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, 1997
[ ] 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: 4,300,392 shares as of
October 15, 1997.
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
FORM 10-QSB - September 30, 1997
INDEX
Part I. Financial Information Page
- ------------------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1997 and
September 30, 1997 (Unaudited) 2-3
Consolidated Statements of Earnings for
the Three and Six Months ended
September 30, 1996 and 1997 (Unaudited) 4
Consolidated Statements of Cash Flows for
the Six Months ended September 30, 1996
and 1997 (Unaudited) 5
Notes to Consolidated Financial Statements
(Unaudited) 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-11
Part II. Other Information
- ---------------------------
Item 1. Legal proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security
Holders 13
Item 5. Other Information-Retirement of
Stock Information 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
March 31, September 30,
1997 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents, including restricted cash ... $ 1,077,578 $ 1,538,129
Accounts Receivable, net of allowance
for doubtful accounts of $762,757 and $752,645 at
March 31, 1997 and September 30, 1997, respectively:
Continuing License Fees and
Advertising Fees ................................. 291,181 344,086
Current Portion of Notes Receivable ................ 415,072 375,253
Current Portion of Direct Financing
Leases ........................................... 47,228 42,224
Insurance Premiums Receivable ...................... 25,784 73,248
Other .............................................. 25,136 11,282
Prepaid Expenses ....................................... 117,566 224,524
----------- -----------
TOTAL CURRENT ASSETS ............................... 1,999,545 2,608,746
----------- -----------
PROPERTY AND EQUIPMENT:
Vehicles ............................................. 53,025 31,340
Furniture, Equipment and Leasehold
Improvements ....................................... 738,130 498,766
Less: Accumulated Depreciation and
Amortization .................................. (448,472) (221,091)
----------- -----------
NET PROPERTY AND EQUIPMENT ............................. 342,683 309,015
----------- -----------
OTHER ASSETS:
Trademarks and other Intangible Assets, net of
accumulated amortization of $88,729 and $96,006
at March 31, 1997 and September 30, 1997,
respectively ....................................... 219,086 212,251
Long-term Portion of Notes and Direct Financing Lease
Receivables, net of allowance of $16,278 and $0
at March 31, 1997 and September 30, 1997,
respectively ....................................... 32,629 22,146
----------- -----------
251,715 234,397
----------- -----------
TOTAL ASSETS ....................................... $ 2,593,943 $ 3,152,158
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, September 30,
1997 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses ............... $ 720,338 $ 762,945
Dividends Payable ................................... 28,782 27,733
Insurance Premiums, Deposits, and Provision for
Loss .............................................. 50,828 359,907
Current Maturities of Capital Lease Obligations ..... 8,578 --
----------- -----------
TOTAL CURRENT LIABILITIES ......................... 808,526 1,150,585
----------- -----------
CAPITAL LEASE OBLIGATIONS, Less Current Maturities .... 30,089 --
----------- -----------
TOTAL LIABILITIES ................................. 838,615 1,150,585
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY:
Convertible Cumulative Series A Preferred Stock,
$.01 par value; authorized 10,000,000 shares;
issued and outstanding 1,439,125 shares at March
31, 1997 and 1,386,625 shares at September 30, 1997
(aggregate liquidation preference $1,151,300
at March 31, 1997 and $1,109,300 at
September 30, 1997) ............................... 14,391 13,866
Common Stock, $.01 par value; authorized
25,000,000 shares; issued and
outstanding 4,234,767 shares at March 31, 1997 and
4,300,392 shares at September 30, 1997 ............ 42,347 43,004
Additional Paid-In Capital .......................... 3,021,490 3,038,572
Accumulated Deficit ................................. (1,322,900) (1,093,869)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY ........................ 1,755,328 2,001,573
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY .......................................... $ 2,593,943 $ 3,152,158
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30,
1996 1997 1996 1997
---------------------- ----------------------
<S> <C> <C> <C> <C>
REVENUES:
Initial License Fees...................$ 234,500 $ 125,750 $ 462,500 $ 396,250
Advertising Fees....................... 185,649 214,914 356,367 391,759
Continuing License Fees................ 576,271 753,276 1,091,667 1,302,001
Insurance premiums..................... 50,540 148,436 93,441 236,003
Direct Financing Leases to Franchisees. 3,133 1,700 5,498 2,075
Other.................................. 29,091 38,382 50,626 81,701
----------- ---------- ----------- ----------
1,079,184 1,282,458 2,060,099 2,409,789
---------- ---------- ----------- ----------
EXPENSES:
Salaries, Consulting Fees and
Employee Benefits.................... 191,726 195,678 379,515 390,893
Sales and Marketing Expenses........... 156,688 92,064 328,332 278,029
Advertising and Promotion.............. 264,255 314,813 491,134 571,223
