-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NPlrSvg6z/8nNK/9guUirmiRUpTPt98EsYqCRvdq769gt+EdgXDJuffz+Qz0oeX0 hfR1hhQzIM7wC3XjTFf6mg== 0000950147-99-000090.txt : 19990211 0000950147-99-000090.hdr.sgml : 19990211 ACCESSION NUMBER: 0000950147-99-000090 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RENT A WRECK OF AMERICA INC CENTRAL INDEX KEY: 0000763567 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 953926056 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-14819 FILM NUMBER: 99527381 BUSINESS ADDRESS: STREET 1: 11460 CRONRIDGE DRIVE SUITE 118 CITY: OWINGS MILLS STATE: MD ZIP: 21117 BUSINESS PHONE: 4105815755 MAIL ADDRESS: STREET 1: 11460 CRONRIDGE DRIVE STE 118 CITY: OWINGS MILLS STATE: MD ZIP: 21117 10QSB 1 QUARTERLY REPORT FOR THE QTR ENDED 12/31/98 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 December 31, 1998 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ____________ to ____________ Commission File Number 0-14819 RENT-A-WRECK OF AMERICA, INC. ----------------------------------------------------------------- (Exact name of small business issuer as specified in its Charter) Delaware 95-3926056 - --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 11460 Cronridge Drive, Suite 120, Owings Mills, Md 21117 - -------------------------------------------------- --------- (Address of Principal Executive Offices) (Zip Code) Issuer's telephone number: (410) 581-5755 -------------- ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 4,035,792 shares as of January 18, 1999. Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X] RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES FORM 10-QSB - DECEMBER 31, 1998 INDEX PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 1998 and December 31, 1998 (Unaudited) 2-3 Consolidated Statements of Earnings for the Three and Nine Months ended December 31, 1997 and 1998 (Unaudited) 4 Consolidated Statements of Cash Flows for the Nine Months ended December 31, 1997 and 1998 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6-8 Item 2. Management's Discussion and Analysis or Plan of Operations 8-12 PART II. OTHER INFORMATION Item 1. Legal proceedings 16 Item 2. Changes in Securities and Use of Proceeds 16 Item 3. Defaults Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 Part I - Financial Information Item 1 - Financial Statements RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS March 31, December 31, 1998 1998 ---------- ---------- (Unaudited) CURRENT ASSETS: Cash and Cash Equivalents ..................... $1,215,615 $1,236,715 Restricted Cash ............................... 394,021 742,147 Accounts Receivable, net of allowance for doubtful accounts of $682,631 and $809,361 at March 31, 1998 and December 31, 1998, respectively: Continuing License Fees and Advertising Fees ........................ 302,367 354,092 Current Portion of Notes Receivable ....... 342,765 445,204 Current Portion of Direct Financing Leases .................................. 37,653 12,411 Insurance Premiums Receivable ............. 560,219 -- Other ..................................... 176,166 242,726 Prepaid Expenses .............................. 133,856 149,451 ---------- ---------- TOTAL CURRENT ASSETS ........................ 3,162,662 3,182,746 ---------- ---------- PROPERTY AND EQUIPMENT: Furniture ..................................... 71,655 92,405 Computer Hardware and Software ................ 314,657 359,421 Machinery and Equipment ....................... 101,868 103,750 Leasehold Improvements ........................ 37,896 37,896 Vehicles ...................................... 23,347 94,750 ---------- ---------- 549,423 688,222 Less: Accumulated Depreciation and Amortization ............................ (265,476) (351,851) ---------- ---------- NET PROPERTY AND EQUIPMENT ..................... 283,947 336,371 ---------- ---------- OTHER ASSETS: Trademarks and other Intangible Assets, net of accumulated amortization of $105,951 and $121,092 at March 31, 1998 and December 31, 1998, respectively .......... 203,129 194,684 Long-term Portion of Notes and Direct Financing Lease Receivables .................. 14,374 13,022 ---------- ---------- 217,503 207,706 ---------- ---------- TOTAL ASSETS ............................... $3,664,112 $3,726,823 ========== ========== The accompanying notes are an integral part of these financial statements. 2 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY March 31, December 31, 1998 1998 ---------- ---------- (Unaudited) CURRENT LIABILITIES: Accounts Payable and Accrued Expenses ............. $ 634,374 $ 695,234 Dividends Payable ................................. 