================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-21467
ACCESSITY CORP.
--------------------------------------------------------------------------------
(Name of small business issuer in its charter)
New York 11-2750412
------------------------------- -------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12514 West Atlantic Boulevard
Coral Springs, Florida 33071 (954-752-6161)
--------------------------------------------------------------------------------
(Address of principal executive offices) (Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock par value $.015 per share
Preferred Stock Purchase Rights par value $.01 per share
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 10, 2004 the issuer had outstanding a total of 2,339,414
shares of common stock.
Transitional Small Business Format (check one) Yes[ ] No[ X ]
================================================================================
ACCESSITY CORP.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2004
CONTENTS
PAGE
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
As of September 30, 2004 (Unaudited) 3
Condensed Consolidated Statements of Operations and
Comprehensive Loss (Unaudited) for the
Three Months ended
September 30, 2004 and 2003 4
Condensed Consolidated Statements of Operations and
Comprehensive Loss (Unaudited) for the
Nine Months ended September 30, 2004 and 2003 5
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Nine Months ended
September 30, 2004 and 2003 6
Notes to Condensed Consolidated Financial 7
Statements
Item 2. Management's Discussion and Analysis or Plan of Operation 17
Item 3. Controls and Procedures 21
Part II. OTHER INFORMATION 22
Item 6. Exhibits and Reports on Form 8-K 22
Certifications 25
2
ITEM 1. FINANCIAL STATEMENTS
----------------------------
ACCESSITY CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2004
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 361,480
Accounts receivable 91,124
Investments 3,369,437
Prepaid expenses and other current assets 86,487
Restricted funds 300,000
Security deposit 22,098
------------
Total current assets 4,230,626
Property and equipment, net of accumulated depreciation 241,972
Other assets 1,826
------------
Total assets $ 4,474,424
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 75,252
Accrued expenses and other current liabilities 374,342
------------
Total current liabilities 449,594
------------
Shareholders' equity:
Common stock, $.015 par value, authorized 30,000,000
shares; issued 2,521,398 37,821
Additional paid-in capital 11,107,158
Accumulated other comprehensive income, unrealized holding
gain on investment securities 3,406
Deficit (5,394,113)
------------
5,754,272
Less common stock held in treasury, at cost,
181,984 shares 1,729,442
------------
Total shareholders' equity 4,024,830
------------
Total liabilities and shareholders' equity $ 4,474,424
============
See notes to condensed consolidated financial statements.
3
ACCESSITY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
Three Months Ended,
---------------------------------
SEPTEMBER 30 September 30
2004 2003
------------ ------------
Revenue:
Collision repairs and royalties $ 47,102 $ 29,358
Hospital fees 149,809 164,993
------------ ------------
Total revenues 196,911 194,351
------------ ------------
Operating expenses:
Collision repair expenses -- 1,057
Sales and marketing 98,805 105,185
General and administrative 485,833 391,309
Depreciation and amortization 82,361 67,733
------------ ------------
Total operating expenses 666,999 565,284
------------ ------------
(470,088) (370,933)
Investment and other income, net of interest expense (Note 5 and 11) 35,355 54,567
------------ ------------
Loss from continuing operations (no provision for income taxes) (434,733) (316,366)
------------ ------------
Discontinued operations (Note 7):
Income from affinity services subsidiary (no tax effect) -- 26,407
Gain on disposal of affinity services subsidiary (no tax effect) -- 10,000
------------ ------------
Income from discontinued operations -- 36,407
------------ ------------
Net loss (434,733) (279,959)
Other comprehensive income or loss - unrealized gain (loss) on
marketable securities (Note 11) 13,805 (28,808)
------------ ------------
Comprehensive loss $ (420,928) $ (308,767)
============ ============
Basic and diluted earnings (loss) per common share:
Continuing operations $ (0.19) $ (0.14)
Discontinued operations 0.00 0.01
------------ ------------
Total $ (0.19) $ (0.13)
============ ============
Weighted average number of common shares outstanding 2,261,523 2,186,519
Effect of dilutive securities, stock options and warrants -- --
------------ ------------
Basic and diluted weighted average number of common shares outstanding 2,261,523 2,186,519
============ ============
See notes to condensed consolidated financial statements.
4
ACCESSITY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
Nine Months Ended,
---------------------------------
SEPTEMBER 30 September 30
2004 2003
------------ ------------
Revenue:
Collision repairs and royalties $ 142,335 $ 219,624
Hospital fees 480,063 227,725
------------ ------------
Total revenues 622,398 447,349
------------ ------------
Operating expenses:
Collision repair expenses -- 102,052
Sales and marketing 321,689 354,157
General and administrative 1,426,859 1,321,660
Depreciation and amortization 200,917 237,116
------------ ------------
Total operating expenses 1,949,465 2,014,985
------------ ------------
(1,327,067) (1,567,636)
Investment and other income, net of interest expense (Note 5 and 11) 311,505 141,125
------------ ------------
Loss from continuing operations before provision for income taxes (1,015,562) (1,426,511)
Income tax benefit 11,525 --
------------ ------------
Loss from continuing operations (1,004,037) (1,426,511)
------------ ------------
Discontinued operations (Note 7):
Income from affinity services subsidiary (no tax effect) -- 214,711
Gain on disposal of affinity services subsidiary (no tax effect) -- 10,000
------------ ------------
Income from discontinued operations -- 224,711
------------ ------------
Net loss (1,004,037) (1,201,800)
Other comprehensive - unrealized gain (loss) on
marketable securities (Note 11) 3,406 (49,765)
------------ ------------
Comprehensive loss $ (1,000,631) $ (1,251,565)
============ ============
Basic and diluted earnings (loss) per common share:
Continuing operations $ (0.45) $ (0.65)
Discontinued operations 0.00 0.10
------------ ------------
Total $ (0.45) $ (0.55)
============ ============
Weighted average number of common shares outstanding 2,245,539 2,178,119
Effect of dilutive securities, stock options and warrants -- --
------------ ------------
Weighted average diluted common shares outstanding 2,245,539 2,178,119
============ ============
See notes to condensed consolidated financial statements.
