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, 1996
[ ] 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 120, 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:
4,107,642 shares as of July 22, 1996.
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
FORM 10-QSB - JUNE 30, 1996
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1996 and
June 30, 1996 (Unaudited) 2-3
Consolidated Statements of Earnings for
the Three Months ended
June 30, 1995 and 1996 (Unaudited) 4
Consolidated Statements of Cash Flows for
the Three Months ended June 30, 1995 and
1996 (Unaudited) 5
Notes to Consolidated Financial Statements
(Unaudited) 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-9
Part II. Other Information
Item 1. Legal proceedings 10
Item 5. Retirement of Stock Information 10
Item 6. Exhibits 10
Signature 11
Part I - Financial Information
Item 1 - Financial Statements
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
1996 1996
----------- --------
(Unaudited)
CURRENT ASSETS:
Cash and Cash Equivalents....................... $ 579,871 $ 568,896
Accounts Receivable, net of allowance
for doubtful accounts of $775,376
and $856,866 at March 31, 1996 and
June 30, 1996, respectively:
Continuing License Fees and
Advertising Fees..................... 267,203 297,774
Current Portion of Notes Receivable....... 512,771 518,297
Current Portion of Direct Financing
Leases.................................. 33,872 28,291
Insurance Premiums Receivable............. 171,943 189,237
Other..................................... 6,388 8,833
Prepaid Expenses................................ 85,787 95,088
----------- ----------
TOTAL CURRENT ASSETS........................ 1,657,835 1,706,416
----------- ----------
NOTES AND LEASE RECEIVABLES, net of non-current
allowance for doubtful accounts of $17,604
and $12,446 at March 31, 1996 and June
30, 1996, respectively:
Notes Receivable............................ 14,011 29,539
Direct Financing Leases..................... 9,846 3,845
----------- ----------
23,857 33,384
----------- ----------
PROPERTY AND EQUIPMENT:
Vehicles...................................... 42,525 42,525
Furniture, Equipment and Leasehold
Improvements................................ 639,439 672,280
Less: Accumulated Depreciation and
Amortization........................... (358,018) (383,138)
----------- -----------
NET PROPERTY AND EQUIPMENT...................... 323,946 331,667
----------- ----------
OTHER ASSETS:
Trademarks and other Intangible Assets, net of
accumulated amortization of $194,312 and
$81,019 at March 31, 1996 and June 30,
1996, respectively.......................... 158,743 166,534
----------- ----------
TOTAL ASSETS................................ $2,164,381 $2,238,001
----------- ----------
The accompanying notes are an integral part of these
consolidated balance sheets.
2
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, June 30,
1996 1996
----------- ----------
(Unaudited)
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses......... $ 598,436 $ 610,355
Dividends Payable............................. 31,327 30,915
Insurance Premiums, Deposits, and Loss
Reserves.................................... 109,695 124,030
Current Maturities of Capital Lease
Obligations................................. 16,603 13,804
----------- ----------
TOTAL CURRENT LIABILITIES................... 756,061 779,104
----------- ----------
CAPITAL LEASE OBLIGATIONS, Less Current
Maturities.................................... 35,927 34,790
----------- ----------
TOTAL LIABILITIES 791,988 813,894
----------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Convertible Cumulative Series A Preferred Stock,
$.01 par value; authorized 10,000,000 shares;
issued and outstanding 1,566,375 shares at
March 31, 1996 and 1,545,750 shares at
June 30, 1996 (aggregate liquidation
preference $1,253,100 at March 31, 1996
and $1,236,600 at June 30, 1996)............ 15,664 15,458
Common Stock, $.01 par value; authorized
25,000,000 shares; issued and outstanding
4,121,642 shares at March 31, 1996 and
4,107,642 shares at June 30, 1996........... 41,216 41,076
Additional Paid-In Capital.................... 2,992,198 2,962,044
Cumulative Deficit............................ (1,676,685) (1,594,471)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY.................. 1,372,393 1,424,107
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.................................... $2,164,381 $2,238,001
=========== ==========
The accompanying notes are an integral part of these
consolidated balance sheets.
