United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ____________ to ____________
Commission File Number 0-14819
RENT-A-WRECK OF AMERICA, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 95-3926056
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10324 South Dolfield Drive, Owings Mills, MD 21117
-------------------------------------------- ----------
(Address of Principal Executive Offices) (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)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 4,495,496 shares as of October
26, 2000.
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
FORM 10-QSB - SEPTEMBER 30, 2000
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and
September 30, 2000 (Unaudited) 3-4
Consolidated Statements of Operations for
the Three and Six Month Periods ended September 30, 1999
and 2000 (Unaudited) 5
Consolidated Statements of Cash Flows for the Six Months
ended September 30, 1999 and 2000 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7-10
Item 2. Management's Discussion and Analysis or Plan of Operation 11-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, September 30,
2000 2000
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents .................................. $ 701,808 $ 647,181
Restricted Cash ............................................ 745,514 938,173
Accounts Receivable, net of allowance for doubtful
accounts of $829,253 and $835,606 at March 31, 2000
and September 30, 2000, respectively:
Continuing License Fees and Advertising Fees............. 365,462 443,860
Current Portion of Notes Receivable ..................... 416,002 521,175
Current Portion of Direct Financing Leases............... 5,406 7,248
Insurance Premiums Receivable ........................... -- 26,288
Other ................................................... 305,685 69,696
Prepaid Expenses and Other ................................. 184,045 190,656
Income Taxes Recoverable ................................... -- 683,097
Deferred Taxes ............................................. 614,541 373,541
----------- -----------
TOTAL CURRENT ASSETS ..................................... 3,338,463 3,900,915
----------- -----------
PROPERTY AND EQUIPMENT:
Furniture .................................................. 99,399 103,458
Computer Hardware and Software ............................. 431,918 557,186
Machinery and Equipment .................................... 98,172 98,577
Leasehold Improvements ..................................... 54,321 54,321
Vehicles ................................................... 187,360 284,860
----------- -----------
871,170 1,098,402
Less: Accumulated Depreciation and
Amortization ........................................ (493,612) (549,051)
----------- -----------
NET PROPERTY AND EQUIPMENT ............................... 377,558 549,351
----------- -----------
OTHER ASSETS:
Intangible Assets, net of accumulated amortization
of $132,035 and $142,156 at March 31, 2000 and
September 30, 2000, respectively .......................... 193,666 193,652
Long-term Portion of Notes and Direct Financing Lease
Receivables, net of allowance of $3,000 and $15,863
at March 31, 2000 and September 30, 2000, respectively..... 70,438 56,346
----------- -----------
264,104 249,998
----------- -----------
TOTAL ASSETS ............................................. $ 3,980,125 $ 4,700,264
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, September 30,
2000 2000
---------- ------------
(Unaudited)
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses .......... $1,359,215 $ 981,710
Dividends Payable .............................. 22,100 22,100
Insurance Financing Payable .................... -- 297,226
Insurance Loss Reserves ........................ 379,075 508,145
Income Taxes Payable ........................... 338,550 --
---------- ----------
TOTAL CURRENT LIABILITIES .................... 2,098,940 1,809,181
---------- ----------
LONG-TERM LIABILITIES:
Deferred Tax Liability ......................... 45,681 45,681
---------- ----------
TOTAL LONG-TERM LIABILITIES .................. 45,681 45,681
---------- ----------
TOTAL LIABILITIES ............................ 2,144,621 1,854,862
---------- ----------
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 at
March 31, 2000 and at September 30, 2000
(aggregate liquidation preference $884,000
at March 31, 2000 and September 30, 2000)...... 11,050 11,050
Common Stock, $.01 par value; authorized
25,000,000 shares; issued and outstanding
3,568,217 shares at March 31, 2000 and
4,495,496 shares at September 30, 2000 ........ 35,682 44,955
Additional Paid-In Capital ..................... 1,423,181 2,310,776
Retained Earnings .............................. 365,591 478,621
---------- ----------
TOTAL SHAREHOLDERS' EQUITY ................... 1,835,504 2,845,402
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ... $3,980,125 $4,700,264
========== ==========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Initial License Fees ..................... $ 362,000 $ 422,952 $ 724,001 $ 791,452
Continuing License Fees .................. 929,852 1,009,025 1,609,157 1,824,419
