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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ____________ to ____________
Commission File Number 0-14819
RENT-A-WRECK OF AMERICA, INC.
- -------------------------------------------------------------------------------
(Exact name of small business issuer as
specified in its Charter)
Delaware 95-3926056
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
11460 Cronridge Drive, Suite 118, Owings Mills, MD 21117
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(Address of principal executive offices)
(410) 581-5755
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes /X/
No / /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 4,218,042 shares as of
October 15, 1995.
Transitional Small Business Disclosure Format (Check One):
Yes / / No /X/
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RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
FORM 10-QSB - SEPTEMBER 30, 1995
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1995 and
September 30, 1995 (Unaudited) 2-3
Consolidated Statements of Earnings for
the Three and Six Months ended
September 30, 1994 and 1995 (Unaudited) 4
Consolidated Statements of Cash Flows for
Six Months ended September 30, 1994 and
1995 (Unaudited) 5
Notes to Consolidated Financial Statements
(Unaudited) 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-10
Part II. Other Information
Item 1. Legal proceedings 11
Item 6. Exhibits 11
Signature 12
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Part I - Financial Information
Item 1 - Financial Statements
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, September 30,
1995 1995
----------- -------------
(Unaudited)
CURRENT ASSETS:
Cash and Cash Equivalents ....................... $ 566,372 $ 697,120
Accounts Receivable, net of allowance
for doubtful accounts of $591,420
and $771,485 at March 31, 1995 and
September 30, 1995, respectively:
Initial and Continuing License Fees and
Advertising Fees .................... 244,320 300,657
Current Portion of Notes Receivable ... 452,471 470,128
Current Portion of Direct Financing
Leases .............................. 137,721 57,706
Insurance Premiums Receivable ......... 139,083 157,020
Other ................................. 13,844 12,049
Prepaid Expenses ................................ 99,390 107,038
----------- -----------
TOTAL CURRENT ASSETS ............................ 1,653,201 1,801,718
----------- -----------
NOTES AND LEASE RECEIVABLES, net of non-current
allowance for doubtful accounts of $55,142
and $36,502 at March 31, 1995 and September
30, 1995, respectively:
Notes Receivable .......................... 114,544 42,898
Direct Financing Leases ................... 26,203 42,827
----------- -----------
140,747 85,725
PROPERTY AND EQUIPMENT:
Vehicles ...................................... -- 47,750
Furniture, Equipment and Leasehold
Improvements ................................ 454,525 521,453
----------- -----------
454,525 569,203
Less: Accumulated Depreciation and
Amortization ........................... (307,591) (328,423)
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NET PROPERTY AND EQUIPMENT ...................... 146,934 240,780
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OTHER ASSETS:
Trademarks and other Intangible Assets, net of
Accumulated Amortization of $172,510 and
$178,701 at March 31, 1995 and September 30,
1995, respectively ............................ 161,028 164,878
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TOTAL ASSETS ................................ $ 2,101,910 $ 2,293,101
=========== ===========
The accompanying notes are an integral part of these consolidated balance
sheets.
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RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, September 30,
1995 1995
----------- -------------
(Unaudited)
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses ....... $ 573,926 $ 561,103
Dividends Payable ........................... 33,115 33,115
Insurance Premiums, Deposits, and Loss
Reserves .................................. 115,455 161,084
Other ....................................... 34,944 29,345
Current Maturities of Long-Term Debt:
Commercial Installment .................. 45,751 --
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TOTAL CURRENT LIABILITIES ................ 803,191 784,647
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Convertible Cumulative Preferred Stock,
$.01 par value; authorized 10,000,000 shares;
issued and outstanding 1,655,750 shares at
March 31, 1995 and September 30, 1995
(aggregate liquidation preference $1,324,600
at March 31, 1995 and September 30, 1995) ... 16,558 16,558
Common Stock, $.01 par value; shares
authorized, 25,000,000; issued and
outstanding 4,238,042 at March 31, 1995 and
issued 4,238,042, outstanding 4,218,042 at
September 30, 1995 .......................... 42,380 42,380
Additional Paid-In Capital .................... 3,198,920 3,198,920
Cumulative Deficit ............................ (1,959,139) (1,733,404)
Treasury Stock ................................ -- (16,000)
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TOTAL SHAREHOLDERS' EQUITY .................. 1,298,719 1,508,454
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TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY .................................... $ 2,101,910 $ 2,293,101
=========== ===========
The accompanying notes are an integral part of these consolidated balance
sheets.
