UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NO. 0-14819
RENT-A-WRECK OF AMERICA, INC.
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 95-3926056
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(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10324 South Dolfield Road, Owings Mills, MD 21117
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (410) 581-5755
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.01
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $6,281,894
3,568,217 shares of common stock were outstanding as of May 30, 2000.
Aggregate market value of voting stock held by nonaffiliates of registrant,
based upon the average of the high and low price of the Common Stock on the
Nasdaq SmallCap Market, was approximately $3.8 million on May 30, 2000. Shares
of Common Stock held by each officer and director and by each person who owns
10% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily conclusive.
The following documents are incorporated by reference and made a part of
the Form 10-KSB:
1. None
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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TABLE OF CONTENTS
Page
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PART I
Item 1. Description of Business............................................ 3
Item 2. Description of Property............................................ 9
Item 3. Legal Proceedings.................................................. 9
Item 4. Submission of Matters to a Vote of Security Holders................ 9
PART II
Item 5. Market for the Common Equity and Related Stockholder Matters....... 10
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 12
Item 7. Financial Statements............................................... 20
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................... 45
PART III
Item 9. Directors and Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.................. 46
Item 10. Executive Compensation............................................. 48
Item 11. Security Ownership of Certain Beneficial Owners and Management..... 50
Item 12. Certain Relationships and Related Transactions..................... 52
Item 13. Exhibits and Reports on Form 8-K................................... 52
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Rent-A-Wreck of America, Inc. (the "Company") was incorporated in Delaware
on October 12, 1983. The Company conducts its operations primarily through its
wholly owned subsidiary, Bundy American Corporation ("Bundy"), and Bundy's
subsidiary Priceless Rent-A-Car, Inc. ("Priceless"). Bundy was incorporated in
California on April 22, 1977 and redomesticated in Maryland effective March 29,
1996. Priceless was incorporated in Maryland on September 30, 1999. The Company
markets and administers the Rent-A-Wreck (R) and PRICELE$$ (R) vehicle rental
franchise programs and related services. The Company's franchisees, in
aggregate, operate one of the largest used vehicle rental fleets in the nation,
offering rentals of cars, trucks and vans at rates that are generally less than
those charged by new car rental companies. The Company also has franchisees in
Europe and Asia. Reference to the "Company" includes Rent-A-Wreck of America,
Inc. and its subsidiaries unless the context otherwise requires.
THE FRANCHISE PROGRAM
The Company sells to qualified persons the right to operate a Rent-A-Wreck
or PRICELE$$ franchise, or both, for renting and leasing used motor vehicles
(automobiles, vans and trucks) to the general public. The franchisees who
participate in the PRICELE$$ used vehicle rental franchise program are required
by the Company to meet higher standards than the Rent-A-Wreck program, such as
utilizing vehicles that are less than three years old. As of March 31, 2000, 164
of the Company's 675 franchisees were participating in the Priceless program.
The Company believes the PRICELE$$ name appeals to a different clientele and
therefore complements the Rent-A-Wreck program. The Company offers each
franchisee territory rights in which the Company will not open another
franchise. Franchisees purchase the right to use certain of the Company's
resources, experience and knowledge in connection with the operation of the
business for a specified period of time, typically ten years. The franchisee
utilizes the Company's systems, methods, specifications, standard operating
procedures, guidance, and trade and service marks. When the Company sells a
franchise, it charges an initial franchise fee that varies according to the
population of the franchisee's primary service area at the time the franchise is
granted. The Company may finance the initial fee over a period not to exceed
twelve months based on the creditworthiness of the franchisee. Additionally,
franchisees are required to pay the Company monthly royalties and contribute to
the national advertising fund. These fees vary according to the Company's
franchisees' fleet size or gross revenues.
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The Company believes the Rent-A-Wreck name is unique and enjoys national
recognition. Ongoing marketing programs further promote recognition of the
Rent-A-Wreck and PRICELE$$ names in both domestic and foreign markets. The
Company develops and executes advertising and marketing programs that have
included radio and television commercials, direct mail, print advertising,
promotional items and sponsorship at sporting events. Public relations
activities conducted on the franchisees' behalf include a franchise award
announcement, grand opening press release and anniversary press releases.
Assistance in planning and implementing local promotional activities is
available to franchisees. The Public Relations Department of the Company also
publishes the "Rent-A-Wreck Reporter", which is distributed internally to
franchisees and externally to trade and consumer media and referral sources such
as insurance adjusters, automotive repair shops, travel agents and corporate
travel managers.
In 1997, the Company formed a wholly owned insurance subsidiary,
Consolidated American Rental Insurance Company, Ltd ("CAR Insurance") domiciled
in Bermuda, to offer automobile liability and physical damage reinsurance
through American International Group ("AIG") for the vehicles belonging to its
franchisees.
CAR Insurance has an agreement with AIG whereby CAR Insurance's coverage is
subject to a per loss limit of $100,000 per person and $300,000 per accident.
Under the contract, AIG also provides an aggregate stop loss protection of
$1,300,000, thus capping CAR Insurance's exposure to loss. In carrying out the
program, the Company utilizes Hertz Claim Management Corporation as the Third
Party Administrator, Rental Industry Services ("Rise") as the insurance broker,
and Willis Corroon as a consultant for this program. The focus of growth for CAR
Insurance will be in those states where the Company's insurance advisor believes
the driver's (not the owner's) insurance is deemed to be primarily responsible
for any losses. As of March 31, 2000, approximately 85 of the Company's
franchisees were insuring a total of 2,092 vehicles under this program.
Franchisees apply for this insurance coverage with Rise. Rise processes the
franchisees' applications and, if approved, the franchisee is required to pay
premiums in advance on a monthly basis. Hertz Claim Management Corporation is
responsible for processing all claims and assisting the Company on the
appropriate reserves for all known claims. Willis Corroon further assists the
Company in establishing reserves for known and unknown claims.
On March 1, 1999, the Company added a new program to offer insurance
coverage to all of its franchisees who do business in those states where the
Company's insurance advisor believes the owner's (not the driver's) insurance is
deemed to be primarily responsible for any losses. In those states, this is the
only program that the Company offers to its franchisees. In carrying out this
new program, the Company utilizes Rise as the insurance broker, and franchisees
apply for this insurance coverage with Rise. Rise processes the franchisees'
applications and, if approved, the franchisee is required to pay premiums in
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advance on a monthly basis. The Company bills and collects the premiums, which
are forwarded to Rise, and receives fees from Rise for this program. The Company
believes it has no exposure to loss from insurance claims under this program. As
of March 31, 2000, approximately 12 of the Company's franchisees were insuring a
total of 196 vehicles under this program.
Priceless operates a wheelchair van rental program, on a limited test
basis, in Maryland and Florida. The Company markets this program primarily in
communities catering to disabled individuals. There are four vehicles currently
operating under this program.
The Company has arranged a program whereby franchisees may finance vehicle
purchases over a 24-30 month period. The program is available to qualified
applicants who maintain a level of creditworthiness that the Company has
assessed on a case-by-case basis. The franchisees' qualification is based on
their credit history with the Company, as well as their credit standing as
reported by national credit bureaus. The franchisees are responsible for
purchasing the vehicles with funds loaned by the Company, and the Company's loan
is secured by the vehicles. As of March 31, 2000, the Company was financing 8
vehicles for 2 of its franchisees.
The Company is committed to educating and training its franchisees. The
Company conducts Rent-A-Wreck School at its headquarters in Maryland every 45
days. All new franchisees are required to attend. School is also available at no
charge to current franchisees and their staff. During an intensive five-day
period, attendees learn all aspects of the Rent-A-Wreck and PRICELE$$ programs.
This includes vehicle acquisition, maintenance and sales, telephone techniques,
counter procedures, rental operations, promotion, publicity, advertising and
sales approaches, relevant aspects of insurance, accounting and other general
business skills. The Company also employs field service staff who have many
years of experience in the car rental industry and whose responsibility is to
provide continuous advice via personal visits and a toll-free telephone number.
Additionally, the Company holds and strongly encourages franchisees to
attend its convention once a year, and regional meetings which are held twice a
year in eastern and western regions of the United States. The Company utilizes
these meetings to present new programs to franchisees and to provide continued
training and advice.
The Company's National Franchisee Advisory Council, which consists of seven
members, meets quarterly. Six of the members are elected by the franchisees in
their region. The seventh member is a franchisee appointed by the Company. The
Council is a forum through which franchisees can express opinions and concerns
to the Company. The Council also provides suggestions as to how the Company's
National Advertising Fund is allocated. Advertising monies paid into the
National Advertising Fund are expended by the Company on the franchisees' behalf
after consultation with the National Franchisee Advisory Council. Based on the
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Council's recommendations, the Company has expended amounts on different
programs such as advertising on Westwood One Radio, and sponsoring a race car to
further promote the Company's national exposure.
The Company markets its franchise programs primarily by attending various
trade shows and by conducting an ongoing direct mailing campaign. The Company
employs three full-time salespeople at its corporate headquarters, and in
addition, utilizes the services of two independent franchise brokers located
throughout the United States.
During the fiscal year ended March 31, 2000, 75 new franchises were
granted, 13 existing franchise locations were transferred to new ownership and
52 franchises were terminated by the Company. The majority of these terminations
resulted from default of the franchise agreement. This resulted in approximately
652 franchised locations throughout the United States, as well as 23 franchised
locations in Europe and Asia at March 31, 2000 compared to approximately 633
franchised locations throughout the United States, as well as 19 franchised
locations in Europe and Asia at March 31, 1999.
EMPLOYEES
As of March 31, 2000, the Company employed 24 people, consisting of 12
full-time employees and 3 part-time employees engaged in franchise sales and
service and 8 full-time employees and 1 part-time employee engaged in
administrative activities. In addition, the Company retains the services of 2
franchise brokers who market and sell the Company's franchises. None of the
employees are covered by a collective bargaining agreement, and management
believes that its relations with its employees are good.
COMPETITION
The Company pioneered the concept of used car rentals. Unlike the
traditional airport rental companies, Rent-A-Wreck developed its niche serving
the "neighborhood" rental market. The Company emphasizes convenience and service
and offers rentals of used cars, trucks and vans at rates that are typically
lower than those charged by new car rental companies.
Although most franchisees service some business and leisure travelers from
outside the community, the Company's customers generally are people from the
local community. The Company's franchisees generally serve customers needing
vehicles for insurance and service replacement, commercial, short-term moving
and general use.
Rent-A-Wreck franchisee fleets usually consist of a variety of used
vehicles although some locations rent new cars as well. The franchisees offer to
customers various vehicles according to local demand. Trucks, passenger vans and
cargo vans are available at many locations. This allows the franchisees the
flexibility to offer an appropriate range of vehicles for their areas.
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Significant competition exists in the local markets. Large systems like
U-Save compete nationwide. Dozens of regional and local independent companies
also compete with the Company in various areas. In most major urban areas,
companies such as Hertz, Avis, National, Enterprise and Budget operate city and
suburban offices, as well as operating in airport terminals.
During the early 1990's, many of the new car rental companies were owned,
wholly or partially, by automobile manufacturers who sold their rental
subsidiaries' cars at discounted prices and guaranteed to repurchase cars after
four to nine months in rental service. This enabled the rental companies to pass
along their savings to retail customers in the form of lower rental prices. Over
the last few years, the rental companies have been returning to independent
ownership, the new car discounts and buybacks have been reduced, and new car
retail rental prices have often risen. Because the Company's franchisees
generally attempt to provide substantial discounts off the retail prices charged
by the large new car rental companies, the Company believes that the increase in
prices charged by such companies has enabled the Company's franchisees to
compete more effectively and profitably.