Advertising Fees ......................... 291,855 304,645 512,639 546,123
Insurance Premiums ....................... 227,402 322,880 403,251 580,249
Other .................................... 54,932 45,488 96,154 92,424
----------- ----------- ----------- -----------
1,866,041 2,104,990 3,345,202 3,834,667
----------- ----------- ----------- -----------
EXPENSES:
Salaries, Consulting Fees and
Employee Benefits ...................... 230,745 211,678 469,682 466,143
Advertising and Promotion ................ 391,746 386,518 713,765 752,676
Sales and Marketing Expenses ............. 135,273 106,128 313,637 200,187
General and Administrative Expenses....... 252,655 306,999 494,516 567,301
Repurchase of Options .................... -- 1,234,560 -- 1,234,560
Underwriting Expenses .................... 180,124 303,654 325,078 589,744
Depreciation & Amortization .............. 32,980 51,760 65,115 80,086
----------- ----------- ----------- -----------
1,223,523 2,601,297 2,381,793 3,890,697
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) .............. 642,518 (496,307) 963,409 (56,030)
OTHER INCOME (EXPENSE)
Interest Income .......................... 27,506 39,305 51,899 81,937
Interest Expense ......................... (6,694) (6,927) (13,308) (13,854)
----------- ----------- ----------- -----------
20,812 32,378 38,591 68,083
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAX EXPENSE ........................ 663,330 (463,929) 1,002,000 12,053
INCOME TAX (EXPENSE) BENEFIT ............... (230,863) 328,427 (336,502) 145,177
----------- ----------- ----------- -----------
NET INCOME (LOSS) .................... $ 432,467 $ (135,502) $ 665,498 $ 157,230
DIVIDENDS ON CONVERTIBLE CUMULATIVE
PREFERRED STOCK .......................... 22,400 22,100 45,000 44,200
----------- ----------- ----------- -----------
NET INCOME (LOSS) APPLICABLE TO COMMON
AND COMMON EQUIVALENT SHARES ............. $ 410,067 $ (157,602) $ 620,498 $ 113,030
----------- ----------- ----------- -----------
EARNINGS (LOSS) PER COMMON SHARE
Basic .................................... $ .11 $ (.04) $ .16 $ .03
----------- ----------- ----------- -----------
Weighted average common shares ............. 3,943,543 3,824,186 3,941,985 3,696,901
=========== =========== =========== ===========
Diluted .................................. $ .07 $ (.04) $ .11 $ .03
----------- ----------- ----------- -----------
Weighted average common shares plus
convertible preferred stock, options
and warrants............................... 6,106,494 3,824,186 5,999,891 5,411,681
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
1999 2000
----------- -----------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income ................................................. $ 665,498 $ 157,230
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization .......................... 65,115 80,086
Deferred income taxes .................................. (53,847) 241,000
Gain on disposal of property and equipment ............. -- (7,944)
Provision for doubtful accounts ........................ 101,641 19,216
Changes in assets and liabilities:
Accounts and notes receivable .......................... 291,421 19,164
Prepaid expenses and other ............................. 9,280 (6,611)
Income taxes recoverable ............................... -- (683,097)
Accounts payable and accrued
expenses ............................................. 73,835 (377,505)
Income taxes payable ................................... 59,652 (338,550)
Insurance loss reserves ................................ 81,584 129,070
----------- -----------
Net cash provided by (used in) operating activities..... 1,294,179 (767,941)
----------- -----------
Cash flows from investing activities:
(Increase) in restricted cash .............................. (80,842) (192,659)
Proceeds from sale of property and equipment ............... -- 32,575
Acquisition of property and equipment ...................... (57,554) (266,387)
Additions to intangible assets ............................. (9,988) (10,107)
----------- -----------
Net cash used in investing activities .................. (148,384) (436,578)
----------- -----------
Cash flow from financing activities:
(Decrease) increase in insurance financing payable ......... (270,534) 297,226
Net proceeds from exercise of stock options and warrants.... -- 896,866
Preferred dividends paid ................................... (192,297) (44,200)
----------- -----------
Net cash (used in) provided by financing activities..... (462,831) 1,149,892
----------- -----------
Net increase (decrease) in cash and cash
equivalents ......................................... 682,964 (54,627)
Cash and cash equivalents at beginning of period ............. 861,794 701,808
----------- -----------
Cash and cash equivalents at end of period ................... $ 1,544,758 $ 647,181
----------- -----------
Supplemental disclosure of cash flow information:
Interest paid .............................................. $ 13,308 $ 13,854
Taxes paid ................................................. $ 337,755 $ 634,629
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
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").