5
ACCESSITY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
---------------------------------
SEPTEMBER 30 September 30
2004 2003
------------ ------------
Cash flows provided by (used in) operating activities:
Net income (loss) $ (1,004,037) $ (1,201,800)
============ ============
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization (including bond premium
amortization in 2003) 200,917 256,746
Loss on sale of investments 44,418 14,919
Impairment losses on marketable securities 40,002 --
Options granted for services -- 8,955
Changes in assets and liabilities:
Accounts receivable 64,972 (23,638)
Prepaid expenses and other assets 57,439 243,664
Accounts payable 23,055 (207,948)
Accrued expenses and other current liabilities (44,557) (521,566)
------------ ------------
Total adjustments 386,246 (228,868)
------------ ------------
Net cash provided by (used in) operating activities (617,791) (1,430,668)
============ ============
Cash flows provided by (used in) investing activities:
Purchase of property and equipment (3,867) (28,693)
Proceeds from sale of investments 2,270,340 6,349,183
Purchase of investments (1,369,891) (5,393,699)
------------ ------------
Net cash provided by (used in) investing activities 896,582 926,791
============ ============
Cash flows provided by (used in) financing activities:
Payments under capital lease (20,386) (23,621)
Proceeds from sales of common stock 7,500 78,750
------------ ------------
Net cash provided by (used in) financing activities (12,886) 55,129
============ ============
Net increase (decrease) in cash and cash equivalents 265,905 (448,748)
Cash and cash equivalents at beginning of period 95,575 908,655
============ ============
Cash and cash equivalents at end of period $ 361,480 $ 459,907
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 29 $ 3,733
============ ============
Reclassification of redeemable preferred stock from liability
to common stock resulting from conversion $ 350,000 $ --
============ ============
See notes to condensed consolidated financial statements.
6
ACCESSITY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2004
(UNAUDITED)
1. BASIS OF PRESENTATION
------------------------
The information contained in the condensed consolidated financial
statements for the three and nine months ended September 30, 2004 and 2003 is
unaudited, but includes all adjustments, consisting of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
the financial position and the results of operations for these periods.
The financial statements and notes are presented in accordance with
the requirements of Form 10-QSB, and do not contain certain information included
in the Company's annual statements and notes. These financial statements should
be read in conjunction with the Company's annual financial statements as
reported in its most recent annual report on Form 10-KSB.
In May 2004 the Company signed a definitive agreement, characterized
as a share exchange transaction, which if approved by our shareholders would
change the business model of the Company to the business of the acquired company
and require the resignation of the present officers and directors. The Company
has filed its preliminary proxy with the Securities and Exchange Commission and
upon approval it will be distributed for shareholder vote. See Note 3.
Upon approval from its shareholders at the December 15, 2003 annual
shareholders meeting, the Company effected a one-for -five reverse common stock
split. The effective date of the stock split was January 7, 2004. All references
to common shares, options, warrants or other issues convertible into common
shares have been adjusted to reflect this stock split on a retroactive basis.
The number of authorized common shares and the par value were not changed.
On August 1, 2003, the Company sold its affinity service automobile
business (see Note 7). The accompanying financial statements reflect the results
of this business as Discontinued Operations.
This report may contain forward-looking statements that involve
certain risks and uncertainties. Factors may arise, including those identified
in the Company's Form 10-KSB for the year ended December 31, 2003 and Form 8-K
dated May 17, 2004, which could cause the Company's operating results to differ
materially from those contained in any forward-looking statement.
7
2. BUSINESS OF THE COMPANY
--------------------------
THE FOLLOWING INFORMATION IS PROVIDED AS BACKGROUND RELATED TO THE HISTORIC AND
CURRENT BUSINESS ACTIVITIES OF THE COMPANY. AS INDICATED IN NOTE 3, HOWEVER, THE
COMPANY IS CURRENTLY ENGAGED IN A TRANSACTION WHICH, IF CONCLUDED, WOULD CHANGE
ITS BUSINESS MODEL AND DIRECTORS AND OFFICERS, RENDERING THIS INFORMATION NO
LONGER RELEVANT.
The Company, a New York corporation, had been engaged in automotive
repair and collision management from its inception in 1983, but has exited the
automotive market and entered into a medical billing recovery business. It
divested its original automotive business in February 2002, which provided
collision repair and fleet management services primarily for numerous Fortune
500 companies.
The Company also offered collision repair management services during
early 2003 for the insurance industry through a website on the Internet.
Revenues for such services commenced in December 2001 and continued throughout
2002. However, under a strategic partnership agreement, effective January 2,
2003 (see Note 6), the Company transferred the operating responsibilities and
management of this business to a third party and is no longer engaged in
collision repair management. During the early part of 2003 it completed certain
in-process repairs that had been initiated by its customers in late 2002. It
remains liable for warranties of auto repairs provided, however warranty costs
have historically not been significant.
In addition, the Company also sold its remaining automotive
business, effective August 1, 2003, that provided automobile affinity services
for individuals. A definitive agreement was completed for the sale of all of the
outstanding shares of its wholly owned subsidiary to the president of the
business (see Note 7). The Company believes that it operated its
automotive-related businesses in one operating segment.
During the 2003 period presented, the Company provided collision and
general repair programs and appraisal services, for the insurance industry and
insurance carriers. The Company facilitated the repair process for insurance
carriers by installing its internet-based software at customer sites, which
permitted them to enter new claims and to monitor the Company's activities. Once
a claim was initiated on the website, the Company commenced its efforts. This
included the audit of repair estimates, negotiation of the repair price with one
of its suppliers selected from its network of approximately 2,000 providers,
management of time for completion of repair, selection or approval of part
specifications, and obtaining third party appraisals if required. The Company
assumed the risks and responsibilities of the vehicle repair process, from
commencement to completion, for its insurance clients. It warranted all repairs
completed through its network of repair facilities, for periods up to as long as
the driver owned the vehicles and issued warranty certificates for claims
processed through its supplier network. The Company recorded revenues gross in
these circumstances, having acted as the principal in the transaction. As
described in Note 6, this business is now managed by ClaimsNet, Inc.
("ClaimsNet").
During the third quarter of 2002, the Company began a new business,
Sentaur Corp. ("Sentaur") engaged in medical billing recovery, a new business
segment. The business provides benefits to the hospital segment of the
healthcare industry by recouping
8
inappropriate discounts taken from hospital billings by institutional or
insurance payors. Sentaur began generating revenue during the second quarter of
2003. The Company records revenues net for this business, having acted as an
agent of the hospitals.