Underwriting Expenses.................. 5,775 121,535 16,643 182,634
General and Administrative Expenses.... 196,836 256,004 389,095 487,059
Depreciation & Amortization............ 27,214 30,252 55,555 60,796
----------- ----------- ----------- ----------
842,494 1,010,346 1,660,274 1,970,634
----------- ----------- ----------- ----------
OPERATING INCOME................... 236,690 272,112 399,825 439,155
INTEREST INCOME, NET..................... 15,483 14,476 30,754 32,567
----------- ----------- ----------- ----------
INCOME BEFORE INCOME TAX EXPENSE... 252,173 286,588 430,579 471,722
----------- ----------- ----------- ----------
INCOME TAX EXPENSE....................... 23,400 94,603 45,300 147,103
----------- ----------- ----------- ----------
NET INCOME.........................$ 228,773 $ 191,985 $ 385,279 $ 324,619
DIVIDENDS ON CONVERTIBLE CUMULATIVE
PREFERRED STOCK........................ 29,975 27,733 60,890 56,378
----------- ----------- ---------- ----------
NET INCOME APPLICABLE TO COMMON
AND COMMON EQUIVALENT SHARES...........$ 198,798 $ 164,252 $ 324,389 $ 268,241
----------- ----------- ----------- ----------
EARNINGS PER COMMON SHARE................$ .04 $ .04 $ .07 $ .06
=========== =========== =========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING... 4,441,142 4,525,918 4,441,142 4,525,918
=========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these Consolidated Statements.
4
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended September 30,
------------------------------
1996 1997
----------- -----------
Increase (decrease) in cash and cash
equivalents
Cash flows from operating activities:
Net income ..................................... $ 385,279 $ 324,619
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization .............. 55,555 60,796
Gain on disposal of property and equipment . (1,578) (4,011)
Provision for doubtful accounts ............ 155,268 (23,390)
Changes in assets and liabilities:
Accounts and notes receivable ............ (292,784) (7,820)
Prepaid expenses ......................... (11,243) (106,958)
Accounts payable and accrued
expenses ............................... 27,915 41,558
Insurance premiums, deposits, and
loss reserves .......................... 21,149 309,079
----------- -----------
Net cash provided by operating activities .. 339,561 593,873
----------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment ... 28,250 29,160
Acquisition of property and equipment .......... (101,569) (42,032)
Additions to trademarks and other .............. (15,958) (442)
----------- -----------
Net cash used in investing activities ...... (89,277) (13,314)
----------- -----------
Cash flow from financing activities:
Repayments of long-term debt ................... (6,957) (38,667)
Issuance of common stock ....................... -- 25,000
Retirement of common stock ..................... (16,996) (7,787)
Retirement of preferred stock .................. (85,300) --
Preferred dividends paid ....................... (95,101) (98,554)
----------- -----------
Net cash used in financing activities ...... (204,354) (120,008)
----------- -----------
Net increase in cash and cash
equivalents ............................. 45,930 460,551
Cash and cash equivalents at beginning of period . 579,871 1,077,578
----------- -----------
Cash and cash equivalents at end of period ....... $ 625,801 $ 1,538,129
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid .................................. $ 3,317 $ 11,262
Taxes paid ..................................... $ 44,729 $ 70,991
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
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 September 30, 1997, the
consolidated statements of earnings for the three and six-month periods ended
September 30, 1996 and 1997 and the consolidated statements of cash flows for
the six-month periods ended September 30, 1996 and 1997 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. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's March 31, 1997 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
As of March 31, 1997, preferred dividend arrearages were $274,180. The
Company paid $41,127 of these arrearages during the quarter ended June 30, 1997.
A quarterly preferred dividend of $28,645 was declared for the first quarter
ended June 30, 1997 and it was paid on August 11, 1997. For the quarter ended
September 30, 1997, the Company declared preferred dividends totaling $27,733
which are expected to be paid during the third quarter of the Company's fiscal
year.
6
<PAGE>
3.EARNINGS PER COMMON SHARE
The computation of earnings per common share for the three and
six-month periods ended September 30, 1996 and 1997, respectively, is presented
on a fully diluted basis and is based upon the weighted average number of common
shares outstanding for those periods. Any dilutive effect of stock options and
warrants was considered in computation of earnings per common share. In the
computation for the three and six-month periods ended September 30, 1996,
cumulative preferred dividends in the amounts of $29,975 and $60,890 for each
period were subtracted from net income to arrive at the earnings applicable to
common shareholders. For the three and six-month periods ended September 30,
1997, cumulative preferred dividends in the amounts of $27,733 and $56,348 for
each period were subtracted from net income to arrive at the earnings applicable
to common shareholders.
