0001165527-14-000013.txt : 20140114 0001165527-14-000013.hdr.sgml : 20140114 20140114115154 ACCESSION NUMBER: 0001165527-14-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20131130 FILED AS OF DATE: 20140114 DATE AS OF CHANGE: 20140114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Earn-A-Car Inc. CENTRAL INDEX KEY: 0001486297 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTO RENTAL & LEASING (NO DRIVERS) [7510] IRS NUMBER: 271320213 STATE OF INCORPORATION: NV FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-165391 FILM NUMBER: 14526453 BUSINESS ADDRESS: STREET 1: OFFICE 1 THE FALLS CENTRE STREET 2: CORNER GREAT NORTH AND WEBB CITY: NORTHMEAD, BENONI 1522 STATE: T3 ZIP: 00000 BUSINESS PHONE: 27-11-425-1666 MAIL ADDRESS: STREET 1: OFFICE 1 THE FALLS CENTRE STREET 2: CORNER GREAT NORTH AND WEBB CITY: NORTHMEAD, BENONI 1522 STATE: T3 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: VICTORIA INTERNET SERVICES INC DATE OF NAME CHANGE: 20100304 10-Q 1 g7240.txt 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 November 30, 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 November 30, 2013 was 112,250,000 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EARN-A-CAR, INC. CONSOLIDATED BALANCE SHEETS (unaudited) NOVEMBER 30, 2013 AND FEBRUARY 28, 2013
November 30, February 28, 2013 2013 ------------ ------------ ASSETS Current Assets Cash and cash equivalents $ 134,360 $ 682,096 Receivables, net 484,880 418,707 ------------ ------------ Total Current Assets 619,240 1,100,803 Property and equipment, net 32,397 24,958 ------------ ------------ Revenue-earning vehicles, net 5,073,745 4,858,545 ------------ ------------ Other Assets Loan receivable 6,412 7,037 Deferred Costs 120,231 67,283 ------------ ------------ Total Other Assets 126,643 74,320 ------------ ------------ TOTAL ASSETS $ 5,852,025 $ 6,058,626 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Current Liabilities Accounts payable $ 420,059 $ 510,994 Accrued expenses 35,555 51,154 Deferred Income 539,959 569,876 Current portion of leases payable 902,342 714,948 Current portion of loans payable 817,723 731,271 ------------ ------------ Total Current Liabilities 2,715,638 2,578,243 ------------ ------------ Long-term Debt Loans from shareholders 0 0 Leases payable 1,588,152 634,885 Loans payable 818,556 2,031,641 ------------ ------------ Total Long-term Debt 2,406,708 2,666,526 ------------ ------------ Total Liabilities 5,122,346 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) (284,431) (214,695) Retained earnings 1,008,676 1,023,118 ------------ ------------ Total Stockholders' Equity 729,679 813,857 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,852,025 $ 6,058,626 ============ ============
See accompanying notes to financial statements. 2 EARN-A-CAR, INC. STATEMENTS OF OPERATIONS (unaudited) FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2013 AND NOVEMBER 30, 2012
For the three For the three For the nine For the nine months ended months ended months ended months ended November 30, November 30, November 30, November 30, 2013 2012 2013 2012 ------------ ------------ ------------ ------------ (Restated) (Restated) Revenues Vehicle rentals $ 869,844 $ 472,412 $ 2,502,305 $ 2,225,774 Other 44,916 2,076 127,252 5,464 ------------ ------------ ------------ ------------ Total Revenues 914,760 474,488 2,629,557 2,231,238 ------------ ------------ ------------ ------------ Operating Expenses Direct vehicle and operating 264,270 141,798 764,278 837,306 Vehicle depreciation and lease charges 222,285 284,613 632,346 665,290 Selling, general and administrative 274,714 142,857 836,181 355,374 Interest expense 121,742 85,411 347,040 185,847 ------------ ------------ ------------ ------------ Total Operating Expenses 883,011 654,679 2,579,845 2,043,817 ------------ ------------ ------------ ------------ Operating Income (Loss) 31,749 (180,191) 49,712 187,421 Other Income (Expense) Interest income 1,197 2,380 5,080 21,268 Gain on asset disposal (26,583) (6,056) (69,234) (5,209) ------------ ------------ ------------ ------------ Net Income (Loss) Before Provision for Income Taxes 6,363 (183,867) (14,442) 203,480 Provision for Income Taxes 0 0 0 0 ------------ ------------ ------------ ------------ Net Income (Loss) $ 6,363 $ (183,867) $ (14,442) $ 203,480 ============ ============ ============ ============ Earnings (Loss) per Share $ (0.00) $0,00 $ (0.000) $ 0.002 ============ ============ ============ ============ Weighted Average Common Shares Outstanding 112,250,000 112,250,000 112,250,000 112,250,000 ============ ============ ============ ============
See accompanying notes to financial statements. 3 EARN-A-CAR, INC. STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS) (unaudited) FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2013 AND NOVEMBER 30, 2012
For the three For the three For the nine For the nine months ended months ended months ended months ended November 30, November 30, November 30, November 30, 2013 2012 2013 2012 ------------ ------------ ------------ ------------ (Restated) (Restated) Net Income $ 6,363 $ (183,867) $ (14,442) $ 203,480 ---------- ---------- ---------- ---------- Foreign Currency Translation Change in cumulative translation adjustment (23,363) (28,412) (69,736) (137,606) ---------- ---------- ---------- ---------- Total $ (23,363) $ (28,412) $ (69,736) $ (137,606) ========== ========== ========== ==========
