SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A-3
Amendment No. 3
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: December 7, 2011
EARN-A-CAR, INC.
(Exact name of Registrant as specified in its charter)
Nevada 333-165301 27-1320213
(State or other jurisdiction (Commission (IRS Employer
of incorporation or organization) File number) Identification No.)
Office 1 The Falls Centre
Corner Great North and Webb
Northmead, Benoni 1522
Republic of South Africa
(Address of principal executive offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) +27 11 425 1666
Victoria Internet Services, Inc.
2470 East 16th Street
Brooklyn, New York 11235
(Former Name or Former Address If Changed since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation for the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
ITEM 5.01 CHANGES IN CONTROL OF REGISTRANT
ITEM 5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN
OFFICERS
ITEM 5.06 CHANGE IN SHELL COMPANY STATUS
All share and per share numbers in the narrative portion of this report reflect
a 50 for 1 forward stock split resulting from the filing of a certificate of
amendment to our articles of incorporation on November 14, 2011 which is
reported in Item 3.01 of this report. The forward stock split has been completed
and we are not awaiting any further approvals or clearances.
ITEMS 1.01AND 5.06 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 T. Hardie
(our new principal shareholder) ("Hardie").
Under the Plan DPL acquired 78,750,000 shares of our common stock from Golden
for $150,000 and the balance of Golden's 205,000,000 shares (126,250,000 shares)
were required by the Plan to be submitted to the transfer agent for cancellation
and as required by the Plan 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 C Storey ("Storey") and Hardie
were elected our directors and Storey was appointed our CEO and President with
Hardie being appointed our Chairman of the board. Also, Bruce J Dunnington
became CFO of EAC. As a result of the Plan, there was a change in control of the
company as described below. The Plan contained the representations and
warranties usually found in agreements of this type. Further, the company has
decided to abandon its former business focused on tax preparation and will in
future concentrate solely on the business of EAC.
On February 10, 2012 the company changed its name to Earn-a-Car Inc. to better
reflect the nature of its operations and its business going forward.
BUSINESS OF EAC
EAC was incorporated in South Africa on July 2, 2005 as Easycars Rental and
Sales (Pty) Ltd. It is primarily engaged in the business of the rental of
vehicles to retail customers on a monthly basis through its leased premises in
Johannesburg in the country of South Africa. On July 18, 2011, its name was
changed to "Earn-A-Car (PTY) Ltd." to better reflect its business model and
differentiate EAC from other car rental companies.
EAC's business strategy is to enter car rental agreements that allow the renter
to return the car with one calendar months' notice. The key differentiator to a
normal car rental is that it allows its customers to earn their car by providing
customers with a cash back bonus on termination of the rental agreement for each
month that the customer was in good standing with EAC. This cash back along with
a significant up-front administration fee is calculated to allow EAC to
guarantee sufficient cash to allow the customer to buy the car or a similar car
of his choice from EAC at the end of approximately 4 years. EAC's vehicles are
equipped with immobilizing and positioning devices to protect the company if
rental payments are not current. EAC's business model is to rent to persons
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whose financial credit would not ordinarily allow them to finance the purchase
of an automobile. The business owned 622 at the end of October, 2012 and intends
to grow this number significantly although there are no guarantees it will be
able to do so.
EAC also sells pre-owned vehicles to retail customers through its same stores.
This secondary activity is a result of our need to dispose of our older vehicles
rather than a business activity in its own right. EAC has no other material
revenue earning businesses.
INDUSTRY OVERVIEW
Vehicle sales in South Africa 2012 First quarter showed 110,719 units recorded
an improvement of 10,109 units or 10.0% compared to the 100,610 new cars sold
during the corresponding quarter of 2011. Aggregate Industry commercial vehicle
sales during the first quarter of 2012 were at 46 024 units recorded an increase
of 347 units or a gain of 0.8% compared to the 45 677 units sold during the
corresponding quarter of 2011. All sectors registered significantly slower
growth during the first quarter of 2012 compared to the corresponding quarter in
2011. (See National Association of Automobile Manufacturers of South Africa
http://www.naamsa.co.za/papers/2012_1stquarter/index.html). .. More importantly
to EAC, Nearly 50% of all credit rated South Africans are blacklisted at credit
bureaus, an increase of nearly 27% over the last 3 years and are consequentially
unable to access typical car finance (See the National Credit Regulator
publications 2010 December publications http://www.ncr.org.za/publications/
Credit_Monitor/NCR_CBM_2010Dec.pdf). This is the market that EAC is designed to
service. We believe that we offer sub-prime credit car buyers with an
opportunity to own a car that is not ordinarily available for persons with poor
credit history. Thus while vehicle sales have gone sideways, the number of
customers in our niche has grown substantially in real terms
OUR BUSINESS MODEL
We rent cars on a basis where the customer may return the car to us at any time
on one calendar month's notice. However, we charge significant administrative
and rental fees at the inception of the rental (about 20% of the cost to
ourselves of the car and a further approximately 5%, being the first months
rental, which is payable in advance). This means that persons that rent cars
from us, although under no legal obligation to do so, will generally be persons
that have a genuine long term interest in acquiring the car.
Our cars are equipped with sophisticated vehicle tracking and immobilization
technology so that when a customer does not pay the monthly rental or extras or
does not comply with their contract we can immobilize the car until the arrears
are paid, the contract is complied with or the car collected. In our history of
renting out more than 400 cars for over 4 years, we have only lost 3 vehicles,
these to professional car thieves, never to a client. The technology also allows
us to monitor excessive speeding and confirm or refute some of the details of
any alleged accident as reported by our clients.
What distinguishes us from other car rental companies is that for every competed
calendar month that our customers rent a car from us they partly earn their car
through our cash back per completed month program at a rate of approximately $40
$70 per month. This cash back amount is calculated by ourselves to ensure
that, when combined with our up-front administration fee, it is sufficient to
equal the estimated carrying value of the vehicle at the end of the term
stipulated in each client's contract (normally 4 years) at which point we are
able to guarantee, through this calculation, sufficient cash to the client to
purchase the car from ourselves at the expected market price at the end of the
client's term. In our experience about 10% of our customers have taken
possession of their cars pursuant to our loyalty scheme. About 12 will do so in
the 2012 calendar year.
