U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MayAugust 31, 2013
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission File No. 333-165391
EARN-A-CAR, INC.
(Name of small business issuer in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
Office 1 The Falls Centre, Corner Great North and Webb, Northmead,
Benoni 1522, South Africa
(Address of principal executive offices)
+27 011-425-1666
(Issuer's telephone number)
Securities registered pursuant to Name of each exchange on
Section 12(b) of the Act: which registered:
------------------------- -----------------
None NA
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0000001
Indicate by checkmark 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[ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filed, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Applicable Only to Issuers Involved in Bankruptcy Proceedings During the
Preceding Five Years. N/A
Indicate by checkmark whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 and 15(d) of the Securities Exchange Act
of 1934 after the distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
Applicable Only to Corporate Registrants
The number of shares outstanding of each of the issuer's common stock, as of
July 15,August 31, 2013 was 112,250,000
PART I.I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.STATEMENTS
EARN-A-CAR, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MAY(unaudited)
AUGUST 31, 2013 AND FEBRUARY 28, 2013
MayAugust 31, 2013 February 28,
2013 2013
------------ -----------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 365,147219,216 $ 682,096
Receivables, net 187,672337,923 418,707
---------- ---------------------- ------------
Total Current Assets 552,819557,139 1,100,803
---------- ---------------------- ------------
Property and equipment, net 24,46024,265 24,958
---------- ---------------------- ------------
Revenue-earning vehicles, net 4,508,8834,607,122 4,858,545
---------- ---------------------- ------------
Other Assets
Loan receivable 6,0656,343 7,037
Deferred Costs 121,40995,940 67,283
---------- ---------------------- ------------
Total Other Assets 127,474102,283 74,320
---------- ---------------------- ------------
TOTAL ASSETS $5,213,636 $6,058,626
========== ==========$ 5,290,809 $ 6,058,626
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts payable $ 277,198334,103 $ 510,994
Accrued expenses 25,04821,592 51,154
Deferred Income 529,271528,553 569,876
Current portion of leases payable 473,799624,010 714,948
Current portion of loans payable 842,414808,936 731,271
---------- ---------------------- ------------
Total Current Liabilities 2,147,7302,317,194 2,578,243
---------- ---------------------- ------------
Long-term Debt
Loans from shareholders 0 0
Leases payable 914,6051,200,773 634,885
Loans payable 1,394,7871,072,889 2,031,641
---------- ---------------------- ------------
Total Long-term Debt 2,309,3922,273,662 2,666,526
---------- ---------------------- ------------
Total Liabilities 4,457,1224,590,856 5,244,769
---------- ---------------------- ------------
Stockholders' Equity
Common stock, $0.0000001 par value, 250,000,000 shares authorized,
112,250,000 shares issued and outstanding 11 11
Additional paid in capital 5,423 5,423
Accumulated other comprehensive (loss) (312,246)(307,794) (214,695)
Retained earnings 1,063,3261,002,313 1,023,118
---------- ---------------------- ------------
Total Stockholders' Equity 756,514699,953 813,857
---------- ---------------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,213,636 $6,058,626
========== ==========$ 5,290,809 $ 6,058,626
============ ============
See accompanying notes to financial statements.
2
EARN-A-CAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)(unaudited)
FOR THE THREE AND SIX MONTHS ENDED MAYAUGUST 31, 2013 AND MAYAUGUST 31, 2012
For the three For the Three months Threethree For the six For the six
months ended months ended Maymonths ended months ended
August 31, August 31, August 31, August 31,
2013 May 31,2012 2013 2012
------------ ------------ ------------ ------------
(Restated) (Restated)
Revenues
Vehicle rentals $ 886,607745,854 $ 624,797965,758 $ 1,632,461 $ 1,590,553
Other 2,185 1,93680,151 1,452 82,336 3,388
------------ ------------ ------------ ------------
Total Revenues 888,792 626,733826,005 967,210 1,714,797 1,593,941
------------ ------------ ------------ ------------
Operating Expenses
Direct vehicle and operating 138,582 247,334361,426 311,340 500,008 427,939
Vehicle depreciation 210,502 174,924and lease charges 199,559 205,753 410,061 380,677
Selling, general and administrative 367,746 110,350193,721 126,126 561,467 367,210
Interest expense 131,754 64,22693,544 109,719 225,298 173,945
------------ ------------ ------------ ------------
Total Operating Expenses 848,584 596,834848,250 752,938 1,696,834 1,349,771
------------ ------------ ------------ ------------
Operating Income 40,208 29,899(Loss) (22,245) 214,272 17,963 244,170
Other Income (Expense)
Interest income 0 03,883 18,888 3,883 18,888
Gain on asset disposal (42,651) 847 (42,651) 847
------------ ------------ ------------ ------------
Net Income (Loss) Before Provision
for Income Taxes 40,208 29,899(61,013) 234,007 (20,805) 263,905
Provision for Income Taxes 0 0 0 0
------------ ------------ ------------ ------------
Net Income (Loss) $ 40,208(61,013) $ 29,899234,007 $ (20,805) $ 263,905
============ ============ ============ ============
Earnings (Loss) per Share $ 0.00(0.00) $0,00 $ (0.000) $ 0.00
============ ============ ============ ============
Weighted Average Common Shares
Outstanding 112,250,000 112,250,000 112,250,000 112,250,000
============ ============ ============ ============
See accompanying notes to financial statements.
