U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission File Number 0-14819
RENT-A-WRECK OF AMERICA, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its Charter)
Delaware 95-3926056
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10324 South Dolfield Drive, Owings Mills, MD 21117
-----------------------------------------------------
(Address of Principal Executive Offices, including Zip Code)
Issuer's telephone number: (410) 581-5755
11460 Cronridge Drive, Suite 120, Owings Mills, MD 21117
--------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,553,217 shares as of January
20, 2000.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
FORM 10-QSB - DECEMBER 31, 1999
INDEX
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1999 (Unaudited) 2-3
Consolidated Statements of Earnings for the Three Months
and Nine Months ended December 31, 1998 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the Three Months
and Nine Months ended December 31, 1998 and 1999 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 10-13
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
Signatures 17
1
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1999 1999
--------- ------------
(Unaudited)
CURRENT ASSETS:
Cash and Cash Equivalents ........................ $ 861,794 $ 698,785
Restricted Cash .................................. 718,543 727,044
Accounts Receivable, net of allowance for
doubtful accounts of $655,418 and $841,115
at March 31, 1999 and December 31, 1999,
respectively:
Continuing License Fees and Advertising Fees ... 336,242 414,432
Current Portion of Notes Receivable ............ 388,812 432,040
Current Portion of Direct Financing Leases ..... 7,850 14,578
Insurance Premiums Receivable .................. 635,532 86,981
Other .......................................... 61,081 71,858
Prepaid Expenses ................................. 166,421 150,633
Deferred Tax Assets .............................. 199,028 278,058
---------- ----------
TOTAL CURRENT ASSETS ........................... 3,375,303 2,874,409
---------- ----------
PROPERTY AND EQUIPMENT:
Furniture ........................................ 93,505 95,129
Computer Hardware and Software ................... 370,012 390,255
Machinery and Equipment .......................... 82,650 89,589
Leasehold Improvements ........................... 37,896 52,894
Vehicles ......................................... 90,507 169,348
---------- ----------
674,570 797,215
Less: Accumulated Depreciation and Amortization .. (388,887) (473,444)
---------- ----------
NET PROPERTY AND EQUIPMENT ........................ 285,683 323,771
---------- ----------
OTHER ASSETS:
Intangible Assets, net of accumulated amortization
of $126,192 and $141,802 at March 31, 1999 and
December 31, 1999, respectively ................. 192,872 193,424
Long-term Portion of Notes and Direct
Financing Lease Receivables .................... 32,088 33,612
---------- ----------
224,960 227,036
---------- ----------
TOTAL ASSETS ................................... $3,885,946 $3,425,216
========== ==========
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
1999 1999
--------- ------------
(Unaudited)
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses ............. $ 709,506 $ 671,080
Dividends Payable ................................. 22,782 22,400
Insurance Financing Payable ....................... 564,684 117,660
Insurance Loss Reserves ........................... 366,022 517,466
Income Taxes Payable .............................. 181,662 238,142
---------- ----------
TOTAL CURRENT LIABILITIES ....................... 1,844,656 1,566,748
---------- ----------
TOTAL LIABILITIES ............................... 1,844,656 1,566,748
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Convertible Cumulative Series A Preferred
Stock, $.01 par value; authorized 10,000,000
shares; issued and outstanding 1,139,125 and
1,120,000 shares at March 31, 1999 and at
December 31, 1999 (aggregate liquidation
preference $911,300 at March 31, 1999 and
$896,000 at December 31, 1999) ................... 11,391 11,200
Common Stock, $.01 par value; authorized
25,000,000 shares; issued and outstanding
3,934,092 shares at March 31, 1999 and
3,553,217 shares at December 31, 1999 ........... 39,340 35,532
Additional Paid-In Capital ........................ 2,209,182 1,423,682
(Accumulated Deficit) Retained Earnings ........... (218,623) 388,054
---------- ----------
TOTAL SHAREHOLDERS' EQUITY ...................... 2,041,290 1,858,468
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...... $3,885,946 $3,425,216
========== ==========
The accompanying notes are an integral part of these financial statements.