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All of our customers who leave our service have their cash back portion credited
to their account when they exit our services. Should they terminate the rental
before the end of their agreed term EAC first uses the cash bonus to refurbish
any damage on the car beyond fair wear and tear and will then pay the client the
remaining bonus in cash. The up-front administration fee is only ever returned
to the customer if the car is purchased by the customer. Else this fee is
retained by EAC. About 200 customers who left our services this calendar year
have benefitted from our cash back program.
Because we rent automobiles to customers rather than financing the purchase
thereof, we believe that we are not subject to certain South African financial
regulatory regimes that generally apply to the automobile finance industry.
EAC sources its vehicles from auctions, corporate de-fleeting, private
individuals and motor dealerships. It only buys pre-owned vehicles to avoid the
new car premium (approximately 33%) and often buys 6 year old cars. (There is a
steep reduction in the price of older cars as South African banks will not
finance cars older than 5 years). The business currently owns approximately 630
cars, almost all of them utilized in the rent to own program and intends to grow
this number significantly although there is no guarantee that it will be able to
do so.
Renters are allowed to drive 3,500km (about 2,200 miles) a month and thereafter
pay an additional 15c a km (25c/mile) on any overage. The customers' credit
rating is also improved while they rent a car from EAC as their payment record
is provided to credit bureaus. Because we are a car rental company and not a
bank and merely rent cars, we believe that we are not subject to the Banks Act
or the National Credit Act and this allows us to keep our rental to own program
competitive and allows us to get our vehicles back easily if nonpayment occurs.
We believe that our model, which offers a path to car ownership for persons with
compromised credit, has potential for significant growth however there is no
guarantee that our model will do so. We are currently only able to service a
very small fraction of the enquiries that we receive. This is due to the limited
number of vehicles that we own presently. We receive about 2,000 queries a
month. We are currently only able to supply about 70 cars a month (50 new and
20+ returned cars) with current resources being 1/30th of these enquiries. We
would service a greater number of the enquiries we receive if we had greater
capital resources to enlarge our rental fleet.
EAC also sells pre-owned vehicles to retail customers through its Benoni
premises. This secondary activity is a result of our need to dispose of our
older vehicles rather than a business activity in its own right and allows us to
recoup at least the carrying value of older vehicles. Profits and revenues from
this activity are not material. EAC currently only holds 3 of its cars for
outright sale in this manner.
We operate our own repair and reconditioning facilities to refurbish our cars
returned to us or pre-owned cars purchased by us prior to renting out. This
allows us to better control the costs of such reconditioning of returned or
purchased cars and believe this allows us significant savings. We have 5
mechanics, an auto-electrician and support staff.
COMPETITION
We compete with other car rental companies, car leasing companies and banks.
However, we believe that our operations, which we believe are not subject to the
Banks Act or the National Credit Act, allow us to operate without direct
competition in the market of persons with less than ideal credit histories who
wish to acquire a car.
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PROPERTIES
We currently rent our offices and workshop on a month to month basis at a cost
of R24,000 ($3,200) for our offices and R10,000 ($1,325) per month for our
repair facility (which we share with an unaffiliated party). We expect to double
this space as we grow if our business continues to grow and we enlarge our fleet
of rented cars. We believe that suitable additional space is available in the
vicinity of our present facilities at a reasonable cost.
EMPLOYEES
As of December 11, 2011, we have 26 employees of whom 4 are executive, 4 are in
sales 8 are clerical and 10 are engaged in automobile repairs. Our employees are
not covered by a collective bargaining agreement and we consider our employee
relations to be good. While we expect our business volumes to increase, we do
not expect to have to increase staff significantly in the near future.
MARKETING
We market through Google on the internet, referrals and word of mouth. Total
advertising expenditure is normally around $2,000 per month. We also pay
approximately $50 to any person who provides us with a referral that results in
a Lease. Our company website (www.earnacar.co.za) allows potential clients to
register their interest online after which our sales staff makes contact. Our
sales staff is incentivized with roughly 80% of remuneration being variable
commission.
INSURANCE
We maintain comprehensive insurance on all cars but have an excess of R50,000
(about $6,500). Our average car is worth $8,600, so most of our cars are self
insured. EAC covers the cost of repairs to its cars where a client has a bona
fide accident. Should the accident be caused, for example, by speeding or
driving under the influence, we attempt to recover the cost of the damage to our
cars from our client and do not return the car to them when it has been
repaired. Should the driver cause damage to another vehicle or individual, the
driver is held responsible in South Africa, not EAC. Consequentially, there is
no need for insurance for third party liability as may be imposed on owners of
cars in accidents potentially in the USA. The costs to EAC of providing their
clients with this comprehensive accident damage warrantee or self-insurance are
less than $40 per month, less than 40% of what a vehicle insurer would charge.
MANAGEMENT (ITEMS 5.01)
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
As a result of the Plan we have new management who are experienced in our new
business operation. The following table sets forth the name, age and position of
each of our directors and executive officers.
Name Age Position
---- --- --------
Graeme Thomas Hardie 67 Chairman of the Board, Director (less than 1 year)
John Clifford Storey 50 President and CEO for the Company; Director, (less
than 1 year)
Bruce Dunnington 51 CFO for the Company; (less than 1 year)
5
The following is a brief description of the principal occupation and recent
business experience of each of our directors and executive officers:
DR GRAEME HARDIE: CHAIRMAN
Dr Graeme Hardie has held the position of Chairman of Earn-A-Car Inc. since
December 2011. Dr. Hardie is currently self-employed as a businessman and
Architect. Dr. Hardie has been Chairman of the Board of Directors since the
company's plan of reorganization in December of 2011. He became a director at
the same time.