3
EARN-A-CAR, INC.
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS) (UNAUDITED)(unaudited)
FOR THE THREE AND SIX MONTHS ENDED MAYAUGUST 31, 2013 AND MAYAUGUST 31, 2012
For the three For the Three months Threethree For the six For the six
months ended months ended Maymonths ended months ended
August 31, August 31, August 31, August 31,
2013 May 31,2012 2013 2012
------------ ------------ ------------ ------------
(Restated) (Restated)
Net Income $ 40,208(61,013) $ 29,899
-------- --------234,007 $ (20,805) $ 263,905
---------- ---------- ---------- ----------
Foreign Currency Translation
Change in cumulative translation
adjustment (97,551) (65,316)
-------- --------4,452 (11,875) (93,099) (77,191)
---------- ---------- ---------- ----------
Total $(97,551) $(65,316)
======== ========$ 4,452 $ (11,875) $ (93,099) $ (77,191)
========== ========== ========== ==========
See accompanying notes to financial statements.
4
EARN-A-CAR, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)(unaudited)
AS OF MAYAUGUST 31, 2013
Accumulated
Common Stock Additional Other
------------------- Paid-in Comprehensive Retained
Shares Amount Capital Loss Earnings Total
------ ------ ------- ---- -------- -----
Balance, February 28, 2011 500March 1, 2012 112,250,000 $ 6011 $ --5,423 $ (5,792)(29,542) $ 437,767498,559 $ 432,035
Loss on currency translation -- -- -- (23,750) -- (23,750)
Reorganization adjustment 233,749,500 (35) 5,409 -- -- 5,374
Cancellation of stock (121,500,000) (14) 14 -- -- --
Net income -- -- -- -- 60,792 60,792
------------ ------- -------- ---------- ----------- ----------
Balance, February 29, 2012 (Restated) 112,250,000 11 5,423 (29,542) 498,559 474,451
Gain (Loss) on currency translation -- -- -- (185,153) -- (185,153)
Net income -- -- -- -- 524,559 524,559
----------------------- ------ ------- ----------------- ---------- ----------- -------------------
Balance, February 28, 2013 112,250,000 11 5,423 (214,695) 1,023,118 813,857
Gain (Loss) on currency translation -- -- -- (97,551)(93,099) -- (97,551)(93,099)
Net incomeloss -- -- -- -- 40,208 40,208
------------(20,805) (20,805)
----------- ------ ------- ----------------- ---------- ----------- -------------------
Balance, MayAugust 31, 2013 112,250,000 $ 11 $ 5,423 $(307,794) $1,002,313 $ (312,246) $ 1,063,236 $ 756,514
============699,953
=========== ====== ======= ================= ========== =========== ===================
See accompanying notes to financial statements.
5
EARN-A-CAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(unaudited)
FOR THE THREESIX MONTHS ENDED MAYAUGUST 31, 2013 AND MAYAUGUST 31, 2012
For the six For the Three months Threesix
months ended months ended
MayAugust 31, August 31,
2013 May 31, 2012
------------ ------------
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period $ 40,208(20,805) $ 29,899263,905
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 210,502 174,924410,061 380,677
Net lossesgains (losses) from disposition of
revenue-earning vehicles 0 042,651 (847)
Change in Assets and Liabilities:
(Increase) decrease in receivables 231,035 76,62480,784 (89,263)
(Increase) decrease in deferred costs (54,126) 846(28,657) (29,557)
Increase (decrease) in accounts payables (233,796) (90,061)(176,891) 20,690
Increase (decrease) in accrued expenses (26,106) 9,010(29,562) (2,724)
Increase (decrease) in deferred income (40,605) (4,595)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 127,112 196,647
---------- ----------(41,323) 120,996
------------ ------------
Net Cash Provided by Operating Activities 236,258 663,877
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of revenue-earning vehicles 139,160 (188,464)
Purchase of property,Revenue-earning vehicles:
Purchases (201,289) (1,333,720)
Proceeds from sales 0 42,435
Property, equipment and software 498 (1,463)Purchases 0 (9,673)
Proceeds from sales of revenue-earning vehicles693 0
321,834
Collections of(Increase) decrease in loans extended 972 1,249
---------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 140,630 133,156
---------- ----------694 993
------------ ------------
Net Cash Used by Investing Activities (199,902) (1,299,965)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Additional paid in capital, due to merger 0 0
Proceeds from (Payments on) leases payable (net) 38,571 (238,121)474,950 (856,676)
Proceeds from (Payments on) loans payable (net) (525,711) (93,715)(881,087) 2,463,291
Proceeds from (Payments on) shareholder loans (net) 0 (1,000)
---------- ----------
NET CASH USED BY FINANCING ACTIVITIES (487,140) (332,836)
---------- ---------------------- ------------
Net Cash Provided (Used) by Financing Activities (406,137) 1,605,615
------------ ------------
Exchange rate effect on cash and cash equivalents (97,551) (65,316)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (316,949) (68,349)(93,099) (77,191)
----------------------------------------------------- ------------ ------------
Net Increase in Cash and Cash Equivalents (462,880) 892,336
Cash, beginning of period 682,096 171,354
---------- ---------------------- ------------
Cash, end of period $ 365,147219,216 $ 103,005
========== ==========1,063,690
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 131,754225,298 $ 64,226
========== ====================== ============
Cash paid for income taxes $ 0 $ 0
========== ====================== ============
See accompanying notes to financial statements.