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 September 30, 2000, and the
consolidated statements of operations for the three and six month periods ended
September 30, 1999 and 2000 and statements of cash flows for the six month
periods ended September 30, 1999 and 2000 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 accounting principles generally accepted
in the United States of America 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, 2000 Form 10-KSB and the Company's
June 30, 2000 Form 10-QSB filed with the Securities and Exchange Commission,
Washington, D.C. 20549. The results of operations for the three and six month
periods ended September 30, 1999 and 2000 are not necessarily indicative of the
results for a full year.
2. REPURCHASE OF STOCK OPTIONS
On September 21, 2000, the Board of Directors authorized the repurchase of,
and the Company entered into an agreement to repurchase, 957,721 options, held
by affiliates, for an aggregate price of $1,234,560. The repurchase has been
included in the consolidated statement of operations for the three and six month
periods ended September 30, 2000.
7
<PAGE>
3. INCOME TAXES
Income tax liabilities and assets are recognized for the deferred tax
consequences of temporary differences or carryforwards 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.
The tax provision for the three and six month periods ended September 30,
2000 differs from that anticipated under statutory rates as a result of a
permanent difference allowing the Company a deduction for compensation expense
as a result of the exercise of options and warrants.
4. PREFERRED STOCK
A quarterly preferred dividend of $22,100 was declared for the first
quarter ended June 30, 2000 and it was paid on August 11, 2000. For the quarter
ended September 30, 2000, the Company declared dividends on the Preferred Stock
totaling $22,100 which are expected to be paid during the third quarter of the
Company's fiscal year.
5.EARNINGS PER SHARE
A reconciliation of the numerators and denominators utilized in the
computation of basic and diluted earnings per share for the three and six month
periods ended September 30, 1999 and 2000 is as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30,
--------------------------- ------------------------
1999 2000 1999 2000
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
BASIC EPS COMPUTATION
Net income (Loss) applicable
to common and common
equivalent shares ........ $ 410,067 $ (157,602) $ 620,498 $ 113,030
Weighted average common
shares .................... 3,943,543 3,824,186 3,941,985 3,696,901
----------- ----------- ---------- ----------
Basic EPS ................... $ .11 $ (.04) $ .16 $ .03
=========== =========== ========== ==========
DILUTED EPS COMPUTATION
Net income (Loss) applicable
to common and common
equivalent shares ........ $ 410,067 $ (157,602) $ 620,498 $ 113,030
Dividends on convertible
preferred stock ........... 22,400 22,100 45,000 44,200
----------- ----------- ---------- ----------
432,467 (135,502) 665,498 157,230
----------- ----------- ---------- ----------
Weighted average common
shares .................... 3,943,543 3,824,186 3,941,985 3,696,901
Weighted average convertible
preferred stock ........... 1,129,674 -- 1,131,232 1,105,000
Weighted average options
and warrants .............. 1,033,277 -- 926,674 609,780
----------- ----------- ---------- ----------
6,106,494 3,824,186 5,999,891 5,411,681
----------- ----------- ---------- ----------
Diluted EPS ................. $ .07 (.04) $ .11 .03
=========== =========== ========== ==========
</TABLE>
The incremental shares from assumed conversions of preferred stock, which
amount to 1,105,000 for the three months ended September 30, 2000 are not
included in computing the diluted per share amounts since inclusion of such
shares would be anti-dilutive.