GOVERNMENT REGULATIONS
The offering and sale of franchises is subject to Federal and State
regulation and regulations by foreign governments. The Federal Trade Commission
("FTC") has adopted regulations requiring full pre-sale disclosure to
prospective franchisees of certain information, including information about the
franchisor, its existing franchises, the rights and obligations of franchisees,
and termination, cancellation and renewal of franchises. Disclosure is required
to be made prior to the sale in the form of an offering circular. Many states in
which the Company sells or may sell franchises may require pre-sale registration
of the Company and/or the Company's offering circular and franchise agreement to
be used in selling franchises from or in the state. The Company must apply for
renewal with many of these states annually. Many states also regulate various
aspects of the franchisor-franchisee relationship, including regulations
regarding awarding, renewing and terminating franchise relationships.
Compliance with the laws of the state from or in which the sale of a
franchise is to be made, in addition to the Federal regulations, may be required
because FTC franchising regulations will not preempt state or local laws and
regulations which are consistent with its Federal regulations, or which, if
inconsistent, would provide protection to prospective franchisees equal to or
greater than that imposed by the Federal franchising regulations.
As of May 2000, the Company is currently authorized to sell franchises in
all 50 states under its "Rent-A-Wreck" and "PRICELE$$" trade and service marks.
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The Company has registered its "Rent-A-Wreck" trade and service mark in
approximately 44 foreign countries and its "PRICELE$$" trade and service mark in
approximately 17 foreign countries.
TRADEMARKS
The Company believes that name recognition of its primary trademark
"Rent-A-Wreck" is important to its franchise program. A trademark may be held
for an indefinite duration, but it may be lost or its value diminished if
adequate steps to police its use are not taken. The Company believes that its
efforts to police the use of its trademarks are adequate. The Company is
actively promoting its existing "PRICELE$$" trademark. The Company believes this
trademark will provide additional sales opportunities for its franchisees due to
new target customers of "PRICELE$$" rental fleets.
INSURANCE REGULATIONS
GOVERNMENT REGULATION RELATING TO INSURANCE PROGRAM. As part of the
insurance program, the Company utilizes CAR Insurance, its wholly owned
subsidiary domiciled in Bermuda. Insurance companies such as CAR Insurance are
subject to the laws and regulations of the jurisdictions in which they are
chartered and do business. Such laws and regulations generally are designed to
protect the interests of policyholders rather than the interests of shareholders
of the Company. In general, insurance regulatory agencies have broad authority
over insurers' capital and surplus levels, dividend payments, financial
disclosure, reserve requirements, investment parameters and premium rates. The
regulation of CAR Insurance and its insurance program involving AIG, Hertz Claim
Management Corporation, and the financing of such insurance program could have a
material effect on the Company's business, financial condition and results of
operations.
The Company's insurance program offered through CAR Insurance is conducted
via "fronting" arrangements with AIG. Because some states currently restrict or
limit such arrangements, the ability of the Company to expand the program into
those states is also limited. In addition, the National Association of Insurance
Commissioners ("NAIC") has adopted a model act concerning such "fronting"
arrangements. The model act requires reporting and prior approval of reinsurance
transactions relating to these arrangements and limits the amount of premiums
that can be written under certain circumstances. No determination can be made as
to whether, or in what form, such act may ultimately be adopted by any state,
and the Company is therefore unable to predict whether the model act will affect
its operations or relationships with insurers. Some states currently regulate
third party administration and premium financing arrangements, such as those
used by the Company. Any or all of these regulations could have a material
effect on the program being offered by the Company.
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State regulation requires licensing of persons soliciting the sale of
insurance within that state. In certain states, licenses are obtained by
individual agents rather than a corporate entity. Due to the Company's recent
development of the reinsurance program and limited experience with its other
insurance programs, there can be no assurance that its activities will not be
deemed to be in violation of licensing or other insurance laws or regulations.
Such violations could subject the Company to significant fines and penalties
which could have a material adverse effect on its business, financial condition
and results of operations.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently leases approximately 9,100 square feet of executive
office space at 10324 South Dolfield Road, Owings Mills, MD 21117, which lease
will expire in October 2006 (see note 7 to the Company's consolidated financial
statements and Item 8, Certain Relationships and Related Party Transactions).
Management believes that the facilities leased by the Company are adequate
for the Company's current and foreseeable future operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to routine 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. The Company resolved a lawsuit in August 1999, and the Company was
awarded $101,045, which was received by the Company in April 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the 4th
quarter of the fiscal year ended March 31, 2000.
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PART II
OTHER INFORMATION
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, $.01 par value, trades on the Nasdaq SmallCap
Market under the symbol RAWA.
The range of high and low bid quotations for the quarterly periods of the
current and prior fiscal years was as follows:
Year Ended
March 31, 2000 High* Low*
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First Fiscal Quarter $1.75 $1.37
Second Fiscal Quarter 2.00 2.00
Third Fiscal Quarter 2.00 1.75
Fourth Fiscal Quarter 2.25 1.95
Year Ended
March 31, 1999 High* Low*
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First Fiscal Quarter $1.09 $1.03
Second Fiscal Quarter 1.00 0.91
Third Fiscal Quarter 1.50 1.12
Fourth Fiscal Quarter 1.25 1.19
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* Bid quotations as reported by Nasdaq reflect inter-dealer prices, without
retail mark-up, mark-down, or commission and may not represent actual
transactions.
The Company has never paid any cash dividends on its common stock, nor does
it anticipate paying dividends on its common stock in the foreseeable future.
The Company has preferred stock issued with 1,105,000 shares outstanding for the
fiscal year ended March 31, 2000. This stock has a cumulative quarterly dividend
of two cents per share. Based on the current number of outstanding preferred
shares, the annual aggregate dividend is $88,400. The terms of the outstanding
preferred stock provide that the Company may not declare or pay dividends,
whether in cash or in property, on the common stock unless the full dividends on
the preferred stock for all past dividend periods and the current dividend
period have been paid or declared and a sum set aside for payment thereof. The
preferred stock is convertible into common on a share-for-share basis. There is
no public market for the preferred stock.
The number of stockholders of record of the Company's common stock as of
May 30, 2000 was 179. This figure does not include individual participants in
securities position listings of registered clearing agencies. The Company
believes that the number of beneficial stockholders was approximately 1,300 as
of May 30, 2000. Trading activity with respect to the Common Stock has been
limited, and the volume of transactions should not of itself be deemed to
constitute an "established public trading market". A public trading market
having the characteristics of depth, liquidity and orderliness depends upon the
existence of market makers as well as the presence of willing buyers and
sellers, which are circumstances over which the Company does not have control.
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SELECTED FINANCIAL DATA
Set forth below is selected financial data with respect to the consolidated
statements of earnings of the Company and its subsidiaries for each of the five
years in the period ended March 31, 2000, and with respect to the balance sheets
thereof at March 31 in each of those years.
The selected financial data has been derived from the Company's audited
consolidated financial statements and should be read in conjunction with the
audited financial statements and related notes thereto and other financial
information appearing elsewhere herein. The selected financial data is not
required by Form 10-KSB and has been included herein to provide an overview of
the Company's operations.
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
(in thousands except per share and number of franchises)
<S> <C> <C> <C> <C> <C>
FRANCHISEES' RESULTS (UNAUDITED)
Franchisees' Revenue (1) $29,864 $34,661 $40,018 $45,358 $51,707
Number of Franchises 429 477 558 652 675
(outstanding at year-end)
COMPANY'S RESULTS OF OPERATIONS
Total Revenue $ 3,455 $ 3,785 $ 4,677 $ 5,601 $ 6,282
Operating expenses 3,029 3,252 3,983 4,564 5,279
Income before income taxes $ 489 $ 600 $ 756 1,113 1,101
Net income 459 537 548 858 821
EARNINGS PER COMMON SHARE
Basic $ .08 $ .10 $ .10 $ .18 .19
Weighted average common shares 4,210 4,102 4,267 4,086 3,808
Diluted $ .07 $ .09 $ .09 $ .15 .14
Weighted average common shares
plus convertible preferred
stock, options and warrants 6,197 6,083 5,915 5,611 5,902
EBITDA (2) 568 721 888 1,313 1,922
COMPANY'S BALANCE SHEET DATA
Working Capital $ 902 $ 1,191 $ 1,527 $ 1,531 $ 1,240
Total assets 2,164 2,594 3,664 3,886 3,980
Long-term obligations 36 30 -- -- --
Shareholders' Equity 1,372 1,755 2,028 2,041 1,836
</TABLE>
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(1) The franchisees' revenue data have been derived from unaudited license fee
reports provided by franchisees.
(2) "EBITDA" is earnings before interest expense, depreciation, amortization,
taxes and repurchase of options. EDITDA should not be interpreted as a
measure of operating results, cash flow provided by operating activities, a
measure of liquidity, or as an alternative to any generally accepted
accounting principle measure of performance. The Company is reporting EBITDA
because it is a widely used financial measure of the potential capacity of a
company to incur and service debt. Rent-A-Wreck's reported EBITDA may not be
comparable to similarly titled measures used by other companies.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Year ended March 31, 2000 as compared to year ended March 31, 1999:
The Company operates in two principal segments: Vehicle Rental Franchise
Programs (franchising) and Insurance Coverage (insurance). Franchising consists
of operations under the Rent-A-Wreck and Priceless lines of business. For the
year ended March 31, 2000, franchising operations comprised 86% of consolidated
net revenues (87% in 1999) and 161% of consolidated operating income (99% of
operating income before repurchase of options; 112% in 1999).
Revenue from franchising operations, which includes initial license fees,
continuing license fees, and advertising fees, increased by $476,267 (10%).
Initial license fees increased by $21,802 (2%) due to the addition of 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 $380,889 (14%), and advertising fees increased by $73,576 (8%) due
to the fleet growth at existing franchises and the Company's dedication of more
resources to its collection efforts.
Revenues from insurance premiums increased by $148,778 (20%) due to higher
participation by the Company's franchisees in the CAR Insurance program
established in March 1997. Insurance premium revenue is recognized ratably over
the life of the policies.
Vehicle rental operations increased by $18,736 (118%) due primarily to the
wheelchair van program, partially offset by the cancellation of the truck rental
program.
Other revenue increased by $36,798 (23%) due primarily to a gain from
litigation against a former franchisee, which the Company resolved in August
1999, partially offset by lower sales of promotional materials. The Company was
awarded $101,045, which it collected in April 2000, in connection with the
litigation of the award. $49,750 was allocated to other revenue, while the
remaining amount of $51,295 was allocated to license fees, advertising fees and
interest income.
Total operating expenses increased by $715,839 (16%) in fiscal year 2000
compared to the prior year. Salary expense increased by $15,869 (2%) primarily
as a result of hiring additional employees in response to the growth of the
Company's franchising operations. Advertising and promotion expenses increased
by $86,901 (7%), which resulted primarily from an increase in national
advertising expense to promote the Company. Sales and marketing expenses
decreased by $57,385 (9%), which resulted primarily from the cost of the
repurchase of a territory from an existing franchisee in the prior year, and a
reduction in the Company's annual and regional meetings expenses. General and
administrative expenses increased by $97,840 (11%), which resulted primarily
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from the expense related to the Company's move to its new location, an increase
in the management fee earned by K.A.B., Inc. ("KAB"), a related party, and
payment of monthly consulting fees to Richter Investment Corp. ("Richter"), a
related party.