6
EARN-A-CAR, INC.
NOTES TO FINANCIAL STATEMENTS
MAYAUGUST 31, 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESSNature of Business - Earn-A-Car, Inc. (formerly Victoria Internet Services,
Inc.) was incorporated in the State of Nevada on October 9, 2009. The company
was organized to operate as an online tax preparation service in the North
American market. On December 7, 2011, prior to commencing those operations, the
company has opted to change its business focus to the daily rental of vehicles
in the South African market.
On December 7, 2011, a simultaneous execution and closing was held under an
Agreement and Plan of Reorganization (the Plan"), by and among Victoria Internet
Services, Inc. (the "Company" "us" "we" ), Leon Golden (our then principal
shareholder) ("Golden") and Earn-A-Car (PTY), LTD., a corporation organized
under the laws of the Republic of South Africa ("EAC") and Depassez Investments
Ltd, a Seychelles corporation ("DPL"), owned by Graeme Hardie (our new principal
shareholder) ("Hardie").
Under the Plan DPL acquired 78,500,000 shares of our common stock from Golden
for $150,000 and the balance of Golden's 205,000,000 shares were submitted to
the transfer agent for cancellation and DPI contributed all of the shares of EAC
to the Company so that EAC became a wholly owned subsidiary of the Company and
the business of the Company is now the business of EAC. Mr. Golden also resigned
as an officer and director of the Company and John Storey ("Storey") and Hardie
were elected as directors and Storey was appointed CEO and President with Hardie
being appointed Chairman of the board.
On February 10, 2012 the Company filed an amendment with the Secretary of State
for Nevada to gain permission to change its name from Victoria Internet
Services, Inc. to Earn-A-Car, Inc. In conjunction with the name change the
Company also filed to have a new symbol on the Over The Counter Bulletin Board
(OTCBB). As of March 8, 2012 the Company no longer is listed with the symbol
VRIS, and is now listed on the OTCBB as EACR.
EARN-A-CAR (PTY) LTDEarn-A-Car (Pty) Ltd - The wholly owned subsidiary was incorporated in South
Africa on July 2, 2005, and is primarily engaged in the business of the daily
rental of vehicles to business and leisure customers through company-owned
stores in the country of South Africa. On July 18, 2011, its name was changed
from "EasyCars Rental and Sales (PTY) Ltd." to "Earn-A-Car (PTY) Ltd.".
EARN-A-CAR ASSETSEarn-A-Car Assets 1 PTY. LTD.Pty. Ltd. - the wholly owned subsidiary Earn-A-Car (Pty)
Ltd. purchased a wholly owned subsidiary in June 2012, the name of this
purchased entity is Earn-A-Car Assets 1 Pty. Ltd. The function of this entity is
to hold title to vehicles that are purchased through financing which requires
specific assets to be held as collateral for those loans. All of the assets and
liabilities of this entity are consolidated and included in the presented
financial statements according to generally accepted accounting principles of
the United States.
BASIS OF PRESENTATION-Basis of Presentation- The accompanying financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America and are presented in U.S. Dollars. In the opinion of management, all
adjustments necessary in order for the financial statements to be not misleading
have been reflected herein. The Company has selected a February 28 year end.
ESTIMATESEstimates - The preparation of the Company's consolidated financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts and disclosures in the consolidated financial statements.
Actual results could differ materially from those estimates.
7
EARN-A-CAR, INC.