8
<PAGE>
GEOGRAPHIC AND INDUSTRY SEGMENTS
The Company currently operates in two principal segments: Vehicle Rental
Franchise Programs and Insurance Coverage for its franchisees. 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:
Six Months Six Months
Ended Ended
September 30, September 30,
1999 2000
---- ----
Net revenues from external customers
Vehicle Rental Franchises-Rent-A-Wreck-(U.S.).. $ 2,667,061 $ 2,998,051
Vehicle Rental Franchises-Pricele$$-(U.S.) .... 257,601 258,659
Corporate-(U.S.) .............................. 18,890 1,550
Insurance-(U.S.) .............................. 401,650 576,407
Insurance-(Bermuda) ........................... -- --
----------- -----------
$ 3,345,202 $ 3,834,667
Segment operating income (loss)
Vehicle Rental Franchises-Rent-A-Wreck-(U.S.).. $ 966,327 $ 354,566
Vehicle Rental Franchises-Pricele$$-(U.S.) .... 54,068 (62,436)
Corporate-(U.S.) .............................. (38,542) (42,919)
Insurance-(U.S.) .............................. (18,444) (305,241)
Insurance-(Bermuda) ........................... -- --
----------- -----------
$ 963,409 $ (56,030)
=========== ===========
Expenditures for segment assets
Vehicle Rental Franchises-Rent-A-Wreck-(U.S.).. $ -- $ --
Vehicle Rental Franchises-Pricele$$-(U.S.) .... -- 94,464
Corporate-(U.S.) .............................. 57,554 171,923
Insurance-(U.S.) .............................. -- --
Insurance-(Bermuda) ........................... -- --
----------- -----------
$ 57,554 $ 266,387
=========== ===========
Depreciation and amortization
Vehicle Rental Franchises-Rent-A-Wreck-(U.S.).. $ 8,142 $ 8,944
Vehicle Rental Franchise-Pricele$$-(U.S.) ..... 2,648 21,197
Corporate-(U.S.) .............................. 54,325 49,945
Insurance-(U.S.) .............................. -- --
Insurance-(Bermuda) ........................... -- --
----------- -----------
$ 65,115 $ 80,086
=========== ===========
9
<PAGE>
Six Months Six Months
Ended Ended
September 30, September 30,
1999 2000
---- ----
Interest income
Vehicle Rental Franchises-Rent-A-Wreck-(U.S.).. $ 17,635 $ 36,675
Vehicle Rental Franchises-Pricele$$-(U.S.) .... 1,982 4,314
Corporate-(U.S.) .............................. 11,336 5,612
Insurance-(U.S.) .............................. -- 35,336
Insurance-(Bermuda) ........................... 20,946 --
----------- -----------
$ 51,899 $ 81,937
=========== ===========
Interest expense
Vehicle Rental Franchises-Rent-A-Wreck-(U.S.).. $ 377 $ --
Vehicle Rental Franchise-Pricele$$-(U.S.) ..... -- 12
Corporate-(U.S.) .............................. 1 --
Insurance-(U.S.) .............................. 12,930 13,842
Insurance- (Bermuda) .......................... -- --
----------- -----------
$ 13,308 $ 13,854
=========== ===========
Income taxes
Vehicle Rental Franchises-Rent-A-Wreck-(U.S.).. $ 314,867 $ (145,177)
Vehicle Rental Franchises-Pricele$$-(U.S.) .... 21,635 --
Corporate-(U.S.) .............................. -- --
Insurance-(U.S.) .............................. -- --
Insurance-(Bermuda) ........................... -- --
----------- -----------
$ 336,502 $ (145,177)
=========== ===========
Year Six Months
Ended Ended
September 30, September 30,
1999 2000
---- ----
Segment assets
Vehicle Rental Franchises-Rent-A-Wreck-(U.S.).. $ 2,264,794 $ 2,543,899
Vehicle Rental Franchises-Pricele$$-(U.S.) .... 388,517 390,066
Corporate-(U.S.) .............................. 256,127 506,325
Insurance-(U.S.) .............................. 1,062,789 1,252,076
Insurance-(Bermuda) ........................... 7,898 7,898
----------- -----------
$ 3,980,125 $ 4,700,264
=========== ===========
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 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
quarter ended September 30, 2000, franchising operations comprised 85% of
consolidated net revenues (87% in 1999) and 521% of consolidated operating
income (106% in 1999).