27,320 27,320 Insurance Premiums Payable ........................ 488,397 58,637 Insurance Fees, Claims, and Loss Reserves ......... 244,815 329,794 Income Taxes Payable .............................. 239,316 227,276 Other ............................................. 1,506 1,506 ---------- ---------- TOTAL CURRENT LIABILITIES ....................... 1,635,728 1,339,767 ---------- ---------- TOTAL LIABILITIES ............................... 1,635,728 1,339,767 ---------- ---------- COMMITMENTS AND CONTINGENCIES ...................... -- -- SHAREHOLDERS' EQUITY: Convertible Cumulative Series A Preferred Stock, $.01 par value; authorized 10,000,000 shares; issued and outstanding 1,366,000 shares at March 31, 1998 and December 31, 1998 (aggregate liquidation preference $1,092,800 at March 31, 1998 and December 31, 1998) ........ 13,660 13,660 Common Stock, $.01 par value; authorized 25,000,000 shares; issued and outstanding 4,189,692 shares at March 31, 1998 and 4,035,792 shares at December 31, 1998 ....... 41,896 40,358 Additional Paid-In Capital ........................ 2,900,382 2,709,333 Accumulated Deficit ............................... (927,554) (376,295) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY ..................... 2,028,384 2,387,056 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....................................... $3,664,112 $3,726,823 ========== ========== The accompanying notes are an integral part of these financial statements. 3 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Nine Months Ended December 31, Ended December 31, 1997 1998 1997 1998 --------- ---------- ---------- ---------- REVENUES: Initial License Fees.................... $ 237,250 $ 228,250 $ 633,500 $ 907,301 Advertising Fees ....................... 173,274 217,073 565,033 667,813 Continuing License Fees ................ 525,425 647,829 1,827,426 2,021,895 Insurance premiums ..................... 159,121 202,357 395,124 565,374 Vehicle Rental Operations .............. 3,508 3,910 11,717 12,200 Other .................................. 33,645 45,011 109,212 121,720 ---------- ---------- ---------- ---------- 1,132,223 1,344,430 3,542,012 4,296,303 ---------- ---------- ---------- ---------- EXPENSES: Salaries, Consulting Fees and Employee Benefits ...................... 192,915 225,812 583,808 650,805 Sales and Marketing Expenses ............ 101,976 163,752 380,185 532,713 Advertising and Promotion ............... 274,178 303,040 845,221 947,518 Underwriting Expenses ................... 158,486 174,432 341,120 464,478 General and Administrative Expenses ..... 226,197 213,325 713,256 668,301 Depreciation & Amortization ............. 29,295 35,045 90,091 105,179 ---------- ---------- ---------- ---------- 983,047 1,115,406 2,953,681 3,368,994 ---------- ---------- ---------- ---------- OPERATING INCOME .................... 149,176 229,024 588,331 927,309 INTEREST INCOME, NET ..................... 13,418 20,407 45,985 52,436 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAX EXPENSE .... 162,594 249,431 634,316 979,745 ---------- ---------- ---------- ---------- INCOME TAX EXPENSE ....................... 47,266 73,422 194,369 302,224 ---------- ---------- ---------- ---------- NET INCOME.......................... $ 115,328 $ 176,009 $ 439,947 $ 677,521 DIVIDENDS ON CONVERTIBLE CUMULATIVE PREFERRED STOCK ........................ 27,733 27,320 84,111 81,960 ---------- ---------- ---------- ---------- NET INCOME APPLICABLE TO COMMON AND COMMON EQUIVALENT SHARES............ $ 87,595 $ 148,689 $ 355,836 $ 595,561 ---------- ---------- ---------- ---------- EARNINGS PER COMMON SHARE Basic................................... $ .02 $ .04 $ .08 $ .15 ---------- ---------- ---------- ---------- Weighted average common shares ........... 4,292,454 4,078,781 4,276,386 4,106,907 ========== ========== ========== ========== Diluted................................. $ .02 $ .03 $ .07 $ .12 ---------- ---------- ---------- ---------- Weighted average common shares plus options and warrants ............... 5,919,012 5,568,516 5,902,944 5,596,642 ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 4 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended December 31, ------------------------------ 1997 1998 ---------- ---------- Increase (decrease) in cash and cash equivalents Cash flows from operating activities: Net income ...................................... $ 439,947 $ 677,521 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................. 