Three of the Company's customers currently accounted for
approximately 68% of its 2004 continuing revenues to date; of those three, the
Company receives funds from one entity in the automotive segment as described in
Note 6. Three medical segment customers accounted for approximately 95% of its
outstanding trade receivables at September 30, 2004.
3. DEFINITIVE AGREEMENT SIGNED FOR POTENTIAL ACQUSITIONS, CHANGE OF CONTROL AND
-------------------------------------------------------------------------------
CHANGE IN BUSINESS MODEL
------------------------
On May 17, 2004 the Company signed a definitive agreement ("the
Share Exchange Agreement") with Pacific Ethanol Inc., a California company,
Kinergy Marketing, LLC, an Oregon limited liability company, and Re-Energy, LLC,
a California company, (collectively hereinafter referred to as the "PEI Group")
all of which are geographically located in California, to acquire those
companies in exchange for 18.8 million shares on a fully diluted basis (of which
approximately 1.5 million shares would be reserved to replace existing PEI Group
options and for its convertible debt, if converted) of Accessity common stock to
the then current shareholders of those companies. As noted below, Pacific
Ethanol is now attempting to raise approximately $7 million, and this would
result in 2.5 million additional shares being issued when completed. The
transaction is structured as a stock-for-stock share exchange; with Accessity
continuing as the surviving parent company and the PEI Group entities becoming
wholly owned subsidiaries of Accessity. Pacific Ethanol, Inc. is to receive the
largest block of shares and would become the accounting acquirer in this
transaction.
Privately held PEI Group, has developed a strategy aimed at becoming
the first vertically integrated producer and marketer of ethanol in California,
the nation's most populous state with the highest ethanol demand in the United
States. Effective January 1, 2004 the State of California mandated the
elimination of MTBE as a gasoline additive and required the use of ethanol as
its replacement to improve air quality resulting from auto emissions. The
California ethanol market is currently estimated to be annually approximately
900 million gallons, based on published market reports, and approximately $1
billion dollars. At present, through Kinergy Marketing LLC, PEI Group is
presently a re-seller of ethanol and its unaudited results indicated that it
generated approximately $56 million in revenue for the nine months ended
September 30, 2004. The PEI Group intends to pursue strategic acquisitions in
the ethanol market. It also owns land and a grain processing facility and has
received the critical permits to begin construction of a 35 million gallon
ethanol plant on its property in Madera, California when all funding is in
place. PEI Group is attempting to raise $7 million in equity now, as a condition
precedent to the Share Exchange Agreement, and would use those funds and the
cash it receives from Accessity, to provide funding for working capital and the
publicly traded common stock of Accessity Corp., for strategic acquisitions when
the transaction is complete. Funding for the Madera production facility and its
working capital requirements is expected to be sought after the initial
acquisitions in part through bank lending, and equity. The $7 million equity
financing, when completed, will require approximately 2.5 million additional
shares (plus underwriter's warrants) to be issued to the shareholders of Pacific
Ethanol.
Under the terms of the Share Exchange Agreement, which is subject to
satisfactory
9
completion of due diligence and shareholder approval, the existing directors,
officers and employees of the Company will be required to terminate their
positions with Accessity. The existing business operations of Sentaur, including
the related personal property in use at the Coral Springs Florida location, will
be sold to CEO and founder Barry Siegel. The stock of DriverShield CRM, whose
operations consists of its royalty stream from ClaimsNet (see Note 6), will be
transferred to Barry Siegel in lieu of a portion of the cash payments required
under his employment contract. Mr. Siegel will also retain some costs associated
with the lease of the Coral Springs, Florida building in the event its sale has
not concluded by the closing of the Share Exchange Agreement (see Note 14).
Thereafter, having shut down all activities in Florida, the management of
Accessity would be transferred to the new management of the PEI Group which is
located in California. The present Accessity Board of Directors will have the
right to nominate one director with a term that expires until the 2005 Accessity
shareholders meeting. The remaining assets, including all of the Company's cash
and investment funds, certain prepaid and other assets and selected liabilities,
would be retained under the control of the new management of the PEI Group. In
addition, the Share Exchange Agreement requires Accessity to prosecute the
lawsuit against Presidion's investment bankers, the Mercator Group LLC, Global
Taurus LLC, et al, for in excess of $100 million, as described in the Company's
December 31, 2003 Form 10-KSB (also see Note 5). The proceeds, if any, from a
successful outcome of this suit, after the payment of legal fees, will be
distributed two-thirds to Accessity shareholders of record, on the date of
closing of the transaction with the PEI Group, with the remaining one-third
being retained by the Company. In the event Accessity terminates the Share
Exchange Agreement for a Superior Proposal, as defined in the Share Exchange
Agreement, Accessity will pay the expenses of the other parties up to a maximum
amount of $150,000.
The Company has filed its preliminary proxy with the Securities and
Exchange Commission for review and, upon completion will forward the proxy to
its shareholders and schedule a shareholder meeting to vote for approval of the
transaction. The Company has also been in communication with the Nasdaq Stock
Market which has deemed this proposed transaction with the PEI Group as a
"Reverse Merger" and therefore, would require the Company to file an Initial
Listing Application for continued listing of the Company's stock on the Nasdaq
SmallCap Stock Market subsequent to the closing of this transaction.
The Company has signed two amendments to the Share Exchange
Agreement dated July 29 and October 1, 2004, revising the date upon which the
Share Exchange Agreement will terminate should the contemplated transaction not
close on October 29, 2004 and January 7, 2005, respectively. Additionally,
Amendment No. 2 to the Share Exchange Agreement provided for revision to the
following material terms: (i) subject to shareholder approval, Accessity will
sell the Sentaur Corp. subsidiary to Barry Siegel for the sum of $5,000 (ii) an
additional condition to closing was added requiring PEI to raise at least $7
million in new equity, with all but $500,000 being held in escrow subject to
consummation of the Share Exchange.
10
4. PREFERRED STOCK
------------------
In connection with the sale of the Company's former wholly-owned
subsidiary, driversshield.com FS Corp. ("FS"), its collision repair and fleet
services business, to PHH Vehicle Management Services, LLC, d/b/a PHH Arval
("PHH"), a subsidiary of the Cendant Corporation (NYSE, symbol CD) in February
2002 and, pursuant to the Preferred Stock Purchase Agreement, PHH acquired 1,000
shares of the Company's Series A Convertible Preferred Stock (the "Preferred
Shares") for $1.0 million. The Preferred Shares provided conversion, at the
holder's discretion, into 100,000 shares of the Company's common stock (subject
to adjustments for stock splits, re-capitalization and anti-dilution
provisions), and had a preference in liquidation, as defined, of $1,250,000.