3
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended June 30,
---------------------------
1995 1996
------------ ------------
REVENUES:
Initial License Fees........................... $ 204,500 $ 228,000
Advertising Fees............................... 127,614 170,718
Continuing License Fees........................ 406,946 515,396
Direct Financing Leases to Franchisees......... 3,074 2,365
Other.......................................... 81,549 64,436
----------- ----------
823,683 980,915
EXPENSES:
Salaries, Consulting Fees and
Employee Benefits............................ 169,419 187,789
Sales and Marketing Expenses................... 174,807 182,512
Advertising and Promotion..................... 180,070 226,879
General and Administrative Expenses............ 172,705 192,259
Depreciation and Amortization.................. 13,469 28,341
----------- ----------
710,470 817,780
OPERATING INCOME........................... 113,213 163,135
INTEREST INCOME, NET............................. 17,452 15,271
----------- ----------
INCOME BEFORE INCOME TAX EXPENSE........... 130,665 178,406
----------- ----------
INCOME TAX EXPENSE............................... 10,500 21,900
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NET INCOME................................. $ 120,165 $ 156,506
DIVIDENDS ON CONVERTIBLE CUMULATIVE
PREFERRED STOCK................................ 33,115 30,915
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NET INCOME APPLICABLE TO COMMON
AND COMMON EQUIVALENT SHARES................... $ 87,050 $ 125,591
----------- ----------
EARNINGS PER COMMON SHARE........................ $ .02 $ .03
=========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING.................. 4,438,336 4,828,267
=========== ==========
The accompanying notes are an integral part of these consolidated statements.
4
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended June 30,
---------------------------
1995 1996
---------- -----------
Increase (decrease) in cash and cash
equivalents
Cash flows from operating activities:
Net income ......................................... $ 120,165 $ 156,506
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization................... 13,469 28,341
Gain on disposal of property and equipment...... (200) --
Provision for doubtful accounts................. 64,884 80,687
Changes in assets and liabilities:
Accounts and notes receivable................... (71,737) (137,606)
Direct financing leases receivable.............. 15,490 (418)
Prepaid expenses................................ (1,510) (9,301)
Other assets.................................... (1,201) (2,445)
Accounts payable and accrued
expenses...................................... (9,109) 7,983
Insurance premiums, deposits, and
loss reserves................................. 24,534 14,335
---------- ----------
Net cash provided by operating activities....... 154,785 138,082
----------- ----------
Cash flows from investing activities:
Proceeds from sale of property and equipment........ 200 --
Acquisition of property and equipment............... (22,343) (32,841)
Additions to trademarks and other................... (4,201) (11,012)
----------- -----------
Net cash used in investing activities........... (26,344) (43,853)
----------- -----------
Cash flow from financing activities:
Payments of long-term notes payable................. (36,922) --
Retirement of common stock.......................... (16,000) (14,000)
Retirement of preferred stock....................... -- (27,019)
Preferred dividends paid............................ (51,422) (64,185)
----------- -----------
Net cash used in financing activities........... (104,344) (105,204)
----------- -----------
Net (decrease) increase in cash and cash
equivalents.................................. 24,097 (10,975)
Cash and cash equivalents at beginning of period...... 566,372 579,871
----------- ----------
Cash and cash equivalents at end of period............ $ 590,469 $ 568,896
=========== ==========
Supplemental disclosure of cash flow information:
Interest paid....................................... $ 1,823 $ 1,480
Taxes paid.......................................... $ 8,550 $ 43,986
Non-cash transactions:
Capital Lease Obligations........................... $ 32,341 $ 3,936
The accompanying notes are an integral part of these consolidated statements.
5
RENT-A-WRECK OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
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 June 30, 1996, the consolidated
statements of earnings for the three-month periods ended June 30, 1995 and 1996
and the consolidated statements of cash flows for the three-month periods ended
June 30, 1995 and 1996 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, 1996 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, 1996, preferred dividend arrearages were $328,584. The
Company paid $32,858 of these arrearages during the quarter ended June 30, 1996.
For the quarter ended June 30, 1996, the Company declared dividends totaling
$30,915 which are expected to be paid during the second quarter of the Company's
fiscal year.
3. EARNINGS PER COMMON SHARE
The computation of earnings per common share for the three-month
periods ended June 30, 1995 and 1996, 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
6
the three-month periods ended June 30, 1995 and 1996, cumulative preferred
dividends in the amounts of $33,115 and $30,915 were subtracted from net income
to arrive at the earnings applicable to common shareholders.