3
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RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------- --------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Initial License Fees ................. $ 228,250 $ 152,002 $ 907,301 $ 876,003
Advertising Fees ..................... 217,073 221,159 667,813 733,798
Continuing License Fees .............. 647,829 702,519 2,021,895 2,311,676
Insurance premiums ................... 202,357 230,818 565,374 634,069
Other ................................ 48,921 48,878 133,920 145,032
----------- ----------- ----------- -----------
1,344,430 1,355,376 4,296,303 4,700,578
----------- ----------- ----------- -----------
EXPENSES:
Salaries, Consulting Fees and
Employee Benefits .................. 210,812 204,643 635,805 689,325
Sales and Marketing Expenses ......... 163,752 110,168 532,713 423,805
Advertising and Promotion ............ 303,040 323,366 947,518 1,037,131
Underwriting Expenses ................ 174,432 180,635 464,478 505,713
General and Administrative Expenses... 228,325 309,349 683,301 788,865
Depreciation & Amortization .......... 35,045 35,052 105,179 100,167
----------- ----------- ----------- -----------
1,115,406 1,163,213 3,368,994 3,545,006
----------- ----------- ----------- -----------
OPERATING INCOME..................... 229,024 192,163 927,309 1,155,572
OTHER INCOME (EXPENSE)
Interest Income ...................... 26,746 26,767 70,083 78,685
Interest Expense ..................... (6,339) (6,694) (17,647) (20,021)
----------- ----------- ----------- -----------
20,407 20,073 52,436 58,664
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE..... 249,431 212,236 979,745 1,214,236
----------- ----------- ----------- -----------
INCOME TAX EXPENSE .................... 73,422 56,741 302,224 393,243
----------- ----------- ----------- -----------
NET INCOME........................... $ 176,009 $ 155,495 $ 677,521 $ 820,993
DIVIDENDS ON CONVERTIBLE CUMULATIVE
PREFERRED STOCK ...................... 27,320 22,400 81,960 67,400
----------- ----------- ----------- -----------
NET INCOME APPLICABLE TO COMMON
AND COMMON EQUIVALENT SHARES ......... $ 148,689 $ 133,095 $ 595,561 $ 753,593
----------- ----------- ----------- -----------
EARNINGS PER COMMON SHARE
Basic ................................ $ .04 $ .04 $ .15 $ .20
----------- ----------- ----------- -----------
Weighted average common shares ........ 4,078,781 3,783,652 4,106,907 3,889,015
=========== =========== =========== ===========
Diluted .............................. $ .03 $ .03 $ .12 $ .14
----------- ----------- ----------- -----------
Weighted average common shares
plus options and warrants ............ 5,737,934 5,962,235 5,596,642 5,987,134
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
December 31,
--------------------------
1998 1999
----------- -----------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income ..................................... $ 677,521 $ 820,993
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ................ 105,179 100,167
Gain on disposal of property and equipment ... (1,577) --
Deferred income taxes ........................ -- (79,030)
Provision for doubtful accounts .............. 126,730 185,697
Changes in assets and liabilities:
Accounts and notes receivable ................ 239,359 222,407
Prepaid expenses ............................. (15,595) 15,788
Accounts payable and accrued expenses ........ 60,860 (38,808)
Income taxes payable ......................... (12,040) 56,480
Insurance loss reserves ...................... 84,979 151,444
----------- -----------
Net cash provided by operating
activities ................................ 1,265,416 1,435,138
----------- -----------
Cash flows from investing activities:
(Increase) decrease in restricted cash ......... (348,126) (8,501)
Proceeds from sale of property and equipment ... 42,386 --
Acquisition of property and equipment .......... (183,272) (121,763)
Additions to intangible assets ................. (6,694) (16,162)
----------- -----------
Net cash used in investing activities ...... (495,706) (146,426)
----------- -----------
Cash flow from financing activities:
Decrease in insurance financing payable ....... (429,760) (447,024)
Issuance of common stock ...................... 16,000 --
Retirement of warrants ........................ (10,000) --
Retirement of common stock .................... (198,588) (790,000)
Preferred dividends paid ...................... (126,262) (214,697)
----------- -----------
Net cash used in financing activities ..... (748,610) (1,451,721)
----------- -----------
Net increase (decrease) in cash and
cash equivalents ....................... 21,100 (163,009)
Cash and cash equivalents at beginning
of period ...................................... 1,215,615 861,794
----------- -----------
Cash and cash equivalents at end of period ...... $ 1,236,715 $ 698,785
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid .................................. $ 17,947 20,021
Taxes paid ..................................... $ 367,758 $ 419,433
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements presented herein include the accounts
of Rent-A-Wreck of America, Inc. ("RAWA, Inc.") and its wholly owned
subsidiaries, Rent-A-Wreck One Way, Inc. ("RAW One Way"), Consolidated American
Rental Insurance Company, LTD ("CAR Insurance") and Bundy American Corporation
("Bundy"), and Bundy's subsidiaries, Rent-A-Wreck Leasing, Inc. ("RAW Leasing")
and Priceless Rent-A-Car, Inc. ("PRICELESS") which was formed on September 30,
1999.