Insurance underwriting expenses decreased by $45,291 (7%) due to a decrease
in loss reserves for unreported claims, offset by an increase in paid losses in
connection with higher participation by the Company's franchisees in its CAR
Insurance program.
Effective June 30, 1993, the Company issued options (the "Options") to KAB,
for the purchase of up to 2,250,000 shares of the Company's common stock. All
are currently vested. During the year ended March 31, 2000, the Company entered
into an agreement to repurchase 500,000 of the options for $625,000.
Depreciation and amortization expense decreased by $7,095 (4%) in fiscal
year 2000 compared to the prior year. This decrease resulted primarily from
certain assets becoming fully depreciated. Vehicles, office furniture, equipment
and leasehold improvements are carried at cost. Depreciation has been provided
by the straight-line method over the estimated useful lives of the assets
ranging from 3 to 7 years. Amortization of leasehold improvements is calculated
on the straight-line basis over the shorter of the estimated life of the
improvements or the term of the lease. Betterments, renewals and extraordinary
repairs that extend the life of the asset are capitalized; other repairs and
maintenance are expensed.
The Company realized operating income of $1,002,387, before taxes and
interest, in 2000 compared to operating income of $1,037,647 in 1999, reflecting
a decrease of $35,260 (3%). This decrease resulted primarily from the Company's
repurchase of 500,000 options for $625,000, offset by an increase in initial
license fees and, especially, continuing license fees due to the addition of new
franchises, fleet growth at existing franchises and the Company's improved
collection efforts and collection of previously reserved accounts, as well as an
increase in other revenues due primarily to a litigation award. If repurchase of
options had not impacted the Consolidated Statement of Earnings for the fiscal
year ended March 31, 2000 (in which case it also would have produced no
partially offsetting reduction in income tax expense), operating income would
have been $1,627,387 in 2000 instead of $1,002,387, which would have been an
increase versus 1999 of $589,740 (57%) rather than a decrease of $35,260 (3%).
Net income would have been $1,204,379 instead of $820,629, basic earnings per
share would have been $.29 instead of $.19, and diluted earnings per share would
have been $.20 instead of $.14.
The Company incurred an expense of $625,000 for repurchase of options in
2000 when it implemented such repurchase as part of the stock buyback program it
initiated in 1995. Including the 500,000 options recently repurchased and
400,000 common shares bought from a founder of the Company in November, 1999,
the Company has now bought back a total of more than 2 million shares or
potential shares. The Company believes management's options are attractive to
repurchase for several reasons. First, by choosing to repurchase those
13
<PAGE>
exercisable at the highest exercise price ($1.15 options), the Company was able
to retire a larger number of shares for fewer dollars because their value was
lower. Second, because they represent taxable ordinary income to the holders
when they are exercised, options represent a substantial and potentially
depressing overhang on the market because holders generally need to sell
exercised options promptly to pay income taxes generated by exercise.
Repurchasing options removes the threat of this overhang. Furthermore, by using
a portion of net income as or after it has been earned, supplemented by the tax
deduction an option repurchase generates, to finance the repurchase of a portion
of management's options, the aggregate number of options and warrants
outstanding can be reduced to a reasonable level while enhancing the value of
all outstanding shares by increasing prospective earnings per share.
Net interest income increased by $23,284 (31%). This increase was primarily
due to interest earned on the increased cash deposits which are held in interest
bearing accounts and the interest earned on the proceeds from a lawsuit
settlement.
Income tax expense for the year ended March 31, 2000 increased by $25,370
(10%) over 1999 due to a lower reduction in the deferred tax asset valuation
allowance in the current year compared with the prior year. The valuation
allowance has been eliminated as of March 31, 2000.
Effective January 1, 1999, the annual management fee earned by KAB
increased from $250,000 to $300,000 (in addition to reimbursement of expenses).
Inflation has had no material impact on the operations and financial
condition of the Company for all years presented.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had working capital of $1,239,523 compared
to $1,530,647 at March 31, 1999. This decrease of $291,124 resulted primarily
from an increase in accounts payable in connection with the Company's repurchase
of 500,000 options, cash paid by the Company to repurchase 400,000 shares of its
common stock, as well as the payment of preferred stock dividends, offset by net
profit earned during the year. In fiscal 2000, the Company's allowance for
doubtful accounts was $832,253 compared to $655,418 in the prior year. The
Company wrote off $68,279 of doubtful accounts during fiscal 2000 and $215,787
during the prior year. The Company generally requires officers and directors of
franchisees to provide personal guarantees of the franchisee's obligations under
the franchise agreement. The Company's collection effort is designed to increase
liquidity through improved cash flow; however, there can be no assurance that
the Company will be successful in these efforts.
Cash and cash equivalents decreased by $159,986 (19%). This decrease
resulted primarily from additional deposits paid to AIG and Willis Corroon in
connection with the Company's CAR Insurance Program. These deposits were
14
<PAGE>
refunded to the Company in April and May 2000. Restricted cash increased by
$26,971 (4%) due to an increase in the national advertising funds. Restricted
cash includes (1) a deposit of $600,000 as security for the letter of credit
with Bank of America backing the insurance program described below and (2) funds
being held on behalf of the Company's franchisees in the national advertising
fund to be spent on various advertising programs.
In March 2000, the Company obtained a $1,000,000 letter of credit with Bank
of America in connection with the Company's CAR Insurance subsidiary, and
replaced its letters of credit with The Chase Manhattan Bank and the Bank of
Butterfield. This letter of credit is part of the agreement between the Company
and Bank of America as security for the letter of credit issued to American
International Group ("AIG") by Bank of America. This letter of credit is secured
by a certificate of deposit of $600,000 held by Bank of America plus 50% of all
the Company's eligible accounts receivable. Funds drawn against the letter of
credit bear interest at Bank of America's prime commercial lending rate plus
1.5% (which prime rate was 9.50% on June 12, 2000). For the years ended March
31, 2000 and 1999, AIG has not drawn any funds from the letter of credit.
In November 1999, the Company moved to a new location, which is owned by KA
Real Estate Associates, LLC, ("KA") a related party to KAB. The Company entered
into an operating lease with KA which requires monthly payments of $9,290
through October 2006.
Property and equipment increased by $196,600 (29%) from March 31, 1999 to
March 31, 2000. This increase occurred primarily due to additional investment in
computer software and hardware, leasehold improvements and vehicles. The Company
purchased three vehicles in connection with the wheelchair van program.
Cash provided by operations was $1,723,790, resulting primarily from net
income before depreciation plus the decrease in accounts and notes receivable,
offset by the increase in prepaid expenses, accounts payable, accrued expenses,
insurance loss reserves, and deferred income taxes. Accounts and notes
receivable decreased primarily from the collection of amounts financed under the
insurance program at the end of the prior year. Prepaid expenses increased
primarily due to expenses paid in connection with the Company's regional meeting
for the year ended March 31, 2000. Accounts payable and accrued expenses
increased primarily from compensation expense in connection with the Company's
repurchase of 500,000 options. Insurance loss reserves increased primarily due
to estimates for unreported claims in connection with the CAR Insurance program.
Income taxes payable increased $156,888 (86%) due to current taxable income.
Cash used in investing activities of $292,677 related primarily to an
increase in restricted cash in connection with the national advertising funds,
the acquisition of property and equipment and the costs associated with
obtaining trademarks, partially offset by the proceeds from the sale of three
vehicles.
15
<PAGE>
Cash used in financing activities during the year ended March 31, 2000 was
$1,591,099, resulting from the payment of preferred dividends, retirement of
common stock and financing for insurance operations.
In 1995 and 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. On March 3, 1999,
the Company approved the repurchase of an additional 119,075 shares of the
Company's outstanding common or preferred stock. During the year ended March 31,
1998, the Company repurchased and retired 117,575 shares of its common stock at
a cost of $121,509 and also bought back 20,625 shares of its preferred stock at
a cost of $25,781. During the year ended March 31, 1999, the Company repurchased
and retired 311,600 shares of its common stock at a cost of $358,674. The
Company also repurchased and retired 226,875 shares of its preferred stock at a
cost of $363,001 and also bought back 102,500 warrants at a cost of $11,250. As
of March 31, 1999, the Company had repurchased and retired a total of 1,119,075
shares under this program, which was the total number of shares authorized for
repurchase at that time. In November 1999, the Company repurchased and retired
400,000 shares of its common stock at a cost of $790,000. In January 2000, the
Company's Board of Directors authorized the repurchase and retirement of up to 1
million shares of common stock, convertible cumulative series A preferred stock,
options or warrants. The Board also authorized the repurchase, and the Company
entered into an agreement to repurchase, 500,000 options for $625,000 under this
program. The obligation to purchase these options was paid in April and May of
2000.
The Company believes it has sufficient working capital to support its
business plan through fiscal 2001.
IMPACT OF INFLATION
Inflation has had no material impact on the operations and financial
condition of the Company.
16
<PAGE>
IMPORTANT FACTORS
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 on 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 elsewhere in, "Item 6 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Important Factors" which
information is incorporated in this section by reference in the Company's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 2000. All
forward-looking statements should be considered in light of these risks and
uncertainties.
LIMITED INSURANCE EXPERIENCE; POTENTIAL FOR NEGATIVE CLAIMS EXPERIENCE. The
Company's reinsurance business exposes its assets to significant liability for
claims and losses under the program. There can be no assurance that the premiums
collected will be adequate to cover the liabilities incurred or that the
Company's reserves will be sufficient. Because of the Company's limited
experience with insurance risks and the inherent uncertainties in estimating the
ultimate costs of claims, reserves are particularly uncertain and losses and
adjustment expenses may deviate substantially from expectations. Furthermore,
the timing, frequency and extent of liabilities under this program cannot be
predicted accurately because the conditions and events which established the
Company's loss expectancies may not recur in the future. Unexpected losses
associated with this program could have a material adverse effect on the
Company's business, financial condition and results of operations as a result of
the need to make payments in excess of reserves. Additionally, if the Company
expands the program as anticipated, the effect of such losses and or reserves
could be compounded.
17
<PAGE>
DEPENDENCE ON FRANCHISEES; CREDIT RISKS. The Company's revenues are
substantially dependent on fees paid by its franchisees. These fees fluctuate
based on the franchisees' performance. Franchisees are independent contractors
who operate their business independent of the Company. Any failure of
franchisees to operate their businesses, or inability of the Company to collect
fees owed by franchisees, could have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON TRADEMARKS. The Company's success depends in significant part
on its ability to maintain and protect its primary trademarks involving the
"Rent-A-Wreck" and "PRICELE$$" names. The Company's revenues are almost
exclusively derived from the goodwill associated with the names. Significant
negative publicity related to either of the names or the inability of the
Company to pursue infringements and maintain its proprietary rights could have a
material adverse effect on the Company's business, financial condition and
results of operations.
