-----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, Ab5Y5LUCWCeGX42AYyi31eSCrWEnft1fwQFNuqkQdWJHcR+/fTIOPVLWcZzz5i0j 0YBtZlwmRiuW/3lwDKsbWQ== 0000950147-00-000207.txt : 20000215 0000950147-00-000207.hdr.sgml : 20000215 ACCESSION NUMBER: 0000950147-00-000207 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 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: 541112 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 12/31/99 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, 1999 [ ] 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 of (I.R.S. Employer incorporation or organization) Identification No.) 10324 South Dolfield Drive, Owings Mills, MD 21117 ----------------------------------------------------- (Address of Principal Executive Offices, including Zip Code) Issuer's telephone number: (410) 581-5755 11460 Cronridge Drive, Suite 120, Owings Mills, MD 21117 -------------------------------------------------------- (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: 3,553,217 shares as of January 20, 2000. Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X] RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES FORM 10-QSB - DECEMBER 31, 1999 INDEX PART I. FINANCIAL INFORMATION Page ---- ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of March 31, 1999 and December 31, 1999 (Unaudited) 2-3 Consolidated Statements of Earnings for the Three Months and Nine Months ended December 31, 1998 and 1999 (Unaudited) 4 Consolidated Statements of Cash Flows for the Three Months and Nine Months ended December 31, 1998 and 1999 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6-9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 10-13 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 15 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15 ITEM 5. OTHER INFORMATION 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16 Signatures 17 1 RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS March 31, December 31, 1999 1999 --------- ------------ (Unaudited) CURRENT ASSETS: Cash and Cash Equivalents ........................ $ 861,794 $ 698,785 Restricted Cash .................................. 718,543 727,044 Accounts Receivable, net of allowance for doubtful accounts of $655,418 and $841,115 at March 31, 1999 and December 31, 1999, respectively: Continuing License Fees and Advertising Fees ... 336,242 414,432 Current Portion of Notes Receivable ............ 388,812 432,040 Current Portion of Direct Financing Leases ..... 7,850 14,578 Insurance Premiums Receivable .................. 635,532 86,981 Other .......................................... 61,081 71,858 Prepaid Expenses ................................. 166,421 150,633 Deferred Tax Assets .............................. 199,028 278,058 ---------- ---------- TOTAL CURRENT ASSETS ........................... 3,375,303 2,874,409 ---------- ---------- PROPERTY AND EQUIPMENT: Furniture ........................................ 93,505 95,129 Computer Hardware and Software ................... 370,012 390,255 Machinery and Equipment .......................... 82,650 89,589 Leasehold Improvements ........................... 37,896 52,894 Vehicles ......................................... 90,507 169,348 ---------- ---------- 674,570 797,215 Less: Accumulated Depreciation and Amortization .. (388,887) (473,444) ---------- ---------- NET PROPERTY AND EQUIPMENT ........................ 285,683 323,771 ---------- ---------- OTHER ASSETS: Intangible Assets, net of accumulated amortization of $126,192 and $141,802 at March 31, 1999 and December 31, 1999, respectively ................. 192,872 193,424 Long-term Portion of Notes and Direct Financing Lease Receivables .................... 32,088 33,612 ---------- ---------- 224,960 227,036 ---------- ---------- TOTAL ASSETS ................................... $3,885,946 $3,425,216 ========== ========== 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, 1999 1999 --------- ------------ (Unaudited) CURRENT LIABILITIES: Accounts Payable and Accrued Expenses ............. $ 709,506 $ 671,080 Dividends Payable ................................. 22,782 22,400 Insurance Financing Payable ....................... 564,684 117,660 Insurance Loss Reserves ........................... 366,022 517,466 Income Taxes Payable .............................. 181,662 238,142 ---------- ---------- TOTAL CURRENT LIABILITIES ....................... 1,844,656 1,566,748 ---------- ---------- TOTAL LIABILITIES ............................... 1,844,656 1,566,748 ---------- ---------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Convertible Cumulative Series A Preferred Stock, $.01 par value; authorized 10,000,000 shares; issued and outstanding 1,139,125 and 1,120,000 shares at March 31, 1999 and at December 31, 1999 (aggregate liquidation preference $911,300 at March 31, 1999 and $896,000 at December 31, 1999) ................... 