90,091 105,179 Gain on disposal of property and equipment .... (4,152) (1,577) Provision for doubtful accounts ............... (108,575) 126,730 Changes in assets and liabilities: Accounts and notes receivable and other ....... 167,240 239,359 Prepaid expenses .............................. (62,597) (15,595) Accounts payable and accrued expenses ..................................... (124,436) 60,860 Income Taxes Payable .......................... 108,362 (12,040) Insurance fees, claims, and loss reserves ................................ 148,101 84,979 ----------- ----------- Net cash provided by operating activities ... 653,981 1,265,416 ----------- ----------- Cash flows from investing activities: Decrease (Increase) in restricted cash .......... 52,592 (348,126) Proceeds from sale of property and equipment .... 29,160 42,386 Acquisition of property and equipment ........... (55,870) (183,272) Additions to trademarks and other ............... (852) (6,694) ----------- ----------- Net cash used in investing activities ....... 25,030 (495,706) ----------- ----------- Cash flow from financing activities: Increase (Decrease) in insurance premiums payable ....................................... 59,581 (429,760) Issuance of common stock ........................ 25,000 16,000 Repayments of long-term debt .................... (38,667) -- Retirement of warrants .......................... -- (10,000) Retirement of common stock ...................... (18,189) (198,588) Preferred dividends paid ........................ (126,287) (126,262) ----------- ----------- Net cash used in financing activities ....... (98,562) (748,610) ----------- ----------- Net increase in cash and cash equivalents ... 580,449 21,100 Cash and cash equivalents at beginning of period ....................................... 531,127 1,215,615 ----------- ----------- Cash and cash equivalents at end of period ....... $ 1,111,576 $ 1,236,715 =========== =========== Supplemental disclosure of cash flow information: Interest paid .................................. $ 16,106 17,947 Taxes paid ..................................... $ 87,044 $ 367,758 The accompanying notes are an integral part of these financial statements. 5 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 1. CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements presented herein include the accounts of Rent-A-Wreck of America, Inc. ("RAWA, Inc.") and its wholly owned subsidiaries, Rent-A-Wreck Operations, Inc. ("RAW OPS"), Rent-A-Wreck One Way, Inc. ("RAW One Way"), Consolidated American Rental Insurance Company, LTD ("CAR Insurance") and Bundy American Corporation ("Bundy"), and Bundy's subsidiaries, Rent-A-Wreck Leasing, Inc. ("RAW Leasing"), URM Corporation ("URM") and Central Life and Casualty Company, Limited ("CLC"). All of the above entities are collectively referred to as the "Company" unless the context provides or requires otherwise. All material intercompany balances and transactions have been eliminated. The consolidated balance sheet as of December 31, 1998, the consolidated statements of earnings for the three and nine-month periods ended December 31, 1997 and 1998 and the consolidated statements of cash flows for the nine- month periods ended December 31, 1997 and 1998 have been prepared by the Company without audit. In the opinion of management, all adjustments which are necessary to present a fair statement of the results of operations for the interim periods have been made, and all such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's March 31, 1998 annual report on Form 10-KSB. The results of operations for the interim periods are not necessarily indicative of the results for a full year. 2. PREFERRED STOCK As of March 31, 1998, preferred dividend arrearages were $221,511. The Company paid $44,302 of these arrearages during the quarter ended June 30, 1998. A quarterly preferred dividend of $27,320 was declared for the first quarter ended June 30, 1998 and it was paid on August 6, 1998. For the quarter ended September 30, 1998, the Company declared preferred dividends totaling $27,320 which were paid on November 11, 1998. For the quarter ended December 31, 1998, the Company declared dividends totaling $27,320 which are expected to be paid during the fourth quarter of the Company's fiscal year. As of December 31, 1998, preferred dividend arrearages were $177,209. 