Effective May 13, 2004, in exchange for certain mutual releases and
the amendment of the Stock Purchase Agreement dated October 29, 2001 resulting
in the extension of certain non-compete clauses in favor of PHH, the Company and
PHH entered into a Stock Repurchase Agreement providing the Company, or its
assigns, with the right to repurchase these Preferred Shares for $350,000.
Pursuant to the terms of the Stock Repurchase Agreement, the Company was
required to repurchase the Preferred Shares only in the event that the
arbitration matter between the Company and Presidion Solutions, Inc. (Note 5)
was successfully concluded in favor of the Company, and, the award had been
fully collected. In June 2004 the arbitrator ruled in favor of the Company, and
during the third quarter the Company collected the full amount due in a series
of payments. On September 9, 2004 an unrelated individual assumed the
obligations of the Company and repurchased the preferred shares and immediately
thereafter converted them into 100,000 common shares.
During the quarter ended June 30, 2004 the Company had reclassified
its preferred stock out of the equity section, and into a liability account, at
fair value, $350,000, since the redemption of its preferred stock was outside
the control of the Company. Upon its repurchase and conversion into common
stock, it was reclassified into equity.
5. AWARD GRANTED TO COMPANY IN ARBITRATION MATTER
-------------------------------------------------
During June 2004 the Company received notice that the arbitration
proceedings under the auspices of the American Arbitration Association had
concluded that the Company was entitled to the $250,000 break-up fee set forth
in the Memorandum of Understanding ("MOU") between the Company and Presidion
Solutions, Inc. ("Presidion"), as well as its share of the costs of the
arbitration and interest from the date of the termination of that agreement by
Presidion, aggregating approximately $30,000. As described more fully in the
Company's Form 10-KSB for the year ended December 31, 2003, the Company and
Presidion had entered into a MOU with the contemplation of merging Presidion
into the Company. Subsequently, Presidion breached the MOU and the Company filed
for arbitration. According to the arbitration terms, Presidion was provided
thirty days to make the payment. As an accommodation, the Company accepted an
initial payment of $98,332 on June 28, 2004, and an interest-bearing promissory
note, in the aggregate amount of $181,358, comprising two payments of
approximately similar amounts to be made on July 28 and August 27, 2004. The
Company received both payments on a timely basis. The arbitration award for the
break-up fee and interest is included in Investment and Other Income in the
accompanying Condensed Consolidated Statement of Operations and Comprehensive
Loss.
11
6. STRATEGIC PARTNERSHIP FOR INSURANCE BUSINESS
-----------------------------------------------
In December 2002, the Company entered into a Strategic Partnership
Agreement (the "Partnership Agreement"), effective January 2, 2003, with
ClaimsNet, a wholly-owned subsidiary of the CEI Group, Inc. ("CEI"), a
Pennsylvania corporation, in which ClaimsNet assumed the responsibilities of
servicing the operations and management of DriverShield CRM, the business that
provided insurance carriers with collision repair management for their insureds.
During 2003 the Company processed only those claims that were initiated prior to
the effective date, and ClaimsNet has assumed responsibility for new repairs.
The Company granted an exclusive license of its technology, including its
website software, that enables insurance customers to access the vehicle claims
management system via the Internet, and a non-transferable license of its
network of repair facilities, as well as training of its processing
methodologies, in order for ClaimsNet to fulfill its obligations under the
Partnership Agreement. As consideration, ClaimsNet remits a share of the profits
to the Company equivalent to 25% of vendor referral fees for repairs initiated
and completed, beginning in March 2003, and 50% of administrative fees, as
defined, on all existing customers, beginning in February 2003, as well as15% of
all administrative and vendor referral fees for all new customers that use the
licensed technology to have their vehicles repaired. The term of the partnership
is for a five year period with two consecutive one year renewals. The contract
also grants ClaimsNet an option to purchase this business, pursuant to a
formula, beginning January 1, 2007.
For the nine months ended September 30, 2004 and 2003 the Company recorded fees
from ClaimsNet of $142,000 and $82,000 respectively.
7. DISCONTINUED OPERATIONS OF AUTOMOBILE AFFINITY SERVICES BUSINESS AND SALE TO
-------------------------------------------------------------------------------
RELATED PARTY
-------------
Upon approval of its board of directors, the Company negotiated a
Stock Purchase Agreement ("the ADS Agreement"), effective August 1, 2003, for
the sale of all of the outstanding shares of its wholly owned subsidiary,
DriverShield ADS Corp. ("ADS") to an employee who is the president of this
business. Under the terms of the ADS Agreement the Company received a one-time
fee of $10,000 on September 30, 2003, plus it received reimbursement for its
legal fees of approximately $10,000 incurred for this sale. As a component of
the transaction, the individual purchaser also agreed to forego all future
rights to receive compensation and other benefits associated with his employment
contract, which was to expire in December 2004, but terminated on July 31, 2003.
All of the employees and related costs of the ADS business were borne by the
purchaser as of the effective date, and the Company has no continuing management
of, or responsibility for, the operations. The net liabilities of the business
at the closing date, of approximately $31,000, consisting of primarily accounts
receivable and payable, were retained by the Company.
The purchaser of the ADS business, Barry J. Spiegel, was one of the
four members of the Board of Directors of the Company, and a significant
shareholder, who retained his seat on the Board of Directors until he resigned
in May, 2004. With the completion of this transaction, the Company had exited
from all operating activities of its various automotive businesses.
The operating results of the affinity services business have been
presented as discontinued operations in the accompanying financial statements.
The Company recorded a gain of $10,000 on the transaction in the quarter ended
September 30, 2003.
12
Operating results during the three and nine months ended September
30, 2003, for the discontinued affinity services operations were as follows:
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
--------- ---------
2003 2003
--------- ---------
Revenues $ 41,000 $ 419,000
Cost of sales, selling, general and
administrative expenses (15,000) (204,000)
--------- ---------
Income from discontinued operations,
pre-tax $ 26,000 $ 215,000
--------- ---------
8. EARNINGS (LOSS) PER SHARE
----------------------------
Basic earnings (loss) per common share is computed by dividing
earnings (loss) by the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflect the potential dilution
that could occur if common stock equivalents, such as preferred stock, stock
options and warrants, were exercised. For the nine months ended September 30,
2004 and 2003, respectively, approximately 415,000 and 700,000 of potentially
dilutive common stock equivalents were excluded from the earnings per share
calculations, as their inclusion would have been anti-dilutive.