11,391 11,200 Common Stock, $.01 par value; authorized 25,000,000 shares; issued and outstanding 3,934,092 shares at March 31, 1999 and 3,553,217 shares at December 31, 1999 ........... 39,340 35,532 Additional Paid-In Capital ........................ 2,209,182 1,423,682 (Accumulated Deficit) Retained Earnings ........... (218,623) 388,054 ---------- ---------- TOTAL SHAREHOLDERS' EQUITY ...................... 2,041,290 1,858,468 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...... $3,885,946 $3,425,216 ========== ========== 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 Ended Nine Months Ended December 31, December 31, -------------------------- -------------------------- 1998 1999 1998 1999 ----------- ----------- ----------- ----------- REVENUES: Initial License Fees ................. $ 228,250 $ 152,002 $ 907,301 $ 876,003 Advertising Fees ..................... 217,073 221,159 667,813 733,798 Continuing License Fees .............. 647,829 702,519 2,021,895 2,311,676 Insurance premiums ................... 202,357 230,818 565,374 634,069 Other ................................ 48,921 48,878 133,920 145,032 ----------- ----------- ----------- ----------- 1,344,430 1,355,376 4,296,303 4,700,578 ----------- ----------- ----------- ----------- EXPENSES: Salaries, Consulting Fees and Employee Benefits .................. 210,812 204,643 635,805 689,325 Sales and Marketing Expenses ......... 163,752 110,168 532,713 423,805 Advertising and Promotion ............ 303,040 323,366 947,518 1,037,131 Underwriting Expenses ................ 174,432 180,635 464,478 505,713 General and Administrative Expenses... 228,325 309,349 683,301 788,865 Depreciation & Amortization .......... 35,045 35,052 105,179 100,167 ----------- ----------- ----------- ----------- 1,115,406 1,163,213 3,368,994 3,545,006 ----------- ----------- ----------- ----------- OPERATING INCOME..................... 229,024 192,163 927,309 1,155,572 OTHER INCOME (EXPENSE) Interest Income ...................... 26,746 26,767 70,083 78,685 Interest Expense ..................... (6,339) (6,694) (17,647) (20,021) ----------- ----------- ----------- ----------- 20,407 20,073 52,436 58,664 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAX EXPENSE..... 249,431 212,236 979,745 1,214,236 ----------- ----------- ----------- ----------- INCOME TAX EXPENSE .................... 73,422 56,741 302,224 393,243 ----------- ----------- ----------- ----------- NET INCOME........................... $ 176,009 $ 155,495 $ 677,521 $ 820,993 DIVIDENDS ON CONVERTIBLE CUMULATIVE PREFERRED STOCK ...................... 27,320 22,400 81,960 67,400 ----------- ----------- ----------- ----------- NET INCOME APPLICABLE TO COMMON AND COMMON EQUIVALENT SHARES ......... $ 148,689 $ 133,095 $ 595,561 $ 753,593 ----------- ----------- ----------- ----------- EARNINGS PER COMMON SHARE Basic ................................ $ .04 $ .04 $ .15 $ .20 ----------- ----------- ----------- ----------- Weighted average common shares ........ 4,078,781 3,783,652 4,106,907 3,889,015 =========== =========== =========== =========== Diluted .............................. $ .03 $ .03 $ .12 $ .14 ----------- ----------- ----------- ----------- Weighted average common shares plus options and warrants ............ 5,737,934 5,962,235 5,596,642 5,987,134 =========== =========== =========== ===========
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, -------------------------- 1998 1999 ----------- ----------- Increase (decrease) in cash and cash equivalents Cash flows from operating activities: Net income ..................................... $ 677,521 $ 820,993 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................ 105,179 100,167 Gain on disposal of property and equipment ... (1,577) -- Deferred income taxes ........................ -- (79,030) Provision for doubtful accounts .............. 126,730 185,697 Changes in assets and liabilities: Accounts and notes receivable ................ 239,359 222,407 Prepaid expenses ............................. (15,595) 15,788 Accounts payable and accrued expenses ........ 60,860 (38,808) Income taxes payable ......................... (12,040) 56,480 Insurance loss reserves ...................... 84,979 151,444 ----------- ----------- Net cash provided by operating activities ................................ 1,265,416 1,435,138 ----------- ----------- Cash flows from investing activities: (Increase) decrease in restricted cash ......... (348,126) (8,501) Proceeds from sale of property and equipment ... 42,386 -- Acquisition of property and equipment .......... (183,272) (121,763) Additions to intangible assets ................. (6,694) (16,162) ----------- ----------- Net cash used in investing activities ...... (495,706) (146,426) ----------- ----------- Cash flow from financing activities: Decrease in insurance financing payable ....... (429,760) (447,024) Issuance of common stock ...................... 