JOHN STOREY: PRESIDENT & CEO
John Storey has held the position of President and CEO since December of 2011,
the month the company entered into plan of reorganization and merger with
Earn-A-Car (Pty) Ltd, the South African Vehicle Rental Company. Prior to that,
Mr. Storey was the Managing Director of the SA EAC subsidiary (4 years) and
prior to that the MD of m Cubed Capital, a South African listed company (8
years). He became a director in December 2011. His full CV is available at
http://www.linkedin.com/in/johncstorey.
John Storey is a South African Chartered Accountant and Member of South African
Chartered Institute of Accountants, Chartered member of the Institute of Bankers
in South Africa, has a Master of Business Administration and Institute of
Marketing Management Diploma
BRUCE DUNNINGTON: CFO
Bruce Dunnington has held the position of CFO of Earn-A-Car Inc. since December
of 2011. Prior to that, Mr. Dunnington was and is head of operations at EAC's
operating company (5 years) the Managing Director of Automated Outsourcing
Services Limited (South African company) a large, high volume administrator (8
years). His full CV is available at http://www.linkedin.com/profile/view?id=
6717558&locale=en_US&trk=tyah.
Bruce Dunnington holds the following professional certifications; South African
Chartered Accountant and Member of South Africa Institute of Chartered
Accountants, Fellow member of the Chartered Institute of Management Accountants.
COMPENSATION OF DIRECTORS
The Board of Directors may compensate directors for their services as such. The
Board of Directors may also provide for the payment of all travel and
out-of-pocket expenses in connection with Directors' attendance at Board
meetings. Each board member serves for a one-year term until elections are held
at each annual meeting.
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Beginning December 1, 2011 The Chairman of Board of Directors shall be paid
$8,000 per year.
Directors are elected at the Company's annual meeting of Stockholders and serve
for one year until the next annual Stockholders' meeting or until their
successors are elected and qualified. Officers are elected by the Board of
Directors and their terms of office are, except to the extent governed by
employment contract, at the discretion of the Board. The Company may reimburse
all Directors for their expenses in connection with their activities as
directors of the Company.
FAMILY RELATIONSHIPS
There are no family relationships amongst our management and directors, except
that Graeme Hardie is John Storey's uncle.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
To the best of our knowledge, during the past ten years, none of the following
occurred with respect to a present or former director or executive officer of
the Company: (1) any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer either at the time
of the bankruptcy or within two years prior to that time; (2) any conviction in
a criminal proceeding or being subject to a pending criminal proceeding
(excluding traffic violations and other minor offenses); (3) being subject to
any order, judgment or decree, not subsequently reversed, suspended or vacated,
of any court of any competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type
of business, securities or banking activities; and (4) being found by a court of
competent jurisdiction (in a civil action), the Commission or the commodities
futures trading commission to have violated a Federal or state securities or
commodities law, and the judgment has not been reversed, suspended or vacated.
DIRECTOR INDEPENDENCE
We are not subject to listing requirements of any national securities exchange
or national securities association and, as a result, we are not at this time
required to have our board comprised of a majority of "independent directors."
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
Not applicable.
CODE OF ETHICS
The Company has adopted a Code of Ethics that applies to its principal executive
officer, principal financial officer or controller or persons performing similar
functions. Such Code of Ethics is filed as Exhibit 14.1 hereto.
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RELATED PARTY LOANS
At the date of the reorganization, there were a number of loans from individuals
and companies related to the management Further, some of these loans were
related to the current management of EAC and/or the South African subsidiary.
All of these loans to EAC are unsecured, have no fixed date of repayment and no
related party loans charged interest at said date. One of the loans for an
amount of $577,010 was from Trusts set up by Storey and Dunnington. These loans
will be gradually repaid by EAC as it becomes able to afford to do so.
There were no loans to management outstanding at our last reporting date.
EXECUTIVE OFFICER COMPENSATION
The following Summary Compensation Table shows the compensation awarded to or
earned by our Chief Executive Officer and other most highly compensated
executive officers for fiscal 2011. The persons listed in the following Summary
Compensation Table are referred to herein as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
Non-Equity Nonqualified
Name and Incentive Deferred
Principal Stock Option Plan Compensation All Other
Position Year Salary($) Bonus($) Awards($) Awards($) Compensation($) Earnings($) Compensation($) Total($)
-------- ---- --------- -------- --------- --------- --------------- ----------- --------------- --------
-
John Storey 2011 [1] 0 0 0 0 0 0 0
President 0 0 0 0 0 0 0
& CEO
Bruce
Dunnington 2011 [1] 0 0 0 0 0 0 0
CFO 0 0 0 0 0 0 0
----------
[1] The officers of the company are currently considered "at-will" employees.
The company has no compensation agreements with these officers; however
simple compensation arrangements have been made and summarized as follows:
John Storey is currently under an arrangement to receive no compensation as
President and CEO of the company. No other compensation arrangements have been
made with Mr. Storey at this time. Mr. Storey is currently retained as a
consultant, and acting President &CEO for the company. He has waived further
compensation at this time.
Bruce Dunnington is currently under an arrangement to receive no compensation as
CFO of the company. No other compensation arrangements have been made with Mr.
Dunnington at this time. Mr. Dunnington is currently retained as a consultant,
and acting CFO for the company. He has waived further compensation at this time.
8
The President and CFO of the company have forgone salaries to an undetermined
later date defined as some point in the future when the company is in better
financial position to afford salary payments. The major shareholder (not EAC)
has agreed to incentivise the President and CFO when the company meets certain
milestones, which have not yet been finalized. This is expected to be agreed
before the end of the next accounting period and will include options
underwritten by the major shareholder and a cash salary from the Company.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
None.
OPTION EXERCISES AND STOCK VESTED TABLE
None.
PENSION BENEFITS TABLE
None.
NONQUALIFIED DEFERRED COMPENSATION TABLE
None.
ALL OTHER COMPENSATION TABLE
None.
PERQUISITES TABLE
None.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE
None.
LONG-TERM INCENTIVE PLAN AWARDS
We do not have any long-term incentive plans that provide compensation intended
to serve as incentive for performance to occur over a period longer than one
fiscal year, whether such performance is measured by reference to our financial
performance, our stock price, or any other measure.