9. STOCK-BASED COMPENSATION PLANS
---------------------------------
The Company issues stock options to its employees and outside
directors pursuant to stockholder-approved stock option programs, and accounts
for stock-based compensation plans under the intrinsic value method of
accounting as defined by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. No stock-based
employee compensation cost is reflected in net income (loss) for the three and
nine months ended September 30, 2004 and 2003, as all options granted under
these plans had an exercise price equal to the fair market value of the
underlying common stock on the date of grant. See Note 10 for variable priced
stock options. For pro forma disclosures, the estimated fair value of the option
is amortized over the vesting period, which range from immediate vesting to
three years. The following table illustrates the effect on net income (loss) and
earnings (loss) per share if the Company had accounted for our stock option and
stock purchase plans under the fair value method of accounting under Statement
123, as amended by Statement 148:
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
----------------------- -------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net income (loss), as reported ($434,733) ($279,959) ($1,004,037) ($1,201,800)
Deduct: Total stock-based employee
compensation expense
determined under fair value-
based method for all awards,
net of related tax effects (85,753) (133,054) (257,259) (408,735)
--------- --------- ---------- -----------
13
Pro forma net income (loss) ($520,486) ($413,013) ($1,261,296) ($1,610,535)
--------- --------- ---------- -----------
Earnings (loss) per share:
Basic, as reported ($ .19) ($ .13) ($ .45) ($ .55)
Basic, pro forma ($ .23) ($ .19) ($ .56) ($ .74)
Diluted, as reported ($ .19) ($ .13) ($ .45) ($ .55)
Diluted, pro forma ($ .23) ($ .19) ($ .56) ($ .74)
10. NON-CASH COMPENSATION FOR VARIABLE PRICED OPTIONS
-----------------------------------------------------
In October 1999 the Company repriced certain options previously
granted to employees and third parties, representing the right to acquire
440,000 shares of common stock. The original grants gave holders the right to
purchase common shares at prices ranging from $5.00 to $6.20; these were
repriced to prices ranging from $3.75 to $4.15 per share. At the date of the
repricing, the new exercise price was equal to the fair market value of the
shares (110% of the fair market value in the case of an affiliate). In addition,
in September 2002 the Company granted a five-year extension to the life of
certain fully vested options that had expired. Pursuant to FASB Interpretation
No. 44, the Company accounts for these as variable from the date of the
modification until they are exercised, forfeited or expired, and records the
intrinsic value of such grants. During the year ended December 31, 2003 all of
these options, except for 6,667 which were extended in 2002, were either
forfeited or expired. There was no charge or credit during 2004, or the
comparable period in 2003.
11. INVESTMENTS AND IMPAIRMENT OF SECURITIES
--------------------------------------------
Investments at September 30, 2004 consist of available-for-sale
securities that had a fair market value of $3,369,000.
The Company evaluates its individual securities holdings to
determine whether it believes that a decline in investment value may be
permanent or other-than-temporary. In the quarter ended June 30, 2004 the
Company recognized an impairment, characterized as other-than-temporary, of
approximately $73,000, which included the unrealized losses previously reported
as the sole component of comprehensive losses, and most of the decrease in value
in the current quarter. While the total return for each of its income securities
covering the most recent twelve month period has been positive, the Company
considered that the increasing interest rate environment, which has resulted in
decreasing prices for each of the fixed income mutual funds that the Company
held at June 30, 2004, would continue. Further, in order to support its current
operating losses, the Company periodically sells some portion of its investment
holdings which may preclude its ability to hold securities sufficiently to
realize its initial investment. In July 2004 the Company made the decision to
sell one of its investment positions, which represented $33,000 of the
impairment amount noted above, concluding that its total return no longer
justified the market risk environment and recording that amount of the
impairment as a realized loss.
The investment balance, shown above, is valued at quoted market prices and
accordingly already reflects the impairment and realized loss.
14
12. PROFORMA INFORMATION
------------------------
Proforma information, assuming that the disposal of ADS occurred at
the beginning of the earliest quarterly period presented, has not been presented
since the disposal has been accounted for as discontinued operations, and such
amounts have been reclassified from continuing operations.
13. INCOME TAXES
----------------
At December 31, 2003, the Company had operating loss carry forwards
of approximately $3,800,000 and had established a valuation allowance for the
full amount of its deferred tax asset as it is more likely that the Company will
not be able to realize the tax benefits. To the extent the Company is profitable
in the future periods such carry forwards may be available to offset future
taxable earnings. To the extent the Company is not profitable it would not be
able to realize this benefit. In the event the transaction with the PEI Group is
consummated, there may be limitations on the amount of the net operating loss
carryforward which may be utilized pursuant to the Internal Revenue Code.
14. FLORIDA OFFICE LEASE AND RELATED PARTY TRANSACTION AND ACCELERATED
----------------------------------------------------------------------
AMOTIZATION OF LEASEHOLD IMPROVEMENTS
-------------------------------------
The 7,300 square foot building in Coral Springs, Florida which the
Company leases for its headquarters is owned and operated by B & B Lakeview
Realty Corp., whose three shareholders, Barry Siegel, Barry Spiegel and Ken
Friedman are, or previously were, members of the Company's Board of Directors.
In accordance with the terms of the lease, the Company paid required rentals to
B & B Lakeview Realty of approximately $36,000 in the current quarter and
$109,000 during the 2004 Period. Pursuant to the lease agreement, the Company is
also required to pay various building maintenance, insurance and other specified
charges, as incurred, to other unrelated vendors. It was also required to
establish a restricted depository account, in the amount of $300,000, as
described in the Liquidity and Capital Resources section of Managements
Discussion and Analysis or Plan of Operation.