16,000 -- Retirement of warrants ........................ (10,000) -- Retirement of common stock .................... (198,588) (790,000) Preferred dividends paid ...................... (126,262) (214,697) ----------- ----------- Net cash used in financing activities ..... (748,610) (1,451,721) ----------- ----------- Net increase (decrease) in cash and cash equivalents ....................... 21,100 (163,009) Cash and cash equivalents at beginning of period ...................................... 1,215,615 861,794 ----------- ----------- Cash and cash equivalents at end of period ...... $ 1,236,715 $ 698,785 =========== =========== Supplemental disclosure of cash flow information: Interest paid .................................. $ 17,947 20,021 Taxes paid ..................................... $ 367,758 $ 419,433 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, 1999 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 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") and Priceless Rent-A-Car, Inc. ("PRICELESS") which was formed on September 30, 1999. 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 in the consolidated financial statements. The consolidated balance sheet as of December 31, 1999, and the consolidated statements of earnings and cash flows for the three and nine- month periods ended December 31, 1998 and 1999 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, 1999 audited financial statements. The results of operations for the interim periods are not necessarily indicative of the results for a full year. 2. PREFERRED STOCK On May 7, 1999, the Company paid 100% of remaining dividend arrearages ($146,915) on the Company's Convertible Cumulative Series A Preferred Stock. A quarterly preferred dividend of $22,600 was declared for the first quarter ended June 30, 1999 and it was paid on August 11, 1999. For the quarter ended September 30, 1999, the Company declared preferred dividends totaling $22,400 which were paid on November 11, 1999. For the quarter ended December 31, 1999, the Company declared dividends totaling $22,400 which are expected to be paid during the fourth quarter of the Company's fiscal year. 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, 1998 and 1999 is as follows: Three Months Ended Nine Months Ended December 31, December 31, 1998 1999 1998 1999 ---------- ---------- ---------- ---------- BASIC EPS COMPUTATION Net income applicable to common and common equivalent shares $ 148,689 $ 133,095 $ 595,561 $ 753,593 Weighted average common shares 4,078,781 3,783,652 4,106,907 3,889,015 ---------- ---------- ---------- ---------- Basic EPS $ .04 $ .04 $ .15 $ .20 ========== ========== ========== ========== DILUTED EPS COMPUTATION Net income applicable to common and common equivalent shares $ 148,689 $ 133,095 $ 595,561 $ 753,593 Dividends on convertible preferred stock 27,320 22,400 81,960 67,400 ---------- ---------- ---------- ---------- 176,009 155,495 677,521 820,993 ---------- ---------- ---------- ---------- Weighted average common shares 4,078,781 3,783,652 4,106,907 3,889,015 Weighted average convertible preferred stock 1,366,000 1,120,000 1,366,000 1,127,475 Weighted average options and warrants 293,153 1,058,583 123,735 970,644 ---------- ---------- ---------- ---------- 5,737,934 5,962,235 5,596,642 5,987,134 ---------- ---------- ---------- ---------- Diluted EPS $ .03 $ .03 $ .12 $ .14 ========== ========== ========== ========== 7 GEOGRAPHIC AND INDUSTRY SEGMENTS The Company currently operates in two principal segments: Vehicle Rental Franchise Programs and Insurance Coverage. Corporate costs are allocated to each segment's operations and are included in the measure of each segment's profit or loss. The geographic data include revenues based upon customer locations and assets based on physical locations. The Company's foreign operations are presently conducted by CAR Insurance in Bermuda. Information by geographic area and industry segment is as follows: Nine Months Ended December 31, 1998 1999 ---------- ---------- Net revenues from external customers Vehicle Rental Franchises-United States $3,730,929 $4,066,509 Insurance-United States 565,374 634,069 Insurance-Bermuda -- -- ---------- ---------- $4,296,303 $4,700,578 ========== ========== Segment income before taxes Vehicle Rental Franchises-United States $ 920,894 $1,114,400 Insurance-United States 37,801 76,213 Insurance-Bermuda 21,050 23,623 ---------- ---------- $ 979,745 $1,214,236 ========== ========== Segment assets Vehicle Rental Franchises-United States $2,958,500 $2,309,611 Insurance-United States 114,654 448,348 Insurance-Bermuda 653,669 667,257 ---------- ---------- $3,726,823 $3,425,216 ========== ========== Expenditures for segment assets Vehicle Rental Franchises-United States $ 183,272 $ 121,763 Insurance-United States -- -- Insurance-Bermuda -- -- ---------- ---------- $ 183,272 $ 121,763 ========== ========== Depreciation and amortization Vehicle Rental Franchises-United States $ 105,179 $ 100,167 Insurance-United States -- -- Insurance-Bermuda -- -- ---------- ---------- $ 105,179 $ 100,167 ========== ========== Interest income Vehicle Rental Franchises-United States $ 45,596 $ 48,798 Insurance-United States 3,437 6,264 Insurance-Bermuda 21,050 23,623 ---------- ---------- $ 70,083 $ 78,685 ========== ========== 8 GEOGRAPHIC AND INDUSTRY SEGMENTS - CONTINUED Nine Months Ended December 31, -------------------------- 1998 1999 ---------- ---------- Interest expense Vehicle Rental Franchises-United States $ 181 $ 398 Insurance-United States 17,466 19,623 Insurance-Bermuda -- -- ---------- ---------- $ 17,647 $ 20,021 ========== ========== Income taxes Vehicle Rental Franchises-United States $ 302,224 $ 393,243 Insurance-United States -- -- Insurance-Bermuda -- -- ---------- ---------- $ 302,224 $ 393,243 ========== ========== 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. In August 1999, the Company settled a pending lawsuit against a former franchisee. As a result of the settlement agreement, the Company anticipates receiving $100,000 in release of its claims which will result in $100,000 of additional income. To date the Company has not recorded any gain as the settlement is being finalized and the $100,000 has not been released from escrow. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998 Revenue from franchising operations, which includes initial license fees, continuing license fees and advertising fees, decreased by $17,472 (2%). Continuing license fees increased by $54,690 (8%), and advertising fees increased by $4,086 (2%). These increases resulted primarily from fleet growth at existing franchises. Initial license fees decreased by $76,248 (33%) due to the sale of fewer new franchises. The timing of closings of new franchise sales, each of which is for a relatively large amount of revenue, varies over the year, contributing to periodic increases or decreases in reported results. Management does not believe these short- term variations are indicative of longer term trends. Revenues from insurance premiums increased by $28,461 (14%) due to higher participation by the Company's franchisees in the Company's CAR Insurance program. Total operating expenses increased by $47,807 (4%) compared to the prior period. Sales and marketing expenses decreased by $53,584 (33%), which resulted primarily from a decrease in commission expense due to the sale of fewer new franchises and a decrease in funds spent on the Company's annual convention of franchisees. Advertising and promotion expenses increased by $20,326 (7%), which resulted primarily from an increase in national advertising expense. Insurance underwriting expenses increased by $6,203 (4%) due to an increase in paid losses and loss reserves for future claims in connection with higher participation of the Company's franchisees in its CAR Insurance program. General and administrative expenses increased by $81,024 (35%), which resulted primarily from the Company's moving expense to the new location ($41,000), an increase in the annual management fee earned by K.A.B., an affiliate, payment of monthly consulting fees to Richter Investment Corporation, an affiliate, and an increase in legal and other professional fees. The Company realized operating income of $192,163, before taxes and interest, for the three-month period ended December 31, 1999 compared to operating income of $229,024 for the same period in the prior year, reflecting a decrease of $36,861 (16%). This decrease resulted primarily from the decrease in initial license fees due to the sale of fewer new franchises and from the increase in general and administrative expenses referred to above. Income tax expense for the three-month period ended December 31, 1999 decreased by $16,681 (23%) compared to the three-month period ended December 31, 1998 due to lower pre-tax earnings, partially offset by a reduction in the deferred tax asset valuation allowance. The valuation allowance has been reduced in light of favorable earnings and expected future earnings and is re-assessed quarterly. YEAR TO DATE RESULTS OF OPERATIONS COMPARED TO SAME PERIOD IN PRIOR YEAR Net revenues increased by $404,275 (9%) for the nine-month period ended December 31, 1999 as compared to the same period in the prior year. This increase occurred due to a $289,781(14%) increase in continuing license fees, a $65,985 (10%)increase in advertising fees, and a $68,695 (12%) increase in premium income associated with the new reinsurance program partially offset by a 10 reduction in initial license fees. The reasons for these fluctuations are consistent with those for the three-month period documented above. Total operating expenses increased by $176,012 (5%) in this period compared to the same period in the prior year. Salary expense increased by $53,520 (8%) primarily as a result of additional employees in response to the growth of the Company. Sales and marketing expenses decreased by $108,908 (20%), which resulted primarily from the repurchase of a territory from an existing franchisee in the quarter ended September 30, 1998, the cost of which was charged to sales and marketing expense because the Company was able to resell the territory to a new franchisee for a greater amount. Advertising and promotion expenses increased by $89,613 (9%), which resulted primarily from an increase in national advertising expense to promote the Company. Underwriting expenses increased by $41,235 (9%) 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 increased by $105,564 (15%), which resulted primarily from the expense related to the Company's move to a new location, an increase in the management fee earned by K.A.B, an affiliate, and payment of monthly consulting fees to Richter Investment Corporation, an affiliate. Depreciation and amortization expense decreased by $5,012 (5%) due to disposal of assets and older assets becoming fully depreciated offset by additional investment in property and equipment. The Company realized operating income of $1,155,572, before taxes and interest, for the nine-month period ended December 31, 1999 as compared to operating income of $927,309 for 1998, reflecting an increase of $228,263 (25%). This increase resulted primarily from the increase in continuing license fees and insurance premiums. Income tax expense for the nine-month period ended December 31, 1999 increased by $91,019 (30%) compared to the nine-month period ended December 30, 1999 due to higher pre-tax earnings. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1999, the Company had working capital of $1,307,661 compared to $1,530,647 at March 31, 1999. This decrease of $222,986 resulted primarily from the buyback of 400,000 shares of Common Stock and the payoff of all dividend arrearages on the Company's Preferred Stock, offset by the net profit earned during the nine-month period ended December 31, 1999. The Company has a $1,000,000 letter of credit with 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. Funds drawn against the letter of credit bear interest at 3% plus Chase's prime commercial lending rate (which prime rate was 8.50% on January 20, 2000). For the quarter ended December 31, 1999, AIG has not drawn any funds from the letter of credit. This letter of credit is secured by a pledge of all of the Company's assets. On November 19, 1999, the Company relocated its corporate headquarters to a location owned by KA Real Estate Associates, Inc., an affiliate, and entered into a seven-year operating lease. The monthly office facilities lease commitment is $9,289 for approximately 9,100 square feet at December 31, 1999. 11 Property and equipment increased by $122,645 (18%) from March 31, 1999 to December 31, 1999. This increase occurred primarily due to the purchase of two vehicles for the Company's wheelchair van program and an additional investment in computer software and hardware. Cash provided by operations was $1,435,138, resulting primarily from net income before depreciation plus the decrease in accounts and notes receivable and the increase in insurance loss reserves and income taxes payable partially offset by the increase in prepaid expenses and the decrease in accounts payable and accrued expenses. Accounts and notes receivable decreased primarily due to funds received from AIG in connection with the reinsurance program. Accounts payable and accrued expenses decreased primarily due to commissions payable related to the sale of fewer new franchises. Insurance loss reserves increased primarily due to the higher participation by the Company's franchisees. Income taxes payable increased primarily due to higher pre-tax earnings, offset by estimated income taxes paid for the year ended March 31, 2000. Cash used in investing activities of $146,426 related primarily to the investment in connection with leasehold improvements to the new building, acquisition of computer software, hardware, annual costs associated with renewing trademarks and an increase in restricted cash due to the Company's additional liability to the national advertising fund due to an increase in advertising fees. Cash used in financing activities during the same period was $1,451,721, resulting from the retirement of 400,000 shares of common stock, a decrease in insurance financing payable and the payment of preferred dividends. The Company believes it has sufficient working capital to support its business plan through fiscal 2000. 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 12 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, 1999. All forward-looking statements should be considered in light of these risks and uncertainties. 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. 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. 