Pursuant to the Plan, Leon Golden has resigned all positions with the Company.
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PRINCIPAL STOCKHOLDERS (ITEM 5.02)
The following table sets forth information regarding beneficial ownership of our
common stock as of December 9, 2011 by (i) any person or group with more than 5%
of any class of voting securities, (ii) each director, (iii) our chief executive
officer and each other executive officer whose cash compensation for the most
recent fiscal year exceeded $100,000 and (iv) all such executive officers and
directors as a group. Unless otherwise specified, the address of each of the
persons set forth below is in care of the Company, Office 1 The Falls Centre,
Corner Great North and Webb, Northmead, Benoni 1522, Union of South Africa.
Except as indicated in the footnotes to this table and subject to applicable
community property laws, the persons named in the table to our knowledge have
sole voting and investment power with respect to all shares of securities shown
as beneficially owned by them.
Name and Address of Amount and Nature of Percent
Beneficial Owner Office Beneficial Owner of Class
---------------- ------ ---------------- --------
John Storey Director, CEO, 0 0%
President
Graeme Hardie Chairman of the 78,750,000(1) 70.0%(1)
210 Rutgers Place Board and a
Nutley, New Jersey 07110 Director,
Secretary, Treasurer
Bruce Dunnington COO 0 0%
Depassez Investments Ltd -- 78,750,000(1) 70.0%(1)
All Officers and Directors 78,750,000(1) 70.0%(1)
as a group (3 Persons)
----------
(1) Depassez Investments Ltd is a Seychelles corporation and holds these
shares. Mr. Hardie owns all of the shares of Depassez Investments Ltd and
accordingly, is the indirect owner of these shares.
The Company does not have any change of control or retirement arrangements with
its executive officers.
CHANGES IN CONTROL
We know of no contractual arrangements which may at a subsequent date result in
a further change of control in the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS (ITEM 2.01)
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
10
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. The information in this section should be read
in conjunction with the financial statements included herein, including the
notes thereto.
RESULTS OF OPERATIONS OVERVIEW
Our plan of operation for 2013 is to continue to expand our business to meet
demand for our services. Following our successful financing as reported on a
form 8-K filed , we have purchased an additional 133 vehicles in the quarter
ended August 31, 2012. The fleet size at August 31, 2012 was 577 vehicles
compared to 444 at the end of the May 31, 2012 quarter. Of our 577 vehicles at
August 31, 2012, 449 were rented out (2012 05: 377). The additional vehicles has
substantially increased our revenues and has increased NIAT by nearly 6 times
confirming our ROI's. Management believe the increase in fleet size will
increase income over the next few quarters and expect to increase the fleet my
at least another 100 cars by year-end.
Our current funding lines as previously announced will allow us to continue to
grow revenue in the next quarter as further vehicles are purchased and rented
out.
QUARTER ENDED AUGUST 31, 2012 V. QUARTER ENDED AUGUST 31, 2011
Revenues increased from $1,229,760 in Q2 of FY 2012 to $1,753,362 in Q2 of FY
2013 an increase of $523,602 or 42 %. Our operating expenses went from
$1,082,554 in Q2 of FY 2012 to $1,389,138 in Q2 of FY 2013 an increase of
$306,584 or 28%. Expenses rose largely as a consequence of the direct costs
related to the purchasing of vehicles. Net income increased from $153,806 in Q2
of FY 2012 to $387,347 in Q2 of FY 2013. We expect the growth in costs to slow
significantly next quarter as most of the costs necessary to manage our new
growth trajectory are now in place.
LIQUIDITY AND CAPITAL RESOURCES
We had total current assets of $1,252,674 at August 31, 2012. The bulk of our
assets ($3,893,515) are applied in revenue earning cars. We have utilised most
of the once-off, reducing balance credit facility, of USD$3m. We have now begun
again to use the AVIS revolving facility of USD$ 1,600,000 that we recently
repaid. Management believes this will increase revenues and profits as the new
cars get rented out. Management does not expect to have to dilute the
112,500,000 issued shares in the near future. Instead we intend to attempt to
continue to make use of asset based financing to grow our fleet of rental cars.
We will be looking to raise further debt of approximately $8m for more cars for
the 2013 calendar year. The funders we have approached have expressed interest
and we hope that we can reach this target but there are no guarantees.
RISK FACTORS
This report includes forward-looking statements about our business and results
of operations that are subject to risks and uncertainties. See "Forward-Looking
Statements," above. Factors that could cause or contribute to such differences
include those discussed below. We have discussed all known material risks below
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RISKS RELATED TO OUR FINANCIAL CONDITION AND OUR BUSINESS
RISKS RELATED TO THE COSTS OF RUNNING A PUBLIC COMPANY
The costs of running a public company, including hiring additional staff,
professional fees and filing and printing are expected to average around $70,000
per year. This will affect our cost structure and the costs of running the
business.
RISKS CONCERNING RELATED PARTY LOANS
There were $144,302 in loans to management at our reporting date. As of the date
of this filing all of these loans have been repaid. In addition, all loans from
related parties to EAC have also been repaid.
RISKS RELATING TO PLANS FOR ADDITIONAL FINANCING
As at the date of this submission, EAC had utilised all of the once-off,
reducing balance credit facility, of USD$3m. It has begun again to use the AVIS
revolving facility of USD$ 1,600,000 that we recently repaid in full. These cash
resources are not sufficient for us to execute our expansion plan which entails
an additional $7million over the next two years.
Management does not expect to have to dilute the 112,500,000 issued shares in
the near future. Instead we intend to attempt to continue to make use of asset
based financing to grow our fleet of rental cars.
During the 2013 calendar year, we will be looking to raise further debt of
approximately $8m for more cars. The funders we have approached have expressed
interest and we hope that we can reach this target but there are no guarantees
that this funding or even a portion will be forthcoming.