NOTES TO FINANCIAL STATEMENTS
MAYAUGUST 31, 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTSCash and Cash Equivalents - Cash and cash equivalents include cash on hand and
on deposit, including highly liquid investments with initial maturities of three
months or less. At MayAugust 31, 2013 and February 28, 2013 the Company had
$365,147$219,216 and $682,096 cash and cash equivalents, respectively.
ALLOWANCE FOR DOUBTFUL ACCOUNTSAllowance for Doubtful Accounts - An allowance for doubtful accounts is
generally established during the period in which receivables are recorded. The
allowance is maintained at a level deemed appropriate based on loss experience
and other factors affecting collectability. As of MayAugust 31, 2013 and February
28, 2013 the Company had $94,796$30,023 and $7,444 in impaired receivables,
respectively. The allowance for these impaired receivables was $13,063$80,606 and
$14,359 for periods ending MayAugust 31, 2013and February 28, 2013 respectively.
FINANCING ISSUE COSTSFinancing Issue Costs - Financing issue costs related to vehicle debt are
deferred and amortized to interest expense over the term of the related debt
using the effective interest method.
RECEIVABLES AND PAYABLES-Receivables and Payables- Trade receivables and payables are measured at initial
recognition at fair value, and are subsequently measured using the effective
interest rate method of valuation. Appropriate allowances for estimated
uncollectible receivable balances are recognized in profit or loss when there is
evidence of impairment. Payables includes all accrued cash back liability to
clients as adjusted as required for the Company to meet its cash back obligation
to its clients. The amount is determined at contract inception and is the
approximate amount required to generate a lump sum at end of cash back period
sufficient to match the future carrying value of the car at the end of this
period. Cash back is accrued for monthly and the accrual is adjusted for
regularly as required to ensure no shortfall occurs at the end of the period.
REVENUE-EARNING VEHICLES AND RELATED VEHICLE DEPRECIATION EXPENSERevenue-Earning Vehicles and Related Vehicle Depreciation Expense -
Revenue-earning vehicles are stated at cost, net of related discounts.
The Company must estimate what the residual values of these vehicles will be at
the expected time of disposal to determine monthly depreciation rates. The
estimation of residual values requires the Company to make assumptions regarding
the age and mileage of the car at the time of disposal, as well as the general
used vehicle auction market. The Company evaluates estimated residual values
periodically, and adjusts depreciation rates accordingly, on a prospective
basis.
Differences between actual residual values and those estimated by the Company
result in a gain or loss on disposal and are recorded as an adjustment to
depreciation expense. Actual timing of disposal either shorter or longer than
the life used for depreciation purposes could result in a loss or gain on sale.
Generally, the average holding term for vehicles is approximately 7 years.
PROPERTY AND EQUIPMENTProperty and Equipment - Property and equipment are recorded at cost and are
depreciated using principally the straight-line method over the estimated useful
lives of the related assets. Estimated useful lives generally range from ten to
thirty years for buildings and improvements and two to seven years for furniture
and equipment. Leasehold improvements are amortized over the estimated useful
lives of the related assets or leases, whichever is shorter. The average useful
lives of fixed assets are as follows:
Motor vehicles 6 years
Computer equipment 3 years
Computer software 2 years
Leased assets - motor vehicles 6 years
8
EARN-A-CAR, INC.
NOTES TO FINANCIAL STATEMENTS
MAYAUGUST 31, 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETSLong-Lived Assets - The Company reviews the value of long-lived assets,
including software, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable based upon
estimated future cash flows and records an impairment charge, equaling the
excess of the carrying value over the estimated fair value, if the carrying
value exceeds estimated future cash flows.
FOREIGN CURRENCY TRANSLATIONForeign Currency Translation - The Company's functional currency is the South
African Rand, however the translation into US dollars is the presentation bases
of these financial statements. Foreign assets and liabilities are translated
into US$ using the exchange rate in effect at the balance sheet date, and
results of operations are translated using an average rate for the period.
Translation adjustments are accumulated and reported as a component of
accumulated other comprehensive income or loss.
REVENUE RECOGNITIONRevenue Recognition - Revenues from vehicle rentals are recognized as earned on
a daily basis under the related rental contracts with customers. The upfront
administration fee is non refundable.non-refundable. However the company defers its upfront
administration fee income received at the inception of the rental contract over
the average rental period. Simultaneously the company defers direct, incremental
selling costs related to the rental of the vehicle over the same average rental
period. This is a change in accounting policy and the new basis has been used to
calculate revenue in 2013. The 2012 numbers have been restated to reflect the
new policy. ADVERTISING COSTSSee Note 11.
Advertising Costs - Advertising costs are primarily expensed as incurred. During
the threesix months ended MayAugust 31, 2013 and MayAugust 31, 2012, the Company incurred
advertising expense of $20,430$34,735 and $4,822,$34,615, respectively.
