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 June 30, 2001
[ ] 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
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 4,385,496 shares as of July
25, 2001.
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
FORM 10-QSB - JUNE 30, 2001
INDEX
Part I. Financial Information Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2001
and June 30, 2001 (Unaudited) 2-3
Consolidated Statements of Earnings for the Three
Months ended June 30, 2000 and 2001 (Unaudited) 4
Consolidated Statements of Cash Flows for the
Three Months ended June 30, 2000 and 2001 (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 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
1
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
2001 2001
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and Cash Equivalents .................................... $ 554,181 $ 1,009,720
Restricted Cash .............................................. 892,061 864,494
Accounts Receivable, net of allowance for doubtful
accounts of $854,423 and $899,299 at March 31, 2001
and June 30, 2001, respectively:
Continuing License Fees and Advertising Fees ............... 417,513 397,221
Current Portion of Notes Receivable ........................ 415,829 562,744
Current Portion of Direct Financing
Leases ................................................... 15,321 5,525
Insurance Premiums Receivable ............................ 5,384 14,126
Other .................................................... 83,330 346,017
Prepaid Expenses and Other ................................... 165,811 175,883
Prepaid Income Tax Expense ................................... 524,155 265,721
Deferred Tax ................................................. 341,983 359,314
----------- -----------
TOTAL CURRENT ASSETS ....................................... 3,415,568 4,000,765
----------- -----------
PROPERTY AND EQUIPMENT:
Furniture .................................................... 95,837 95,837
Computer Hardware and Software ............................... 470,153 509,672
Machinery and Equipment ...................................... 65,644 69,943
Leasehold Improvements ....................................... 23,767 23,767
Vehicles ..................................................... 398,111 701,692
----------- -----------
1,053,512 1,400,911
Less: Accumulated Depreciation and Amortization .............. (363,075) (403,153)
----------- -----------
NET PROPERTY AND EQUIPMENT ................................. 690,437 997,758
----------- -----------
OTHER ASSETS:
Intangible Assets, net of accumulated amortization of
$152,770 and $158,575 at March 31, 2001 and June 30, 2001,
respectively ................................................ 194,192 188,595
Long-term Portion of Notes and Direct Financing Lease
Receivables ................................................. 73,536 65,131
----------- -----------
267,728 253,726
----------- -----------
TOTAL ASSETS ............................................... $ 4,373,733 $ 5,252,249
=========== ===========
The accompanying notes are an integral part of these financial statements.
2
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, June 30,
2001 2001
---------- ----------
(Unaudited)
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses .................................... $ 942,965 $1,028,031
Dividends Payable ........................................................ 22,100 22,100
Insurance Financing Payable .............................................. -- 439,181
Insurance Loss Reserves .................................................. 510,327 487,743
---------- ----------
TOTAL CURRENT LIABILITIES .............................................. 1,475,392 1,977,055
---------- ----------
LONG-TERM LIABILITIES:
Deferred Tax Liability ................................................... 35,514 35,514
---------- ----------
TOTAL LONG-TERM LIABILITIES ............................................ 35,514 35,514
---------- ----------
TOTAL LIABILITIES ...................................................... 1,510,906 2,012,569
---------- ----------
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, 2001 and at June 30, 2001 (aggregate
liquidation preference $884,000 at March 31, 2001 and June 30, 2001) .... 11,050 11,050
Common Stock, $.01 par value; authorized 25,000,000 shares; issued
and outstanding 4,385,496 shares at March 31, 2001 and June 30, 2001 .... 43,855 43,855
Additional Paid-In Capital ............................................... 2,267,709 2,267,709
Retained Earnings ........................................................ 540,213 917,066
---------- ----------
TOTAL SHAREHOLDERS' EQUITY ............................................. 2,862,827 3,239,680
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................. $4,373,733 $5,252,249
========== ==========
The accompanying notes are an integral part of these financial statements.