All of the above entities are collectively referred to as the "Company"
unless the context provides or requires otherwise. All material intercompany
balances and transactions have been eliminated in the consolidated financial
statements.
The consolidated balance sheet as of December 31, 1999, and the
consolidated statements of earnings and cash flows for the three and nine- month
periods ended December 31, 1998 and 1999 have been prepared by the Company
without audit. In the opinion of management, all adjustments which are necessary
to present a fair statement of the results of operations for the interim periods
have been made, and all such adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's March 31, 1999 audited financial statements. The results of operations
for the interim periods are not necessarily indicative of the results for a full
year.
2. PREFERRED STOCK
On May 7, 1999, the Company paid 100% of remaining dividend arrearages
($146,915) on the Company's Convertible Cumulative Series A Preferred Stock. A
quarterly preferred dividend of $22,600 was declared for the first quarter ended
June 30, 1999 and it was paid on August 11, 1999. For the quarter ended
September 30, 1999, the Company declared preferred dividends totaling $22,400
which were paid on November 11, 1999. For the quarter ended December 31, 1999,
the Company declared dividends totaling $22,400 which are expected to be paid
during the fourth quarter of the Company's fiscal year.
6
<PAGE>
3. EARNINGS PER SHARE
A reconciliation of the numerators and denominators utilized in the
computation of basic and diluted earnings per share for the three-month and
nine-month periods ended December 31, 1998 and 1999 is as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1999 1998 1999
---------- ---------- ---------- ----------
BASIC EPS COMPUTATION
Net income applicable to
common and common
equivalent shares $ 148,689 $ 133,095 $ 595,561 $ 753,593
Weighted average common
shares 4,078,781 3,783,652 4,106,907 3,889,015
---------- ---------- ---------- ----------
Basic EPS $ .04 $ .04 $ .15 $ .20
========== ========== ========== ==========
DILUTED EPS COMPUTATION
Net income applicable to
common and common
equivalent shares $ 148,689 $ 133,095 $ 595,561 $ 753,593
Dividends on convertible
preferred stock 27,320 22,400 81,960 67,400
---------- ---------- ---------- ----------
176,009 155,495 677,521 820,993
---------- ---------- ---------- ----------
Weighted average common
shares 4,078,781 3,783,652 4,106,907 3,889,015
Weighted average convertible
preferred stock 1,366,000 1,120,000 1,366,000 1,127,475
Weighted average options
and warrants 293,153 1,058,583 123,735 970,644
---------- ---------- ---------- ----------
5,737,934 5,962,235 5,596,642 5,987,134
---------- ---------- ---------- ----------
Diluted EPS $ .03 $ .03 $ .12 $ .14
========== ========== ========== ==========
7
<PAGE>
GEOGRAPHIC AND INDUSTRY SEGMENTS
The Company currently operates in two principal segments: Vehicle Rental
Franchise Programs and Insurance Coverage. Corporate costs are allocated to each
segment's operations and are included in the measure of each segment's profit or
loss. The geographic data include revenues based upon customer locations and
assets based on physical locations.
The Company's foreign operations are presently conducted by CAR Insurance
in Bermuda.