In connection with the Share Exchange transaction described in Note
3, above, B & B Lakeview Realty Corp has informed the Company that it had listed
the property for sale and has accepted an offer, subject to certain closing
conditions which are required to be met prior to the anticipated closing date,
currently scheduled for early January 2005. Upon consummation of the sale of the
building, the Company will terminate its lease and rental obligations, and the
restricted funds of $300,000 would be returned to the Company, assuming no other
defaults exist. As a result of the foregoing, and the landlord's intent to
dispose of the building thereby terminating the Company's office lease
arrangement, such restricted funds, and its security deposit, have been
reclassified to a current asset. Upon consummation of the Share Exchange
transaction, in the event the property sale has not been concluded with the
purchaser taking possession of the premises, Sentaur or Barry Siegel, will
contribute $3,500 per month for building costs and expenses, and the Pacific
Ethanol Group will pay the excess
15
up to a maximum of $50,000. Thereafter, either Sentaur or Barry Siegel will pay
the entire amount.
In light of the related considerations noted above, the Company
reviewed the net asset value and amortization schedule of its leasehold
improvements in the Coral Springs, Florida building and has determined that it
is appropriate to accelerate the amortization period to coincide with the
anticipated sale of the building. Accordingly, it increased the amortization in
the three months ended September 30, 2004 to $52,000 from $8,000. A comparable
amount will be recorded in the fourth quarter, at which time the leaseholds will
be fully amortized.
15. SEGMENT INFORMATION
-----------------------
The Company currently reports two segments, medical and automotive.
As described in Note 6, however, the Company participates in the automotive
segment only through a roylaty arrangement; it no longer operates, or has
liability for, the current activities of the automotive segment, which function
under the managerial autonomy of ClaimsNet, pursuant to its contractual
arrangement with the Company. The Company manages these segments separately
since each serves different markets and users, as described in Note 2.
All of the Company's sales are made within the domestic United
States. Segment information follows.
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
----------------------- -------------------------
2004 2003 2004 2003
---------- ---------- ----------- -----------
Revenue:
Medical $ 150,000 $ 165,000 $ 480,000 $ 228,000
Automotive 47,000 29,000 142,000 219,000
---------- ---------- ----------- -----------
Consolidated total $ 197,000 $ 194,000 $ 622,000 $ 447,000
Segment profit (loss):
Medical(1) $ (20,000) $ 25,000 $ (46,000) $ (156,000)
Automotive(1) 32,000 3,000 79,000 (24,000)
Other/corporate(1) (447,000) (344,000) $(1,037,000) $(1,246,000)
---------- ---------- ----------- -----------
Consolidated total $ (435,000) $ (316,000) $(1,004,000) $(1,426,000)
Segment profit or (loss) reflects continuing operations before provision for
income taxes (benefit).
Identifiable assets at September 30, 2004:
Medical $ 106,000
Automotive 56,000
Other, corporate 4,312,000
----------
Consolidated total $4,474,000
(1) The Company does not allocate taxes, other income, interest income or
expense, or its corporate general and administrative expenses to its individual
segments. The segment profit (loss) shown above reflects those costs that are
directly and specifically identifiable with the operating activities of the
segment.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
-----------------------------------------------------------------
Forward Looking Statements - Cautionary Factors
The following discussion and analysis should be read in conjunction
with the Company's financial statements and the notes hereto appearing elsewhere
in this report. This report contains forward-looking statements within the
meaning of the Private Securities Litigation Act of 1995. The Company cautions
that forward-looking statements are not guarantees of future performance and
involve certain risks and uncertainties (including those identified in "Risk
Factors" in the Company's Form 10-KSB for the year ended December 31, 2003 and
Form 8-K dated May 17, 2004) and that actual results may differ materially from
those in the forward-looking statements as a result of various factors. Except
for the historical information and statements contained in this Report, the
matters and items set forth in this Report are forward looking statements.
THREE MONTHS ENDED SEPTEMBER 30, 2004 (THE "2004 QUARTER") COMPARED TO THREE
----------------------------------------------------------------------------
MONTHS ENDED SEPTEMBER 30, 2003 (THE "2003 QUARTER").
-----------------------------------------------------
The 2004 Quarter reflected a net loss of $435,000 compared to a net
loss of $280,000 in the 2003 Quarter. Loss from continuing operations was
$435,000 in the 2004 Quarter versus a loss of $316,000 in the 2003 Quarter; an
increase in losses of $119,000 or 38%. The increase was largely attributable to
fees related to its proposed merger transaction with the PEI Group described in
Note 3 to the financial statements. Basic and diluted loss per share from
continuing operations was $.19 and $.14 per share in the 2004 and 2003 Quarters
respectively. Basic and diluted income per share from discontinued operations
was zero in the 2004 Quarter and $.01 in the 2003 Quarter.
REVENUES FROM CONTINUING OPERATIONS
-----------------------------------
Revenues were $197,000 in the 2004 Quarter, versus $194,000 in the
2003 Quarter, representing an increase of $3,000 or 2%. Revenues increased by
$18,000 in the Company's automotive segment, from $29,000 in the 2003 Quarter to
$47,000 in the 2004 Quarter. The revenues that the Company recorded from its
automotive segment reflect its share of fees from claims processed by ClaimsNet.
Sentaur revenues decreased $15,000 to $150,000 in the 2004 Quarter from $165,000
in the 2003 Quarter when its revenues commenced. A few of its existing contracts
are now winding down, and while Sentaur has obtained new contracts, their
revenues had not commenced or those that had were not sufficient to offset the
declining contracts. Sentaur is currently not covering its direct expenses and
is generating losses.
OPERATING INCOME AND EXPENSES FROM CONTINUING OPERATIONS
--------------------------------------------------------
Pretax losses from continuing operations increased $119,000, or 38%,
to $435,000 in the 2004 Quarter compared to a pretax loss of $316,000 in the
2003 Quarter. The comparative amounts are described below.
Collision repair expense relating to its automotive repair business
decreased to zero in the 2004 Quarter versus $1,000 in the 2003 Quarter
resulting from the transfer of the business to ClaimsNet, described above.
Selling expenses incurred by the Company's Sentaur business, which
were relatively
17
comparable on a quarter-to-quarter basis, decreased by $6,000 (6%), to $99,000
in the 2004 Quarter, from $105,000 in the 2003 Quarter.
General and administrative expenses, increased by $95,000 (24%),
from $391,000 in the 2003 Quarter to $486,000 in the 2004 Quarter. This was
primarily the result of $74,000 in costs incurred during the 2004 Period
relating to the Share Exchange Agreement.
Depreciation increased $14,000, from $68,000 in the 2003 Quarter to
$82,000 in the 2004 Quarter, resulting from assets which became fully
depreciated, a decline of $30,000, offset by $44,000 in accelerated amortization
on its leasehold improvements in its Florida corporate office, which the Company
expects it will vacate in early January 2005.