INTENSE COMPETITION. The vehicle rental industry in which the Company and
its franchisees operate is characterized by intense competition, particularly
with respect to price and service, from national, regional and local vehicle
rental companies. Many of these competitors, particularly national competitors
and those with relationships with vehicle manufacturers, have substantially
greater resources than the Company. In addition, competition exists from many
smaller, independent operations in local markets. Any failure by the Company and
its franchisees to offer services and prices that compete favorably in the
marketplace would have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS. The Company's operations are
subject to numerous federal, state, local and foreign laws, including federal
and state laws governing the offer and sale of franchises and relationship with
franchisees. Several states' laws require the Company to renew its state
franchise registration annually. If the Company does not maintain required state
registrations, it must terminate franchise sales activity in those states. While
the Company has suspended franchise sales activity in the past until such
registrations were properly renewed, the Company believes that it is currently
in material compliance with such laws. Changes in franchise laws could require
the Company to make material alterations to its core business. Additionally,
failure to comply with franchise or other laws could subject the Company to
significant fines and penalties and have a material adverse effect on the
Company's business, financial condition and results of operations.
During the past several years, a number of states have interpreted existing
laws as requiring out-of-state companies which generate income by granting
franchises in the state to file returns and pay tax in the state. Following this
trend, other states have adopted laws specifically designed to impose tax on
out-of-state companies granting franchises in the state. While many companies,
along with many tax practitioners and commentators, contend that the application
of such laws violates the federal constitution, the United States Supreme Court
18
<PAGE>
has not yet ruled on the issue directly. If the application of these laws is
constitutional, if the laws apply to the activities of the Company, or if the
states' interpretation of existing laws is applied retroactively, any resulting
taxes and associated interest and penalties for which the Company may be liable
also could have a material adverse effect on the Company.
RISKS OF INTERNATIONAL OPERATIONS. During the fiscal year ended March 31,
2000, approximately 1% of the Company's revenues were derived from international
operations. The Company's international operations are subject to certain risks,
including adverse developments in foreign political and economic environments,
varying government regulations, including regulations regarding the protection
of trademarks and the offer and sale of franchises, foreign currency
fluctuations and potential adverse tax consequences. There can be no assurance
that any of these factors, especially if the Company is successful in expanding
its international presence, will not have a material adverse effect on the
Company's business, financial condition and results of operations.
Developments in any of these areas, which are more fully described
elsewhere in "Item 1 - Description of Business" which is incorporated into this
section by reference, could cause the Company's results to differ materially
from results that have been or may be projected by or on behalf of the Company.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward- looking
statement that may be made from time-to-time by or on behalf of the Company.
19
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPORTING SCHEDULES
Page
----
Report of Independent Certified Public Accountants......................... 21
Financial Statements:
Consolidated Balance Sheet as of March 31, 2000.......................... 22
Consolidated Statements of Earnings for the Years Ended
March 31, 1999 and 2000.................................................. 24
Consolidated Statements of Shareholders' Equity for the Years
Ended March 31, 1999 and 2000............................................ 25
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1999 and 2000.................................................. 26
Notes to Consolidated Financial Statements............................... 27
Supporting Schedules:
Schedule II - Valuation and Qualifying Accounts.......................... 53
Schedules other than those listed above have been omitted because they are
either not required, inapplicable, or the required information is included in
the Consolidated Financial Statements or notes thereto.
20
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Rent-A-Wreck of America, Inc.
We have audited the accompanying consolidated balance sheet of Rent-A-Wreck of
America, Inc. (a Delaware corporation) and subsidiaries as of March 31, 2000,
and the related consolidated statements of earnings, shareholders' equity and
cash flows for the years ended March 31, 2000 and 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Rent-A-Wreck of
America, Inc. and subsidiaries, as of March 31, 2000, and the consolidated
results of their operations and their consolidated cash flows for the years
ended March 31, 2000 and 1999 in conformity with accounting principles generally
accepted in the United States of America.
We have also audited Schedule II for the years ended March 31, 2000 and 1999. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ Grant Thornton LLP
Baltimore, Maryland
May 25, 2000
21
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents ................................... $ 701,808
Restricted Cash ............................................. 745,514
Accounts Receivable, net of allowance
for doubtful accounts of $829,253:
Continuing License Fees and Advertising Fees ............... 365,462
Current Portion of Notes Receivable ........................ 416,002
Current Portion of Direct Financing Leases ................. 5,406
Other ...................................................... 305,685
Prepaid Expenses and Other ................................. 184,045
Deferred Taxes ............................................. 614,541
-----------
TOTAL CURRENT ASSETS .................................... 3,338,463
-----------
PROPERTY AND EQUIPMENT:
Furniture ................................................... 99,399
Computer Hardware and Software .............................. 431,918
Machinery and Equipment ..................................... 98,172
Leasehold Improvements ...................................... 54,321
Vehicles .................................................... 187,360
-----------
871,170
Less: Accumulated Depreciation and
Amortization .......................................... (493,612)
-----------
NET PROPERTY AND EQUIPMENT .............................. 377,558
-----------
OTHER ASSETS:
Intangible Assets, net of accumulated amortization
of $132,035 ................................................ 193,666
Long-term Portion of Notes and Direct Financing Lease
Receivables, net of allowance of $3,000 ..................... 70,438
-----------
264,104
-----------
TOTAL ASSETS ............................................ $ 3,980,125
===========
The accompanying notes are an integral part of this financial statement.
22
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses ....................... $1,359,215
Dividends Payable ........................................... 22,100
Insurance Loss Reserves ..................................... 379,075
Income Taxes Payable ........................................ 338,550
----------
TOTAL CURRENT LIABILITIES ............................... 2,098,940
----------
LONG-TERM LIABILITIES:
Deferred tax liability ...................................... 45,681
----------
TOTAL LONG-TERM LIABILITIES ............................. 45,681
----------
TOTAL LIABILITIES ....................................... 2,144,621
----------
COMMITMENTS AND CONTINGENCIES ................................. --
SHAREHOLDERS' EQUITY:
Convertible Cumulative Series A Preferred Stock, $.01
par value; authorized 10,000,000 shares; issued and
outstanding 1,105,000 shares (aggregate liquidation
preference $884,000)........................................ 11,050
Common Stock, $.01 par value; authorized 25,000,000 shares;
issued and outstanding 3,568,217 shares .................... 35,682
Additional Paid-In Capital .................................. 1,423,181
Retained Earnings ........................................... 365,591
----------
TOTAL SHAREHOLDERS' EQUITY .............................. 1,835,504
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............. $3,980,125
==========
The accompanying notes are an integral part of this financial statement.
23
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED MARCH 31, 1999 AND 2000
<TABLE>
<CAPTION>
1999 2000
----------- -----------
<S> <C> <C>
REVENUES:
Initial License Fees .................................... $ 1,068,201 $ 1,090,003
Continuing License Fees ................................. 2,721,506 3,102,395
Advertising Fees ........................................ 897,550 971,126
Insurance Premiums ...................................... 738,533 887,311
Vehicle Rental Operations ............................... 15,879 34,615
Other ................................................... 159,646 196,444
----------- -----------
5,601,315 6,281,894
----------- -----------
EXPENSES:
Salaries, Consulting Fees, and Employee Benefits ........ 917,121 932,990
Advertising and Promotion ............................... 1,290,099 1,377,000
Insurance Underwriting Expenses ......................... 616,256 570,965
Sales and Marketing ..................................... 636,666 579,281
Repurchase of Options ................................... -- 625,000
General and Administrative .............................. 925,091 1,022,931
Depreciation and Amortization .......................... 178,435 171,340
----------- -----------
4,563,668 5,279,507
----------- -----------
OPERATING INCOME ................................... 1,037,647 1,002,387
OTHER INCOME (EXPENSE)
Interest Income ......................................... 96,915 122,919
Interest Expense ........................................ (21,780) (24,500)
----------- -----------
75,135 98,419
----------- -----------
INCOME BEFORE INCOME TAX EXPENSE ................... 1,112,782 1,100,806
INCOME TAX EXPENSE ....................................... 254,807 280,177
----------- -----------
NET INCOME ......................................... 857,975 820,629
DIVIDENDS ON CONVERTIBLE CUMULATIVE PREFERRED STOCK....... (104,742) (89,500)
----------- -----------
NET INCOME AFTER DIVIDENDS ON CONVERTIBLE CUMULATIVE
PREFERRED STOCK .......................................... $ 753,233 $ 731,129
=========== ===========
EARNINGS PER SHARE
Basic .................................................... $ .18 $ .19
=========== ===========
Weighted average common shares ........................... 4,085,860 3,808,147
=========== ===========
Diluted .................................................. $ .15 $ .14
=========== ===========
Weighted average common shares plus convertible preferred
stock, options and warrants .............................. 5,611,423 5,901,617
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1999 AND 2000
<TABLE>
<CAPTION>
(Accumulated
Preferred Stock Common Stock Additional Deficit)
-------------------- -------------------- Paid-in Retained
Shares Amount Shares Amount Capital Earnings Total
------ ------ ------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1998 .......... 1,366,000 $13,660 4,189,692 $ 41,897 $ 2,900,381 $(927,554) $2,028,384
Issuance of common stock ....... -- -- 56,000 560 36,340 -- 36,900
Retirement of common stock ..... -- -- (311,600) (3,116) (355,558) -- (358,674)
Retirement of preferred stock .. (226,875) (2,269) -- -- (360,732) -- (363,001)
Retirement of warrants ......... -- -- -- -- (11,250) -- (11,250)
Preferred dividends paid
($.08 per share) .............. -- -- -- -- -- (104,742) (104,742)
Preferred dividend arrearages
paid ......................... -- -- -- -- -- (44,302) (44,302)
Net income ..................... -- -- -- -- -- 857,975 857,975
---------- ------- ---------- -------- ----------- --------- ----------
Balance, March 31, 1999 ......... 1,139,125 11,391 3,934,092 39,341 2,209,181 (218,623) 2,041,290
Retirement of common stock ..... -- -- (400,000) (4,000) (786,000) -- (790,000)
Conversion of preferred stock
to Common stock ............... (34,125) (341) 34,125 341 -- -- --
Preferred dividends paid ($.08
per share) ................... -- -- -- -- -- (89,500) (89,500)
Preferred dividend arrearages
paid ......................... -- -- -- -- -- (146,915) (146,915)
Net income ..................... -- -- -- -- -- 820,629 820,629
---------- ------- ---------- -------- ----------- --------- ----------
Balance, March 31, 2000 ......... 1,105,000 $11,050 3,568,217 $ 35,682 $ 1,423,181 $ 365,591 $1,835,504
========== ======= ========== ======== =========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1999 AND 2000
<TABLE>
<CAPTION>
1999 2000
----------- -----------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net Income .......................................... $ 857,975 $ 820,629
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ..................... 178,435 171,340
Deferred income taxes ............................. (130,520) (369,832)
Gain (loss) on disposal of property and equipment . (3,382) 1,757
Provision for doubtful accounts ................... (27,153) 173,775
Changes in assets and liabilities:
Accounts and notes receivable ..................... (100,784) 124,777
Prepaid expenses and other ........................ (32,564) (17,624)
Accounts payable and accrued expenses ............. 75,861 649,027
Income taxes payable .............................. (31,496) 156,888
Insurance loss reserves ........................... 119,701 13,053
----------- -----------
Net cash provided by operating activities ...... 906,073 1,723,790
----------- -----------
Cash flows from investing activities:
Increase in restricted cash ......................... (324,521) (26,971)
Proceeds from sale of property and equipment ........ 51,602 43,000
Acquisition of property and equipment ............... (208,208) (252,071)
Additions to intangible assets ...................... (9,985) (56,635)
----------- -----------
Net cash used in investing activities .......... (491,112) (292,677)
----------- -----------
Cash flows from financing activities:
Increase (decrease) in insurance financing payable .. 76,287 (564,684)
Issuance of common stock ............................ 36,900 --
Retirement of warrants .............................. (11,250) --
Retirement of common stock .......................... (358,674) (790,000)
Retirement of preferred stock ....................... (363,001) --
Preferred dividends paid ............................ (149,044) (236,415)
----------- -----------
Net cash used in financing activities .......... (768,782) (1,591,099)
----------- -----------
Net decrease in cash and cash equivalents ...... (353,821) (159,986)
Cash and cash equivalents at beginning of year ....... 1,215,615 861,794
----------- -----------
Cash and cash equivalents at end of year ............. $ 861,794 $ 701,808
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid ...................................... $ 21,780 $ 24,500
Income taxes paid .................................. $ 415,454 $ 481,669
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND NATURE OF BUSINESS
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").
