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 May 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, 2013 was 112,250,000
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EARN-A-CAR, INC.
BALANCE SHEETS (UNAUDITED)
MAY 31, 2013 AND FEBRUARY 28, 2013
May 31, 2013 February 28, 2013
------------ -----------------
ASSETS
Current Assets
Cash and cash equivalents $ 365,147 $ 682,096
Receivables, net 187,672 418,707
---------- ----------
Total Current Assets 552,819 1,100,803
---------- ----------
Property and equipment, net 24,460 24,958
---------- ----------
Revenue-earning vehicles, net 4,508,883 4,858,545
---------- ----------
Other Assets
Loan receivable 6,065 7,037
Deferred Costs 121,409 67,283
---------- ----------
Total Other Assets 127,474 74,320
---------- ----------
TOTAL ASSETS $5,213,636 $6,058,626
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts payable $ 277,198 $ 510,994
Accrued expenses 25,048 51,154
Deferred Income 529,271 569,876
Current portion of leases payable 473,799 714,948
Current portion of loans payable 842,414 731,271
---------- ----------
Total Current Liabilities 2,147,730 2,578,243
---------- ----------
Long-term Debt
Loans from shareholders 0 0
Leases payable 914,605 634,885
Loans payable 1,394,787 2,031,641
---------- ----------
Total Long-term Debt 2,309,392 2,666,526
---------- ----------
Total Liabilities 4,457,122 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) (214,695)
Retained earnings 1,063,326 1,023,118
---------- ----------
Total Stockholders' Equity 756,514 813,857
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,213,636 $6,058,626
========== ==========
See accompanying notes to financial statements.
2
EARN-A-CAR, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 31, 2013 AND MAY 31, 2012
For the For the
Three months Three months
ended ended
May 31, 2013 May 31, 2012
------------ ------------
(Restated)
Revenues
Vehicle rentals $ 886,607 $ 624,797
Other 2,185 1,936
------------ ------------
Total Revenues 888,792 626,733
------------ ------------
Expenses
Direct vehicle and operating 138,582 247,334
Vehicle depreciation 210,502 174,924
Selling, general and administrative 367,746 110,350
Interest expense 131,754 64,226
------------ ------------
Total Expenses 848,584 596,834
------------ ------------
Operating Income 40,208 29,899
Other Income
Interest income 0 0
------------ ------------
Net Income Before Provision for Income Taxes 40,208 29,899
Provision for Income Taxes 0 0
------------ ------------
Net Income $ 40,208 $ 29,899
============ ============
Earnings per Share $ 0.00 $ 0.00
============ ============
Weighted Average Common Shares Outstanding 112,250,000 112,250,000
============ ============
See accompanying notes to financial statements.
3
EARN-A-CAR, INC.
STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 31, 2013 AND MAY 31, 2012
For the For the
Three months Three months
ended ended
May 31, 2013 May 31, 2012
------------ ------------
(Restated)
Net Income $ 40,208 $ 29,899
-------- --------
Foreign Currency Translation
Change in cumulative translation adjustment (97,551) (65,316)
-------- --------
Total $(97,551) $(65,316)
======== ========
See accompanying notes to financial statements.
4
EARN-A-CAR, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
AS OF MAY 31, 2013
Accumulated
Common Stock Additional Other
------------------- Paid-in Comprehensive Retained
Shares Amount Capital Loss Earnings Total
------ ------ ------- ---- -------- -----
Balance, February 28, 2011 500 $ 60 $ -- $ (5,792) $ 437,767 $ 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) -- (97,551)
Net income -- -- -- -- 40,208 40,208
------------ ------- -------- ---------- ----------- ----------
Balance, May 31, 2013 112,250,000 $ 11 $ 5,423 $ (312,246) $ 1,063,236 $ 756,514
============ ======= ======== ========== =========== ==========
See accompanying notes to financial statements.