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RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Six Months
Ended September 30, Ended September 30,
1994 1995 1994 1995
---------- ---------- ---------- ----------
REVENUES:
Initial License Fees ................. $ 127,000 $ 196,250 $ 236,750 $ 400,750
Advertising Fees ..................... 153,896 160,610 268,886 288,224
Continuing License Fees .............. 485,404 504,431 848,710 911,377
Auto Rental Operations ............... -- 3,750 -- 3,750
Direct Financing Lease Franchisees ... 17,929 3,593 40,837 9,869
Other ................................ 85,121 79,031 164,912 160,580
---------- ---------- ---------- ----------
869,350 947,665 1,560,095 1,774,550
EXPENSES:
Advertising and Promotion ............ 195,549 211,214 344,193 391,284
Depreciation & Amortization .......... 20,190 13,947 40,622 27,416
Sales and Marketing Expenses ......... 181,943 199,455 346,581 374,262
General and Administrative Expenses .. 192,654 177,780 321,959 350,485
Salaries, Consulting Fees and
Employee Benefits .................. 143,934 160,335 266,557 329,754
---------- ---------- ---------- ----------
734,270 762,731 1,319,912 1,473,201
---------- ---------- ---------- ----------
OPERATING INCOME ....................... 135,080 184,934 240,183 301,349
INTEREST INCOME, NET ................... 7,726 13,923 12,989 28,173
INCOME BEFORE INCOME TAX EXPENSE ....... 142,806 198,857 253,172 329,522
INCOME TAX EXPENSE ..................... 12,000 8,750 16,500 19,250
NET INCOME ............................. $ 130,806 $ 190,107 $ 236,672 $ 310,272
DIVIDENDS ON CONVERTIBLE CUMULATIVE
PREFERRED STOCK ...................... 33,115 33,115 66,230 66,230
---------- ---------- ---------- ----------
NET INCOME APPLICABLE TO COMMON
AND COMMON EQUIVALENT SHARES ......... $ 97,691 $ 156,992 $ 170,442 $ 244,042
========== ========== ========== ==========
EARNINGS PER COMMON SHARE .............. $ .02 $ .03 $ .04 $ .05
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 4,238,042 4,484,642 4,238,042 4,484,642
========== ========== ========== ==========
The accompanying notes are an integral part of these Consolidated Statements.
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RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended September 30,
-------------------------------
1994 1995
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Cash flow from operating activities:
Net Income ............................................. $ 236,672 $ 310,272
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ...................... 40,622 27,416
Loss (Gain) on disposal of property and equipment .. 19 (200)
Provision for doubtful accounts .................... 124,247 172,743
Changes in assets and liabilities:
Accounts and notes receivable .................... (63,051) (160,628)
Direct financing leases receivable ............... 180,438 31,891
Inventory ........................................ 2,802 --
Prepaid expenses ................................. 3,057 (7,648)
Other assets ..................................... 10,292 895
Accounts payable and accrued
expenses ....................................... (33,356) (18,422)
Insurance premiums, deposits, and
loss reserves .................................. 2,403 45,629
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Net cash provided by operating activities .......... 504,145 401,948
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Cash flow from investing activities:
Proceeds from sale of property and equipment ........... -- 200
Acquisition of property and equipment .................. (23,804) (115,071)
Additions to trademarks and other ...................... (9,566) (10,041)
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Net cash used in investing activities .................. (33,370) (124,912)
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Cash flows from financing activities:
Payments of long-term notes payable .................... (479,371) (45,751)
Preferred dividends paid ............................... (33,115) (84,537)
Purchase of Treasury Stock ............................. -- (16,000)
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Net cash used in financing activities .................. (512,486) (146,288)
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Net (decrease) increase in cash and cash equivalents ..... (41,711) 130,748
Cash and cash equivalents at beginning of period ......... 583,410 566,372
--------- ---------
Cash and cash equivalents at end of period ............... $ 541,699 $ 697,120
========= =========
Supplemental disclosure of cash flow information:
Interest paid .......................................... $ 3,134 $ 3,406
Taxes paid ............................................. $ 24,550 $ 17,550
Non-cash transactions:
Obligation under Capital Lease ......................... $ 15,511 $ 29,345
========= =========
The accompanying notes are an integral part of these consolidated statements.