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 Company markets and administers the Rent-A-Wreck and PRICELE$$ vehicle
rental franchise programs throughout the United States, as well as various
foreign countries. The Company also provides insurance coverage on the vehicles
of some of its franchisees. The Company's operations are subject to numerous
federal, state, local and foreign laws, including federal and state laws
governing the offer and sale of franchises and relationship with franchisees.
RESTRICTED CASH
Restricted cash includes a deposit of $600,000 being held in Bank of
America securing the letter of credit with Bank of America and $145,514 held on
behalf of the Company's franchisees in the national advertising fund to be spent
on various advertising programs.
ACCOUNTS AND NOTES RECEIVABLE
Substantially all receivables derived from franchises granted by the
Company are personally guaranteed by the officers or directors of the
franchisees. Initial license fees are collected upon execution of the contract
or financed, generally over a twelve-month period with interest. The Company
maintains an allowance for doubtful accounts based upon the expected
collectibility of all accounts receivable, which takes into consideration prior
account loss experience and creditworthiness of the franchisees.
27
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
MARCH 31, 2000
PROPERTY AND EQUIPMENT
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated service
lives, utilizing primarily the straight-line method for financial statement
purposes. Accelerated methods of depreciation and amortization are used for
substantially all assets for income tax purposes. The estimated service lives
used in determining depreciation for financial reporting are as follows:
Furniture 3 years
Computer Hardware and Software 3-5 years
Machinery and Equipment 5 years
Leasehold Improvements 3-7 years
Vehicles 5 years
INTANGIBLE ASSETS
Intangible assets include the value of trademarks which are amortized on
the straight-line method to operations over periods ranging from ten to forty
years. The recoverability of carrying values of intangible assets is evaluated
on a recurring basis. The primary indicators are current or forecasted
profitability of the related business. There have been no adjustments to the
carrying values of intangible assets resulting from these evaluations.
INSURANCE RESERVES
The Company recognizes a liability for re-insured auto claims at the time a
claim is reported to the Company by the third party administrator. The third
party administrator establishes the initial claim reserve based on information
relating to the nature, severity and the cost of similar claims. The Company
provides for claims incurred, but not reported, based on the Company's past
claims experience. The liability recorded may be more or less than the actual
amount of the claims when they are submitted and paid. Changes in the liability
are charged or credited to operations as the estimates are revised.
28
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
MARCH 31, 2000
INCOME TAXES
Income tax liabilities and assets are recognized for the deferred tax
consequences of temporary differences or carry-forwards that will result in net
taxable income or deductible amounts in future periods. Deferred tax expense or
benefit is the result of changes in the net asset or liability for deferred
taxes.
REVENUE RECOGNITION
INITIAL LICENSE, ADVERTISING AND CONTINUING LICENSE FEES
Revenues are composed primarily of initial license fees, continuing license
fees, and advertising fees. Franchisees have certain rights to use the Company's
trademarked names, "Rent-A-Wreck" and "PRICELE$$", in a specified territory.
Although the franchisee has continuing access to the use of certain of the
Company's resources, experience and knowledge, the Company recognizes the
initial license fee as revenue upon completion of an initial orientation and
training course since this represents substantially all of the initial services
required to be rendered by the Company. Many franchisees have had prior business
experience; consequently, they require little assistance in commencing business.
There is no obligation beyond the initial training as related to the initial
license fee. Continuing license and advertising fees are recognized as revenues
on a monthly basis over the contract year based primarily on franchisees'
reported gross revenues.
DIRECT FINANCING LEASES
The Company offers, on a selective basis to qualified franchisees, the
opportunity to finance vehicles for their rental fleets under a direct financing
program. The Company recognizes the related interest, documentation and
administrative revenues as they are received. The Company accounts for the
financing of the vehicles with the franchisees as direct financing leases (see
Note 3).
29
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000
INSURANCE PREMIUMS
Insurance premiums are recognized ratably over the term of the coverage.
ADVERTISING
Advertising costs are expensed as incurred and are classified as
advertising and promotion expenses.
STOCK-BASED COMPENSATION
Compensation costs for stock options are measured as the excess, if any, of
the quoted market price of the Company's stock at the date of grant over the
amount to be paid to acquire the stock. Compensation cost for stock awards is
recorded based on the quoted market value of the Company's stock at the time of
grant.
EARNINGS PER COMMON SHARE
Basic earnings per share amounts have been computed based on the average
number of common shares outstanding. Diluted earnings per share reflects the
increase in average common shares outstanding that would result from the assumed
exercise of outstanding options and warrants and the conversion of preferred
stock, calculated using the treasury stock method, unless they are
anti-dilutive.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid financial instruments purchased with a maturity of three months or
less to be cash equivalents.
ESTIMATES
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and reported revenues and
expenses. Actual results could differ from those estimates.
30
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000
NEWLY ISSUED ACCOUNTING STANDARDS
In June 1998, SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES, was issued and is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The statement establishes accounting
and reporting standards for derivative instruments, and for hedging activities.
Implementation of this standard is not anticipated to have an effect on the
Company.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
2. CAPTIVE INSURANCE COMPANY
In March 1997, Rent-A-Wreck of America, Inc. formed a wholly owned,
Bermuda-based captive insurance subsidiary, Consolidated American Rental
Insurance Company, LTD ("CAR Insurance"), to provide automobile liability and
physical damage insurance for vehicles owned by participating franchisees. The
Company's insurance operations are subject to the laws and regulations in the
jurisdictions in which they are chartered and do business. American
International Group ("AIG") supports the operations and provides policy
fronting, excess insurance coverage, and an aggregate stop loss protection of
$1,300,000. CAR Insurance reinsures AIG's coverage subject to a per loss limit
of $100,000 per person and $300,000 per accident.
The Company is required to maintain a letter of credit in connection with
its insurance operations. On March 31, 2000, the Company replaced its letters of
credit with The Chase Manhattan Bank and Bank of Butterfield with a new standby
letter of credit from Bank of America for $1,000,000. This letter of credit is
secured by a certificate of deposit held by Bank of America ($600,000) plus 50%
of the Company's eligible accounts receivable.
31
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000
3. DIRECT FINANCING LEASES
The components of the Company's net investment in direct financing leases
as of March 31, 2000 are as follows:
Total Minimum Lease Payments to be Received........................... $30,525
Less Amounts Representing Administration Costs Included in
Total Minimum Lease Payments....................................... 696
-------
Minimum Lease Payment Receivable...................................... 29,829
Less Allowance for Uncollectibles................................... 13,715
-------
Net Minimum Lease Payments Receivable................................. 16,114
Less Unearned Income................................................ 3,386
-------
Net Investment in Direct Financing Leases............................. $12,728
=======
Current Portion .................................................... $ 5,406
Non-Current Portion................................................. 7,322
-------
Net Investment in Direct Financing Leases............................. $12,728
=======
The total minimum lease payments receivable in succeeding fiscal years are
as follows:
2001................................................................ $22,916
2002................................................................ 7,609
-------
Total...................................................... $30,525
=======
32
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at March 31,
2000:
Accounts Payable .................................................. $ 98,315
National Advertising Fund ......................................... 145,514
Option Repurchase Obligation ...................................... 625,000
Payroll ........................................................... 28,845
Commissions and Royalties ......................................... 171,688
Professional Fees ................................................. 84,872
Other ............................................................. 204,981
----------
$1,359,215
==========
33
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000
5. EARNINGS PER SHARE
A reconciliation of the numerators and denominators used in the computation
of basic and diluted earnings per share for the years ended March 31, 1999 and
2000 is as follows:
1999 2000
---------- ----------
BASIC EPS COMPUTATION
Numerator:
Net income applicable to common shares ......... $ 753,233 $ 731,129
Denominator:
Weighted average common shares ................. 4,085,860 3,808,147
---------- ----------
Basic EPS ........................................ $ .18 $ .19
========== ==========
DILUTED EPS COMPUTATION
Numerator:
Net income applicable to common shares ......... $ 753,233 $ 731,129
Dividends on convertible preferred stock ....... 104,742 89,500
---------- ----------
857,975 820,629
---------- ----------
Denominator
Weighted average common shares .................. 4,085,860 3,808,147
Weighted average convertible preferred stock .... 1,346,731 1,122,993
Weighted average options and warrants ........... 178,832 970,477
---------- ----------
5,611,423 5,901,617
---------- ----------
Diluted EPS ...................................... $ .15 $ .14
========== ==========
34
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000
6. INCOME TAXES
The provision for income taxes for the years ended March 31, 1999 and 2000
consists of the following:
1999 2000
--------- ---------
Currently payable
State income taxes ........................ $ 52,461 $ 79,659
Federal income taxes ...................... 332,866 570,350
--------- ---------
Total currently payable ............... 385,327 650,009
Deferred .................................... (130,520) (369,832)
--------- ---------
Total ................................. $ 254,807 $ 280,177
========= =========
The Company's provision for income taxes differs from the anticipated
United States federal statutory rate. Differences between the statutory rate and
the Company's provision are as follows:
1999 2000
--------- ---------
Federal taxes at statutory rate ............. 34.0% 34.0%
Reduction in valuation allowance ............ (15.8) (9.2)
State taxes, net ............................ 4.7 4.8
Other ....................................... -- (4.1)
--------- ---------
Total ................................. 22.9% 25.5%
========= =========
35
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000
6. INCOME TAXES-CONTINUED
The significant components of the deferred income tax asset and
(liability), stated by source of the difference between financial accounting and
tax basis as of March 31, 2000, are as follows:
Deferred tax assets:
Reserve for doubtful accounts........................... $ 333,785
Accrued expenses........................................ 271,581
Other .................................................. 9,175
---------
614,541
Deferred tax liabilities:
Fixed assets............................................ (45,681)
---------
Net deferred tax asset before
valuation allowance..................................... 568,860
Valuation allowance....................................... --
---------
Net deferred tax asset.................................... $ 568,860
=========
The net change in the valuation allowance for the year ended March 31, 2000
was a decrease of $100,730. The valuation allowance has been eliminated in light
of favorable earnings and expected future earnings.
36
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000
7. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company's corporate offices were occupied under the terms of operating
leases from both related and non-related parties, the longest of which expired
in November 1999. On November 19, 1999, the Company moved its corporate offices
to a new location, which is owned by KA Real Estate Associates, LLC, ("KA") a
related party. The operating lease, which expires on October 31, 2006, has the
following minimum annual lease payments:
March 31,
2001..................... $ 112,868
2002..................... 116,254
2003..................... 119,742
2004..................... 123,335
2005..................... 127,034
Thereafter............... 75,384
---------
Total.................. $ 674,617
=========
Total rent expense for the years ended March 31, 1999 and 2000 was $71,510
and $85,824, of which $8,044 and $45,670, respectively, was to a related party
(see Note 8).