Investment and other income, net, decreased by $20,000 from $55,000
in the 2003 Quarter to $35,000 in the 2004 Quarter. resulting primarily from
declining investment balances and lower interest rates.
DISCONTINUED OPERATIONS
-----------------------
Discontinued operations in the 2003 Quarter, reflects the net
operating results of the affinity services subsidiary which was sold effective
August 1, 2003. In the 2004 Quarter there were no discontinued operations.
NINE MONTHS ENDED SEPTEMBER 30, 2004 (THE "2004 PERIOD") COMPARED TO NINE MONTHS
--------------------------------------------------------------------------------
ENDED SEPTEMBER 30, 2003 (THE "2003 PERIOD").
---------------------------------------------
The 2004 Period reflected a net loss of $1,004,000 compared to a net
loss of $1,202,000 in the 2003 Period. Loss from continuing operations was
$1,004,000 in the 2004 Period versus a loss of $1,427,000 in the 2003 Period; a
reduction in losses of $423,000, or 30%. The reduction was largely attributable
to the receipt of a one-time arbitration award of $280,000 resulting from a
breach of an agreement and increases in revenue. Basic and diluted loss per
share from continuing operations was $.45 and $.65 per share in the 2004 and
2003 Period respectively. Basic and diluted income per share from discontinued
operations was $.10 in the 2003 Period and zero in the 2004 Period.
REVENUES FROM CONTINUING OPERATIONS
-----------------------------------
Revenues were $622,000 in the 2004 Period, versus $447,000 in the
2003 Period, representing an increase of $175,000 or 39%. The Company's revenues
decreased by $78,000 in its automotive segment, from $220,000 in the 2003 Period
to $142,000 in the 2004 Period as a result of transferring the operating
responsibility of its CRM business to ClaimsNet, effective January 2003.
However, as described below, the significant reduction in infrastructure costs
eliminated the direct expenses and losses from this business segment (excluding
corporate overhead which the Company does not allocate to its operating units).
The revenues the Company recorded in the 2004 Period reflect referral fees
associated with claims processed by ClaimsNet. Offsetting the reduction in
revenues from its automotive segment was an increase in revenues of $252,000
from Sentaur, the Company's financial recovery business for hospitals. Its
revenues increased from $228,000 in the 2003 Period to $480,000 in the 2004
Period. Sentaur commenced recording revenues in April 2003 and there were only
six months billings in the 2003 Period. While revenues have increased, Sentaur
is currently losing money and not supporting its direct expenses.
18
OPERATING INCOME AND EXPENSES FROM CONTINUING OPERATIONS
--------------------------------------------------------
Pretax losses from continuing operations decreased 30%, to
$1,004,000 in the 2004 Period compared to a pretax loss of $1,427,000 in the
2003 Period, a decrease in losses of $423,000. The comparative amounts are
described below.
Collision repair expense relating to its automotive repair business,
decreased to zero in the 2004 Period versus $102,000 in the 2003 Period
resulting from the transfer of the business to ClaimsNet, described above.
Selling expenses decreased by $32,000 (9%), to $322,000 in the 2004
Period, from $354,000 in the 2003 Period. This was the result of lower selling
expenses for all business activities including Sentaur and other corporate
marketing activities, including some transition marketing expenses incurred for
CRM in the 2003 Period for which there was no comparable amount in the 2004
Period.
General and administrative expenses increased by $105,000 (8%), from
$1,322,000 in the 2003 Period to $1,427,000 in the 2004 Period. Increased legal
expenses relating to our claim against Presidion Solutions, Inc. which was
arbitrated (and an award granted to the Company) in the 2004 Period, as well as
two other claims (as described in the Company's December 31, 2003 10-KSB), one
in which it is a plaintiff and one as a defendant, is one key reason for the
increase. The Company has also incurred legal expenses associated with due
diligence for the PEI Group transaction. The foregoing resulted in increased
legal expenses of $43,000 over the 2003 Period. In addition, the Company
incurred $64,000 in consulting fees during the 2004 Period relating to the Share
Exchange Agreement for a fairness opinion on the potential transfer of certain
assets.
Depreciation declined $36,000, from $237,000 in the 2003 Period to
$201,000 in the 2004 Period, resulting from assets which became fully
depreciated, a decline of $80,000, offset by $44,000 in accelerated amortization
on its leasehold improvements in its Florida corporate office, which the Company
expects it will vacate in early January 2005. .
Investment and other income, net, increased $171,000 from $141,000
in the 2003 Period to $312,000 in the 2004 Period. Other income in the 2004
Period included $280,000 from Presidion resulting from an arbitration award from
their breach of an agreement with the Company. The Company was awarded $250,000
for the stipulated break-up fee, plus certain costs and interest. Offsetting the
award was a non-cash impairment of $40,000 which recognized most of the
unrealized losses incurred on fixed income mutual funds, and a realized loss of
$33,000 recorded on marketable securities. Aside from arbitration award and the
impairment, other income declined $30,000 resulting primarily from declining
investment balances and lower interest rates.
The Company also recorded a tax credit which was refunded by the New
York State Department of Taxation and Finance in the 2004 Period resulting from
overpayments in the prior taxable year. There was no such amount in the 2003
Period.
19
DISCONTINUED OPERATIONS
-----------------------
Discontinued operations in the 2003 Period, reflects the net
operating results of the affinity services subsidiary which was sold effective
August 1, 2003. In the 2004 Period there were no discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of September 30, 2004 the Company had cash and cash equivalents
of $361,000. The Company also holds shares in a number of highly liquid mutual
funds valued at $3,369,000. Working capital of the Company as of September 30,
2004 was $3,781,000 and its working capital ratio was 9:1.
In connection with the rental of office space in Florida, in July
2002, the Company was required to establish $300,000 in restricted funds with a
Florida bank for the five and a half year term of the lease, as a guarantee of
its future rental commitments. Such amounts are presented as restricted funds.
The restricted fund amount is scheduled to decline as the remaining rental
commitment declined, as follows; the balance of the certificate will be $200,000
after the 36th month, $100,000 after the 48th month, and zero after 60 months.