Information by geographic area and industry segment is as follows:
Nine Months
Ended December 31,
1998 1999
---------- ----------
Net revenues from external customers
Vehicle Rental Franchises-United States $3,730,929 $4,066,509
Insurance-United States 565,374 634,069
Insurance-Bermuda -- --
---------- ----------
$4,296,303 $4,700,578
========== ==========
Segment income before taxes
Vehicle Rental Franchises-United States $ 920,894 $1,114,400
Insurance-United States 37,801 76,213
Insurance-Bermuda 21,050 23,623
---------- ----------
$ 979,745 $1,214,236
========== ==========
Segment assets
Vehicle Rental Franchises-United States $2,958,500 $2,309,611
Insurance-United States 114,654 448,348
Insurance-Bermuda 653,669 667,257
---------- ----------
$3,726,823 $3,425,216
========== ==========
Expenditures for segment assets
Vehicle Rental Franchises-United States $ 183,272 $ 121,763
Insurance-United States -- --
Insurance-Bermuda -- --
---------- ----------
$ 183,272 $ 121,763
========== ==========
Depreciation and amortization
Vehicle Rental Franchises-United States $ 105,179 $ 100,167
Insurance-United States -- --
Insurance-Bermuda -- --
---------- ----------
$ 105,179 $ 100,167
========== ==========
Interest income
Vehicle Rental Franchises-United States $ 45,596 $ 48,798
Insurance-United States 3,437 6,264
Insurance-Bermuda 21,050 23,623
---------- ----------
$ 70,083 $ 78,685
========== ==========
8
<PAGE>
GEOGRAPHIC AND INDUSTRY SEGMENTS - CONTINUED
Nine Months
Ended December 31,
--------------------------
1998 1999
---------- ----------
Interest expense
Vehicle Rental Franchises-United States $ 181 $ 398
Insurance-United States 17,466 19,623
Insurance-Bermuda -- --
---------- ----------
$ 17,647 $ 20,021
========== ==========
Income taxes
Vehicle Rental Franchises-United States $ 302,224 $ 393,243
Insurance-United States -- --
Insurance-Bermuda -- --
---------- ----------
$ 302,224 $ 393,243
========== ==========
4. LITIGATION
The Company is party to legal proceedings incidental to its business from
time to time. Certain claims, suits and complaints arise in the ordinary course
of business and may be filed against the Company. Based on facts now known to
the Company, management believes all such matters are adequately provided for,
covered by insurance or, if not so covered or provided for, are without merit,
or involve such amounts that would not materially adversely affect the
consolidated results of operations or financial position of the Company.
In August 1999, the Company settled a pending lawsuit against a former
franchisee. As a result of the settlement agreement, the Company anticipates
receiving $100,000 in release of its claims which will result in $100,000 of
additional income. To date the Company has not recorded any gain as the
settlement is being finalized and the $100,000 has not been released from
escrow.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998
Revenue from franchising operations, which includes initial license fees,
continuing license fees and advertising fees, decreased by $17,472 (2%).
Continuing license fees increased by $54,690 (8%), and advertising fees
increased by $4,086 (2%). These increases resulted primarily from fleet growth
at existing franchises. Initial license fees decreased by $76,248 (33%) due to
the sale of fewer new franchises. The timing of closings of new franchise sales,
each of which is for a relatively large amount of revenue, varies over the year,
contributing to periodic increases or decreases in reported results. Management
does not believe these short- term variations are indicative of longer term
trends.
Revenues from insurance premiums increased by $28,461 (14%) due to higher
participation by the Company's franchisees in the Company's CAR Insurance
program.
Total operating expenses increased by $47,807 (4%) compared to the prior
period. Sales and marketing expenses decreased by $53,584 (33%), which resulted
primarily from a decrease in commission expense due to the sale of fewer new
franchises and a decrease in funds spent on the Company's annual convention of
franchisees. Advertising and promotion expenses increased by $20,326 (7%), which
resulted primarily from an increase in national advertising expense. Insurance
underwriting expenses increased by $6,203 (4%) due to an increase in paid losses
and loss reserves for future claims in connection with higher participation of
the Company's franchisees in its CAR Insurance program. General and
administrative expenses increased by $81,024 (35%), which resulted primarily
from the Company's moving expense to the new location ($41,000), an increase in
the annual management fee earned by K.A.B., an affiliate, payment of monthly
consulting fees to Richter Investment Corporation, an affiliate, and an increase
in legal and other professional fees.
The Company realized operating income of $192,163, before taxes and
interest, for the three-month period ended December 31, 1999 compared to
operating income of $229,024 for the same period in the prior year, reflecting a
decrease of $36,861 (16%). This decrease resulted primarily from the decrease in
initial license fees due to the sale of fewer new franchises and from the
increase in general and administrative expenses referred to above.