3
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended June 30,
----------------------------
2000 2001
----------- -----------
REVENUES:
Initial License Fees .................................................... $ 368,500 $ 504,501
Continuing License Fees ................................................. 815,394 879,535
Advertising Fees ........................................................ 241,478 235,699
Insurance Premiums ...................................................... 257,369 350,092
Vehicle Rental Operations ............................................... 11,952 52,730
Other ................................................................... 34,984 25,328
----------- -----------
1,729,677 2,047,885
----------- -----------
EXPENSES:
Salaries, Consulting Fees and Employee Benefits ......................... 254,465 240,057
Advertising and Promotion ............................................... 366,158 385,486
Sales and Marketing ..................................................... 94,059 198,489
Insurance Underwriting Expenses ......................................... 286,090 237,075
General and Administrative Expenses ..................................... 260,302 318,828
Depreciation & Amortization ............................................. 28,326 45,987
----------- -----------
1,289,400 1,425,922
----------- -----------
OPERATING INCOME .................................................... 440,277 621,963
OTHER INCOME (EXPENSE)
Interest Income ......................................................... 42,632 33,995
Interest Expense ........................................................ (6,927) (6,197)
----------- -----------
35,705 27,798
----------- -----------
INCOME BEFORE INCOME TAX EXPENSE .................................... 475,982 649,761
----------- -----------
INCOME TAX EXPENSE ........................................................ 183,250 250,808
----------- -----------
NET INCOME .......................................................... $ 292,732 $ 398,953
DIVIDENDS ON CONVERTIBLE CUMULATIVE PREFERRED STOCK ....................... 22,100 22,100
----------- -----------
NET INCOME APPLICABLE TO COMMON AND COMMON EQUIVALENT SHARES .............. $ 270,632 $ 376,853
----------- -----------
EARNINGS PER COMMON SHARE
Basic ................................................................... $ .08 $ .09
----------- -----------
Weighted average common shares ............................................ 3,568,217 4,385,496
=========== ===========
Diluted ................................................................. $ .05 $ .07
----------- -----------
Weighted average common shares plus options
and warrants ............................................................. 5,420,523 5,490,496
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended June 30,
----------------------------
2000 2001
----------- -----------
Increase (decrease) in cash and cash equivalents
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 292,732 $ 398,953
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization ..................................... 28,326 45,987
Deferred income taxes ............................................. 241,000 (17,331)
Gain on disposal of property and equipment ........................ (8,208) (95)
Provision for doubtful accounts ................................... (13,004) 44,876
Changes in assets and liabilities:
Accounts and notes receivable ..................................... 230,109 (424,727)
Prepaid expenses and other ........................................ 6,598 (10,072)
Prepaid income tax ................................................ -- 258,434
Income taxes recoverable .......................................... (170,079) --
Accounts payable and accrued expenses ............................. (532,328) 85,066
Income taxes payable .............................................. (338,550) --
Insurance loss reserves ........................................... 28,502 (22,584)
----------- -----------
Net cash (used in) provided by operating activities ......... (234,902) 358,507
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase (decrease) in restricted cash .............................. (27,391) 27,567
Proceeds from sale of property and equipment ........................ 32,500 6,200
Acquisition of property and equipment and intangible assets ......... (76,476) (353,816)
----------- -----------
Net cash used in investing activities ....................... (71,367) (320,049)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in insurance financing payable ............................. 436,425 439,181
Preferred dividends paid ............................................ (22,100) (22,100)
----------- -----------
Net cash provided by financing activities ................... 414,325 417,081
----------- -----------
Net increase in cash and cash equivalents ................... 108,056 455,539
Cash and cash equivalents at beginning of period ...................... 701,808 554,181
----------- -----------
Cash and cash equivalents at end of period ............................ $ 809,864 $ 1,009,720
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ....................................................... $ 6,927 $ 6,197
Taxes paid .......................................................... $ 449,996 $ 9,705
The accompanying notes are an integral part of these financial statements.
5
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
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 June 30, 2001, and the consolidated
statements of earnings and cash flows for the three-month periods ended June 30,
2000 and 2001 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 have been
condensed or omitted. These statements should be read in conjunction with the
financial statements and notes thereto included in the Company's March 31, 2001
Form 10-KSB filed with the Securities and Exchange Commission. The interim
results of operations for the three month periods ended June 30, 2000 and 2001
are not necessarily indicative of the operating results for the full fiscal
year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) 141, Business Combinations,
and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all
business combinations completed after June 30, 2001. SFAS 142 is effective for
fiscal years beginning after December 15, 2001; however, certain provisions of
this Statement apply to goodwill and other intangible assets acquired between
July 1, 2001 and the effective date of SFAS 142. Major provisions of these
Statements and their effective dates for the Company are as follows:
All business combinations initiated after June 30, 2001 must use the
purchase method of accounting. The pooling of interest method of accounting is
prohibited except for transactions initiated before July 1, 2001.
Intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal rights or
are separable from the acquired entity and can be sold, transferred, licensed,
rented or exchanged, either individually or as part of a related contract, asset
or liability.
Goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized. Effective April 1, 2002, all
previously recognized goodwill and intangible assets with indefinite lives will
no longer be subject to amortization.
Effective January 1, 2002, goodwill and intangible assets with indefinite
lives will be tested for impairment annually and whenever there is an impairment
indicator.
6
All acquired goodwill must be assigned to reporting units for purposes of
impairment testing and segment reporting.
Although it is still reviewing the provisions of these Statements,
management's preliminary assessment is that these Statements will not have a
material impact on the Company's financial position or results of operations.
3. PREFERRED STOCK
During the three month period ended June 30, 2001, the Company declared
dividends on the Preferred Stock totaling $22,100 which are expected to be paid
during the second quarter of the Company's 2002 fiscal year.
4. 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 periods
ended June 30, 2000 and 2001 is as follows:
2000 2001
---------- ----------
BASIC EPS COMPUTATION
Numerator:
Net income applicable to common shares $ 270,632 $ 376,853
Denominator:
Weighted average common shares 3,568,217 4,385,496
---------- ----------
Basic EPS $ .08 $ .09
========== ==========
DILUTED EPS COMPUTATION
Numerator:
Net income applicable to common shares $ 270,632 $ 376,853
Dividends on convertible preferred stock 22,100 22,100
---------- ----------
292,732 398,953
---------- ----------
Denominator
Weighted average common shares 3,568,217 4,385,496
Weighted average convertible preferred stock 1,105,000 1,105,000
Weighted average options and warrants 747,306 --
---------- ----------
5,420,523 5,490,496
Diluted EPS $ .05 $ .07
========== ==========
For the three month period ended June 30, 2001, options for the purchase of
35,000 shares of common stock were excluded from the calculation of diluted EPS
as their effect would have been antidilutive.
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 includes revenues based upon
customer locations and assets based on physical locations.
7
The Company's foreign operations are presently conducted by CAR Insurance
in Bermuda.
Information by geographic area and industry segment is as follows:
Three Months Ended
June 30,
--------------------------
2000 2001
----------- -----------
Net revenues from external customers
Vehicle Rental Franchises-Rent-A-Wreck-(U.S.) $ 1,334,024 $ 1,397,399
Vehicle Rental Franchises-Pricele$$-(U.S.) 134,065 306,465
Corporate-(U.S.) 1,500 --
Insurance-(U.S.) 260,088 344,021
Insurance-(Bermuda) -- --
----------- -----------
$ 1,729,677 $ 2,047,885
----------- -----------
Segment operating income
Vehicle Rental Franchises-Rent-A-Wreck-(U.S.) $ 516,753 $ 510,576
Vehicle Rental Franchises-Pricele$$-(U.S.) 21,814 37,573
Corporate-(U.S.) (19,101) (15,607)
Insurance-(U.S.) (79,189) 89,421
Insurance-(Bermuda) -- --
----------- -----------
$ 440,277 $ 621,963
=========== ===========
Segment assets
Vehicle Rental Franchises-Rent-A-Wreck-(U.S.) $ 1,676,745 $ 2,187,294
Vehicle Rental Franchises-Pricele$$-(U.S.) 347,160 1,071,267
Corporate-(U.S.) 449,651 529,923
Insurance-(U.S.) 1,363,351 1,455,523
Insurance-(Bermuda) 7,899 8,242
----------- -----------
$ 3,844,806 $ 5,252,249
=========== ===========
Expenditures for segment assets
Vehicle Rental Franchises-Rent-A-Wreck-(U.S.) $ -- $ --
Vehicle Rental Franchises-Pricele$$-(U.S.) 750 303,581
Corporate-(U.S.) 75,726 50,235
Insurance-(U.S.) -- --
Insurance-(Bermuda) -- --
----------- -----------
$ 76,476 $ 353,816
=========== ===========
Depreciation and amortization
Vehicle Rental Franchises-Rent-A-Wreck-(U.S.) $ 4,472 $ 4,528