6 3.EARNINGS PER SHARE A reconciliation of the numerators and denominators utilized in the computation of basic and diluted earnings per share for the three-month and nine-month periods ended December 31, 1997 and 1998 is as follows: Three Months Nine Months Ended December 31, Ended December 31, 1997 1998 1997 1998 ---------- ---------- ---------- ---------- BASIC EPS COMPUTATION Numerator: Net income applicable to common and common equivalent shares $ 87,595 $ 148,689 $ 355,836 $ 595,561 Denominator: Weighted average common shares 4,292,454 4,078,781 4,276,386 4,106,907 ---------- ---------- ---------- ---------- Basic EPS $ .02 $ .04 $ .08 $ .15 ========== ========== ========== ========== DILUTED EPS COMPUTATION Numerator: Net income applicable to common and common equivalent shares $ 87,595 $ 148,689 $ 355,836 $ 595,561 Dividends on convertible preferred stock 27,733 27,320 84,111 81,960 ---------- ---------- ---------- ---------- 115,328 176,009 439,947 677,521 ---------- ---------- ---------- ---------- Denominator: Weighted average common shares 4,292,454 4,078,781 4,276,386 4,106,907 Convertible preferred stock 1,386,625 1,366,000 1,386,625 1,366,000 Weighted average options and warrants 239,933 123,735 239,933 123,735 ---------- ---------- ---------- ---------- 5,919,012 5,568,516 5,902,944 5,596,642 ---------- ---------- ---------- ---------- Diluted EPS $ .02 $ .03 $ .07 $ .12 ========== ========== ========== ========== 7 4.LITIGATION The Company is party to legal proceedings incidental to its business from time to time. Certain claims, suits and complaints arise in the ordinary course of business and may be filed against the Company. Based on facts now known to the Company, management believes all such matters are adequately provided for, covered by insurance or, if not so covered or provided for, are without merit, or involve such amounts that would not materially adversely affect the consolidated results of operations or financial position of the Company. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS RESULTS OF OPERATIONS-THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997 Revenue from franchising operations, which includes initial license fees, continuing license fees and advertising fees, increased by $157,203 (17%). Continuing license fees increased by $122,404 (23%) and advertising fees increased by $43,799 (25%). These increases resulted primarily from the fleet growth at existing franchises, the addition of new franchises and the Company's dedication of additional resources to the collection effort. Revenues from insurance premiums increased by $43,236 (27%) due to higher participation by the Company's franchisees in the CAR Insurance program that began operations in March 1997. Total operating expenses increased by $132,359 (13%) in this period compared to the same three-month period in the prior year. Salary expense increased by $32,897 (17%) primarily as a result of hiring additional employees in response to the growth of the Company. Sales and marketing expenses increased by $61,776 (61%) due to an increase in bad debt expense in this period compared to the same period in the prior year, as the prior year included the recovery of a bad debt previously reserved. Advertising and promotion expenses increased by $28,862 (11%), which resulted primarily from an increase in national advertising expense to promote the Company. Insurance underwriting expenses increased by $15,946 (10%) due to an increase in paid losses and loss reserves for future claims in connection with higher participation by the Company's franchisees in its CAR Insurance program. General and administrative expenses decreased by $12,872 (6%), which resulted primarily from a reduction in legal fees. Depreciation and amortization expense increased by $5,750 (20%) in this period compared to the same period in the prior year. This increase was primarily due to the additional investment in computer software and hardware and the purchase of three additional vehicles. 8 Net interest income increased $6,989 (52%). This increase was primarily due to interest earned on the increased cash reserves which are held in interest bearing accounts. The Company realized operating income of $229,024, before taxes and interest, for the three-month period ended December 31, 1998 compared to operating income of $149,176 for the same period in the prior year, reflecting an increase of $79,848 (54%). This increase resulted primarily from the increase in continuing license fees and insurance premiums due to the addition of new franchises and the Company's collection efforts. Income tax expense for the three-month period ended December 31, 1998 increased by $26,156 (55%) compared to the