Revenue from franchising operations, which includes initial license fees,
continuing license fees and advertising fees, increased by $152,915 (10%).
Initial license fees increased by $60,952 (17%), continuing license fees
increased by $79,173 (9%), and advertising fees increased by $12,790 (4%). These
increases resulted primarily from the addition of new franchises and fleet
growth at existing 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 $95,478 (42%) due to higher
participation by the Company's franchisees and fleet growth at participating
franchises in the Company's CAR Insurance program.
Total operating expenses for both segments increased by $1,377,774 (113%)
compared to the prior period. Sales and marketing expenses decreased by $29,145
(22%), which resulted primarily from a reduction in bad debt expense due to the
Company's collection efforts. General and administrative expenses for both
segments increased by $54,344 (22%), which resulted primarily from increased
rent expense at the Company's new headquarters location and an increase in
collection expense.
Insurance underwriting expenses increased by $123,530 (69%) due to an
increase in paid losses and loss reserves for unsettled claims in connection
with higher participation by the Company's franchisees in its CAR Insurance
program.
On September 21, 2000, the Company entered into an agreement to repurchase
957,721 options for $1,234,560. These options were held by related parties.
Depreciation and amortization expense increased by $18,780 (57%), which was
primarily due to additional depreciation associated with the purchase of
vehicles in the wheelchair van rental program and computer software and
hardware.
11
<PAGE>
The Company realized an operating loss of $496,307, before taxes and
interest, for the three-month period ended September 30, 2000 compared to
operating income of $642,518 for the same period in the prior year, reflecting a
decrease of $1,138,825 (177%). This decrease resulted primarily from the
Company's repurchase of 957,721 options for $1,234,560, offset by an increase in
initial license fees and 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. If the
repurchase of options had not impacted the consolidated statement of operations
for the three months ended September 30, 2000 (in which case it also would have
produced no partially offsetting reduction in income tax expense), operating
income would have been $738,253 in 2000 instead of an operating loss of
$496,307, which would have been an increase versus 1999 of $95,735 (15%). Net
income would have been $515,023 instead of a net loss of $135,502, basic
earnings per share would have been $.13 instead of ($.04), and diluted earnings
per share would have been $.10 instead of ($.04).
Income tax expense for the quarter ended September 30, 2000 decreased by
$559,290 (242%) compared to the three-month period ended September 30, 1999,
resulting in an income tax benefit of $328,427 primarily due to the income tax
benefit associated with the Company's repurchase of 957,721 options and the
exercise of warrants and options for 927,279 shares of common stock.
YEAR TO DATE RESULTS OF OPERATIONS COMPARED TO SAME PERIOD IN PRIOR YEAR
Net revenues increased by $489,465 (15%) for the six-month period ended
September 30, 2000 compared to the same period in the prior year. This increase
occurred due to a $67,451 (9%) increase in initial license fees, a $215,262(13%)
increase in continuing license fees, a $33,484 (7%)increase in advertising fees,
and a $176,998 (44%) increase in premium income associated with the new
reinsurance program. These increases occurred for the same reasons as those for
the three-month period documented above.
Total operating expenses increased by $1,508,904 (63%) in this period
compared to the same period in the prior year. Advertising and promotion
expenses increased by $38,911 (5%), which resulted primarily from an increase in
national advertising expense to promote the Company. Sales and marketing
expenses decreased by $113,450 (36%), which resulted primarily from a reduction
in bad debt expense due to the Company's collection efforts. Underwriting
expenses increased by $264,666 (81%) due to an increase in paid losses and loss
reserves for unsettled claims in connection with higher participation by the
Company's franchisees. General and administrative expenses increased by $72,785
(15%), which resulted primarily from increased rent expense at the Company's new
headquarters location and an increase in collection expense.
12
<PAGE>
Depreciation and amortization expense increased by $14,971 (23%) which was
primarily due to additional depreciation associated with the purchase of
vehicles and additional investment in computer software and hardware.