Vehicle Rental Franchises-Pricele$$-(U.S.) 468 20,618
Corporate-(U.S.) 23,386 20,841
Insurance-(U.S.) -- --
Insurance-(Bermuda) -- --
----------- -----------
$ 28,326 $ 45,987
=========== ===========
Interest income
Vehicle Rental Franchises-Rent-A-Wreck-(U.S.) $ 20,925 $ 19,555
Vehicle Rental Franchises-Pricele$$-(U.S.) 1,871 1,890
Corporate-(U.S.) 1,942 1,534
Insurance-(U.S.) 17,894 11,016
Insurance-(Bermuda) -- --
----------- -----------
$ 42,632 $ 33,995
=========== ===========
8
Three Months Ended
June 30,
--------------------------
2000 2001
----------- -----------
Interest expense
Vehicle Rental Franchises-Rent-A-Wreck-(U.S.) $ -- $ --
Vehicle Rental Franchises-Pricele$$-(U.S.) 6 --
Corporate-(U.S.) -- --
Insurance-(U.S.) 6,921 6,197
Insurance- (Bermuda) -- --
----------- -----------
$ 6,927 $ 6,197
=========== ===========
Income taxes
Vehicle Rental Franchises-Rent-A-Wreck-(U.S.) $ 183,250 $ 231,958
Vehicle Rental Franchises-Pricele$$-(U.S.) -- --
Corporate-(U.S.) -- --
Insurance-(U.S.) -- 18,850
Insurance-(Bermuda) -- --
----------- -----------
$ 183,250 $ 250,808
=========== ===========
5. 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 December 2000, the Company and certain employees were named in a lawsuit
seeking declaratory and injunctive relief, rescission, and monetary damages in
the sum of $5 million. This lawsuit alleges similar claims to a lawsuit that was
previously dismissed, and the Company believes the claims are without merit.
They will be vigorously defended.
6. SUBSEQUENT EVENTS
The Company is in the process of finalizing a line of credit for $1,500,000
with Merrill Lynch. The purpose of this line of credit is to provide additional
funds for purchasing vehicles in connection with the Company's store and the
wheelchair van program, and also to issue a letter of credit as a security for
the reinsurance arrangement with AIG. This letter of credit will replace the
existing letter of credit with Bank of America.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO JUNE 30, 2000
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 Pricele$$ lines of business. For the
quarter ended June 30, 2001, franchising operations comprised 83% of
consolidated net revenues (85% in 2000) and 88% of consolidated operating income
(122% in 2000).
For the quarter ended June 30, 2001, initial license fees, continuing
license fees and advertising fees, increased by $194,363 (14%). Initial license
fees increased by $136,001 (37%), continuing license fees increased by $64,141
(8%), and advertising fees decreased by $5,779 (2%). The increase in initial
license fees and continuing license fees 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 $92,723 (36%) due to higher
participation by the Company's franchisees in the Company's CAR Insurance
program.
Total operating expenses for both segments increased by $136,522 (11%)
compared to the prior period. Salary expense for both segments decreased by
$14,408 (6%). Advertising and promotion expenses increased by $19,328 (5%),
which resulted primarily from an increase in national advertising expense to
promote the Company. Sales and marketing expenses increased by $104,430 (111%),
which resulted primarily from expenses associated with the Company's store and
an increase in bad debt expense. Insurance underwriting expenses decreased by
$49,015 (17%) due to a decrease in paid losses and loss reserves for unsettled
claims. General and administrative expenses for both segments increased by
$58,526 (22%), which resulted primarily from increases in legal expense.
The Company realized operating income of $621,963, before taxes and
interest, for the three-month period ended June 30, 2001 compared to operating
income of $440,277 for the same period in the prior year, reflecting an increase
of $181,686 (41%). This increase resulted primarily from an increase in
insurance premiums as well as a decrease in underwriting expenses.