three-month period ended December 31, 1997 due to higher pre-tax earnings. YEAR TO DATE RESULTS OF OPERATIONS COMPARED TO SAME PERIOD IN PRIOR YEAR Net revenues increased by $754,291 (21%) for the nine-month period ended December 31, 1998 as compared to the same period in the prior year. This increase occurred due to a $273,801 (43%) increase in initial license fees, a $194,469(11%) increase in continuing license fees, a $102,780 (18%)increase in advertising fees, and a $170,250 (43%) increase in premiums in connection with the new reinsurance program. These increases occurred for the same reasons indicated above. Total operating expenses increased by $415,313 (14%) in this period compared to the same period in the prior year. Salary expense increased by $66,997 (11%) primarily as a result of additional employees in response to the growth of the Company. Sales and marketing expenses increased by $152,528 (40%), which resulted primarily from a larger amount of franchise sales made in the current nine-month period compared to the same period in the prior year, the repurchase of a territory from an existing franchisee which was resold by the Company at a profit, and from the recovery of a bad debt in the prior year which had been fully reserved. Advertising and promotion expenses increased by $102,297 (12%), which resulted primarily from an increase in national advertising expense to promote the Company and the expenses arising from a lawsuit with a competitor concerning limits on the use of certain advertising slogans and names. Underwriting expenses increased by $123,358 (36%) due to an increase in paid losses and loss reserves for future claims in connection with higher participation by the Company's franchisees. General and administrative expenses decreased by $44,955 (7%), which resulted primarily from a reduction in legal fees. Depreciation and amortization expense increased by $15,088 (17%) for the nine-month period ended December 31, 1998 as compared to the same period in the prior year. This increase was primarily due to the additional investment in computer software and hardware and due to the purchase of three additional vehicles. 9 The Company realized operating income of $927,309, before taxes and interest, for the nine-month period ended December 31, 1998 as compared to operating income of $588,331 for 1997, reflecting an increase of $338,978 (58%). This increase resulted primarily from the increase in initial license fees, continuing license fees and insurance premiums. Income tax expense for the nine-month period ended December 31, 1998 increased by $107,855 (55%) compared to the nine-month period ended December 31, 1997 due to higher pre-tax earnings. Effective June 30, 1993, the Company issued ten-year options (the "Options") to K.A.B. for the purchase of up to 2,250,000 shares of the Company's common stock. The Board of Directors approved the vesting of 1,000,000 Options at an exercise price of $1.00 per share and, as later amended by the Board, provided that the balance of the Options (an aggregate of 1,250,000 Options) (the "Unvested Options") would vest at $1.15 per share on July 1,2002 subject to a possible acceleration in exercisability if certain financial or stock targets were achieved. The year to date earnings may result in certain Unvested Options held by affiliates becoming exercisable as a result of achieving certain profitability targets. The Unvested Options can be accelerated upon achieving the following: Number of Shares Alternative Vesting Event: ------ -------------------------- 500,000 Completion of the first fiscal year in which the Company has Profits of at least $750,000 or in which the Stock Price is at least $4.00 750,000 Completion of the first fiscal year in which the Company has Profits of at least $1,000,000 or in which the Stock Price is at least $5.00 For purposes hereof, "Profits" means any fiscal period where the Company's pretax operating profit meets such targets during such period as determined in accordance with generally accepted accounting principles based on the Company's books and records, and excludes any profit or loss from financial transactions and any charge for compensation expense relating to these options. For purposes hereof, "Stock Price" means the average closing high bid price for the Company's Common Stock as reported on Nasdaq (or, if applicable, the NASD Bulletin Board or pink sheets) over any 30 consecutive calender days during the applicable fiscal year. 10 Consequently, if the Profits for the year ending March 31, 1999 meet or