LITIGATION
The Company is party to routine 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.
37
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000
8. RELATED PARTY TRANSACTIONS
The Company entered into a Management Agreement with K.A.B., Inc. ("KAB"),
a management consulting group controlled by and affiliated with Kenneth L. Blum,
Sr., Chairman of the Board of Directors and Chief Executive Officer of the
Company. As a part of this agreement, KAB provides direct overall management of
the Company's operations. Total annual fees paid to KAB under the management
agreement for the years ended March 31, 1999 and 2000 were $262,500 and $300,000
respectively. On January 19, 2000, the Company's Board of Directors reached an
agreement with KAB 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, and the Company entered into an
agreement to repurchase, 500,000 options, originally issued to KAB, for
$625,000.
Through November 19, 1999, the Company leased a portion of its corporate
offices under the terms of a month-to-month operating lease with American
Business Information Systems, Inc. (ABIS), a related party of KAB. The Company
paid $8,044 and $4,951 for the years ended March 31, 1999 and 2000,
respectively, to ABIS under this agreement. On November 1, 1999, the Company
entered into a lease agreement with KA, a related party of KAB, to lease
approximately 9,100 square feet of executive office space, which expires on
October 31, 2006. The Company paid KA $40,719 for the year ended March 31, 2000.
On January 19, 2000, the Board of Directors authorized expenditures
totaling $250,000 for the development by ABIS of a centralized software
reporting package to be used by the Company's franchisees. The Company paid
$4,940 for the year ended March 31, 2000 to ABIS under this arrangement.
The Company has retained Richter Investment Corp. ("Richter"), an affiliate
of William L. Richter (a director of the Company), to serve as exclusive
financial advisor for the Company. For its role of financial advisor, Richter's
fees will be based upon transactions completed, as defined in the agreement. For
the years ended March 31, 1999 and 2000, there were no fees paid to Richter
pursuant to this agreement.
38
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000
8. RELATED PARTY TRANSACTIONS-CONTINUED
Through March 31, 1999, Richter provided ongoing financial management
services to the Company at no charge. Effective April 1, 1999, Richter receives
an annual consulting fee of $30,000. In the opinion of management, the terms of
the Company's agreements with Richter, KAB and ABIS taken as a whole are at
least as favorable to the Company as could be obtained from third parties.
9. COMMON STOCK, STOCK OPTION PLANS AND COMMON STOCK WARRANTS
In November 1999, the Company repurchased and retired 400,000 shares of its
common stock at a cost of $790,000.
Options and warrants to acquire shares of the Company's common stock are
granted at a value not less than 100% of the fair market value of the underlying
stock on the date of issuance.
The Company has issued stock options to acquire 2,250,000 shares of its
common stock to KAB in conjunction with its management agreement. During the
year ended March 31, 1996, KAB transferred (a)483,333 and 604,167 vested and
unvested options, respectively, to each of Kenneth L. Blum Jr., the Company's
president, and Mr. Blum's sister, Robin Cohn; (b) 20,000 and 25,000 vested and
unvested options, respectively, to Richter, and (c) 13,333 and 16,667 vested and
unvested options, respectively, to William L. Richter. In April 1996, the
Company approved the extension of the term of the KAB Management Agreement for
five years expiring June 30, 2003, the extension of the options originally
granted to KAB by five years (with a corresponding delay in the fixed vesting
date until July 1, 2002), and the addition of a cashless exercise feature. The
unvested options were subject to an acceleration of exercisability upon
achievement of certain financial stock targets. Such targets were achieved
during the year ended March 31, 1999, and at March 31, 1999, all options were
fully vested. On January 19, 2000, the Board of Directors approved the extension
of the term of the KAB Management Agreement for an additional five years
expiring June 30, 2008. The Board also authorized the repurchase of, and the
Company entered into an agreement to repurchase, 500,000 options for an
aggregate price of $625,000. The repurchase has been included in the
consolidated statement of earnings for the year ended March 31, 2000.
The fair value of each option grant is estimated on the date of grant,
using the Black-Scholes options-pricing model. There were no stock options
granted during fiscal years 1999 and 2000.
39
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000
9. COMMON STOCK, STOCK OPTION PLANS AND COMMON STOCK WARRANTS - CONTINUED
The following table summarizes option activity:
<TABLE>
<CAPTION>
1999 2000
Weighted Weighted
Average Average
1999 2000 Exercise Exercise
Shares Shares Price Price
------ ------ ----- -----
<S> <C> <C> <C> <C>
Options outstanding at beginning of year 2,250,000 2,250,000 $1.08 $1.08
Options exercised -- -- -- --
Options granted -- -- -- --
Options repurchased -- (500,000) -- 1.15
Options expired -- -- -- --
---------- ----------
Options outstanding at end of year 2,250,000 1,750,000 $1.08 $1.06
Option price range at end of year $ 1.00 to $ 1.00 to
$ 1.15 $ 1.15
Option price range for exercised shares -- --
Weighted-average fair value of options,
granted during the year $ -- $ --
</TABLE>
At March 31, 1999 and 2000, 2,250,000 and 1,750,000 options were exercisable.
The following table summarizes options outstanding at March 31, 2000:
Weighted Average
Number Exercise Weighted Average Remaining
Outstanding Price Exercise Price Contractual Life
----------- --------- -------------- ----------------
1,750,000 $ 1.00 to $ 1.06 3.25 years
$ 1.15
40
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000
9. COMMON STOCK, STOCK OPTION PLANS AND COMMON STOCK WARRANTS - CONTINUED
The following table presents the pro forma net income and earnings per
share that would have been recorded had compensation cost been recognized based
on the fair value at the grant date on a straight-line basis over the vesting
period of the grant for the fiscal 1997 awards.
1999 2000
-------- --------
Net income applicable to common
and common equivalent shares
As reported $753,233 $731,129
Pro forma $668,270 $646,166
Earnings per share
Basic:
As reported $ .18 $ .19
Pro forma $ .16 $ .17
Diluted:
As reported $ .15 $ .14
Pro forma $ .12 $ .13
In consideration of investment banking services rendered in connection with
the negotiation of the management agreement with KAB, the Company granted
Richter five-year warrants, originally expiring June 30, 1998, to purchase
155,000 shares of the Company's common stock. The exercise price of 20,000 of
such warrants was $.80. Those were exercised on June 25, 1998, and the exercise
price of the remaining 135,000 warrants is tied to the exercise and vesting
provisions of the options issued to KAB in connection with the management
agreement. Richter assigned 62,000 of these warrants to William L. Richter.
In April 1996, the Company extended 135,000 of the warrants originally
issued to Richter for an additional five years in consideration of services
rendered in connection with the renegotiation of the KAB Management Agreement
and related services.
Warrants for 30,000 shares of the Company's common stock exercisable at
$.80 per share were issued to Richter in connection with previous private
placement transactions for which Richter acted as agent. Richter assigned 12,000
of these warrants to William L. Richter and 4,000 warrants to Richter employees.
On February 11, 1999, Richter exercised 14,000 of these warrants and William L.
Richter exercised 12,000 of these warrants. On March 1, 1999, the Company bought
back a total of 2,500 of these warrants from Richter employees at $.50 per
warrant, and the remaining 1,500 of these warrants expired.
41
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000
9. COMMON STOCK, STOCK OPTION PLANS AND COMMON STOCK WARRANTS - CONTINUED
A summary of changes in outstanding warrants for the year ended March 31,
2000 is as follows:
Number of Exercise Price
Warrants per Warrant
-------- -----------
Outstanding, beginning of year........... 135,000 $1.00 - $1.15
Issued................................... -- $ --
Exercised................................ -- $ --
Bought Back.............................. -- $ --
Canceled................................. -- $ --
-------
Outstanding, end of year................. 135,000 $1.00 - $1.15
=======
10. PREFERRED STOCK
The terms of the outstanding preferred stock provide that the Company may
not declare or pay dividends, whether in cash or in property, on the common
stock unless all dividends on the preferred stock for all past dividend periods
and the current dividend period shall have been paid or declared and a sum set
aside for payment thereof. Holders of preferred stock, voting as a class, are
entitled to elect up to four members of the Company's seven-member Board of
Directors and are also entitled to vote as a class on other significant
corporate actions. Pursuant to the terms of a voting trust, Richter holds a
proxy to vote approximately 95% of the preferred stock, and, by virtue of his
control over Richter, William L. Richter can be deemed to have voting control
over such shares. The holders of the Series A Preferred are entitled to
cumulative dividends at an annual rate of eight cents per share. The Series A
Preferred is convertible, at the option of the holder, into common shares on the
basis of one share of common for each share of Series A Preferred. During the
year ended March 31, 2000, 34,125 shares of preferred stock were converted to
common stock reducing the outstanding preferred shares from 1,139,125 to
1,105,000. During the year ended March 31, 2000, the Company declared preferred
dividends totaling $89,500, plus $146,915 (100%) of dividend arrearages, and at
March 31, 2000, unpaid declared preferred dividends totaled $22,100.
42
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000
11. OTHER REVENUES
Components of other revenues for the years ended March 31, 1999 and 2000
were as follows:
1999 2000
-------- --------
Promotional materials ....................... $135,278 $128,141
Litigation settlement ....................... -- 49,750
Other ....................................... 24,368 18,553
-------- --------
$159,646 $196,444
======== ========
12. CONCENTRATIONS OF CREDIT RISK - CASH
The Company maintains its cash balances in financial institutions, which
balances at times may exceed federally insured limits. The Company has not
experienced any losses in such accounts, and management believes the Company is
not exposed to significant credit risk.
43
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000
13. 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 (see note 2).