See accompanying notes to financial statements. 4 EARN-A-CAR, INC. STATEMENT OF STOCKHOLDERS' EQUITY (unaudited) AS OF NOVEMBER 30, 2013
Accumulated Common Stock Additional Other ------------------- Paid-in Comprehensive Retained Shares Amount Capital Loss Earnings Total ------ ------ ------- ---- -------- ----- Balance, February 28, 2013 112,250,000 $ 11 $ 5,423 $ (214,695) $ 1,023,118 $ 813,857 Gain (Loss) on currency translation -- -- -- (69,736) -- (69,736) Net loss -- -- -- -- (14,442) (14,442) ----------- ------- ------- ---------- ----------- --------- Balance, November 30, 2013 112,250,000 $ 11 $ 5,423 $ (284,431) $ 1,008,676 $ 726,679 =========== ======= ======= ========== =========== =========
See accompanying notes to financial statements. 5 EARN-A-CAR, INC. STATEMENTS OF CASH FLOWS (unaudited) FOR THE NINE MONTHS ENDED NOVEMBER 30, 2013 AND NOVEMBER 30, 2012
For the nine For the nine months ended months ended November 30, November 30, 2013 2012 ------------ ------------ (Restated) CASH FLOWS FROM OPERATING ACTIVITIES Net income for the period $ (14,442) $ 203,480 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 632,346 665,290 Net gains (losses) from disposition of revenue-earning vehicles 69,234 5,209 Change in Assets and Liabilities: (Increase) decrease in receivables (66,173) (491,812) (Increase) decrease in deferred costs (52,947) (126,851) Increase (decrease) in accounts payables (90,935) 36,879 Increase (decrease) in accrued expenses (15,599) (34,647) Increase (decrease) in deferred income (29,919) 539,787 ------------ ------------ Net Cash Provided by Operating Activities 431,565 797,335 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Revenue-earning vehicles: Purchases (916,780) (2,137,593) Proceeds from sales -- 40,695 Property, equipment and software Purchases (7,439) (13,126) Proceeds from sales 0 0 (Increase) decrease in loans extended 625 (2,720) ------------ ------------ Net Cash Used by Investing Activities (923,594) (2,112,744) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from (Payments on) leases payable (net) 1,140,662 (119,675) Proceeds from (Payments on) loans payable (net) (1,126,633) 2,193,438 Proceeds from (Payments on) shareholder loans (net) 0 (1,000) ------------ ------------ Net Cash Provided (Used) by Financing Activities 14,029 2,072,763 ------------ ------------ Exchange rate effect on cash and cash equivalents (69,736) (137,606) ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents (547,736) 619,749 Cash, beginning of period 682,096 171,354 ------------ ------------ Cash, end of period $ 134,360 $ 791,103 ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 347,040 $ 185,847 ============ ============ Cash paid for income taxes $ 0 $ 0 ============ ============
See accompanying notes to financial statements. 6 EARN-A-CAR, INC. NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 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 NOVEMBER 30, 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 November 30, 2013 and February 28, 2013 the Company had $134,360 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 November 30, 2013 and February 28, 2013 the Company had $44,004 and $7,444 in impaired receivables, respectively. The allowance for these impaired receivables was $12,235 and $14,359 for periods ending November 30, 2013 and 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 NOVEMBER 30, 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. See Note 11. Advertising Costs - Advertising costs are primarily expensed as incurred. During the nine months ended November 30, 2013 and November 30, 2012, the Company incurred advertising expense of $10,486 and $66,802, 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 November 30, 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 NOVEMBER 30, 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: November 30, 2013 February 28, 2013 ----------------- ----------------- Revenue-earning vehicles $ 6,447,576 $ 6,212,677 Less accumulated depreciation (1,373,831) (1,354,132) ------------ ------------ $ 5,073,745 $ 4,858,545 ============ ============ Rent expense for vehicles leased under operating leases was $0 and $0 for the nine months ending November 30, 2013 and November 30, 2012, 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: November 30, 2013 February 28, 2013 ----------------- ----------------- Computer equipment $ 33,676 $ 23,353 Computer software 5,098 2,368 Other fixed assets including signage 8,575 8,664 ------------ ------------ Subtotal 47,349 34,385 Less accumulated depreciation (14,952) (9,427) ------------ ------------ Property and equipment, net $ 32,397 $ 24,958 ============ ============ During the nine months ended November 30, 2013 and 2012, the Company recorded no provisions for the impairment of assets. 4. LOANS RECEIVABLE At November 30, 2013 and February 28, 2013, the Company has a receivable due under a settlement agreement with a former employee with a balance of $6,412 and $7,037, respectively. This loan is to be repaid with interest of 10% in 48 equal installments of about $425; the payments began in March, 2011. 10 EARN-A-CAR, INC. NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 2013 5. DEBT AND OTHER OBLIGATIONS Debt and other obligations consist of the following:
November 30, 2013 February 28, 2013 ----------------- ----------------- Loan payable - individual - unsecured, interest bearing, $ 19,625 $ 22,625 no fixed repayment terms Loan payable - individual - unsecured, interest bearing, no fixed repayment terms 9,813 11,312 Loan payable - individual - unsecured, interest bearing, no fixed repayment terms 49,063 56,562 Loan payable - individual - unsecured, interest bearing, no fixed repayment terms 26,740 41,008 Loan payable - individual - unsecured, interest bearing, no fixed repayment terms 45,761 68,027 Loan payable - bank- Secured by company vehicles, bearing an interest rate of JIBAR plus 5% per annum, payable in quarterly installments beginning 30 September 2012. 1,431,015 2,356,765 Loan payable - other - unsecured, interest bearing, no fixed repayment terms 2,523 151,181 Loan payable - other - unsecured, interest bearing, no fixed repayment terms 24,239 27,943 Loan payable - other - unsecured, interest bearing, no fixed repayment terms 27,500 27,489 ----------- ----------- Total $ 1,636,279 $ 2,762,912 Current portion of loans payable 817,723 731,271 ----------- ----------- Long-term portion of loans payable $ 818,556 $ 2,031,641 =========== ===========
11 EARN-A-CAR, INC. NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 2013 5. DEBT AND OTHER OBLIGATIONS (continued) Expected maturities of debt and other obligations outstanding at November 30, 2013 are as follows: Loan Amounts Lease Amounts Total ------------ ------------- ---------- November 30, 2014 $ 817,723 $ 902,342 $1,720,065 November 30, 2015 $ 640,791 $ 737,182 $1,377,974 November 30, 2016 $ 0 $ 574,930 $ 574,930 November 30, 2017 $ 0 $ 253,289 $ 253,289 November 30, 2018 $ 0 $ 23,751 $ 23,751 Thereafter 177,765 $ 0 $ 177,765 ---------- ---------- ---------- Total $1,636,279 $2,491,494 $4,127,773 ========== ========== ========== Installment sales and lease contracts are secured by finance lease agreements over revenue generating vehicles, having 2013 carrying values of $2,311,096. These lease contracts are repayable in monthly installments for 2013 of $6,973. 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 November 30, 2013 and 2012 because our taxable losses and loss carryovers exceed the income in those periods. At February 28, 2013 the Company had net losses of approximately $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 November 30, 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 November 30, 2013 and February 28, 2013 there were 112,250,000 and 112,250,000 common shares outstanding, respectively. The Company is authorized to issue 20,000,000 preferred shares of stock. As of November 30, 2013 and February 28, 2013 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. 12 EARN-A-CAR, INC. NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 2013 8. COMMITMENTS AND CONTINGENCIES (CONT.) Expenses incurred under operating leases for the period were as follows: November 30, 2013 November 30, 2012 ----------------- ----------------- Operating leases: Premises $ 35,407 $ 45,108 -------- -------- $ 35,407 $ 45,108 ======== ======== Future minimum rentals and fees under non-cancelable operating leases for the 12 month periods are presented in the following table: November 30, 2014 $ 0 November 30, 2015 $ 0 November 30, 2016 $ 0 November 30, 2017 $ 0 November 30, 2018 $ 0 We currently operate under a month to month lease requiring a monthly payment of $3,934 and we believe that if we decide to move to another location our occupancy costs would remain materially the same. At November 30, 2013, 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: November 30, 2013 February 28, 2013 ----------------- ----------------- Loans payable to shareholders: G. Hardie $ 0 $ 4,000 -------- -------- Total loans payable to related parties $ 0 $ 4,000 ======== ======== Compensation paid to directors G. Hardie $ 4,000 $ 1,000 J. Storey 0 6,787 -------- -------- $ 0 $ 10,787 ======== ======== 10. SUBSEQUENT EVENTS The Company has analyzed its operations subsequent to November 30, 2013 through the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose. 13 EARN-A-CAR, INC. NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 2013 11. CORRECTION TO ACCOUNTING POLICY FOR US GAAP The Company has restated certain operating and cash flow amounts for the three and nine months ended November 30, 2012, to correctly account for the recognition of revenue on up-front income in terms of US GAAP. Per US GAAP, the Company has now deferred the non-refundable up-front income it receives in the first month of the rental contract over the company's average rental period of 20 months. Simultaneously the company deferred direct, incremental selling costs related to the rental of the vehicle over the same average rental period. The company used to account for all the up-front non-refundable income once it was due and payable as this is the accounting policy for the subsidiaries. For the three