As at August 31, 2012, we had approximately $100,000 cash on hand. We still have
a revolvimngcredit line of approximately $2million for asset based finance on
favorable terms. The board will continually seek additional financing
opportunities which it believes are in the best interests of the Company and its
shareholders. If we do not generate sufficient cash from our intended financing
activities and sales, we will be unable to operate our business at expanded
levels which management believes would benefit shareholders. If we are able to
arrange debt or equity financing it may be on terms that are not beneficial to
our shareholders. Any financing that we do receive may dilute the interests of
our current shareholders. We do not have any agreements other than those
mentioned above (which could be retracted) with any financing source to obtain
financing on any particular terms.
We are planning to raise approximately $3 to 4m in asset based finance over the
next calendar year. This would enable us to acquire approximately 400 additional
cars. If we are able to demonstrate continued positive results we believe that
we will be able to raise additional capital privately in subsequent periods. For
each $1,000,000 raised we plan to acquire approximately 125 additional cars. We
have no present commitments to raise any capital and there is no assurance that
we would be able to do so on acceptable terms.
IF WE ARE UNABLE TO CONTINUE TO RETAIN THE SERVICES OF JOHN STOREY OR IF WE ARE
UNABLE TO SUCCESSFULLY RECRUIT QUALIFIED MANAGERIAL AND COMPANY PERSONNEL, WE
MAY NOT BE ABLE TO CONTINUE OPERATIONS.
Our success depends to a significant extent upon the continued services of John
Storey our CEO and President. The loss of the services of Mr. Storey could have
a material adverse effect on our growth, revenues, and prospective business. Mr.
Storey does not have an employment agreement with us. We do not have a "key
person" life insurance policy on Mr. Storey.
12
In order to successfully implement and manage our business plan, we will be
dependent upon, among other things, successfully recruiting qualified managerial
and company personnel having experience in car rental operations. Competition
for qualified individuals is intense. There can be no assurance that we will be
able to find, attract and retain existing employees or that we will be able to
find, attract and retain qualified personnel on acceptable terms.
IF WE CANNOT EFFECTIVELY MANAGE OUR INTERNAL GROWTH, OUR BUSINESS PROSPECTS,
REVENUES AND PROFIT MARGINS MAY SUFFER. If we fail to effectively manage our
internal growth in a manner that minimizes strains on our resources, we could
experience disruptions in our operations and ultimately be unable to generate
revenues or profits. We expect that we will need to significantly expand our
operations to successfully implement our business strategy. As we add marketing,
sales and build our infrastructure, we expect that our operating expenses and
capital requirements will increase. To effectively manage our growth, we must
continue to expend funds to improve our operational, financial and management
controls, and our reporting systems and procedures. In addition, we must
effectively expand, train and manage our employee base. If we fail in our
efforts to manage our internal growth, our prospects, revenue and profit margins
may suffer.
WE ARE TO ESTABLISH AND MAINTAIN REQUIRED DISCLOSURE CONTROLS AND PROCEDURES AND
INTERNAL CONTROLS OVER FINANCIAL REPORTING AND TO MEET THE PUBLIC REPORTING AND
THE FINANCIAL REQUIREMENTS FOR OUR BUSINESS.
Our management has a legal and fiduciary duty to establish and maintain
disclosure controls and control procedures in compliance with the securities
laws, including the requirements mandated by the Sarbanes-Oxley Act of 2002. The
standards that must be met for management to assess the internal control over
financial reporting as effective are new and complex, and require significant
documentation, testing and possible remediation to meet the detailed standards.
Because we have limited resources, we may encounter problems or delays in
completing activities necessary to make an assessment of our internal control
over financial reporting, and disclosure controls and procedures. In addition,
the attestation process by our independent registered public accounting firm is
new and we may encounter problems or delays in completing the implementation of
any requested improvements and receiving an attestation of our assessment by our
independent registered public accounting firm. If we cannot assess our internal
control over financial reporting as effective or provide adequate disclosure
controls or implement sufficient control procedures, or our independent
registered public accounting firm is is not expressly reporting on our internal
controls and the lack of such report on such assessment, may cause investor
confidence and share value may be negatively impacted. We currently do not have
a sufficient number of management employees to establish adequate controls and
procedures.
OUR OFFICERS HAVE NO EXPERIENCE IN MANAGING A PUBLIC COMPANY.
Our present officers have no previous experience in managing a United States
public company and we do not have a sufficient number of employees to segregate
responsibilities and may be unable to afford increasing our staff or engaging
outside consultants or professionals to overcome our lack of employees. During
the course of our testing, we may identify other deficiencies that we may not be
able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act
for compliance with the requirements of Section 404. In addition, if we fail to
achieve and maintain the adequacy of our internal controls, as such standards
are modified, supplemented or amended from time to time, we may not be able to
ensure that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those
related to revenue recognition, are necessary for us to produce reliable
13
financial reports and are important to help prevent financial fraud. If we
cannot provide reliable financial reports or prevent fraud, our business and
operating results could be harmed, investors could lose confidence in our
reported financial information, and the trading price of our common stock, if a
market ever develops, could drop significantly.
CONTROL BY MANAGEMENT
Our company is effectively controlled by management, specifically Hardie our
Chairman of the Board, who owns 78,750,000 shares or 70% of our 112,500,000
issued and outstanding shares of common stock as of December 9, 2011.
Accordingly, he will be able to elect our board of directors and control our
corporate affairs for the foreseeable future.
RISKS RELATED TO COMMON STOCK
THE LARGE NUMBER OF SHARES ELIGIBLE FOR IMMEDIATE AND FUTURE SALES MAY DEPRESS
THE PRICE OF OUR STOCK. As of December 9, 2011 we had 112,500,000 shares of
common stock outstanding. 33,750,00 shares are "free trading" and may serve to
overhang the market and depress the price of our common stock.
ADDITIONAL FINANCINGS MAY DILUTE THE HOLDINGS OF OUR CURRENT SHAREHOLDERS.
In order to provide capital for the operation of the business, we may enter into
additional financing arrangements. These arrangements may involve the issuance
of new shares of common stock, debt securities that are convertible into common
stock or warrants for the purchase of common stock. Any of these items could
result in a material increase in the number of shares of common stock
outstanding, which would in turn result in a dilution of the ownership interests
of existing common shareholders. In addition, these new securities could contain
provisions, such as priorities on distributions and voting rights, which could
affect the value of our existing common stock.
