aggregating $130,000.
The loans are due in August 2000 and October 2000 and are
noninterest-bearing. One stockholder has the right to
receive shares of the Company's common stock as payment
based on the market value of the Company's common stock at
maturity. The fair value of the loans approximates the
carrying amount due to the short-term nature of the loans.
The Company has two loans outstanding to a stockholder
aggregating $155,000. The loans bear interest at the rate of
12% per annum and are due in January 2002. The loan
agreements require payments of interest only through January
2001 and then monthly payments of principal and interest
until maturity. The fair value of the loans approximates
their carrying amount based on rates available to the
Company for similar loans.
Aggregate maturities of long-term debt are as follows:
Year ending July 31,
2001 $218,365
2002 66,635
------------------------------------------------------------
$285,000
============================================================
7. COMMITMENTS AND
CONTINGENCIES:
The Company has a three-year employment agreement with its
president and chief executive officer. This three-year
employment agreement effective February 1, 2000 provides for
aggregate annual base salary ranging from $135,200 to
$180,000. In addition, the president and chief executive
officer is entitled to a bonus of not less than 5% of the
Company's pretax profits. This bonus can be paid in cash or
with shares of the Company's common stock at a discount from
its market value. For the year ended July 31, 2000, there
were no additional amounts due under this agreement.
In addition, the Company has three-year employment
agreements with four other executives that expire between
February 2003 and September 2003. The agreements provide for
aggregate annual base salaries ranging from $425,000 to
$485,000 per annum.
The Company leases office facilities and automobiles under
noncancelable operating leases expiring on various dates
through 2004. The office facilities leases contain
escalation clauses relating to operating expenses and real
estate taxes. Rent expenses under the operating leases for
the period from December 7, 1999 to July 31, 2000 totaled
approximately $40,000. Approximate minimum future payments
under these leases are payable as follows:
Year ending July 31,
2001 $174,000
2002 227,000
2003 227,000
2004 82,000
------------------------------------------------------------
$710,000
============================================================
F-10
<PAGE>
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
8. STOCKHOLDERS'
EQUITY:
The Company is authorized to issue 5,000,000 shares of $.001
par value preferred stock. The board of directors has
designated 500 shares as Series A Convertible Preferred
Stock, with a liquidation preference of $5,000 per share.
Each share of preferred stock is convertible into a number
of shares of common stock. The number of common shares to be
issued is derived by taking the purchase price of $5,000 per
share and dividing by the lesser of 120% of the closing bid
price for the common stock on the trading day immediately
prior to the date of issuance of the preferred shares being
converted or 75% of the average of the closing bid prices
for the common stock for the 3 lowest trading days out of
the 20 consecutive trading days immediately preceding the
date of conversion. Dividends are payable at the rate of 8%
of the aggregate liquidation preference amount per annum and
are cumulative. As of July 31, 2000, the Company had not
issued any shares of preferred stock but had received
$500,000 in cash toward shares of preferred stock.
Subsequent to year-end the Company received an additional
$800,000 in cash and issued 260 shares of preferred stock.
Also issued in connection with the preferred stock were
warrants to purchase shares of common stock of the Company.
The Company issued 73,922 warrants to the agent, which are
exercisable at a price of $4.50 per share, are exercisable
upon issuance, and expire in five years. The Company also
issued 390,000 warrants to the purchasers, which are
exercisable at prices of $3.00 and $3.33 per share, are
exercisable upon issuance, and expire in five years.
The Company issued 7,500,000 shares of common stock to its
founders for $500 in cash and $68,430 in services.
The Company issued 2,850,000 shares of common stock for
$1,100.000. Costs of $110,000 were incurred related to this
issuance.
The Company issued 1,980,000 shares of common stock to a
consultant for $19,800. The market price of the Company's
common stock at the time of issuance was $1.00 per share.
Accordingly, the Company recorded a charge to operations for
$1,960,200 related to this issuance.
In connection with the Company's Reverse Acquisition in
April 2000, the outstanding shares of the Company were
recapitalized. As a result, 6,350,000 shares of common stock
were canceled. Immediately prior to the Reverse Acquisition
there were 5,980,000 shares of common stock outstanding.
The Company issued options to purchase common stock to
employees at prices below the fair market value of the
Company's common stock at the time of issuance. Accordingly,
the Company recorded a charge to operations of $188,146
related to these issuances.
9. STOCK OPTIONS
AND STOCK
WARRANTS:
The Company has an incentive stock option plan under which
options to purchase shares of common stock may be granted to
certain key employees. The exercise price is based on the
fair market value of such shares as determined by the board
of directors at the date of the grant of such options.