In connection with the Share Exchange Agreement, described in Note 3, the
landlord has offered the building for sale and signed an offer, which when
concluded, would release the Company from further rent obligations by
terminating its lease, and thereby result in the return of $300,000 restricted
funds. Accordingly, the restricted funds have been reclassified to a current
asset from the non-current status.
The Company has no major expenditures that it currently anticipates
for capital equipment, however it is expending funds due to operating losses,
including funding the growth of its Sentaur business unit. As Sentaur obtains
new hospital customers and seeks to expand its sales, it may require additional
funds for personnel expenses and software systems development, but this would
occur in anticipation of future revenue growth. Should we not complete the
transaction with the PEI Group described above in Note 3, we would expect to use
our resources to support Sentaur's growth during the remainder of 2004 and
thereafter. Also, the Company incurred an unusually high level of legal expense
in the 2004 Period in connection with three claims; two of which the Company is
the plaintiff ( it has won one of those cases as discussed in Note 5 above) and
one in which it is the defendant. We anticipate this level of legal costs will
decline.
In addition, the Company has spent considerable management effort
and time pursuing acquisition candidates, and has incurred varying levels of
expenses in connection with each evaluation. These have ranged from minor
amounts for such expenses as an initial business trip or, more extensively,
multiple trips for due diligence, legal review and lien and judgment searches.
We are currently expending funds for the transaction with the PEI Group
described in Note 3, above. Should we not complete this transaction, and seek
another acquisition, we may use a significant amount of our funds to either pay
a portion of the purchase price and/or expand the business we acquire.
The Company believes that its present liquidity will enable it to
continue to support its operations, as they are currently configured for our
continuing business, for the next twelve months and for an extended period
thereafter depending on the extent of use of its funds to build existing
businesses or possible use of funds to develop or acquire new businesses.
20
CONTEMPLATED TRANSACTION
The Company announced on May 17, 2004 that it has signed a Share
Exchange Agreement to acquire Pacific Ethanol, Inc., Kinergy Marketing, LLC and
Re-Energy, LLC in a stock-for-stock share exchange transaction. Upon
consummation of the share exchange, each of the acquired companies will become
wholly-owned subsidiaries of Accessity Corp. and Accessity Corp. will
re-incorporate in the State of Delaware and change its name to Pacific Ethanol,
Inc.
Accessity Corp. was initially to issue approximately 18.8 million
shares to the then current shareholders or owners to acquire the three companies
in this transaction. It was contemplated that the combined company would have
approximately 22 million shares of common stock outstanding, on a fully-diluted
basis, should all options and warrants be exercised following consummation of
the share exchange transaction. However, a $7 million private placement intended
for acquisitions and other general corporate uses, currently in process by
Pacific Ethanol, Inc., and which is a required condition to closing the
transaction, would result in an additional 2.5 million shares being issued when
it is completed.
The proposed share exchange, expected to be completed as quickly as
possible, is subject to satisfaction of due diligence investigations by all of
the parties, approval by a majority of Accessity's shareholders and certain
other additional conditions to closing including the completion of the $7
million private equity placement noted above. As a further condition to the
completion of the acquisitions, the current management of Accessity will resign
and the current management of the acquired companies will assume management of
the combined companies. The former Board of Directors of Accessity will
designate one person to serve on the board of directors of Pacific Ethanol until
the 2005 annual shareholders meeting. [See Note 3 to the Financial Statements
herein.] The Company has submitted its preliminary proxy to the SEC for review
and upon completion will mail the proxy to its shareholders for approval at the
2004 Annual Shareholders Meeting scheduled for December 28, 2004.
ITEM 3. CONTROLS AND PROCEDURES
-------------------------------
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in ss.240.13a-15(e) or 240.15d-15(e) under the Exchange
Act) as of September 30, 2004. Based upon that evaluation required by section
ss.240.13a-15 or 240.15d-15 under the Exchange Act, the Chief Executive Officer
and Chief Financial Officer concluded that, our disclosure controls and
procedures were effective in timely alerting them to the material information
relating to us (or our consolidated subsidiaries) required to be included in our
periodic SEC filings.
CHANGES IN INTERNAL CONTROLS.
There were no significant changes made in our internal controls
during the period covered by this report, or to our knowledge, in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.
21
PART II. OTHER INFORMATION
--------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------
(A) EXHIBITS
10.1 Amendment No. 2 to Share Exchange Agreement made and entered into on
October 1, 2004 by and among Accessity Corp., a New York corporation
Pacific Ethanol, Inc., a California corporation ("PEI"); Kinergy
Marketing, LLC, an Oregon limited liability company ("Kinergy");
Reenergy, LLC, a California limited liability company ("Reenergy,";
each of the shareholders of PEI identified on the signature pages
thereto (collectively, the "PEI Shareholders"); each of the holders
of options or warrants to acquire shares of common stock of PEI
identified on the signature pages thereto (collectively, the "PEI
Warrantholders"); each of the limited liability company members of
Kinergy identified on the signature pages thereto (collectively, the
"Kinergy Members"); each of the limited liability company members of
Reenergy identified on the signature pages thereto (collectively,
the "Reenergy Members")
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer
32.2 Certification of Chief Financial Officer
(B) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K dated August 17, 2004
disclosing a press release that announced the Company's financial results
for the period ended June 30, 2004.
22
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Accessity Corp.
Date: November 15, 2004 By: Barry Siegel
-----------------------
Chairman of the Board, President and
Chief Executive Officer
Date: November 15, 2004 By: Philip B. Kart
-----------------------
Senior Vice President, Treasurer, Secretary
and Chief Financial Officer
23
INDEX OF EXHIBITS
-----------------
10.1 Amendment No. 2 to Share Exchange Agreement made and entered into on
October 1, 2004 by and among Accessity Corp., a New York corporation
Pacific Ethanol, Inc., a California corporation ("PEI"); Kinergy
Marketing, LLC, an Oregon limited liability company ("Kinergy");
Reenergy, LLC, a California limited liability company ("Reenergy,";
each of the shareholders of PEI identified on the signature pages
thereto (collectively, the "PEI Shareholders"); each of the holders
of options or warrants to acquire shares of common stock of PEI
identified on the signature pages thereto (collectively, the "PEI
Warrantholders"); each of the limited liability company members of
Kinergy identified on the signature pages thereto (collectively, the
"Kinergy Members"); each of the limited liability company members of
Reenergy identified on the signature pages thereto (collectively,
the "Reenergy Members")
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer
32.2 Certification of Chief Financial Officer
24