exceed $750,000, then 500,000 Unvested Options will become exercisable, and if Profits exceed $1,000,000, then all 1,250,000 Unvested Options will become exercisable. Effective January 1, 1999, the annual management fee earned by K.A.B. increased from $250,000 to $300,000 (in addition to reimbursement of expenses). LIQUIDITY AND CAPITAL RESOURCES At December 31, 1998, the Company had working capital of $1,842,979 compared to $1,526,934 at March 31, 1998. This increase of $316,045 resulted primarily from the net profit earned during the nine-month period ended December 31, 1998. The Company has a $1,000,000 letter of credit from The Chase Manhattan Bank ("Chase") in connection with the Company's CAR Insurance subsidiary. This letter of credit is part of the reinsurance agreement with American International Group ("AIG") to secure payment of claims. If funds were drawn against the letter of credit due to a default, the borrowings would bear interest at 3% plus Chase's prime commercial lending rate (which prime rate was 7.75% on January 15, 1999). For the quarter ended December 31, 1998, AIG did not draw any funds from the letter of credit. This letter of credit is secured by all of the Company's assets. Property and equipment increased by $67,396 (13%) from March 31, 1998 to December 31, 1998. This increase occurred primarily due to additional investment in computer software and hardware. Vehicles increased by $71,403 (306%) from March 31, 1998 to December 31, 1998 due to the purchase of two vehicles for the one-way program and a vehicle for use by the Company. Cash provided by operations was $1,265,416, resulting primarily from net income before depreciation plus the decrease in accounts and notes receivable, increase in insurance fees, claims and loss reserves, increase in accounts payable and accrued expenses, offset by the increase in the Company's prepaid expenses and decrease in income taxes payable. Accounts and notes receivable in conjunction with the Company's franchising program increased by $254,300 primarily due to a higher volume of sales. Accounts receivable relating to the reinsurance program decreased by $560,219 as a result of funds received from the finance company. Prepaid expenses increased primarily due to the purchase of additional promotional items. Accounts payable and accrued expenses increased primarily from higher commissions payable and accrued national advertising expense. Income taxes payable decreased primarily due to income taxes paid for the year ended March 31, 1998. 11 Cash used in investing activities of $495,706 related primarily to an increase in restricted cash as required by the Company's letter of credit, the acquisition of computer software and hardware, three vehicles and the annual costs associated with renewing trademarks. Cash used in financing activities during the same period was $748,610, resulting from a decrease in insurance premiums payable and the payment of preferred dividends and buyback of common stock and warrants offset by the issuance of common stock in connection with warrants which were exercised. In June 1995 and April 1996, the Company approved the repurchase of up to a total of 500,000 shares of the Company's outstanding common or preferred stock. On April 23, 1998, the Company approved the repurchase of up to an additional 500,000 shares of the Company's outstanding common or preferred stock. For the nine months ended December 31, 1998, the Company repurchased and retired 183,900 shares of its common stock. As of December 31, 1998, the Company has repurchased and retired a total of 662,000 shares under this program. A total of 338,000 shares are still available for repurchase under this 1998 repurchase program. The Company believes it has sufficient working capital to support its business plan through fiscal 1999. IMPACT OF INFLATION Inflation has had no material impact on the operations and financial condition of the Company. The statements regarding anticipated future performance of the Company contained in this report are forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause the Company's actual results to differ materially from the forward-looking statements. Factors which could cause or contribute to such differences include, but are not limited to, the Company's limited experience in the reinsurance business and the potential for negative claims experience, the effects of government regulation of the Company's franchise and insurance programs including maintaining properly registered franchise documents and making any required alterations in the Company's franchise program to comply with changes in the laws, competitive pressures from other motor vehicle rental companies which have greater marketing and financial resources than the Company, protection of the Company's trademarks, and the dependence on the Company's relationships with its franchisees. These risks and uncertainties are more fully described under the caption, "Item 6 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Important Factors" in the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998. All forward-looking statements should be considered in light of these risks and uncertainties. 