Net interest income decreased by $7,907 (22%). This decrease was primarily
due to lower interest earned on the cash deposits, which are held in interest
bearing accounts.
Income tax expense for the quarter ended June 30, 2001 increased by $67,558
(37%) compared to the three-month period ended June 30, 2000 due to higher
pre-tax earnings.
10
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, the Company had working capital of $2,023,710 compared to
$1,940,176 at March 31, 2001. This increase of $83,534 resulted primarily from
the net profit earned during the three-month period ended June 30, 2001.
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 6.75% on July 25, 2001). For the quarter ended June
30, 2001, 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
$9,722 at June 30, 2001.
Property and equipment increased by $347,399 (33%) from March 31, 2001 to
June 30, 2001. This increase occurred primarily due to the purchase of 26
vehicles in connection with the Company's store, one vehicle in connection with
the wheelchair van program and additional investment in computer software and
hardware.
Cash provided by operations was $358,507, resulting from net income before
depreciation plus the decrease in prepaid income tax and the increase in
accounts payable and accrued expenses, partially offset by the increase in
accounts and notes receivable and prepaid expenses and the decrease in insurance
loss reserves. Prepaid income tax decreased due to the income tax expense for
the three months ended June 30, 2001. Accounts payable and accrued expenses
increased primarily from accrued national advertising expense. Accounts and
notes receivable increased primarily due to the timing differences between funds
paid to and received from AIG in connection with the reinsurance program.
Prepaid expenses increased primarily due to the interest paid on insurance
financing in connection with the reinsurance program. Insurance loss reserves
decreased primarily due to a decrease in paid losses and unsettled claims
associated with the CAR Insurance program.
Cash used in investing activities of $320,049 related primarily to the
acquisition of vehicles, computer software and hardware, offset by a decrease in
restricted cash due to additional national advertising expenses and proceeds
from the sale of one vehicle.
Cash provided by financing activities during the same period was $417,081,
resulting from an increase in insurance financing payable in connection with the
CAR insurance program, offset by the payment of preferred dividends.
The Company believes it has sufficient working capital to support its
business plan through fiscal 2002.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
year presentation.
11
FORWARD LOOKING STATEMENTS
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 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, 2001.
All forward-looking statements should be considered in light of these risks and
uncertainties.
12
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 June 30, 2001 and 2000 and with respect to the balance
sheets thereof at June 30 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 ended June 30,
---------------------------
2000 2001
------- -------
(in thousands except per share
amounts and number of franchises)
(Unaudited)
FRANCHISEES' RESULTS
Franchisees' revenue (1) $13,590 $14,659
Number of franchised locations 663 677
RESULTS OF OPERATIONS
Total revenue $ 1,730 $ 2,048
Total expense 1,298 1,426
Income before income taxes 476 650
Net income 293 399
Earnings per common share
Basic $ .08 $ .09
Weighted average common shares 3,568 4,385
Diluted $ .05 $ .07
Weighted average common shares plus
convertible preferred stock, and
options and warrants 5,421 5,490
EBITDA (2) 511 702
BALANCE SHEET DATA
Working capital $ 1,492 $ 2,024
Total assets $ 3,845 $ 5,252
Shareholders' Equity $ 2,106 $ 3,240
- ----------
(1) The franchisees' revenue data have been derived from unaudited reports
provided by franchisees in paying 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.
SUBSEQUENT EVENTS
The Company is in the process of finalizing a line of credit for $1,500,000
with Merrill Lynch. The purpose of this line of credit is to provide additional
funds for purchasing vehicles in connection with the Company's store and the
wheelchair van program, and also to issue a letter of credit as a security for
the reinsurance arrangement with AIG. This letter of credit will replace the
existing letter of credit with Bank of America.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
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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: Date:
/s/ Mitra Ghahramanlou August 10, 2001
------------------------------- ---------------
Mitra Ghahramanlou
Chief Accounting Officer
/s/ Kenneth L. Blum, Sr. August 10, 2001
------------------------------- ---------------
Kenneth L. Blum, Sr.
CEO and Chairman of
the Board
15