F-11
<PAGE>
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
A summary of the status of the Company's options as of July
31, 2000, and changes during the period from December 7,
2000 (inception) to July 31, 2000 is presented below:
Weighted-
average
Number Exercise
of Shares Price
------------------------------------------------------------
Granted 720,500 $2.68
Canceled (1,000) 3.00
------------------------------------------------------------
Outstanding at end of year 719,500 $2.68
============================================================
Options exercisable at year-end 569,831 $2.67
============================================================
Weighted-average fair value of options
granted during the period $1,531,160
============================================================
The following table summarizes information about fixed stock
options outstanding at July 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- --------------------------
Weighted-
average Weighted- Weighted-
Remaining average average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$2.00 479,000 4.80 $2.00 425,666 $2.00
3.00 95,000 4.73 3.00 28,002 3.00
3.37 41,500 4.96 3.37 12,163 3.37
5.06 100,000 4.89 5.06 100,000 5.06
6.75 2,000 9.34 6.75 2,000 6.75
12.50 2,000 7.80 12.50 2,000 12.50
---------------------------------------------------------------------------------------------------
$2.00 - $12.50 719,500 $2.68 569,831 $2.67
====================================================================================================
</TABLE>
F-12
<PAGE>
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The Company has elected to apply APB Opinion No. 25 and
related interpretations in accounting for its stock options
and has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation. If the Company had
elected to recognize compensation cost based on the fair
value of the options granted at the grant date as prescribed
by SFAS No. 123, the Company's net loss per common share for
the period from December 7, 1999 (inception) to July 31,
2000 would have been as follows:
Net loss applicable to common stock:
As reported $(3,075,757)
============================================================
Pro forma $(4,417,312)
============================================================
Loss per common share - basic and diluted:
As reported $ (.29)
============================================================
Pro forma $ (.42)
============================================================
The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for the period ended
July 31, 2000. The assumptions were risk-free interest rate
of 6.50%, dividend yield of 0%, volatility factor of the
expected market price of the Company's common stock of 200%,
and an expected life of the option of five years.
The Black-Scholes option pricing model was developed for use
in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In
addition, option pricing models require the input of highly
subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options
have characteristics significantly different from those of
traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate,
in management's opinion the existing models do not
necessarily provide a reliable single measure of the fair
value of its employee stock options.
10. INCOME TAXES:
As of July 31, 2000, the Company had deferred tax assets of
approximately $1,121,000 resulting from net operating loss
carryforwards of approximately $2,802,000 which are
available to offset future taxable income, if any, through
2021. As utilization of the net operating loss carryforwards
is not assured, the deferred tax asset has been fully
reserved through the recording of a 100% valuation
allowance.
As of July 31, 2000, the components of the net deferred tax
asset are as follows:
Deferred tax assets:
Net operating loss carryforward $ 1,121,000
Valuation allowance (1,121,000)
------------------------------------------------------------
Net deferred tax $ - 0 -
============================================================
F-13
<PAGE>
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The reconciliation of the effective income tax rate to the
federal statutory rate for the year ended July 31, 2000 is
as follows:
Federal income tax rate (34.0)%
Valuation allowance on net operating carryforwards 34.0
------------------------------------------------------------
Effective income tax rate - 0 - %
============================================================
The Company and Premier will file consolidated federal
income tax returns.
11. MAJOR CUSTOMERS:
During the period from December 7, 1999 (inception) to July
31, 2000 revenue from three customers amounted to
approximately 24%, 18% and 17% of total revenue,
respectively.
12. RELATED PARTY
TRANSACTIONS:
The Company shared an operating facility and certain
personnel with a corporation whose chairman is also the
chairman of the board of the Company. The Company also paid
certain expenses on behalf of this corporation. Amounts
allocated and paid on behalf of this corporation amounted to
$116,320 and was based on the amount of space and personnel
time devoted to this corporation plus the actual expenses
paid on behalf of this corporation. The amount to be repaid
to the Company, $116,320, is included in due from related
party on the accompanying balance sheet.
In addition, the Company advanced $125,000 to another
related corporation whose chairman is also the chairman of
the board of the Company. This corporation has a consulting
agreement with the Company requiring payments every other
week amounting to $3,250 for consulting services which
include management advisory services, capitalization,
corporation structure, organizational, industrial and
regulatory issues. In lieu of payment, the Company is
reducing the advance for amounts due under the consulting
agreement. At July 31, 2000, the remaining advance was
$63,602 and is included in due from related party on the
accompanying balance sheet.
Also, the chairman of the board of the Company is entitled
to a noninterest-bearing line of credit. At July 31, 2000,
$2,762 had been advanced under the line of credit and is
included in due from related party on the accompanying
balance sheet.
13. LITIGATION:
The Company is subject to a number of lawsuits and claims
arising out of the conduct of its business. Management
believes that the probable resolution of such matters will
not materially affect the financial position, results of
operations or cash flows of the Company.
In July 2000, EAUTO, Inc., a Texas corporation, asserted
that the Company's use of its EAUTOCLAIMS.COM mark and
website violated its federally registered EAUTO service
mark. The Company denied this assertion since the marks are
different, the services offered by the Company are different
than those offered by EAUTO, Inc., and there is no
likelihood of confusion among relevant consumers. When
EAUTO, Inc. refused to withdraw its assertions of trademark
F-14
<PAGE>
EAUTOCLAIMS.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
infringement, the Company filed a lawsuit styled
EAUTOCLAIMS.COM, Inc. v. EAUTO, L.L.C., Case No.
8:00CV-1855-T-26B, in the United States District Court for
the Middle District of Florida, Tampa Division seeking a
judicial declaration that the Company's use of its
EAUTOCLAIMS.COM mark and website are lawful. EAUTO, L.L.C.
has yet to respond to this lawsuit.
14. 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 10,790,367
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 does not
include these shares or any adjustment which might be
necessary to resolve this difference.
15. SUBSEQUENT
EVENTS:
Subsequent to year-end the Company entered into agreements
with two consultants to provide services to the Company.
These consultants will receive cash and approximately 77,000
shares of the Company's common stock for these services. The
Company will record a charge to operations when the services
are performed based on the fair market value of the shares
of common stock at the time of performance.
F-15