THERE IS CURRENTLY A LIMITED PUBLIC MARKET FOR OUR COMMON STOCK. FAILURE TO
DEVELOP OR MAINTAIN A TRADING MARKET COULD NEGATIVELY AFFECT ITS VALUE AND MAKE
IT DIFFICULT OR IMPOSSIBLE FOR YOU TO SELL YOUR SHARES.
Our common stock trades on the OTCBB under the Symbol VRIS. There has been a
limited public market for our common stock and an active public market for our
common stock may not develop. Failure to develop or maintain an active trading
market could make it difficult for you to sell your shares or recover any part
of your investment in us. Even if a market for our common stock does develop,
the market price of our common stock may be highly volatile. In addition to the
uncertainties relating to future operating performance and the profitability of
operations, factors such as variations in interim financial results or various,
as yet unpredictable, factors, many of which are beyond our control, may have a
negative effect on the market price of our common stock.
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
14
communicated to our management, including our Chief Executive Officer and
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.
(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.
NO DIVIDENDS
We never have paid any dividends on our common stock and we do not intend to pay
any dividends in the foreseeable future.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements (Previously filed)
Victoria Internet Services Financial Services Financial Statements
November 30, 2011 (unaudited)
EAC Financial Statements for the years ended February 28, 2011 and
2010.
EAC Financial Statements for the six months ended August 31, 2011 and
2010 (unaudited)
(b) Pro-Forma Financial Information (Previously filed)
Pro-Forma Financial Statements August 31, 2011 and June 30, 2011
(unaudited)
Pro Forma Financial Statements February 28, 2011 and December 31, 2010
(unaudited).
(c) Exhibits
10.1 Agreement and Plan of Reorganization, by and among VICTORIA
INTERNET SERVICES, INC., a Nevada corporation, Leon Golden and
Earn-A-Car (PTY), LTD., a corporation organized under the laws of
the Republic of South Africa. (Previously Filed)
14.1 Code of Ethics (Previously Filed)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EARN-A-CAR, INC.
By: /s/ John Storey, CEO
--------------------------------
John Storey, CEO
Dated: December 14, 2012
15
EARN-A-CAR, INC.
(Formerly Victoria Internet Services, Inc.)
FINANCIAL STATEMENTS
FEBRUARY 29, 2012
CONTENTS
Report of Independent Registered Public Accounting Firm F-1
Balance Sheets as of February 29, 2012 and February 28, 2011 F-2
Statements of Operations for the years ended
February 29, 2012 and February 28, 2011 F-3
Statements of Other Comprehensive Income for the years
ended February 29, 2012 and February 28, 2011 F-4
Statement of Stockholders' Equity as of February 29, 2012 F-5
Statements of Cash Flows for the years ended
February 29, 2012 and February 28, 2011 F-6
Notes to the Financial Statements F-7
Silberstein Ungar, PLLC CPAs and Business Advisors
--------------------------------------------------------------------------------
Phone (248) 203-0080
Fax (248) 281-0940
30600 Telegraph Road, Suite 2175
Bingham Farms, MI 48025-4586
www.sucpas.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Earn-A-Car, Inc.
Benoni, South Africa
We have audited the accompanying balance sheets of Earn-A-Car, Inc. (formerly
Victoria Internet Services, Inc.) as of February 29, 2012 and February 29, 2011,
and the related statements of operations, other comprehensive income (loss),
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company has
determined that it is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Earn-A-Car, Inc. (formerly
Victoria Internet services, Inc.) as of February 29, 2012 and February 28, 2011,
and the results of its operations and cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Silberstein Ungar, PLLC
-----------------------------------
Silberstein Ungar, PLLC
Bingham Farms, Michigan
May 24, 2012
F-1
EARN-A-CAR, INC.
(Formerly Victoria Internet Services, Inc.)
BALANCE SHEETS
FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
February 29, 2012 February 28, 2011
----------------- -----------------
ASSETS
Current Assets
Cash and cash equivalents $ 171,354 $ 69,480
Receivables, net 99,721 38,961
---------- ----------
Total Current Assets 271,075 108,441
---------- ----------
Property and equipment, net 14,242 9,607
---------- ----------
Revenue-earning vehicles, net 2,982,060 2,363,832
---------- ----------
Other Assets
Loans to shareholders 0 13,169
Loan receivable 15,312 16,682
---------- ----------
Total Other Assets 15,312 29,851
---------- ----------
TOTAL ASSETS $3,282,689 $2,511,731
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts payable $ 292,447 $ 220,402
Accrued expenses 51,747 21,032
Current portion of leases payable 593,533 398,908
Current portion of loans payable 152,243 201,162
---------- ----------
Total Current Liabilities 1,089,970 841,504
---------- ----------
Long-term Debt
Loans from shareholders 1,000 97,878
Leases payable 741,582 241,474
Loans payable 726,808 898,840
---------- ----------
Total Long-term Debt 1,469,390 1,238,192
---------- ----------
Total Liabilities 2,559,360 2,079,696
---------- ----------
Stockholders' Equity
Common stock, $0.0000001 par value, 250,000,000 shares
authorized, 112,250,000 and 500 shares issued and
outstanding, respectively 11 60
Additional paid in capital 5,423 0
Accumulated other comprehensive (loss) (35,278) (5,792)
Retained earnings 753,173 437,767
---------- ----------
Total Stockholders' Equity 723,329 432,035
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,282,689 $2,511,731
========== ==========
See accompanying notes to financial statements.
F-2
EARN-A-CAR, INC.