Income tax expense for the three-month period ended December 31, 1999
decreased by $16,681 (23%) compared to the three-month period ended December 31,
1998 due to lower pre-tax earnings, partially offset by a reduction in the
deferred tax asset valuation allowance. The valuation allowance has been reduced
in light of favorable earnings and expected future earnings and is re-assessed
quarterly.
YEAR TO DATE RESULTS OF OPERATIONS COMPARED TO SAME PERIOD IN PRIOR YEAR
Net revenues increased by $404,275 (9%) for the nine-month period ended
December 31, 1999 as compared to the same period in the prior year. This
increase occurred due to a $289,781(14%) increase in continuing license fees, a
$65,985 (10%)increase in advertising fees, and a $68,695 (12%) increase in
premium income associated with the new reinsurance program partially offset by a
10
<PAGE>
reduction in initial license fees. The reasons for these fluctuations are
consistent with those for the three-month period documented above.
Total operating expenses increased by $176,012 (5%) in this period compared
to the same period in the prior year. Salary expense increased by $53,520 (8%)
primarily as a result of additional employees in response to the growth of the
Company. Sales and marketing expenses decreased by $108,908 (20%), which
resulted primarily from the repurchase of a territory from an existing
franchisee in the quarter ended September 30, 1998, the cost of which was
charged to sales and marketing expense because the Company was able to resell
the territory to a new franchisee for a greater amount. Advertising and
promotion expenses increased by $89,613 (9%), which resulted primarily from an
increase in national advertising expense to promote the Company. Underwriting
expenses increased by $41,235 (9%) due to an increase in paid losses and loss
reserves for future claims in connection with higher participation by the
Company's franchisees. General and administrative expenses increased by $105,564
(15%), which resulted primarily from the expense related to the Company's move
to a new location, an increase in the management fee earned by K.A.B, an
affiliate, and payment of monthly consulting fees to Richter Investment
Corporation, an affiliate. Depreciation and amortization expense decreased by
$5,012 (5%) due to disposal of assets and older assets becoming fully
depreciated offset by additional investment in property and equipment.
The Company realized operating income of $1,155,572, before taxes and
interest, for the nine-month period ended December 31, 1999 as compared to
operating income of $927,309 for 1998, reflecting an increase of $228,263 (25%).
This increase resulted primarily from the increase in continuing license fees
and insurance premiums.
Income tax expense for the nine-month period ended December 31, 1999
increased by $91,019 (30%) compared to the nine-month period ended December 30,
1999 due to higher pre-tax earnings.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had working capital of $1,307,661
compared to $1,530,647 at March 31, 1999. This decrease of $222,986 resulted
primarily from the buyback of 400,000 shares of Common Stock and the payoff of
all dividend arrearages on the Company's Preferred Stock, offset by the net
profit earned during the nine-month period ended December 31, 1999.
The Company has a $1,000,000 letter of credit with The Chase Manhattan Bank
("Chase") in connection with the Company's CAR Insurance subsidiary. This letter
of credit is part of the reinsurance agreement with American International Group
("AIG") to secure payment of claims. Funds drawn against the letter of credit
bear interest at 3% plus Chase's prime commercial lending rate (which prime rate
was 8.50% on January 20, 2000). For the quarter ended December 31, 1999, AIG has
not drawn any funds from the letter of credit. This letter of credit is secured
by a pledge of all of the Company's assets.
On November 19, 1999, the Company relocated its corporate headquarters to a
location owned by KA Real Estate Associates, Inc., an affiliate, and entered
into a seven-year operating lease. The monthly office facilities lease
commitment is $9,289 for approximately 9,100 square feet at December 31, 1999.
11
<PAGE>
Property and equipment increased by $122,645 (18%) from March 31, 1999 to
December 31, 1999. This increase occurred primarily due to the purchase of two
vehicles for the Company's wheelchair van program and an additional investment
in computer software and hardware.
Cash provided by operations was $1,435,138, resulting primarily from net
income before depreciation plus the decrease in accounts and notes receivable
and the increase in insurance loss reserves and income taxes payable partially
offset by the increase in prepaid expenses and the decrease in accounts payable
and accrued expenses. Accounts and notes receivable decreased primarily due to
funds received from AIG in connection with the reinsurance program. Accounts
payable and accrued expenses decreased primarily due to commissions payable
related to the sale of fewer new franchises. Insurance loss reserves increased
primarily due to the higher participation by the Company's franchisees. Income
taxes payable increased primarily due to higher pre-tax earnings, offset by
estimated income taxes paid for the year ended March 31, 2000.