INCOME TAXESIncome Taxes - The Company has provided for income taxes on its separate taxable
income or loss and other tax attributes. Deferred income taxes are provided for
the temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities. The Company has no tax liability
in the United States.
EARNINGS PER SHAREEarnings Per Share - Basic earnings per share ("EPS") is computed by dividing
net income (loss) by the weighted average number of common shares outstanding
during the period. Diluted EPS is based on the combined weighted average number
of common shares and common share equivalents outstanding which include, where
appropriate, the assumed exercise of options. There were no such common stock
equivalents outstanding at MayAugust 31, 2013.
OTHER COMPREHENSIVE INCOME (LOSS)Other Comprehensive Income (Loss) - Comprehensive income (loss) consists of net
income (loss) and other gains and losses affecting stockholder's equity that,
under GAAP, are excluded from net income (loss), including foreign currency
translation adjustments, gains and losses related to certain derivative
contracts, and gains or losses, prior service costs or credits, and transition
assets or obligations associated with pension or other postretirement benefits
that have not been recognized as components of net periodic benefit cost.
STOCK-BASED COMPENSATION-Stock-Based Compensation- Stock-based compensation is accounted for at fair
value in accordance with SFAS No. 123 and 123R (ASC 718). To date, the Company
has not adopted a stock option plan and has not granted any stock options.
9
EARN-A-CAR, INC.
NOTES TO FINANCIAL STATEMENTS
MAYAUGUST 31, 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDSNew Accounting Standards - The Company does not expect the adoption of recently
issued accounting pronouncements to have a significant impact on the Company's
results of operations, financial position or cash flow.
2. REVENUE-EARNING VEHICLES
Revenue-earning vehicles consist of the following:
MayAugust 31, 2013 February 28, 2013
--------------------------- -----------------
Revenue-earning vehicles $ 5,851,4035,912,208 $ 6,212,5776,212,677
Less accumulated depreciation (1,342,520)(1,305,086) (1,354,132)
----------- -----------
Revenue-earning vehicles, net $ 4,508,8834,607,122 $ 4,858,4454,858,545
=========== ===========
3. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
MayAugust 31, 2013 February 28, 2013
--------------------------- -----------------
Computer equipment $ 25,77725,529 $ 23,353
Computer software 5,2525,043 2,368
Other fixed assets including signage 8,8348,484 8,664
----------- -----------
Subtotal 39,86339,056 34,385
Less accumulated depreciation (15,403)(14,791) (9,427)
----------- -----------
Property and equipment, net $ 24,46024,265 $ 24,958
=========== ===========
For the three months ended MayAugust 31, 2013 and 2012, the Company recorded
depreciation of $210,502$199,559 and $174,924$205,753 respectively.
4. LOANS RECEIVABLE
At MayAugust 31, 2013 and February 28, 2013, the Company has a receivable due under
a settlement agreement with a former employee with a balance of $6,065$6,343 and
$7,037, respectively. This loan is to be repaid with interest of 10% in 48 equal
installments of approximately $425; the payments began in March, 2011.
10
EARN-A-CAR, INC.
NOTES TO FINANCIAL STATEMENTS
MAYAUGUST 31, 2013
5. DEBT AND OTHER OBLIGATIONS
Debt and other obligations consist of the following:
MayAugust 31, 2013 February 28, 2013
--------------------------- -----------------
Loan payable - individual - unsecured, interest
bearing, no fixed repayment terms $ 20,21819,414 $ 22,625
Loan payable - individual - unsecured, interest
bearing, no fixed repayment terms 10,1099,707 11,312
Loan payable - individual - unsecured, interest
bearing, no fixed repayment terms 50,54548,536 56,562
Loan payable - individual - unsecured, interest
bearing, no fixed repayment terms 33,61229,364 41,008
Loan payable - other - unsecured, interest bearing,
no fixed repayment terms 56,24149,637 68,027
Loan payable - bank - secured by assets of the
company, bearing interest of JIBAR plus 5% per
annum, repayable in quarterly installments
beginning 30 September 2012 1,895,4321,617,872 2,356,765
Loan payable - other - unsecured, interest bearing,
no fixed repayment terms 118,58455,816 151,181
Loan payable - other - unsecured, interest bearing,
no fixed repayment terms 24,97023,979 27,943
Loan payable - other - unsecured, interest bearing,
no fixed repayment terms 27,49027,500 27,489
---------- ----------
Total $2,237,201$1,881,825 $2,762,912
Current portion of loans payable 842,414808,936 731,271
---------- ----------
Long-term portion of loans payable $1,394,787$1,072,889 $2,031,641
========== ==========
11
EARN-A-CAR, INC.