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 of Financial
- ---------------------------------------------------------
Condition and Results of Operations
-----------------------------------
RESULTS OF OPERATIONS-THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1996
Revenue from franchising operations, which includes initial license
fees, continuing license fees, advertising fees and direct financing leases
increased by $96,087 (10%). This increase occurred primarily due to an increase
in continuing license fees and advertising fees, partially offset by a reduction
in the initial license fees. Initial license fees decreased by $108,750 (46%)
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, varies, contributing to
periodic increases or decreases in reported results. Management does not believe
these short-term variations are indicative of longer term trends. Continuing
license fees increased by $177,005 (31%), and advertising fees increased by
$29,265 (16%) due to the fleet growth at existing franchises and the Company's
dedication of more
7
<PAGE>
resources to its collection efforts. Revenues from insurance premiums were
$148,436 due to the new reinsurance program that started in March 1997,
partially offset by a $30,617 (100%) reduction in the physical damage insurance
program ("CLC") and by a $19,911 (100%) reduction in the national insurance
program ("URM") due to their termination and replacement by CAR Insurance. Other
revenue increased by $9,291 (32%) due primarily to increased internal marketing
activity.
Total operating expenses increased by $167,852 (20%) in this period
compared to the same period in the prior year. Salary expense increased by
$3,952 (2%) primarily as a result of additional hires in response to the growth
of the Company. General and administrative expenses increased by $59,168 (30%),
which resulted primarily from additional expenses such as management fees, audit
fees and letter of credit (LOC)fees related to the new reinsurance company.
Sales and marketing expenses decreased by $64,624 (41%). This decrease resulted
primarily from a reduction in bad debt expense due to the Company's collection
efforts as well as from lower commission expense due to lower franchise sales.
Underwriting expenses increased by $115,760 (2,004%), which resulted primarily
from additional expenses such as paid losses and loss reserves related to the
new reinsurance company.
Net interest income decreased $1,007 (6%). This decrease was primarily
due to interest paid to AICCO on the funds which CAR Insurance Company borrowed
from AICCO to meet the capital requirements of the Bermuda Government in
conjunction with the reinsurance program.
Depreciation and amortization expense increased by $3,038 (11%) in this
period compared to the same period in the prior year. This increase was
primarily due to additional investment to update computer software and hardware.
The Company realized operating income of $272,112, before taxes and
interest, for the three-month period ended September 30, 1997 compared to
operating income of $236,690 for the same period in the prior year, reflecting
an increase of $35,422 (15%). This increase resulted primarily from the increase
in continuing license fees due to the fleet growth at existing franchises and
the Company's collection efforts.
Income tax expense for the three-month period ended September 30, 1997
increased by $71,203 (304%) compared to the three-month period ended September
30, 1996 due to higher pre-tax earnings and the depletion of the Company's
federal income tax net operating loss carryforward.
Inflation has had no material impact on the operations and financial
condition of the Company for the periods presented.
YEAR TO DATE RESULTS OF OPERATIONS COMPARED TO SAME PERIOD IN PRIOR YEAR
Net revenues increased by $349,690 (17%) for the six-month period ended
September 30, 1997 as compared to the same period in the prior year. This
increase occurred due to a $210,334 (19%) increase in continuing license
8
<PAGE>
fees, $35,392 (10%)increase in advertising fees and a $142,562 (153%) increase
in premiums in connection with the new reinsurance program.
Total operating expenses increased by $310,360 (19%) in this period due
primarily to an increase in general and administrative expenses of $97,964 (25%)
and an increase in underwriting expenses of $165,991 (997%), partially offset by
a reduction in sales and marketing expenses of $50,303 (15%). These increases
resulted primarily from the new reinsurance program.
The Company realized operating income of $439,155, before taxes and
interest, for the six months compared to operating income of $399,825 for 1996,
reflecting an increase of $39,330. This increase resulted primarily from the
increase in continuing license fees.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital of $1,458,161
compared to $1,191,019 at March 31, 1997. This increase of $267,142 primarily
resulted from the net profit earned during the six-month period ended September
30, 1997.