Cash used in investing activities of $146,426 related primarily to the
investment in connection with leasehold improvements to the new building,
acquisition of computer software, hardware, annual costs associated with
renewing trademarks and an increase in restricted cash due to the Company's
additional liability to the national advertising fund due to an increase in
advertising fees.
Cash used in financing activities during the same period was $1,451,721,
resulting from the retirement of 400,000 shares of common stock, a decrease in
insurance financing payable and the payment of preferred dividends.
The Company believes it has sufficient working capital to support its
business plan through fiscal 2000.
IMPACT OF INFLATION
Inflation has had no material impact on the operations and financial
condition of the Company.
The statements regarding anticipated future performance of the Company
contained in this report are forward-looking statements which are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements involve risks and uncertainties that
could cause the Company's actual results to differ materially from the
forward-looking statements. Factors which could cause or contribute to such
differences include, but are not limited to, the Company's limited experience in
the reinsurance business and the potential for negative claims experience, the
effects of government regulation of the Company's franchise and insurance
programs including maintaining properly registered franchise documents and
making any required alterations in the Company's franchise program to comply
with changes in the laws, competitive pressures from other motor vehicle rental
companies which have greater marketing and financial resources than the Company,
protection of the Company's trademarks, and the dependence on the Company's
relationships with its franchisees. These risks and uncertainties are more fully
described under the caption, "Item 6 - Management's Discussion and Analysis of
12
<PAGE>
Financial Condition and Results of Operations - Important Factors" in the
Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1999.
All forward-looking statements should be considered in light of these risks and
uncertainties.
YEAR 2000 ISSUE
The Year 2000 issue is a result of computer programs being written using
two digits rather than four to define the applicable year.
Most of the information the Company receives in the ordinary course is in
written form and entered by the Company into its computer records. For example,
reports from franchisees and others are prepared in written form and not
received electronically. The Company has orally confirmed with key vendors that
they either have addressed or expect to address all significant Year 2000 issues
on a timely basis.
13
<PAGE>
SELECTED FINANCIAL DATA
Set forth below are selected financial data with respect to the
consolidated statements of earnings of the Company and its subsidiaries for the
fiscal quarters ended December 31, 1998 and 1999 and with respect to the balance
sheets thereof at December 31 in each of those years.
The selected financial data have been derived from the Company's unaudited
consolidated financial statements and should be read in conjunction with the
financial statements and related notes thereto and other financial information
appearing elsewhere herein.
Three Months Nine Months
Ended December 31, Ended December 31,
------------------ ------------------
1998 1999 1998 1999
---- ---- ---- ----
(in thousands except per share amounts
and number of franchises)
(Unaudited)
FRANCHISEES' RESULTS (UNAUDITED)
Franchisees' Revenue (1) $10,797 $11,709 $33,698 $38,528
Number of Franchises 623 667 623 667
RESULTS OF OPERATIONS
Total Revenue $ 1,344 $ 1,355 $ 4,296 $ 4,701
Costs and expenses 1,115 1,163 3,369 3,545
Income before income taxes 249 212 980 1,214
Net income 176 155 678 821
Earnings per share
Basic $ .04 $ .04 $ .15 $ .20
Weighted average common shares 4,079 3,784 4,107 3,889
Diluted $ .03 $ .03 $ .12 $ .14
Weighted average common shares 5,738 5,962 5,597 5,987
December 31,
-----------------
1998 1999
------ ------
(Unaudited)
BALANCE SHEET DATA
Working capital $1,843 $1,308
Total assets $3,727 $3,425
Shareholders' equity $2,387 $1,858
(1) The franchisees' revenue data have been derived from unaudited reports
provided by franchisees submitted when paying license fees and advertising
fees to the Company.