The Company realized an operating loss of $56,030, before taxes and
interest, for the six-month period ended September 30, 2000 as compared to
operating income of $963,409 for the six month period ended September 30, 1999,
reflecting a decrease of $1,019,439 (106%). This decrease resulted primarily
from the Company's repurchase of 957,721 options for $1,234,560, offset by an
increase in initial license fees and 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. If
the repurchase of options had not impacted the Consolidated Statement of
Earnings for the six months ended September 30, 2000 (in which case it also
would have produced no partially offsetting reduction in income tax expense),
operating income would have been $1,178,530 in 2000 instead of an operating loss
of $56,030, which would have been an increase versus 1999 of $215,121 (22%). Net
income would have been $807,276 instead of $157,230, basic earnings per share
would have been $.21 instead of $.03, and diluted earnings per share would have
been $.15 instead of $.03.
Income tax expense for the six-month period ended September 30, 2000
decreased by $481,679 (143%) compared to the six-month period ended September
30, 1999 resulting in an income tax benefit of $145,177 due to the income tax
benefit associated with the Company's repurchase of 957,721 options and the
exercise of warrants and options for 927,279 shares of common stock.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had working capital of $2,091,734
compared to $1,239,523 at March 31, 2000. This increase of $852,211 resulted
primarily from the tax benefit realized by the Company associated with the
repurchase of options and the exercise of warrants and stock options.
In March 2000, the Company obtained a $1,000,000 letter of credit from 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 October 26, 2000). For the quarter ended
September 30, 2000, AIG has not drawn any funds from the letter of credit.
The Company rents its office facilities under the terms of an operating
lease with a related party. The monthly office facilities lease commitment was
$9,290 at September 30, 2000.
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<PAGE>
Property and equipment increased by $227,232 (26%) from March 31, 2000 to
September 30, 2000. This increase occurred primarily due to the purchase of
vehicles and computer software and hardware, partially offset by the sale of a
vehicle in connection with the wheelchair van program.
Cash used in operations for the six months ended September 30, 2000 was
$767,941, resulting from the decrease in accounts payable and accrued expenses,
a decrease in income taxes payable (which resulted in an increase in income
taxes recoverable), an increase in prepaid expenses, partially offset by net
income before depreciation plus the decrease in accounts and notes receivable
and the increase in insurance loss reserves. Accounts payable and accrued
expenses decreased primarily due to payment being made for the Company's
repurchase of 500,000 options for $625,000 during the fiscal year ended March
31, 2000. The net change in the tax liability (which is now a recoverable income
tax refund) is a result of taxes currently payable or recoverable, offset by
taxes paid for the year ended March 31, 2001. Accounts and notes receivable
decreased primarily due to funds received from AIG in connection with the
reinsurance program and funds recovered from settlement of a lawsuit. Prepaid
expense increased primarily due to additional promotional materials. Insurance
loss reserves increased primarily due to an increase in unsettled claims
associated with the increase in participation in the CAR Insurance program.
Cash used in investing activities of $436,578 related primarily to the
acquisition of vehicles and computer software, hardware, and an increase in
restricted cash due to the Company's additional liability to the national
advertising fund related to an increase in advertising fees, partially offset by
the proceeds from the sale of one vehicle.
Cash provided by financing activities during the same period was
$1,149,892, resulting from an increase in insurance financing payable in
connection with the CAR Insurance program and net proceeds from exercise of
options and warrants, offset by the payment of preferred dividends.
The Company believes it has sufficient working capital to support its
business plan through fiscal 2001 and for the foreseeable future.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
year presentation.
IMPACT OF INFLATION
Inflation has had no material impact on the operations and financial
condition of the Company.