Information by geographic area and industry segment is as follows:
1999 2000
----------- -----------
Net revenues from external customers
Vehicle Rental Franchises-Rent A Wreck-(U.S.) $ 4,540,953 $ 4,879,638
Vehicle Rental Franchises-Priceless-(U.S.) 302,950 495,214
Corporate-(U.S.) 18,879 21,202
Insurance-(U.S.) 738,533 885,840
Insurance-(Bermuda) -- --
----------- -----------
$ 5,601,315 $ 6,281,894
=========== ===========
Segment operating income
Vehicle Rental Franchises-Rent A Wreck-(U.S.) $ 1,120,554 $ 1,586,007
Vehicle Rental Franchises-Priceless-(U.S.) 41,434 25,534
Corporate-(U.S.) (136,961) (709,957)
Insurance-(U.S.) 12,620 100,803
Insurance-(Bermuda) -- --
----------- -----------
$ 1,037,647 $ 1,002,387
=========== ===========
Segment assets
Vehicle Rental Franchises-Rent A Wreck-(U.S.) $ 1,377,394 $ 2,264,794
Vehicle Rental Franchises-Priceless-(U.S.) 185,982 388,517
Corporate-(U.S.) 935,381 256,127
Insurance-(U.S.) 742,156 1,062,789
Insurance-(Bermuda) 645,033 7,898
----------- -----------
$ 3,885,946 $ 3,980,125
=========== ===========
Expenditures for segment assets
Vehicle Rental Franchises-Rent A Wreck-(U.S.) $ 355 $ --
Vehicle Rental Franchises-Priceless-(U.S.) -- 187,605
Corporate-(U.S.) 207,853 64,466
Insurance-(U.S.) -- --
Insurance-(Bermuda) -- --
----------- -----------
$ 208,208 $ 252,071
=========== ===========
44
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 2000
13. GEOGRAPHIC AND INDUSTRY SEGMENTS-CONTINUED
1999 2000
----------- -----------
Depreciation and amortization
Vehicle Rental Franchises-Rent A Wreck-(U.S.) $ 65,166 $ 17,701
Vehicle Rental Franchise-Priceless-(U.S.) 5,076 51,480
Corporate-(U.S.) 108,193 102,159
Insurance-(U.S.) -- --
Insurance-(Bermuda) -- --
----------- -----------
$ 178,435 $ 171,340
=========== ===========
Interest income
Vehicle Rental Franchises-Rent A Wreck-(U.S.) $ 39,301 $ 52,057
Vehicle Rental Franchises-Priceless-(U.S.) 1,176 6,132
Corporate-(U.S.) 24,395 20,732
Insurance-(U.S.) -- --
Insurance-(Bermuda) 32,043 43,998
----------- -----------
$ 96,915 $ 122,919
=========== ===========
Interest expense
Vehicle Rental Franchises-Rent A Wreck-(U.S.) $ 163 $ 396
Vehicle rental Franchise-Priceless-(U.S.) -- 17
Corporate-(U.S.) 19 1
Insurance-(U.S.) 21,598 24,086
Insurance- (Bermuda) -- --
----------- -----------
$ 21,780 $ 24,500
=========== ===========
Income taxes
Vehicle Rental Franchises-Rent A Wreck-(U.S.) $ 254,807 $ 280,177
Vehicle rental Franchises-Priceless-(U.S.) -- --
Corporate-(U.S.) -- --
Insurance-(U.S.) -- --
Insurance-(Bermuda) -- --
----------- -----------
$ 254,807 $ 280,177
=========== ===========
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
45
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than 10% of the Company's
common stock are required to report their initial ownership of the Company's
common stock and any subsequent changes in that ownership to the Securities and
Exchange Commission. Specific due dates for these reports have been established,
and the Company is required to disclose any failure to file by these dates. The
Company believes that all of these filing requirements were satisfied during the
fiscal year ended March 31, 2000, except for a late filing of a Form 4 by
Kenneth L. Blum, Jr. and Robin Cohn in connection with January 2000
transactions. In making these disclosures, the Company has relied solely on
representations of its directors and executive officers and copies of the
reports that they have filed with the Commission.
CLASS I DIRECTORS:
Kenneth L. Blum, Sr., 73. Kenneth L. Blum, Sr. has served as Chairman and a
Director of the Company since June 1993, has been the Company's Chief Executive
Officer since December 1993, and was its President from June 1993 to October
1994. Since 1990, Mr. Blum has been a management consultant to a variety of
companies, including American Business Information Systems, Inc., a high-volume
laser printing company. Mr. Blum is a director of Avesis Incorporated, which
markets and administers discount benefit programs. Mr. Blum is the father of the
Company's President, Kenneth L. Blum, Jr. Mr. Blum controls K.A.B., Inc., a
Florida corporation ("KAB"), which has a Management Agreement with the Company.
See "Certain Transactions."
Kenneth L. Blum, Jr., 36, has served as Secretary of the Company since
March 1994, as Vice President from May 1994 to October 1994, as President since
October 1994, and as director since October 1998. Mr. Blum is also President of
American Business Information Systems, Inc., a high-volume laser printing
company and computer service bureau. Mr. Blum is the son of the Company's
Chairman and Chief Executive Officer.
46
<PAGE>
CLASS II DIRECTORS:
William L. Richter, 57, has been a director of the Company since November
1989 and served previously as a director from 1983 to 1985. Mr. Richter was
Co-Chairman of the Company from November 1989 to June 1993 and has been Vice
Chairman since June 1993. For the past eleven years, Mr. Richter has been
President of Richter and its wholly owned subsidiary, Richter & Co., Inc., a
registered broker-dealer until November 1999, and merchant banking firm. Richter
& Co., Inc. was merged into its parent on December 31, 1999. Mr. Richter has
been a Senior Managing Director of Cerberus Capital Management, L.P. (or its
predecessor organization) since its founding in late 1992. Mr. Richter is a
Director and Co-Chairman of Avesis Incorporated, which markets and administers
discount benefit programs.
Alan L. Aufzien, 70, has served as a Director of the Company since November
1989. Mr. Aufzien has also been a partner in the Norall Organization, a private
investment company, since 1987. Since 1983, he has also been the president and a
director of New York Harbour Associates, Inc. (a real estate development firm).
From 1986 to 1996, Mr. Aufzien was the Chairman of Meadowlands Basketball
Association (New Jersey Nets) and currently serves as a director of that
organization. Mr. Aufzien is also a director of First Real Estate Trust of New
Jersey.
All directors hold office for one-year terms, until their successors are
duly elected at the next annual meeting and qualified.
47
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE
The following table and related notes set forth information regarding the
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer for services rendered to the Company during the fiscal years ended March
31, 1998, 1999 and 2000. No other executive officer who was serving as an
executive officer during fiscal 2000 received salary and bonus which aggregated
at least $100,000 for services rendered to the Company during the fiscal year
ended March 31, 2000.
Annual Long-term Compensation
Compensation Awards
------------------- ----------------------
Securities Underlying
Name and Principal Position Year Salary(1) Options/SARS(#)
--------------------------- ---- --------- ---------------
Kenneth L. Blum, Sr., CEO 2000 $300,000 -- (2)
1999 262,500 -- (2)
1998 250,000 -- (2)
----------
(1) Mr. Blum became Chief Executive Officer of the Company in connection with
the Management Agreement between the Company and KAB, effective June 30,
1993. Mr. Blum does not receive cash compensation directly from the Company.
KAB receives cash compensation pursuant to the Management Agreement of
$300,000 per year (250,000 per year prior to January 1, 1999) plus expense
reimbursements ($9,293 in the year ended March 31, 2000). The amounts
indicated in the table represent compensation received by KAB pursuant to
the Management Agreement. Mr. Blum is the sole stockholder of KAB. See
"Certain Transactions - Management Agreement with KAB and Related
Transactions - Management Agreement."
(2) During the year ended March 31, 1994, KAB received options for the purchase
of 2,250,000 shares of the Company's common stock in connection with the
Management Agreement. During the year ended March 31, 1996, KAB transferred
the options to certain related parties. During the year ended March 31,
1995, the Board of Directors approved the vesting of 1,000,000 of these
options at an exercise price of $1.00 per share. Effective July 20, 1995,
the exercise price of the balance of the options was set by the Board of
Directors at $1.15 per share, with vesting, subject to continued employment,
on July 1, 2002, or earlier subject to satisfaction of performance targets.
As a result of the Company's financial performance for the fiscal year ended
March 31, 1999, the Company met the performance targets, and the balance of
the options became fully vested as of March 31, 1999. See "Certain
Transactions - Management Agreement with KAB and Related Transactions -
Stock Option Grant."
48
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No stock options or SARs were granted to the executive officer named in the
Summary Compensation Table during the last fiscal year. See Item 12 Certain
Relationships and Related Transactions, under the caption "Certain Transactions
- Management Agreement with KAB and Related Transactions - Stock Option Grant."
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
No executive officer named in the Summary Compensation Table held or
exercised options at the end of the last fiscal year. See Item 12 Certain
Relationships and Related Transactions, under the caption "Certain Transactions
- Management Agreement with KAB and Related Transactions - Stock Option Grant."
EMPLOYMENT/CHANGE OF CONTROL ARRANGEMENTS
In the event of termination of the Management Agreement with KAB without
cause, all options granted to KAB in connection with the Management Agreement
remain outstanding for the balance of their term through 2003. See Item 12
Certain Relationships and Related Transactions, under the caption "Certain
Relationships and Related Transactions -- Management Agreement with KAB and
Related Transactions - Stock Option Grant."
COMPENSATION OF DIRECTORS
Currently, directors of the Company who also serve as officers of the
Company and outside directors receive no cash compensation in connection with
the services they render as directors. (Officers, however, receive compensation
in their capacity as officers as described above). Directors are reimbursed for
expenses incurred in connection with their board service. On March 3, 1999, the
Company's Board of Directors approved that the Company pay William L. Richter
consulting fees of $30,000 per year beginning April 1, 1999. The fees have been
assigned to Richter.
49
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of May 30, 2000, the persons and entities identified in the following
table, including all directors, executive officers and persons known to the
Company to own more than 5% of the Company's voting securities, owned
beneficially, within the meaning of Securities and Exchange Commission Rule
13d-3, the shares of voting securities reflected in such table. All the
outstanding shares of Series A Preferred are immediately convertible at the
option of the holder into common stock, on a share-for-share basis. Except as
otherwise specified, the named beneficial owner has sole investment and voting
power with respect to such shares.
<TABLE>
<CAPTION>
Total (1)
---------------------
Shares Percent Percent
Name and Address of Beneficial Owner Title of Class Beneficially Owned of Class of Common
------------------------------------ -------------- ------------------ -------- ---------
<S> <C> <C> <C> <C>
David Schwartz Common 465,000 13.0 13.0
Bundy Rent-A-Wreck
12333 W. Pico Blvd.
Los Angeles, California 90064
William L. Richter Common 992,706(3) 26.3(3) 26.3
c/o Richter Investment Corp. Preferred(3) 1,050,000(3) 95.0 38.1(4)
450 Park Avenue
New York, NY 100022
Alan L. Aufzien Common 32.500 ** **
P.O. Box 2369 Preferred(4) 34,375 3.1 1.8
Secaucus, NJ 07094
Kenneth L. Blum, Sr.(5) -- -- -- --
10324 S. Dolfield Road
Owings Mills, MD 21117
Kenneth L. Blum, Jr.(5)(6) Common 980,167 22.2 22.2
10324 S. Dolfield Road
Owings Mills, MD 21117
Robin Cohn (5)(6) Common 964,667 21.9 21.9
c/o Rent-A-Wreck of America, Inc.
10324 S. Dolfield Road
Owings Mills, MD 21117
Robert M. Temko Common 240,000 6.7 6.7
39 Hidden Valley Drive
Newark, Delaware 19711
All Directors and Executive Officers
as a Group including the Directors Common 2,005,373(3)(5)(6) 43.5 43.5(4)
Named Above (4 persons) Preferred(2)(3) 1,050,000(3)(4) 95.0 51.5
</TABLE>
----------
* Represents percentage ownership of common stock based upon shares of Common
Stock owned or deemed owned due to presently exercisable warrants and
options and after such person's conversion of Series A Preferred. ** Less
than 1%.
50
<PAGE>
FOOTNOTES
(1) Based on 3,568,217 common shares and 1,105,000 Series A Preferred Shares
outstanding on the date of this table, May 30, 2000.
(2) Holders of Series A Preferred, voting as a class, are entitled to elect up
to four members of a seven member Board of Directors and are also entitled
to vote as a class on other significant corporate actions. Pursuant to the
terms of proxies granted to Richter, 95.0% of the Series A Preferred may be
voted by Richter as of the date of this table. The proxies are effective
until such time that less than 500,000 shares of Series A Preferred remain
outstanding. See note 4 below.