(Formerly Victoria Internet Services, Inc.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
For the For the
year ended year ended
February 29, 2012 February 28, 2011
----------------- -----------------
Revenues
Vehicle rentals $ 2,518,631 $ 2,124,939
Other 11,273 12,667
----------- -----------
Total Revenues 2,529,904 2,137,606
----------- -----------
Expenses
Direct vehicle and operating 943,823 1,068,370
Vehicle depreciation and lease charges 516,119 204,303
Selling, general and administrative 537,333 370,474
Interest expense 218,903 93,894
----------- -----------
Total Expenses 2,216,178 1,737,041
----------- -----------
Operating Income 313,726 400,565
Other Income
Interest income 1,680 155
----------- -----------
Net Income Before Provision for Income Taxes 315,406 400,720
Provision for Income Taxes 0 0
----------- -----------
Net Income $ 315,406 $ 400,720
=========== ===========
Earnings per Share $ 0.01 $ 1,335.73
=========== ===========
Weighted Average Common Shares Outstanding 41,435,997 300
=========== ===========
See accompanying notes to financial statements.
F-3
EARN-A-CAR, INC.
(Formerly Victoria Internet Services, Inc.)
STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
For the For the
year ended year ended
February 29, 2012 February 28, 2011
----------------- -----------------
Net Income $ 315,406 $ 400,720
--------- ---------
Foreign Currency Translation
Change in cumulative translation adjustment (29,486) 6,073
--------- ---------
Total $ (29,486) $ 6,073
========= =========
See accompanying notes to financial statements.
F-4
EARN-A-CAR, INC.
(Formerly Victoria Internet Services, Inc.)
STATEMENT OF STOCKHOLDERS' EQUITY
AS OF FEBRUARY 29, 2012
Accumulated
Common stock Other Retained
-------------------- Paid in Comprehensive Earnings
Shares Amount Capital Income (Loss) (Deficit) Total
------ ------ ------- ------------- --------- -----
Balance February 28, 2009 100 $ 10 $ -- $ 29,931 $(229,369) $(199,428)
(Loss) on currency translation -- -- -- (41,796) -- (41,796)
Net earnings -- -- -- -- 266,416 266,416
----------- ------- ------- ---------- --------- ---------
Balance February 28, 2010 100 10 -- (11,865) 37,047 25,192
Common stock issued for
cash at par 400 50 -- -- -- 50
Gain on currency translation -- -- -- 6,073 -- 6,073
Net earnings -- -- -- -- 400,720 400,720
----------- ------- ------- ---------- --------- ---------
Balance, February 28, 2011 500 60 -- (5,792) 437,767 432,035
(Loss) on currency translation -- -- -- (29,486) -- (29,486)
Reorganization adjustment 233,749,500 (35) 5,409 -- -- 5,374
Cancellation of stock-former CEO (121,500,000) (14) 14 -- -- --
Net income -- -- -- -- 315,406 315,406
----------- ------- ------- ---------- --------- ---------
Balance, February 29, 2012 112,250,000 $ 11 $ 5,423 $ (35,278) $ 753,173 $ 723,329
=========== ======= ======= ========== ========= =========
See accompanying notes to financial statements.
F-5
EARN-A-CAR, INC.
(Formerly Victoria Internet Services, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 29, 2012 AND FEBRUARY 28, 2011
For the For the
year ended year ended
February 29, 2012 February 28, 2011
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income and other comprehensive income $ 315,406 $ 400,720
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 522,591 206,757
Net losses from disposition of revenue-earning vehicles 69,010 66,386
Change in Assets and Liabilities:
(Increase) decrease in receivables (60,760) 16,386
Increase (decrease) in accounts payables 72,045 (72,382)
Increase (decrease) in accrued expenses 30,715 5,626
----------- -----------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 949,007 623,493
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Revenue-earning vehicles:
Purchases (1,203,065) (445,636)
Proceeds from sales 0 0
Property, equipment and software:
Purchases (11,401) (10,396)
Proceeds from sales 0 0
Loans extended 14,540 (16,682)
----------- -----------
CASH FLOWS (USED) BY INVESTING ACTIVITIES (1,199,926) (472,714)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 0 50
Additional paid in capital, due to merger 5,374 0
Proceeds from (Payments on) leases payable (net) 694,734 (52,963)
Proceeds from (Payments on) loans payable (net) (220,950) 181,657
Proceeds from (Payments on) shareholder loans (net) (96,879) (247,390)
----------- -----------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES 382,279 (118,646)
----------- -----------
Exchange rate effect on cash and cash equivalents (29,486) 6,073
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 101,874 38,206
Cash, beginning of period 69,480 31,274
----------- -----------
Cash, end of period $ 171,354 $ 69,480
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 218,903 $ 93,894
=========== ===========
Cash paid for income taxes $ 0 $ 0
=========== ===========
See accompanying notes to financial statements.
F-6
EARN-A-CAR, INC.
(Formerly Victoria Internet Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2012
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE 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) 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.".
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.
ESTIMATES - 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.
CASH 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 February 29, 2012 and February 28, 2011 the Company had
$171,354 and $69,480 in cash and cash equivalents, respectively.
ALLOWANCE 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 February 29, 2012 and February
28, 2011 the Company had $264,189 and $317,313 in impaired receivables,
respectively. The allowance for these impaired receivables was $164,295 and
$17,210 for 2012 and 2011 respectively.
FINANCING 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.
F-7
EARN-A-CAR, INC.
(Formerly Victoria Internet Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2012
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
REVENUE-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 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
LONG-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 TRANSLATION - The Company's functional currency is the South
African Rand, the translation into US dollars is the presentation bases of these
financial statements. Foreign assets and liabilities are translated 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 RECOGNITION - Revenues from vehicle rentals are recognized as earned on
a daily basis under the related rental contracts with customers. We also charge
upfront administrative fees, which are non-refundable and fully earned at
inception of the rental period, and which are recorded as income at the start of
the rental period which is month to month.
ADVERTISING COSTS - Advertising costs are primarily expensed as incurred. During
the years ended February 29, 2012 and February 28, 2011, the Company incurred
advertising expense of $16,494 and $17,492, respectively.
F-8
EARN-A-CAR, INC.
(Formerly Victoria Internet Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2012
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME 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 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 February 29, 2012.
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 is accounted for at fair
value in accordance with SFAS No. 123 and 123 (R) (ASC 718). To date, the
Company has not adopted a stock option plan and has not granted any stock
options.