NOTES TO FINANCIAL STATEMENTS
MAYAUGUST 31, 2013
5. DEBT AND OTHER OBLIGATIONS (CONTINUED)
Expected maturities of debt and other obligations outstanding at MayAugust 31, 2013
are as follows:
Loan Amounts Lease Amounts Total
------------ ------------- ----------
Year ending MayAugust 31, 2014 $ 842,414808,936 $ 473,799 $1,316,213
---------- ---------- ----------
Year ending May624,010 $1,432,945
August 31, 2015 $ 869,914836,436 $ 465,027 $1,334,941
Year ending May624,042 $1,460,478
August 31, 2016 $ 210,604202,234 $ 403,242506,585 $ 613,846
Year ending May708,820
August 31, 2017 $ 0 $ 46,33670,145 $ 46,336
Year ending May70,145
August 31, 2018 $ 0 $ 0 $ 0
Thereafter $ 314,26934,219 $ 0 $ 314,26934,219
---------- ---------- ----------
Total $2,237,201 $1,388,404 $3,625,605$1,881,825 $1,824,782 $3,706,607
========== ========== ==========
Installment sales and lease contracts are secured by finance lease agreements
over revenue generating vehicles, having 2013 carrying values of $1,294,104.$1,974,808.
These lease contracts are repayable in monthly installments for 2013 of $11,528
respectively.$8,661.
6. PROVISION FOR INCOME TAXES
The Company has no obligation for any federal or state income taxes in the
United States. Further, no provision has been made for taxes in South Africa,
which has a corporate income tax rate of 28%, for the three months ended MayAugust
31, 2013 and February 28, 20132012 because our taxable losses and loss carryovers exceed the
income in those years.periods. At MayAugust 31, 2013 and February 28, 2013, respectively,
the Company had net incomelosses of approximately $40,208$0 and $524,559 available in South
Africa that can be carried forward to offset future taxable income. Due to the
uncertainty of future taxable income, the Company has recorded a valuation
allowance of 100% of the deferred tax asset, so that our deferred tax asset at
both MayAugust 31, 2013 and February 28, 2013 was $0.
7. EQUITY
On November 14, 2011 the Company filed a certificate of amendment to the
articles of incorporation which caused a 50 for 1 forward common stock split and
an increase in authorized common shares to 250,000,000.
On January 19, 2012 the Company cancelled 121,500,000 shares of common stock
that were held by Leon Golden, the former owner of Victoria Internet Services,
Inc.
As of May 31,February 28, 2013 and February 28, 201329, 2012 there were 112,250,000 and 500
common shares outstanding, respectively.
The Company is authorized to issue 20,000,000 preferred shares of stock. As of
May 31,February 28, 2013 and February 28, 2013,29, 2012 there were no (0) shares outstanding.
12
EARN-A-CAR, INC.
NOTES TO FINANCIAL STATEMENTS
MAYAUGUST 31, 2013
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASESOperating Leases
The Company operates from various leased premises under operating leases with
terms up to 5 years. Some of the leases contain renewal options. No contingent
rent is payable.
Expenses incurred under operating leases for the period were as follows:
MayAugust 31, 2013 MayAugust 31, 2012
------------ --------------------------- ---------------
Operating leases:
Premises $ 027,694 $ 7,74728,507
-------- --------
$ 027,694 $ 7,74728,507
======== ========
Future minimum rentals and fees under non-cancelable operating leases for the 12
month periods are presented in the following table:
May 31,August31, 2014 $ 0
MayAugust 31, 2015 $ 0
MayAugust 31, 2016 $ 0
MayAugust 31, 2017 $ 0
MayAugust 31, 2018 $ 0
We currently operate under a month to month lease requiring a monthly payment of
$4,615 and we believe that if we decide to move to another location our
occupancy costs would remain materially the same.
At MayAugust 31, 2013, the Company had no out standingoutstanding vehicle purchase commitments
over the next twelve months.
9. RELATED PARTY TRANSACTIONS
The Company engages in activities with parties who hold ownership in the
Company. The Company borrows funds from related parties and pays consulting fees
to related parties. The related party transactions are as follows:
May 31, 2013 February 28, 2013
------------
August 31, 2013 February 28, 2013
--------------- -----------------
Loans payable to shareholders/related parties:
G. Hardie $ 0 $ 4,000
-------- --------
Total loans payable to related parties $ 0 $ 4,000
======== ========
Compensation paid to directors
G. Hardie $ 1,000 $ 1,000
John Storey 0 6,787
-------- --------
Total compensation paid to directors $ 1,000 $ 10,787
======== ========
13
EARN-A-CAR, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2013
10. SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to MayAugust 31, 2013 through
the date these financial statements were issued, and has determined that it does
not have any material subsequent events to disclose.