5
EARN-A-CAR, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MAY 31, 2013 AND MAY 31, 2012
For the For the
Three months Three months
ended ended
May 31, 2013 May 31, 2012
------------ ------------
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period $ 40,208 $ 29,899
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 210,502 174,924
Net losses from disposition of revenue-earning vehicles 0 0
Change in Assets and Liabilities:
(Increase) decrease in receivables 231,035 76,624
(Increase) decrease in deferred costs (54,126) 846
Increase (decrease) in accounts payables (233,796) (90,061)
Increase (decrease) in accrued expenses (26,106) 9,010
Increase (decrease) in deferred income (40,605) (4,595)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 127,112 196,647
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of revenue-earning vehicles 139,160 (188,464)
Purchase of property, equipment and software 498 (1,463)
Proceeds from sales of revenue-earning vehicles 0 321,834
Collections of loans extended 972 1,249
---------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 140,630 133,156
---------- ----------
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)
Proceeds from (Payments on) loans payable (net) (525,711) (93,715)
Proceeds from (Payments on) shareholder loans (net) 0 (1,000)
---------- ----------
NET CASH USED BY FINANCING ACTIVITIES (487,140) (332,836)
---------- ----------
Exchange rate effect on cash and cash equivalents (97,551) (65,316)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (316,949) (68,349)
Cash, beginning of period 682,096 171,354
---------- ----------
Cash, end of period $ 365,147 $ 103,005
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 131,754 $ 64,226
========== ==========
Cash paid for income taxes $ 0 $ 0
========== ==========
See accompanying notes to financial statements.
6
EARN-A-CAR, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2013
1. 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.".
EARN-A-CAR ASSETS 1 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- 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.
7
EARN-A-CAR, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 May 31, 2013 and February 28, 2013 the Company had $365,147
and $682,096 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 May 31, 2013 and February 28,
2013 the Company had $94,796 and $7,444 in impaired receivables, respectively.
The allowance for these impaired receivables was $13,063 and $14,359 for periods
ending May 31, 2013and February 28, 2013 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.
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 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
8
EARN-A-CAR, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 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 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. 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 COSTS - Advertising costs are primarily expensed as incurred. During
the three months ended May 31, 2013 and May 31, 2012, the Company incurred
advertising expense of $20,430 and $4,822, respectively.
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 May 31, 2013.
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 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
MAY 31, 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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:
May 31, 2013 February 28, 2013
------------ -----------------
Revenue-earning vehicles $ 5,851,403 $ 6,212,577
Less accumulated depreciation (1,342,520) (1,354,132)
----------- -----------
Revenue-earning vehicles, net $ 4,508,883 $ 4,858,445
=========== ===========
3. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
May 31, 2013 February 28, 2013
------------ -----------------
Computer equipment $ 25,777 $ 23,353
Computer software 5,252 2,368
Other fixed assets including signage 8,834 8,664
----------- -----------
Subtotal 39,863 34,385
Less accumulated depreciation (15,403) (9,427)
----------- -----------
Property and equipment, net $ 24,460 $ 24,958
=========== ===========
For the three months ended May 31, 2013 and 2012, the Company recorded
depreciation of $210,502 and $174,924 respectively.