12 YEAR 2000 ISSUE The Year 2000 issue is a result of computer programs being written using two digits rather than four to define the applicable year. The Company's computer equipment, software and devices with embedded technology that are time sensitive may recognize the date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruption of operations, including, among other things, a temporary inability to process transactions or engage in ordinary business activities. The Company has undertaken various initiatives intended to ensure that its computer equipment and software will function properly with respect to the year 2000 and thereafter. For this purpose, the term "computer equipment and software" includes systems that are commonly thought of as information technology systems, including accounting, data processing, telephone and PBX systems as well as alarm systems, fax machines and other miscellaneous systems. Both information technology and non-information technology systems may contain embedded technology which complicates the year 2000 identification, assessment, remediation and testing efforts. Based upon its identification and assessment efforts to date, the Company believes that its computer equipment and software is generally Year 2000 compliant. Using both internal and external resources to identify the needed Year 2000 remediation, the Company currently believes that its Year 2000 identification, assessment, remediation and testing efforts which began in 1998 are completed and any additional equipment purchased hereafter will be Year 2000 compliant. Consequently, and based upon independent experts' review, the Company believes that it is Year 2000 compliant. Most of the information the Company receives in the ordinary course is in written form and entered by the Company into its computer records. For example, reports from franchisees and others are prepared in written form and not received electronically. The Company has orally confirmed with key vendors that they either have addressed or expect to address all significant Year 2000 issues on a timely basis. The Company believes that the cost of its Year 2000 identification, assessment, remediation and testing efforts as well as those current and anticipated costs to be incurred by the Company with respect to Year 2000 issues of third parties will not exceed $5,000, which expenditures will be funded from operating cash flows. As of December 31, 1998, the Company had incurred costs of approximately $1,000. The Company presently believes that the Year 2000 issue will not pose significant operational problems for the Company; however, if all Year 2000 issues are not properly identified or if assessment, remediation and 13 testing are not effected timely, there can be no assurances that the Year 2000 issue will not materially adversely affect the Company's results of operations or adversely affect the Company's relationship with customers, vendors or others. Additionally, there can be no assurances that the Year 2000 issues of other entities will not have a material adverse effect on the Company's systems or results of operations. Because the Company believes that all items have been resolved, the Company has not begun or completed an analysis of the operational problems and costs (including lost revenues) that would be reasonably likely to result from a failure of the Company and certain third parties to complete efforts to achieve Year 2000 compliance on a timely basis, nor has a contingency plan been developed for dealing with the most reasonably likely worst-case scenario, and such scenario has not been clearly identified. The Company does not plan to complete analysis and contingency plans because it believes it is Year 2000 compliant. During early 1998, the Company engaged an independent expert to evaluate its Year 2000 identification, assessment, remediation and testing efforts, and such fees have been included