13
EARN-A-CAR, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2013
11. CORRECTION TO ACCOUNTING POLICY FOR US GAAP
The Company has restated its beginning balancescertain operating and cash flow amounts for 2013, as well as the balance
sheetthree
and statement of operations for 2013six months ended August 31, 2012, to correctly account for the recognition
of revenue on up-front income in terms of US GAAP. Per US GAAP, the Company has
now deferred the non-refundable up-front income it receives in the first month
of the rental contract over the company's average rental period of 20 months.
Simultaneously the company deferred direct, incremental selling costs related to
the rental of the vehicle over the same average rental period. The company used
to account for all the up-front non-refundable income once it was due and
payable as this is the accounting policy for the subsidiaries. For the three and
six months ended August 2012 a portion of selling and administrative costs were
allocated to direct and operating costs. These figures have now been restated to
become consistent with the three and six months ended August 2013.
The balances as of and for the three months ended MayAugust 31, 2012 have been restated to
correct the presentation of the deferred income and deferred costs and to
correct the errors from 2012 detailed above.
Previously
MayAugust 31, 2012 Financial Statements Line Item Corrected Stated
--------------------------------------------------------------------- --------- --------- ------
Balance Sheet Deferred Income $ 569,876 $ 0
Balance Sheet Deferred Costs $ 67,283 $ 0
Balance Sheet Retained earnings $1,023,118 $806,882
Statement of Operations Rental Income $ 624,797 $656,150965,758 $1,097,212
Statement of Operations Direct motor vehicle costs $ 247,334 $254,877408,808 $ 440,631
Statement of Operations Net Income $ 234,007 $ 333,638
Statement of Other comprehensive Income Net Income $ 29,899234,007 $ 53,709333,638
Statement of Other comprehensive Income Foreign Currency Translation $ (11,875) $ (16,319)
Income Direct and Operating Costs $ 311,340 $ 408,808
Income Selling and administrative costs $ 126,126 $ 28,658
The balances for the six months ended August 31, 2012 have been restated to
correct the presentation of the deferred income and deferred costs and to
correct the errors from 2012 detailed above.
Previously
August 31, 2012 Financial Statements Line Item Corrected Stated
------------------------------------ --------- --------- ------
Statement of Operations Rental Income $1,590,553 $1,753,362
Statement of Operations Direct motor vehicle costs $ 656,141 $ 695,508
Statement of Operations Net Income $ 263,905 $ 387,347
Statement of Other comprehensive Income Net Income $ 263,905 $ 387,347
Statement of Other comprehensive Income Foreign Currency Translation $ (77,191) $ (109,194)
Statement of Cash Flows Net cashIncome $ 263,905 $ 387,347
Statement of Cash Flows Increase in deferred costs $ (29,557) $ 0
Statement of Cash Flows Increase in deferred income $ 120,996 $ 0
Statement of Cash Flows Cash flows provided by operating
activitiesactivity $ 196,647 $131,331663,877 $ 586,686
Statement of Cash Flows Exchange rate effect on cash and
cash equivalents $ (77,191) $ (109,194)
Income Direct and Operating Costs $ 427,939 $ 656,141
Income Selling and administrative costs $ 367,210 $ 139,008
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MANAGEMENTS DISCUSSION AND ANALYSIS
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking" statements as such
term is defined in the Private Securities Litigation Reform Act of 1995 and
information relating to the Company that is based on the beliefs of the
Company's management as well as assumptions made by and information currently
available to the Company's management. When used in this report, the words
"anticipate," "believe," "estimate," "expect" and "intend" and words or phrases
of similar import, as they relate to the Company or Company management, are
intended to identify forward-looking statements. Such statements reflect the
current risks, uncertainties and assumptions related to certain factors
including, without limitations, competitive factors, general economic
conditions, customer relations, relationships with vendors, the interest rate
environment, governmental regulation and supervision, seasonality, distribution
networks, product introductions and acceptance, technological change, changes in
industry practices, onetime events and other factors described herein and in
other filings made by the Company with the Securities and Exchange Commission.
Based upon changing conditions, should any one or more of these risks or
uncertainties materialize, or should any underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not intend to update
these forward-looking statements.
RESULTS OF OPERATIONS
OVERVIEW
Our planThe past 3 months has been one of operation for 2013 is to continue to expand our business to meet
demand for our services. We will do this by steadily increasing the sizeconsolidation and review with a number of our
fleet oncost of sales items in particular needing attention. Gross Profit reduced
markedly and required attention. We are addressing these margin issues and are
adapting our model to cover same. While these changes will take a prudent basis using asset based finance. Management believes that the
resulting increase in rental and other income from the increasewhile to be
visible in our fleet
size shouldincome statement they will soon be realized overimplemented in all new sales.
Once we have fully addressed the next 2 quarters.margins we will return our focus to growing the
fleet.