In June 1997 the Company finalized an $800,000 letter of credit with
The Chase Manhattan Bank ("Chase") in connection with the Company's new 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 Chase's prime commercial
lending rate plus 3% (which prime rate was 8.5% on October 20, 1997). For the
quarter ended September 30, 1997, AIG has not drawn any funds from the letter of
credit. This letter of credit is secured by all of the Company's assets.
The Company is committed under capital lease agreements for various
equipment, and it rents its office facilities under the terms of an operating
lease. The capital lease obligations were $38,667 and $0 at March 31,1997 and
September 30, 1997, respectively. The Company has utilized its working capital
to pay for these obligations. During the quarter ended September 30, 1997, the
Company fully paid its obligations under these capital leases.
Furniture, equipment and leasehold improvements decreased by $239,364
(32%). This decrease occurred primarily due to writing off the assets that were
not in use and were fully depreciated. Vehicles decreased by $21,685 (41%) due
to sale of a vehicle which was partially offset by the purchase of a truck for
the one way program.
Cash provided by operations was $593,873, resulting from an increase in
net income, an increase in reinsurance premiums, deposits, and loss reserves and
an increase in accounts payable and accrued expenses offset by an increase in
accounts and notes receivable and an increase in prepaid expenses. Prepaid
expenses increased primarily due to expenses related to the new reinsurance
company such as LOC fees and legal and secretarial fees.
9
<PAGE>
Insurance premiums, deposits, and loss reserves increased due to the new
insurance program. Accounts and notes receivable increased primarily from the
addition of new franchises which financed a portion of their initial fees owed
to the Company by notes issued by the Company. Accounts payable and accrued
expenses increased primarily due to increased collections for the Company's
national advertising funds which are to be used for the benefit of franchisees.
This increase resulted from fleet growth at the existing franchises and the
Company's collection efforts. Cash used in investing activities of $13,314
related primarily to the acquisition of computer software and hardware and
maintaining trademarks. Cash used in financing activities was $120,008, which
was applied to payments of preferred dividends and long-term debt offset by
issuance of common stock in connection with the acquisition of assets.
The Company believes cash provided by operations and its letter of
credit will provide sufficient working capital to support its business plan
through fiscal 1998.
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 in the
Company's new reinsurance program, the effects of government regulation of the
Company's franchise and reinsurance 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, 1997. All forward-looking
statements should be considered in light of these risks and uncertainties.
10
<PAGE>
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 three and
six-month periods ended September 30, 1996 and 1997 and with respect to the
balance sheets thereof at September 30 in each of those years. Except as
otherwise noted, 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 Six Months
Ended September 30, Ended September 30,
1996 1997 1996 1997
-----------------------------------------
(in thousands except per share and number
of franchises)
(Unaudited)
Franchisees' Results (Unaudited)
- --------------------------------
Franchisees' Revenue (1) $ 9,605 $12,555 $18,194 $21,700
Number of Franchises 461 469 461 469
Results of Operations
- ---------------------
Total Revenue $ 1,079 $ 1,282 $ 2,060 $ 2,410
Costs and expenses and Other 842 1,010 1,660 1,971
Income before income
taxes 252 287 431 472
Net income 229 192 385 325
Earnings per share (2) $ .04 $ .04 $ .07 $ .06
Weighted average number of
shares outstanding 4,441 4,526 4,441 4,526
Six Months
Ended September 30,
1996 1997
-----------------------
(Unaudited)
Balance Sheet Data
- ------------------
Working capital $1,024 $1,458
Total assets $2,394 $3,152
Long-term obligations $ 35 $ --
Shareholders' equity $1,562 $2,002
(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.
(2) Earnings per common share are after deducting a provision for preferred
dividends of $29,975 and $60,890, for the three and six-month periods ended
September 30, 1996. For the three and six-month periods ended September 30,
1997, earnings per common share are after deducting a provision for preferred
dividends of $27,733 and $56,378.
11
<PAGE>
Part II. Other Information
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
Information is incorporated by reference from the Company's Report Form
10-KSB for the year ended March 31, 1997 under the caption "Item 3 Legal
Proceedings".
On June 2, 1997, the Circuit Court of Baltimore County, Maryland
dismissed a lawsuit by a former employee of Bundy who had alleged wrongful
discharge. The plaintiff's motion for reconsideration of that dismissal was
denied on June 26, 1997. The plaintiff appealed the dismissal to the Court of
Special Appeals on July 1, 1997. The lawsuit in the U.S. District Court for the
District of Maryland by the same plaintiff based on the same circumstances was
withdrawn by the plaintiff on September 2, 1997.