in the amount spent to date. The above information is based upon management's best estimates and was derived using numerous assumptions regarding future events, including the continued availability of third party remediation plans and other factors. There can be no assurances that these estimates will prove to be accurate, and actual results could differ materially from those currently anticipated. Specific factors that could cause such material differences include, but are not limited to, availability and costs of personnel trained in Year 2000 issues, the ability to identify, assess and remediate and test all relevant computer codes and imbedded technology and similar uncertainties. 14 SELECTED FINANCIAL DATA Set forth below are selected financial data with respect to the consolidated statements of earnings of the Company and its subsidiaries for the fiscal quarters ended December 31, 1997 and 1998 and with respect to the balance sheets thereof at December 31 in each of those years. The selected financial data have been derived from the Company's unaudited consolidated financial statements and should be read in conjunction with the financial statements and related notes thereto and other financial information appearing elsewhere herein. Three Months Nine Months Ended December 31, Ended December 31, 1997 1998 1997 1998 ---- ---- ---- ---- (in thousands except per share and number of franchises) (Unaudited) FRANCHISEES' RESULTS (UNAUDITED) Franchisees' Revenue (1) $8,575 $10,797 $30,457 $33,698 Number of Franchises 485 623 485 623 RESULTS OF OPERATIONS Total Revenue $1,132 $ 1,344 $ 3,542 $ 4,296 Costs and expenses and Other 983 1,115 2,954 3,369 Income before income taxes 163 249 634 980 Net income 115 176 440 678 Earnings per share: Basic $ .02 $ .04 $ .08 $ .15 Weighted average common shares 4,292 4,079 4,276 4,107 Diluted $ .02 $ .03 $ .07 $ .12 Weighted average common shares 5,919 5,569 5,903 5,597 Nine Months Ended December 31, 1997 1998 ---- ---- (Unaudited) BALANCE SHEET DATA Working capital $1,558 $1,843 Total assets $3,065 $3,727 Shareholders' equity $2,074 $2,387 (1) The franchisees' revenue data have been derived from unaudited reports provided by franchisees submitted when paying license fees and advertising fees to the Company. 15 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is party to legal proceedings incidental to its business from time to time. Certain claims, suits and complaints arise in the ordinary course of business and may be filed against the Company. Based on facts now known to the Company, management believes all such matters are adequately provided for, covered by insurance or, if not so covered or provided for, are without merit, or involve such amounts that would not materially adversely affect the consolidated results of operations or financial position of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES The information disclosed in footnote 2 to the financial statements provided in Part I Item 1 of this Report on Form 10-QSB is incorporated herein by this reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION During the nine-month period ended December 31, 1998, the Company repurchased for $198,588 and retired 183,900 shares of its common stock, reducing total outstanding common shares from 4,189,692 to 4,035,792 as of December 31, 1998. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) See Exhibit Index following the Signatures page, which is incorporated herein by reference. (b) No reports on Form 8-K were filed during the quarter for which this report is filed. 16 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RENT-A-WRECK OF AMERICA, INC. (Registrant) By: Date: /s/ Mitra Ghahramanlou February 3, 1999 - ---------------------------- ---------------- Mitra Ghahramanlou Chief Accounting Officer /s/ Kenneth L. Blum, Sr. February 3, 1999 - ---------------------------- ---------------- Kenneth L. Blum, Sr. CEO and Chairman of the Board 17 EXHIBIT INDEX TO RENT-A-WRECK of AMERICA, INC. FORM 10-QSB FOR THE QUARTER ENDED DECEMBER 31, 1998 Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule Filed herewith. 18 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RENT-A-WRECK OF AMERICA, INC.'S 10-QSB FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB. 9-MOS MAR-31-1999 OCT-01-1998 DEC-31-1998 1,978,862 0 1,634,090 809,361 0 3,182,746 688,222 351,851 3,726,823 1,339,767 0 13,660 0 40,358 2,333,038 3,726,823 0 4,296,303 0 1,944,709 1,356,488 67,797 6,339 979,745 302,224 677,521 0 0 0 677,521 .15 .12
-----END PRIVACY-ENHANCED MESSAGE-----