13 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, 1998 and 1999 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, ------------------ ------------------ 1998 1999 1998 1999 ---- ---- ---- ---- (in thousands except per share amounts and number of franchises) (Unaudited) FRANCHISEES' RESULTS (UNAUDITED) Franchisees' Revenue (1) $10,797 $11,709 $33,698 $38,528 Number of Franchises 623 667 623 667 RESULTS OF OPERATIONS Total Revenue $ 1,344 $ 1,355 $ 4,296 $ 4,701 Costs and expenses 1,115 1,163 3,369 3,545 Income before income taxes 249 212 980 1,214 Net income 176 155 678 821 Earnings per share Basic $ .04 $ .04 $ .15 $ .20 Weighted average common shares 4,079 3,784 4,107 3,889 Diluted $ .03 $ .03 $ .12 $ .14 Weighted average common shares 5,738 5,962 5,597 5,987 December 31, ----------------- 1998 1999 ------ ------ (Unaudited) BALANCE SHEET DATA Working capital $1,843 $1,308 Total assets $3,727 $3,425 Shareholders' equity $2,387 $1,858 (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. 14 SUBSEQUENT EVENTS On February 9, 2000, the Board of Directors reached an agreement with K.A.B., Inc. to extend the term of its Management Agreement with the Company for five additional years through June 30, 2008 on its present terms. The Board also authorized the repurchase of 500,000 options at $1.25 per option, representing half of the total new buyback authorization. These options are all held by Kenneth L. Blum, Jr., the Company's President/COO and by Robin Cohn, are exercisable at $1.15 per share, and expire June 30, 2003. Although it does not believe it will be so constrained, the Company could be constrained from purchasing some or all of the 500,000 options by covenants of its bank agreement pursuant to which the Company finances its Bermuda-based reinsurance subsidiary. Consequently, the sellers have agreed that the transaction will close, without interest, only at such time or times as the Company can make the purchases without restrictions. The Company presently believes at least a substantial portion of the options may be purchasable once its audited results for the current fiscal year, which ends March 31, 2000, are known, with any balance most likely closing once unaudited results for the quarter ending June 30, 2000, are known. PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On April 29, 1999, a shareholder converted 9,125 shares of preferred stock to common stock. On September 28, 1999, a shareholder converted 10,000 shares of preferred stock to common stock. See also Item 5 below. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On November 19, 1999, approximately 95% of the outstanding shares of Series A Preferred Stock consented to the corporation's authorization of the repurchase of up to 400,000 shares of the Company's Common Stock. (a) The 1999 Annual Meeting of Stockholders of the Company was held on November 3, 1999. (b) The following persons were elected as directors of the Company at the Annual Meeting for a one-year term: Withheld Broker For Authority Non-Votes --- --------- --------- Class I directors (elected by holders of common stock): Kenneth L. Blum, Sr. 2,775,362 7,499 -- Kenneth L. Blum, Jr. 2,775,362 7,499 -- Class II directors (elected by holders of preferred stock): Alan L. Aufzien 1,116,250 -- -- William L. Richter 1,116,250 -- -- 15 ITEM 5. OTHER INFORMATION During the quarter ended June 30, 1999, a shareholder converted 9,125 shares of preferred stock to common stock reducing total outstanding preferred shares from 1,139,125 to 1,130,000 and increasing total outstanding common shares from 3,934,092 to 3,943,217. During the quarter ended September 30, 1999, a shareholder converted 10,000 shares of preferred stock to common stock reducing total outstanding preferred shares from 1,130,000 to 1,120,000 and increasing total outstanding common shares from 3,943,217 to 3,953,217. On November 23, 1999, the Company bought back 400,000 shares of its common stock reducing total outstanding common shares from 3,953,217 to 3,553,217. 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: /s/Mitra Ghahramanlou Date: February 9, 2000 ----------------------------- Mitra Ghahramanlou Chief Accounting Officer /s/Kenneth L. Blum, Sr. February 9, 2000 ----------------------------- 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, 1999 EXHIBIT NO. DESCRIPTION - ----------- ----------- 27 Financial Data Schedule Filed herewith. EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS IN RENT-A-WRECK OF AMERICA, INC.'S FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB. U.S. DOLLARS 9-MOS MAR-31-2000 OCT-01-1999 DEC-31-1999 1 1,425,829 0 1,822,758 841,115 0 2,874,409 797,215 473,444 3,425,216 1,566,748 0 11,200 0 35,532 1,811,736 3,425,216 0 4,700,578 0 1,966,649 1,394,593 183,764 20,021 1,214,236 393,243 820,993 0 0 0 820,992 0.20 0.14
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