4. LITIGATION
The Company is party to legal proceedings incidental to its business
from time to time. Certain claims, suits and complaints arise in the ordinary
course of business and may be filed against the Company. Based on facts now
known to the Company, management believes all such matters are adequately
provided for, covered by insurance or, if not so covered or provided for, are
without merit, or involve such amounts that would not materially adversely
affect the consolidated results of operations or financial position of the
Company.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
FIRST QUARTER RESULTS OF OPERATIONS
Gross revenues increased by $157,232 (19%) for the three-month period
ended June 30, 1996 as compared to the same period in the prior year due
primarily to the increase in initial license fees and continuing license and
advertising fees. The initial license fees increased by $23,500 (11%) and the
continuing license fees increased by $108,450 (27%). This increase resulted from
the addition of new franchises and from fleet growth at existing franchises.
Advertising fees increased by $43,104 (34%) for this period. These fees are
expended to promote the Company's name and its reputation on behalf of the
franchisees.
Total operating expenses increased by $107,310 (15%) in this period
compared to the same period in the prior year. Salary expense increased by
$18,370 (11%) due primarily to enlarging the sales department. General and
administrative expenses increased by $19,554 (11%) which resulted primarily from
an increase in legal fees and expenses. Sales and marketing expenses increased
by $7,705 (4%) which resulted primarily from the addition of new salespersons.
The Company realized operating income of $163,135 for the quarter
compared to operating income of $113,213 in the same quarter for 1995,
reflecting an increase of $49,922 (44%). This increase resulted primarily from
the increase in initial license fees and continuing license fees due to the
addition of new franchises as well as growth at existing franchises.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had working capital of $927,312 compared
to working capital of $901,774 at March 31, 1996. This
7
increase of $25,538 primarily resulted from the net profit earned during the
three-month period ended June 30, 1996.
Cash provided by operations was $138,082 resulting from an increase in
net income offset by an increase in accounts and notes receivable primarily from
the addition of new franchises due to the growth of the Company. Cash used in
investing activities of $43,853 related primarily to the acquisition of property
and equipment. Cash used in financing activities during the same period was
$105,204 based on payments of preferred dividends and the retirement of common
and preferred stock.
The Company believes that it has sufficient working capital to support
its business plan through fiscal 1997.
IMPACT OF INFLATION
Inflation has had no material impact on the operations and financial
condition of the Company.
8
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, 1995 and 1996 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.
Quarters ended June 30,
----------------------------------
1995 1996
----------------------------------
(in thousands except per share
and number of franchises)
(Unaudited)
Franchisees' Results
Franchisees' revenue (1) $6,782 $8,590
Number of franchises 397 444
Results of Operations
Total revenue $ 824 $ 981
Total expense 710 818
Income before income
taxes 131 178
Net income 120 156
Earnings per common share (2) $ .02 $ .03
Weighted average number of
shares outstanding 4,438 4,828
Balance Sheet Data
Working capital $ 910 $ 927
Total assets $2,133 $2,238
Long-term obligations $ - $ 35
Shareholders' equity $1,351 $1,424
(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 $30,915 in the quarters ended June 30, 1995
and 1996, respectively.
9
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, 1996.
ITEM 5. RETIREMENT OF STOCK INFORMATION
During the quarter ended June 30, 1996, the Company approved the
repurchase of up to an additional 250,000 shares of the Company's outstanding
common or preferred stock, subject to the terms and conditions of the
250,000-share repurchase program initiated in the year ended March 31, 1996.
During the quarter ended June 30, 1996, the Company bought back 14,000 shares of
its common stock at a cost of $14,000, and also bought back 20,625 shares of its
preferred stock at a cost of $27,019. These shares were retired in the quarter
ended June 30, 1996.
ITEM 6. EXHIBITS
See Exhibit Index following the Signatures page, which is
incorporated herein by reference.
10
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 August 8, 1996
- ----------------------- ------------------
Mithra Khosravi
Chief Accounting Officer
/s/Kenneth L. Blum, Sr. August 8, 1996
- ----------------------- ------------------
Kenneth L. Blum, Sr.
CEO and Chairman of
the Board
11
EXHIBIT INDEX
TO
RENT-A-WRECK of AMERICA, INC.
FOR THE QUARTER ENDED JUNE 30, 1996
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
12