QUARTER ENDED MAYAUGUST 31, 2013 V. QUARTER ENDED MAYAUGUST 31, 2012
Revenues increaseddecreased from $626,733$967,210 in Q1Q2 of FY 2013 to $888,792$826,005 in Q1Q2 of FY 2014 a
decrease of $141,205 or 14 %. Our operating expenses went from $311,340 in Q2 of
FY 2013 to $361,426 in Q2 of FY 2014 an increase of $262,059$50,086 or 42 %. Our operating expenses went16%. Repairs and
insurance costs were much higher than previously experienced and negatively
affected our gross profits. Thus net income decreased from $596,834$234,007 in Q1Q2 of FY
2013 to $848,584($61,013) in Q1 of FY 2014 an increase of $251,750 or 42%. As a
result of increases in revenue , net income increased from $29,899 in Q1 of FY
2013 to $40,208 in Q1Q2 of FY 2014. .
WhileThese costs have necessitated changes in our
numbersterms and pricing and we are better than the same quarter the previous year they were
disappointing when compared with last quarter. We had hoped to grow the fleet
and rented vehicles. Our business has always been somewhat cyclical with very
little demand after the festive season when our clients struggle directly after
the holidays and become more frugal and business much better in the second halfprocess of changing the year. This yearservicing and bad
driving parts of our returns in January jumped markedly as clients
struggledbusiness model and terms to pay debt. We were unable to immediately rent out the returned
vehicles and our utilisation fell to the low 80 percentile, not something we
have experienced before. While we are again fully rented out, January to March
low utilisation made for worse than expected results.
In addition to the above we have had a poor rundeal with our self-insurance with
accident levels far higher than the norm. We hope this trend reverses
Now that these issues have settled the business is again performing as expected
and allowing us to begin increasing our fleet again.
15
this.
LIQUIDITY AND CAPITAL RESOURCES
We had total current assets of $552,819$557,139 at MayAugust 31, 2013. The bulk of our
assets being $4,607,122 are $4,508,883invested in revenue earning vehicles. In additionThe business
has good cash flows and these are all reinvested into new vehicles. All cash
generated or borrowed is invested in growing the fleet of revenue earning
vehicles or used to these cash resources, In Junesettle debt as we were ablehave no other investment needs. We
currently have access to secure increaseapproximately $1.5m in revolving vehicle finance. We
expect to have invested this in new vehicles by the company's revolvingend of the year and will
15
begin looking for new funding early next year. Management does not expect to
have to dilute the 112,500,000 issued shares in the near future. Instead we
intend to continue to make use of asset based finance facility by the further $2.2m to $3.3m.
This will allow us to grow the fleet by a further 200 vehicles.
We are currently in negotiation for a further $2.2m in revolving asset finance.
While there is still no certainty, should we be successful, we will be ablefinancing to grow our fleet by around 50% this financial year.of
rental cars.
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60 of the SEC encourages all companies to
include a discussion of critical accounting policies or methods used in the
preparation of the financial statements. There are no current revenue generating
activities that give rise to significant assumptions or estimates. Our financial
statements filed as part of our Current Report on Form 10-K, dated June 17,
2013, include a summary of the significant accounting policies and methods used
in the preparation of our financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
We have never entered into any off-balance sheet financing arrangements and have
not formed any special purpose entities. We have not guaranteed any debt or
commitments of other entities or entered into any options on non-financial
assets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is not required as we are a smaller
reporting company.
ITEM 4T. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Securities Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Principal Executive Officer and
Principal Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, as ours are designed to do, and
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As of MayAugust 31, 2013, we carried out an evaluation, under the supervision and
with the participation of our management, including our Principal Financial
Officer of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934. Based upon that evaluation, our Principal
Financial Officer concluded that our disclosure controls and procedures are
effective in enabling us to record, process, summarize and report information
required to be included in our periodic SEC filings within the required time
period.
16
(b) Changes in Internal Controls
There were no changes in our internal controls and procedures in internal
control over financial reporting that occurred during the period covered by this
report that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. We continue to rely on
the members of the Board of Directors to provide assurance that our entity-level
controls remain effective and we believe our process-level controls remain
effective.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following documents are filed as part of this Report.
Exhibit
Number Exhibit Description
------ -------------------
31.1 Certification of the Chief Executive Officer pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
31.2 Certification of the Chief Financial Officer pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
32.1 Certifications of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
32.2 Certifications of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
101 Interactive data files pursuant to Rule 405 of Regulation S-T.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on July 15,October 14, 2013.
Earn-A-Car, Inc.
By: /s/ John Storey
--------------------------------------------
John C Storey
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Bruce J Dunnington
--------------------------------------------
Bruce J Dunnington
Chief Financial Officer
(Principal Financial and Accounting Officer)
18