14
<PAGE>
SUBSEQUENT EVENTS
On February 9, 2000, the Board of Directors reached an agreement with
K.A.B., Inc. to extend the term of its Management Agreement with the Company for
five additional years through June 30, 2008 on its present terms. The Board also
authorized the repurchase of 500,000 options at $1.25 per option, representing
half of the total new buyback authorization. These options are all held by
Kenneth L. Blum, Jr., the Company's President/COO and by Robin Cohn, are
exercisable at $1.15 per share, and expire June 30, 2003. Although it does not
believe it will be so constrained, the Company could be constrained from
purchasing some or all of the 500,000 options by covenants of its bank agreement
pursuant to which the Company finances its Bermuda-based reinsurance subsidiary.
Consequently, the sellers have agreed that the transaction will close, without
interest, only at such time or times as the Company can make the purchases
without restrictions. The Company presently believes at least a substantial
portion of the options may be purchasable once its audited results for the
current fiscal year, which ends March 31, 2000, are known, with any balance most
likely closing once unaudited results for the quarter ending June 30, 2000, are
known.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 29, 1999, a shareholder converted 9,125 shares of preferred stock
to common stock. On September 28, 1999, a shareholder converted 10,000 shares of
preferred stock to common stock. See also Item 5 below.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 19, 1999, approximately 95% of the outstanding shares of Series
A Preferred Stock consented to the corporation's authorization of the repurchase
of up to 400,000 shares of the Company's Common Stock.
(a) The 1999 Annual Meeting of Stockholders of the Company was held on
November 3, 1999.
(b) The following persons were elected as directors of the Company at the
Annual Meeting for a one-year term:
Withheld Broker
For Authority Non-Votes
--- --------- ---------
Class I directors
(elected by holders
of common stock): Kenneth L. Blum, Sr. 2,775,362 7,499 --
Kenneth L. Blum, Jr. 2,775,362 7,499 --
Class II directors
(elected by holders
of preferred stock): Alan L. Aufzien 1,116,250 -- --
William L. Richter 1,116,250 -- --
15
<PAGE>
ITEM 5. OTHER INFORMATION
During the quarter ended June 30, 1999, a shareholder converted 9,125
shares of preferred stock to common stock reducing total outstanding preferred
shares from 1,139,125 to 1,130,000 and increasing total outstanding common
shares from 3,934,092 to 3,943,217. During the quarter ended September 30, 1999,
a shareholder converted 10,000 shares of preferred stock to common stock
reducing total outstanding preferred shares from 1,130,000 to 1,120,000 and
increasing total outstanding common shares from 3,943,217 to 3,953,217. On
November 23, 1999, the Company bought back 400,000 shares of its common stock
reducing total outstanding common shares from 3,953,217 to 3,553,217.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index following the Signatures page, which is incorporated
herein by reference.
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Rent-A-Wreck of America, Inc.
(Registrant)
By: /s/Mitra Ghahramanlou Date: February 9, 2000
-----------------------------
Mitra Ghahramanlou
Chief Accounting Officer
/s/Kenneth L. Blum, Sr. February 9, 2000
-----------------------------
Kenneth L. Blum, Sr.
CEO and Chairman of the Board
17
<PAGE>
EXHIBIT INDEX
TO
RENT-A-WRECK of AMERICA, INC.
FORM 10-QSB FOR THE QUARTER ENDED DECEMBER 31, 1999
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS IN RENT-A-WRECK OF AMERICA, INC.'S FORM 10-QSB FOR THE QUARTERLY
PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-QSB.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,425,829
<SECURITIES> 0
<RECEIVABLES> 1,822,758
<ALLOWANCES> 841,115
<INVENTORY> 0
<CURRENT-ASSETS> 2,874,409
<PP&E> 797,215
<DEPRECIATION> 473,444
<TOTAL-ASSETS> 3,425,216
<CURRENT-LIABILITIES> 1,566,748
<BONDS> 0
11,200
0
<COMMON> 35,532
<OTHER-SE> 1,811,736
<TOTAL-LIABILITY-AND-EQUITY> 3,425,216
<SALES> 0
<TOTAL-REVENUES> 4,700,578
<CGS> 0
<TOTAL-COSTS> 1,966,649
<OTHER-EXPENSES> 1,394,593
<LOSS-PROVISION> 183,764
<INTEREST-EXPENSE> 20,021
<INCOME-PRETAX> 1,214,236
<INCOME-TAX> 393,243
<INCOME-CONTINUING> 820,993
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 820,992
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.14
</TABLE>