On October 1, 1997 suit was initiated in the District Court of Oklahoma
County, State of Oklahoma against the Company and a Rent-A-Wreck franchisee by
an automobile dealer in connection with the plaintiff's sale of cars to the
franchisee for which plaintiff has allegedly not yet been paid. Plaintiff
alleges that the Company fraudulently induced it to deal with the franchisee and
seeks $241,000 in damages plus interest. The Company believes the claim against
it is without merit and intends to defend it vigorously.
Regarding the lawsuit that was initiated in August 1994 by Mongo, Inc.
and John and Roberta Batcher and ultimately dismissed in April 1997, the Company
is aware that Mongo, Inc. and John Batcher have filed another summons on August
21, 1997 in the Supreme Court, State of New York, County of Suffolk regarding a
lawsuit against the Company, Bundy, K.A.B. Inc., officers of the Company and
other defendants. The summons mentions relief sought of $7,000,000 plus
interest. The summons is not accompanied by a complaint, and the Company is
investigating the basis for this summons given that the plaintiffs' previous
claims against the Company were dismissed.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- ------- -----------------------------------------
The Company issued 6,875 shares of its common stock on June 4, 1997
pursuant to section 3(a)(9) of the Securities Act of 1933, as amended. The
shares were issued to a holder of the Company's preferred shares who converted
his preferred shares into common shares on a one-for-one basis. The Company
issued 31,875 and 13,750 shares of its common stock on July 16, 1997 and July
25, 1997 respectively, pursuant to section 3(a)(9) of the Securities Act of
1933, as amended. The shares were issued to a holder of the Company's preferred
shares who converted her preferred shares into common shares on a one-for-one
basis.
12
<PAGE>
On August 11, 1997 the Company issued 10,000 shares of its common stock
as part of a private placement transaction pursuant to Section 4(2) of the
Securities Act of 1933 as amended. These shares were issued to Insurance
Rentals, Inc. to satisfy the earn-out provision of the asset purchase agreement
as of December 3, 1996 between the Company, Baltimore Car and Truck Rental,
Inc., Insurance Rentals, Inc., and Mark Eisenberg. See "Part II - Item 2" of the
Company's Quarterly Report on Form 10QSB for the period ended December 31, 1996.
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
- ------- ---------------------------------------------------
(a) The 1997 Annual Meeting of Stockholders of the Company was held on
September 15, 1997.
(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. 2,812,871 9,900 --
David Schwartz 2,813,871 8,900 --
Class II directors
(elected by holders
of preferred stock): Alan L. Aufzien 1,311,000 -- --
William L. Richter 1,311,000 -- --
ITEM 5. OTHER INFORMATION-RETIREMENT OF STOCK INFORMATION
- ------- -------------------------------------------------
During the quarter ended June 30, 1997, 6,875 shares of preferred stock
were converted to common shares, reducing total outstanding preferred shares
from 1,439,125 to 1,432,250. The Company bought back and retired the 6,875
common shares on September 2, 1997. During the quarter ended September 30, 1997,
45,625 shares of preferred stock were converted to common shares, reducing total
outstanding preferred shares to 1,386,625.
13
<PAGE>
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.
14
<PAGE>
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 Khosravi November 14, 1997
- ---------------------------- ---------------------------
Mitra Khosravi
Chief Accounting Officer
/s/Kenneth L. Blum, Sr. November 14, 1997
- ---------------------------- ---------------------------
Kenneth L. Blum, Sr.
CEO and Chairman of
the Board
15
<PAGE>
EXHIBIT INDEX
TO
RENT-A-WRECK of AMERICA, INC.
FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1997
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule Filed herewith.
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS IN THE COMPANY'S FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED SEPTEMBER
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,538,129
<SECURITIES> 0
<RECEIVABLES> 1,609,602
<ALLOWANCES> 752,645
<INVENTORY> 0
<CURRENT-ASSETS> 2,608,746
<PP&E> 530,106
<DEPRECIATION> 221,091
<TOTAL-ASSETS> 3,152,158
<CURRENT-LIABILITIES> 1,150,585
<BONDS> 0
0
13,866
<COMMON> 43,004
<OTHER-SE> 1,944,703
<TOTAL-LIABILITY-AND-EQUITY> 3,152,158
<SALES> 0
<TOTAL-REVENUES> 2,409,789
<CGS> 0
<TOTAL-COSTS> 1,031,886
<OTHER-EXPENSES> 899,055
<LOSS-PROVISION> 39,693
<INTEREST-EXPENSE> 10,406
<INCOME-PRETAX> 471,722
<INCOME-TAX> 147,103
<INCOME-CONTINUING> 324,619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 324,619
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