4. LOANS RECEIVABLE
At May 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 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
MAY 31, 2013
5. DEBT AND OTHER OBLIGATIONS
Debt and other obligations consist of the following:
May 31, 2013 February 28, 2013
------------ -----------------
Loan payable - individual - unsecured, interest bearing, no fixed
repayment terms $ 20,218 $ 22,625
Loan payable - individual - unsecured, interest bearing, no fixed
repayment terms 10,109 11,312
Loan payable - individual - unsecured, interest bearing, no fixed
repayment terms 50,545 56,562
Loan payable - individual - unsecured, interest bearing, no fixed
repayment terms 33,612 41,008
Loan payable - other - unsecured, interest bearing, no fixed
repayment terms 56,241 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 1,895,432 2,356,765
Loan payable - other - unsecured, interest bearing, no fixed
repayment terms 118,584 151,181
Loan payable - other - unsecured, interest bearing, no fixed
repayment terms 24,970 27,943
Loan payable - other - unsecured, interest bearing, no fixed
repayment terms 27,490 27,489
---------- ----------
Total $2,237,201 $2,762,912
Current portion of loans payable 842,414 731,271
---------- ----------
Long-term portion of loans payable $1,394,787 $2,031,641
========== ==========
11
EARN-A-CAR, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2013
5. DEBT AND OTHER OBLIGATIONS (CONTINUED)
Expected maturities of debt and other obligations outstanding at May 31, 2013
are as follows:
Loan Amounts Lease Amounts Total
------------ ------------- ----------
Year ending May 31, 2014 $ 842,414 $ 473,799 $1,316,213
---------- ---------- ----------
Year ending May 31, 2015 $ 869,914 $ 465,027 $1,334,941
Year ending May 31, 2016 $ 210,604 $ 403,242 $ 613,846
Year ending May 31, 2017 $ 0 $ 46,336 $ 46,336
Year ending May 31, 2018 $ 0 $ 0 $ 0
Thereafter $ 314,269 $ 0 $ 314,269
---------- ---------- ----------
Total $2,237,201 $1,388,404 $3,625,605
========== ========== ==========
Installment sales and lease contracts are secured by finance lease agreements
over revenue generating vehicles, having 2013 carrying values of $1,294,104.
These lease contracts are repayable in monthly installments for 2013 of $11,528
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 three months ended May 31,
2013 and February 28, 2013 because our taxable losses and loss carryovers exceed
the income in those years. At May 31, 2013 and February 28, 2013, respectively,
the Company had net income of approximately $40,208 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 May 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, 2013 and February 28, 2013 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, 2013 and February 28, 2013, there were no (0) shares outstanding.
12
EARN-A-CAR, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 2013
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.
Expenses incurred under operating leases for the period were as follows:
May 31, 2013 May 31, 2012
------------ ------------
Operating leases:
Premises $ 0 $ 7,747
-------- --------
$ 0 $ 7,747
======== ========
Future minimum rentals and fees under non-cancelable operating leases for the 12
month periods are presented in the following table:
May 31, 2014 $ 0
May 31, 2015 $ 0
May 31, 2016 $ 0
May 31, 2017 $ 0
May 31, 2018 $ 0
At May 31, 2013, the Company had no out standing 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
------------ -----------------
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 May 31, 2013 through the
date these financial statements were issued, and has determined that it does not
have any material subsequent events to disclose.
11. CORRECTION TO ACCOUNTING POLICY FOR US GAAP
The Company has restated its beginning balances for 2013, as well as the balance
sheet and statement of operations for 2013 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.
The balances as of and for the three months ended May 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
May 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 $656,150
Statement of Operations Direct motor vehicle costs $ 247,334 $254,877
Statement of Other comprehensive
Income Net Income $ 29,899 $ 53,709
Cash Flows Net cash provided by
operating activities $ 196,647 $131,331
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 plan 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 size of our
fleet on a prudent basis using asset based finance. Management believes that the
resulting increase in rental and other income from the increase in our fleet
size should be realized over the next 2 quarters.
QUARTER ENDED MAY 31, 2013 V. QUARTER ENDED MAY 31, 2012
Revenues increased from $626,733 in Q1 of FY 2013 to $888,792 in Q1 of FY 2014
an increase of $262,059 or 42 %. Our operating expenses went from $596,834 in Q1
of FY 2013 to $848,584 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 Q1 of FY 2014. .
While our numbers 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 half
of the year. This year our returns in January jumped markedly as clients
struggled 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 run 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.
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LIQUIDITY AND CAPITAL RESOURCES
We had total current assets of $552,819 at May 31, 2013. The bulk of our assets
are $4,508,883 in revenue earning vehicles.
In addition to these cash resources, In June we were able to secure increase the
company's revolving 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 able to
grow our fleet by around 50% this financial year.
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 May 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.
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(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.
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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, 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)
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