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RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements presented herein include the
accounts of Rent-A-Wreck of America, Inc. ("RAWA, Inc.") and its wholly-owned
subsidiaries, Rent-A-Wreck Operations, Inc. ("RAW OPS"), Rent-A-Wreck One Way
Inc. ("RAW One Way") and Bundy American Corporation ("Bundy"), and Bundy's
subsidiaries, Rent-A-Wreck Leasing, Inc. ("RAW Leasing"), URM Corporation
("URM") and Central Life and Casualty Company, Limited ("CLC"). All of the above
entities are collectively referred to as the "Company" unless the context
provides or requires otherwise. All material intercompany balances and
transactions have been eliminated.
The consolidated balance sheet as of September 30, 1995, the consolidated
statements of income for the three and six-month periods ended September 30,
1994 and 1995 and the statements of cash flows for the six-month periods ended
September 30, 1994 and 1995 have been prepared by the Company without audit. In
the opinion of management, all adjustments which are necessary to present a fair
statement of the results of operations for the interim periods have been made,
and all such adjustments are of a normal recurring nature. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. It is suggested that these financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's March
31, 1995 audited financial statements. The results of operations for the interim
periods are not necessarily indicative of the results for a full year.
2. PREFERRED STOCK
As of March 31, 1995, preferred dividend arrearages were $366,137. The Company
paid $18,307 of these arrearages during the quarter ended June 30, 1995. A
quarterly preferred dividend of $33,115 was declared for the first quarter ended
June 30, 1995 and it was paid on August 10, 1995. For the quarter ended
September 30, 1995, the Company declared dividends totaling $33,115 which are
expected to be paid during the third quarter of the Company's fiscal year.
3. LONG-TERM DEBT
As of January 17, 1992 the Company entered into a Commercial
Installment Agreement with a finance company. This Commercial Installment
Agreement bears an interest rate of 3% over prime rate not to exceed 9% and
matured August 1, 1995.
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During the quarter ended September 30, 1995, the Company paid off the $45,751
Commercial Installment Agreement. Franchisees owed the Company $74,113 and
$34,192 as of March 31, 1995 and September 30, 1995, respectively, under the
Commercial Installment Agreement.
Currently the Company directly provides vehicle financing to qualifying
franchisees. Each franchisee requesting credit applies for prior approval of a
credit line with the Company. The terms of each financing agreement vary
depending upon the vehicle involved, the creditworthiness of the franchisee and
other factors. As of March 31, 1995 and September 30, 1995, franchisees owed the
Company $103,980 and $109,563 under the direct financing program.
4.EARNINGS PER COMMON SHARE
The computation of earnings per common share for the six-month periods ended
September 30, 1994 and 1995, respectively, is presented on a fully diluted basis
and is based upon the weighted average number of common shares outstanding for
those periods. Any dilutive effect of stock options and warrants was considered
in computation of earnings per common share. In the computation for the three
and six-month periods ended September 30, 1994 and 1995, cumulative preferred
dividends in the amounts of $33,115 and $66,230, respectively, for each period
were subtracted from net income to arrive at the earnings applicable to common
shareholders.
5.TREASURY STOCK
During the quarter ended June 30, 1995, the Company purchased 20,000 shares of
its common stock at a cost of $16,000.
6.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.
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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER RESULTS OF OPERATIONS
Gross revenues increased by $78,315 (9%) for the three- month period ended
September 30, 1995 as compared to the same period in the prior year, due
primarily to the increase in initial license fees of $69,250 (55%) and an
increase in continuing license fees of $19,027 (4%).