NEW 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:
February 29, 2012 February 28, 2011
----------------- -----------------
Revenue-earning vehicles $ 4,028,709 $ 3,081,754
Less accumulated depreciation (1,046,649) (717,922)
----------- -----------
$ 2,982,060 $ 2,363,832
=========== ===========
Rent expense for vehicles leased under operating leases was $0 and $0 for the
years ending February 29, 2012 and February 28, 2011, respectively, and is
included in vehicle depreciation and lease charges, net.
3. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
February 29, 2012 February 28, 2011
----------------- -----------------
Computer equipment $ 17,757 $ 9,385
Computer software 5,649 3,192
----------- -----------
23,406 12,577
Less accumulated depreciation (9,164) (2,970)
----------- -----------
$ 14,242 $ 9,607
=========== ===========
During 2012 and 2011, the Company recorded no provisions for the impairment of
assets.
F-9
EARN-A-CAR, INC.
(Formerly Victoria Internet Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2012
4. LOANS RECEIVABLE
At February 29, 2012, the Company has no loans receivable from shareholders. At
February 28, 2011, the Company has a loan receivable from a shareholder.
At February 29, 2012 and February 28, 2011, the Company has a receivable due
under a settlement agreement with a former employee with a balance of $15,312
and $16,682, respectively. This loan is to be repaid with interest of 10% in 48
equal installments of about $425; the payments began in March, 2011.
5. DEBT AND OTHER OBLIGATIONS
Debt and other obligations consist of the following:
February 29, 2012 February 28, 2011
----------------- -----------------
Loan payable - individual - unsecured, interest bearing, $ 26,546 $ 27,804
no fixed repayment terms
Loan payable - individual - unsecured, interest bearing,
no fixed repayment terms 66,366 69,510
Loan payable - individual - unsecured, interest bearing,
no fixed repayment terms 90,257 95,229
Loan payable - individual - unsecured, interest bearing,
no fixed repayment terms 104,373 110,013
Loan payable - other - unsecured, interest bearing, no
fixed repayment terms 252,488 596,284
Loan payable - Jay & Jayendra (Pty) Ltd. Secured by
company vehicles, bearing an interest rate of the prime
rate, payable within 12 months. 159,278 166,824
Loan payable - other - unsecured, 2% per month interest,
repayable within 60 days after year end, subject to
default immediate repayment stipulation 119,458 -
Loan payable - other - unsecured, interest bearing, no
fixed repayment terms 60,285 34,338
----------- -----------
Total $ 879,051 $ 1,100,002
Current portion of loans payable 152,243 201,162
----------- -----------
Long-term portion of loans payable $ 726,808 $ 898,840
=========== ===========
F-10
EARN-A-CAR, INC.
(Formerly Victoria Internet Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2012
5. DEBT AND OTHER OBLIGATIONS (CONTINUED)
Expected maturities of debt and other obligations outstanding at February 29,
2012 are as follows:
Loan Amounts Lease Amounts Total
------------ ------------- ----------
Year ending February 28, 2013 $ 152,243 $ 593,533 $ 745,776
Year ending February 28, 2014 -- 437,418 437,418
Year ending February 28, 2015 -- 276,398 276,398
Year ending February 28, 2016 -- 27,766 27,766
Year ending February 28, 2017 -- -- --
Thereafter 726,808 -- 726,808
---------- ---------- ----------
Total $ 879,051 $1,335,115 $2,214,166
========== ========== ==========
Installment sales and lease contracts are secured by installment sales and
finance lease agreements over revenue generating vehicles, having 2012 carrying
values of $546,796 and 1,624,501 respectively and 2011 carrying values of
$734,113 and $819,998 respectively. These installment sales and lease contracts
are repayable in monthly installments for 2012 of $15,443 and $58,647
respectively and 2011 monthly installments of $21,046 and $21,725 respectively.
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 years ended February 29,
2012 and February 28, 2011 because our taxable losses and loss carryovers exceed
the income in those years. At February 29, 2012 and February 28, 2011,
respectively, the Company had net losses of approximately $379,175 and $431,567
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 February 29, 2012 and February 28, 2011 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 February 29, 2012 and February 28, 2011 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
February 29, 2012 and February 28, 2011 there were no (0) shares outstanding.
8. COMMITMENTS AND CONTINGENCIES OPERATING 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.
F-11
EARN-A-CAR, INC.
(Formerly Victoria Internet Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2012
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Expenses incurred under operating leases for the period were as follows:
February 29, 2012 February 28, 2011
----------------- -----------------
Operating leases:
Premises $ 13,872 $ 46,283
Motor vehicles -- 16,465
----------- -----------
$ 13,872 $ 62,748
=========== ===========
Future minimum rentals and fees under non-cancelable operating leases for the 12
month periods are presented in the following table:
February 28, 2013 $ 13,872
February 28, 2014 $ 13,872
February 28, 2015 $ 13,872
February 29, 2016 $ 13,872
February 28, 2017 $ 13,872
At February 29, 2012, the Company had no outstanding 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:
February 29, 2012 February 28, 2011
----------------- -----------------
Loans payable to shareholders:
Cobalt Capital (Pty) Ltd. $ 0 $ 26,174
G. Yannakopoulos 0 71,704
G. Hardie 1,000
----------- -----------
Total loans payable to related parties $ 1,000 $ 97,878
=========== ===========
Loans receivable from shareholders
Cobalt Capital (Pty) Ltd. $ 0 $ 0
M. DuPlessis 0 13,169
G. Yannakopoulos 0 0
----------- -----------
Total loans receivable from related parties $ 0 $ 13,169
=========== ===========
Compensation paid to directors
M. DuPlessis 52,482 52,697
G. Yannakopoulos 52,482 52,697
----------- -----------
$ 104,964 $ 105,394
=========== ===========
F-12
EARN-A-CAR, INC.
(Formerly Victoria Internet Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2012
10. SUBSEQUENT EVENTS
The Company has analyzed its operations subsequent to February 29, 2012 through
the date these financial statements were issued, and has determined that it does
not have any material subsequent events to disclose.
F-13