(3) Includes 84,000 shares of Common Stock issuable upon exercise of options and
warrants, 178,750 shares of Series A Preferred, and 1,200 shares of Common
Stock held by spouse and 13,750 shares of Series A Preferred and 5,000
shares of Common Stock held by a family member. Also includes 550,000 shares
of Series A Preferred and 321,600 shares of Common Stock held by Richter,
296,375 shares of Common Stock and warrants (currently exercisable or
exercisable within 60 days) held by Richter. Also includes an additional
307,500 shares of Series A Preferred as to which Richter holds voting
authority via proxy (see note 2 above). William L. Richter holds a
controlling interest in Richter. William L. Richter and Richter have the
same address. Mr. Aufzien's 34,375 shares of Series A Preferred, held by a
partnership controlled by Mr. Aufzien, are subject to a voting proxy granted
to Richter.
(4) Excludes 307,500 shares of Series A Preferred as to which Richter holds
voting authority via proxy (see notes 3 and 4 above) because Richter would
not have voting or investment control of the converted Common Stock issued
upon conversion of such shares of Series A Preferred.
(5) Mr. Blum, Sr. is the father of Kenneth L. Blum, Jr. and Robin Cohn; see note
6 below. Mr. Blum disclaims beneficial ownership of shares held by Mr. Blum,
Jr. and Ms. Cohn.
(6) Includes 837,500 shares issuable pursuant to currently exercisable options
and, in the case of Ms. Cohn, includes 127,167 shares held jointly with
spouse. See note 6 above. Mr. Blum, Jr. and Ms. Cohn disclaim beneficial
ownership of shares held by each other. For additional information regarding
options held by Mr. Blum, Jr. and Ms. Cohn, see footnote 9 of the Company's
audited financial statements found in Item 7.
51
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to footnote 8 of the Company's audited financial
statements for the description of such information.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. The financial statements, notes thereto and Report of
Independent Public Accountants listed in the Index to
Consolidated Financial Statements set forth in Item 7.
2. The Exhibits listed in the Exhibit Index following the
Signatures page, is incorporated herein by this reference.
3. Financial Statement Schedules for the years in the period ended
March 31, 1999 and 2000, as applicable.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
52
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1999 AND 2000
<TABLE>
<CAPTION>
Additions
-------------------------
Balance At Charged to Balance
Beginning Costs and Charged to At End
Description of Period Expenses Other Accounts Deductions of Period
----------- --------- -------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
MARCH 31, 1999
Allowance for doubtful accounts $682,631 $ 188,574 $ -- $215,787(1) $655,418
======== ========= ======== ======== ========
Valuation allowance on net
deferred tax assets $277,000 $ -- $ -- $176,270(2) $100,730
======== ========= ======== ======== ========
MARCH 31, 2000
Allowance for doubtful accounts $655,418 $ 245,114 $ -- $ 68,279(1) $832,253
======== ========= ======== ======== ========
Valuation allowance on net
deferred tax assets $100,730 $ -- $ -- $100,730(2) $ --
======== ========= ======== ======== ========
</TABLE>
----------
(1) Accounts written off
(2) Reduction in the valuation allowance based on evaluation of realization of
net deferred tax assets.
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Rent-A-Wreck of America, Inc. has duly 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: June 26, 2000
-----------------------------------
Mitra Ghahramanlou
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature and Title Date
------------------- ----
/s/ Kenneth L. Blum, Sr. June 26, 2000
---------------------------------------
Kenneth L. Blum, Sr.
Chairman of the Board and Director
(Principal Executive Officer)
/s/ Mitra Ghahramanlou June 26, 2000
---------------------------------------
Mitra Ghahramanlou
Chief Accounting Officer (Principal
Financial and Accounting Officer)
/s/ Kenneth L. Blum, Jr. June 26, 2000
---------------------------------------
Kenneth L. Blum, Jr.
President and Director
/s/ William L. Richter June 26, 2000
---------------------------------------
William L. Richter
Vice Chairman of the Board and Director
/s/ Alan Aufzien June 26, 2000
---------------------------------------
Alan Aufzien, Director
54
<PAGE>
RENT-A-WRECK OF AMERICA, INC.
EXHIBIT INDEX
FORM 10-KSB
FOR FISCAL YEAR
ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Exhibit No. Exhibit Incorporated by Reference from
----------- ------- ------------------------------
<S> <C> <C>
3.1 Certificate of Incorporation Form 10-K for the Fiscal year
ended March 31, 1997.
3.2 Bylaws, as amended Form 10-K for the fiscal year
ended March 31, 1986, in which
the Bylaws, are incorporated
by reference and amendments to
Bylaws are filed therein.
9 Voting Trust Agreement Form 10-K for the fiscal year
ended March 31, 1990 is
incorporated by reference
10.1 Option Plan Form 10-K for the fiscal year
ended March 31, 1993 is
incorporated by reference.
10.2* Management Agreement - K.A.B., Inc. Form 8-K, dated June 30, 1993
related party dated June 30, 1993 and is incorporated by
reference.
10.2.1* Amendment to Management Agreement with Form 10-K for the fiscal year
K.A.B., Inc., related party dated March ended March 31, 1997.
27, 1996
10.3* Stock Option Grant to K.A.B., Inc. dated Form 8-K, dated June 30, 1993
June 30, 1993 and is incorporated by
reference. Amendment filed on
Form 10-K for the fiscal year
ended March 31, 1997.
10.3.1* Amendment to Stock Option Grant to Form 10-K for the fiscal year
K.A.B., Inc. dated July 20, 1995 ended March 31, 1997.
10.4 Registration Rights Agreement dated June Form 8-K, dated June 30, 1993
30, 1993, among K.A.B., Inc., Kenneth L. and is incorporated by
Blum, Jr., Alan S. Cohn and the Company reference.
10.5 Warrant Agreement - Richter & Co., Inc. Form 8-K, dated June 30, 1993
and is incorporated by
reference.
10.6 Software Development and Computer Usage Form 10-KSB for the fiscal
Agreement effective January 1, 1995 year ended March 31, 1995.
between National Computer Services, Inc.
and the Company.
10.7 Financial Advisory Agreement between the Form 10-KSB for the fiscal
Company and Richter & Co., Inc. dated year ended March 31, 1995.
March 20, 1995.
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.9 Franchise Agreement - standard form as Form 10-KSB for the fiscal
of August 3, 1995 year ended March 31, 1996.
10.10 Facultative Reinsurance Agreement dated Form 10-KSB for the fiscal
March 1, 1997 between National Union year ended March 31, 1998.
Fire Insurance Company of Pittsburg, PA.
and Consolidated American Rental
Insurance Company, LTD.
10.11 Standby or Performance Letter of Credit Form 10-KSB for the fiscal
Application and Agreement dated June 3, year ended March 31, 1998.
1997 between Rent-A-Wreck Of America,
Inc. and The Chase Manhattan Bank
10.11.1 First Amendment dated June 1, 1998 to Form 10-KSB for the fiscal
the Standby or Performance Letter of year ended March 31, 1998.
Credit Application and Agreement dated
June 3, 1997 between Rent-A-Wreck Of
America, Inc. and The Chase Manhattan
Bank
10.12 Borrowing Base Agreement, dated March Filed herewith.
29, 2000, between Bank of America and
Rent-A-Wreck of America, Inc.,
Rent-A-Wreck One Way, Inc., Bundy
American Corporation, Rent-A-Wreck
Leasing, Inc. and PRICELESS Rent-A-Car,
Inc.
10.13 Loan Agreement, dated March 29, 2000, Filed herewith.
between Bank of America, N.A. and
Rent-A-Wreck of America, Inc.,
Rent-A-Wreck One Way, Inc., Bundy
American Corporation, Rent-A-Wreck
Leasing, Inc., PRICELESS Rent-A-Car,
Inc. and Consolidated American Rental
Insurance Company
10.14 Promissory Note, dated March 29, 2000, Filed herewith.
between Bank of America, N.A. and
Rent-A-Wreck of America, Inc.,
Rent-A-Wreck One Way, Inc., Bundy
American Corporation, Rent-A-Wreck
Leasing, Inc., PRICELESS Rent-A-Car,
Inc. and Consolidated American Rental
Insurance Company
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.15 Security Agreement, dated March 29, Filed herewith.
2000, between Bank of America, N.A. and
Bundy American Corporation
10.16 Security Agreement, dated March 29, Filed herewith.
2000, between Bank of America, N.A. a
and PRICELESS Rent-A-Car, Inc.
10.17 Security Agreement, dated March 29, Filed herewith.
2000, between Bank of America, N.A. and
Rent-A-Wreck One Way, Inc.
10.18 Security Agreement, dated March 29, Filed herewith.
2000, between Bank of America, N.A. d
and Rent-A-Wreck Leasing, Inc.
10.19 Security Agreement, dated March 29, Filed herewith.
2000, between Bank of America, N.A. and
Rent-A-Wreck of America, Inc.
10.20 Application and Agreement for Standby Filed herewith.
Letter of Credit between Consolidated
American Rental Insurance Company, Ltd.
and National Union Fire Insurance
Company
10.21 Financing Statement between Bank of Filed herewith.
America, N.A. and Rent-A-Wreck of
America, Inc.
10.22 Financing Statement between Bank of Filed herewith.
America, N.A. and Rent-A-Wreck One Way,
Inc.
10.23 Financing Statement between Bank of Filed herewith.
America, N.A. and Bundy American
Corporation
10.24 Financing Statement between Bank of Filed herewith.
America, N.A. and Rent-A-Wreck Leasing,
Inc.
10.25 Financing Statement between Bank of Filed herewith.
America, N.A. and PRICELESS Rent-A-Car,
Inc.
10.26 Borrowing Base Certificate Filed herewith.
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.27 Pledge and Assignment of Deposits Filed herewith.
between Bank of America, N.A. and
Consolidated American Rental Insurance
Company, LTD
10.28 Irrevocable Line of Credit from Filed herewith.
Consolidated American Rental Insurance
Company, Ltd. to AIG Management, Inc.
10.29 Bank of America Statement of Filed herewith.
Commissions, Fees and Charges dated
03/30/00 to Consolidated American Rental
Insurance Company, Ltd.
10.30 Bank of America Irrevocable Standby Filed herewith.
Letter of Credit to Consolidated
American Rental Insurance Company, Ltd.
10.31 Certificate of Corporate Resolutions of Filed herewith.
Rent-A-Wreck of America, Inc.
10.32 Certificate of Corporate Resolutions of Filed herewith.
Rent-Wreck Leasing, Inc.
10.33 Certificate of Corporate Resolutions of Filed herewith.
Bundy American Corporation, Inc.
10.34 Certificate of Corporate Resolutions of Filed herewith.
Rent-A-Wreck One Way, Inc.
10.35 Certificate of Corporate Resolutions of Filed herewith.
PRICELESS Rent-A-Car, Inc.
10.36 Certificate of Corporate Resolutions of Filed herewith.
Consolidated American Rental Insurance
Company, LTD
10.37 Lease Agreement, dated June 3, 1999, Filed herewith.
between KA Real Estate Associates, LLC
and Rent-A-Wreck, Inc. with Confirmatory
Addendum to Lease, dated September 16,
1999, between KA Real Estate Associates,
LLC and Rent-A-Wreck of America, Inc.
10.38 Financial Advising Agreement, dated Filed herewith.
November 6, 1999, between Richter
Investment Corp. and Rent-A-Wreck of
America, Inc.
21 List of Subsidiaries Filed herewith.
27 Financial Data Schedule Filed herewith.
</TABLE>
----------
* Management contract or compensatory plan or arrangement.
58