Total operating expenses increased by $28,461 (4%) in this period due primarily
to an increase in salary expense of $16,401 (11%), and an increase in sales and
marketing expenses of $17,512 (10%) which resulted primarily from the addition
of new salespersons.
The company realized operating income of $184,934 for the quarter compared to
operating income of $135,080 in the same quarter for 1994, reflecting an
increase of $49,854. This increase resulted primarily from the increase in
initial license fees and continuing license fees.
YEAR TO DATE RESULTS OF OPERATIONS
Gross revenues increased by $214,455 (14%) for the six-month period ended
September 30, 1995 as compared to the same period in the prior year. This
increase occurred due to a $164,000 (69%) increase in initial licensing fees and
a $62,667 (7%) increase in continuing license fees, partially offset by a
decrease of $30,968 (76%) from the vehicle finance program.
Total operating expenses increased by $153,289 (12%) in this period due
primarily to an increase in salary expense of $63,197 (24%), an increase in
sales and marketing expenses of $27,681 (8%), and an increase in general and
administrative expenses of $28,526 (9%), which resulted primarily from an
increase in legal fees and expenses.
The Company realized operating income of $301,349, before taxes and interest,
for the six months compared to an operating income of $240,183 for 1994,
reflecting an increase of $61,166. This increase resulted primarily from the
increase in initial license fees and continuing license fees.
Net interest income increased by $15,184 due primarily to the elimination of the
long-term note payable and an increase in initial license fees notes receivable.
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, the Company had working capital of $1,017,071 compared to
working capital of $850,010 at March 31, 1995. This increase of $167,061
primarily resulted from the net profit earned during the six-month period ended
September 30, 1995.
Cash provided by operations was $401,948 resulting from an increase in net
income, as well as the reduction of accounts payable. Cash used in financing
activities during the same period was $146,288 based on payments on a long-term
note payable, payments of preferred dividends, and the purchase of treasury
stock.
The Company believes that it has sufficient working capital to support its
business plan through fiscal 1996.
IMPACT OF INFLATION
Inflation has had no material impact on the operations and financial condition
of the Company.
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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, 1994 and 1995 and with respect to the balance sheets
thereof at September 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 Six Months
Ended September 30, Ended September 30,
1994 1995 1994 1995
--------------------------------------------------------
(in thousands except per share and number of franchises)
(Unaudited)
FRANCHISEES' RESULTS (UNAUDITED)
Franchisees' Revenue (1) $ 8,090 $ 8,407 $14,145 $15,190
Number of Franchises 375 414 375 414
RESULTS OF OPERATIONS
Total Revenue $ 869 $ 948 $ 1,560 $ 1,775
Costs and expenses and Other 734 763 1,320 1,473
Income before income
taxes 143 199 253 330
Net income 131 190 237 310
Earnings per share (2) $ .02 $ .03 $ .04 $ .05
Weighted average number of
shares outstanding 4,238 4,485 4,238 4,485
Six Months
Ended September 30,
--------------------------
1994 1995
------ ------
(Unaudited)
BALANCE SHEET DATA
Working capital $ 783 $1,017
Total assets $2,249 $2,293
Long-term obligations $ 245 $ --
Shareholders' equity $1,252 $1,508
(1) The franchisees' revenue data have been derived from unaudited reports
provided by franchisees in paying license fees.
(2) Earnings per common share are after deducting a provision for preferred
dividends of $33,115 and $66,230, respectively, for the three and six-month
periods ended September 30, 1994 and 1995.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information is incorporated by reference from the Company's Report Form 10-KSB
for the year ended March 31, 1995.
ITEM 6. EXHIBITS
See Exhibit Index following the Signatures page, which is incorporated herein
by this reference.
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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/Mithra Khosravi November 7, 1995
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Mithra Khosravi
Chief Accounting Officer
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EXHIBIT INDEX
TO
RENT-A-WRECK OF AMERICA, INC
FROM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
Exhibit
No. Description
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27 Financial Data Schedule