The statements regarding anticipated future performance of the Company
contained in this report are forward-looking statements which are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements involve risks and uncertainties that
could cause the Company's actual results to differ materially from the
forward-looking statements. Factors which could cause or contribute to such
differences include, but are not limited to, the Company's limited experience in
the reinsurance business and the potential for negative claims experience, the
effects of government regulation of the Company's franchise and insurance
programs including maintaining properly registered franchise documents and
making any required alterations in the Company's franchise program to comply
with changes in the laws, competitive pressures from other motor vehicle rental
companies which have greater marketing and financial resources than the Company,
protection of the Company's trademarks, and the dependence on the Company's
relationships with its franchisees. These risks and uncertainties are more fully
described under the caption, "Item 6 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Important Factors" in the
Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 2000.
All forward-looking statements should be considered in light of these risks and
uncertainties.
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<PAGE>
SELECTED FINANCIAL DATA
Set forth below are selected financial data with respect to the
consolidated statements of operations of the Company and its subsidiaries for
the six month periods ended September 30, 1999 and 2000 and with respect to the
balance sheets at September 30, 1999 and 2000.
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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1999 2000 1999 2000
------- -------- ------- -------
(in thousands except per share and number of franchises)
(Unaudited)
<S> <C> <C> <C> <C>
FRANCHISEES' RESULTS (UNAUDITED)
Franchisees' Revenue (1) $15,498 $ 16,817 $26,819 $30,407
Number of Franchised locations 655 669 655 669
COMPANY'S RESULTS OF OPERATIONS
Total Revenue $ 1,866 $ 2,105 $ 3,345 $ 3,835
Operating expenses 1,224 2,601 2,382 3,891
Income before income taxes $ 663 $ (464) $ 1,002 $ 12
Net income 432 (136) 665 157
Earnings per common share
Basic $ .11 $ (.04) $ .16 $ .03
Weighted average common shares 3,944 3,824 3,942 3,697
Diluted $ .07 $ (.04) $ .11 $ .03
Weighted average common
shares plus convertible
preferred stock, options
and warrants 6,106 3,824 6,000 5,412
EBITDA (2) 703 839 1,080 1,351
</TABLE>
September 30,
1999 2000
------ ------
(Unaudited)
BALANCE SHEET DATA
Working capital $1,978 $2,092
Total assets $4,304 $4,700
Shareholders' equity $2,515 $2,845
(1) The franchisees' revenue data have been derived from unaudited reports
provided by franchisees for use in calculating license fees.
(2) "EBITDA" is earnings before interest expense, depreciation,
amortization, taxes and repurchase of options. EBITDA 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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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to legal proceedings incidental to its business from
time to time. Certain claims, suits and complaints arise in the ordinary course
of business and may be filed against the Company. Based on facts now known to
the Company, management believes all such matters are adequately provided for,
covered by insurance or, if not so covered or provided for, are without merit,
or involve such amounts that would not materially adversely affect the
consolidated results of operations or financial position of the Company.
ITEM 2. CHANGES IN SECURITIES
On July 24, 2000, 175,000 options and 135,000 warrants were exercised at
$1.00 and $1.15 by affiliates for 310,000 shares of common stock. On September
22, 2000, 617,279 options were exercised for 617,279 shares of common stock.
These transactions were exempt under Rule 701 and Section 4(2). See also Item 5
below.
ITEM 5. OTHER INFORMATION
During the quarter ended September 30, 2000, 927,279 options and warrants
were exercised for 927,279 shares of the Company's common stock increasing total
outstanding common shares from 3,568,217 to 4,495,496.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See the Exhibit Index following the Signatures page, which is
incorporated herein by reference.
(b) Rent-A-Wreck of America, Inc. filed one report on Form 8-K for the
quarter ended September 30, 2000.
1. Date September 21, 2000, reporting the repurchase of certain
options and authorizing 1,000,000 share addition to the Company's ongoing share
repurchase program.
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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: Dated:
/s/Mitra Ghahramanlou November 10, 2000
--------------------------------- ------------------
Mitra Ghahramanlou
Chief Accounting Officer
/s/ Kenneth L. Blum, Sr. November 10, 2000
--------------------------------- ------------------
Kenneth L. Blum, Sr.
CEO and Chairman of the Board
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EXHIBIT INDEX
TO
RENT-A-WRECK OF AMERICA, INC.
FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 2000
EXHIBIT NO. DESCRIPTION
----------- -----------
27 Financial Data Schedule Filed herewith.
18