and nine months ended November 2012 a portion of selling and administrative costs were allocated to direct and operating costs. These figures have now been restated to become consistent with the three and nine months ended November 2013. The balances for the three months ended November 30, 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 November 30, 2012 Financial Statements Line Item Corrected Stated -------------------------------------- --------- --------- ------ Statement of Operations Rental Income $ 472,412 $ 149,340 Statement of Operations Direct motor vehicle costs $ 141,798 $ 277,377 Statement of Operations Net Income $(183,867) $ 257,482 Statement of Other comprehensive Income Net Income $(183,867) $ 257,482 Statement of Other comprehensive Income Foreign Currency Translation $ (28,412) $ (56,824)
The balances for the nine months ended November 30, 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 November 30, 2012 Financial Statements Line Item Corrected Stated -------------------------------------- --------- --------- ------ Statement of Operations Rental Income $ 2,225,774 $ 2,802,702 Statement of Operations Direct motor vehicle costs $ 837,306 $ 972,885 Statement of Operations Net Income $ 203,480 $ 644,829 Statement of Other comprehensive Income Net Income $ 203,480 $ 644,829 Statement of Other comprehensive Income Foreign Currency Translation $ (137,606) $ (166,018) Statement of Cash Flows Net Income $ 203,450 $ 644,829 Statement of Cash Flows Increase in deferred costs $ (126,851) $ 0 Statement of Cash Flows Increase in deferred income $ 539,787 $ 0 Statement of Cash Flows Cash flows provided by operating activity $ 797,335 $ 659,730 Statement of Cash Flows Exchange rate effect on cash and cash equivalents $ (137,606) $ 166,018
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 The past 3 months has again been one of consolidation and review. We have addressed a lot of the cost issues and renewed effort is being put into sales Gross Profit has started to improve but our volumes are too low. We will continue to address these margin issues and have adapted our model to cover same. While these changes will take a while to be visible in our income statement they have been implemented in all new sales and will start having an effect in 2014. 2013 also saw sales affected by a number of new entrants into our niche with substitute products. We have begun implementing a range of new marketing strategies and management believe that they should improve utilisation on the comparative 2013 periods and help to growing the fleet once more. December saw our best sales and utilisation numbers since founding and we will be working hard to go forward in 2014. QUARTER ENDED NOVEMBER 30, 2013 V. QUARTER ENDED NOVEMBER 30, 2012 Revenues increased from $474,488 in Q3 of FY 2013 to $914,760 in Q3 of FY 2014 an increase of $440,272 or 92 %. Our operating expenses went from $654,679 in Q3 of FY 2013 to $883,011 in Q3 of FY 2014 an increase of $228,332 or 35%. Repairs and insurance costs were much higher than previously experienced and negatively affected our gross profits. Thus Net income increased from $(183,867) in Q3 of FY 2013 to $6,363 in Q3 of FY 2014. These increased costs have necessitated changes in our terms and pricing and these were implemented from last quarter. 15 LIQUIDITY AND CAPITAL RESOURCES We had total current assets of $619,240 at November 30, 2013. The bulk of our assets being $5,073,745 are invested in revenue earning vehicles. The business has good cash flows. All cash generated or borrowed is invested in growing the fleet of revenue earning vehicles or used to settle debt as we have no other investment needs. We currently have access to approximately $1.0m in revolving vehicle finance. We will probably need to look for new funds in the second quarter of next year. Management does not expect to have to dilute the 112,500,000 issued shares in the near future. Instead we intend to continue to make use of asset based financing to grow our fleet of rental cars. CRITICAL ACCOUNTING POLICIES Financial Reporting Release No. 60 of the SEC encourages all companies to include a discussion of critical accounting policies or methods used in the preparation of the financial statements. There are no current revenue generating activities that give rise to significant assumptions or estimates. Our financial statements filed as part of our Current Report on Form 10-K, dated June 17, 2013, include a summary of the significant accounting policies and methods used in the preparation of our financial statements. OFF-BALANCE SHEET ARRANGEMENTS We have never entered into any off-balance sheet financing arrangements and have not formed any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information called for by this item is not required as we are a smaller reporting company. ITEM 4T. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As of November 30, 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 16 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. (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. * ---------- * To be filed by amendment. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. January 14, 2014 Earn-A-Car, Inc. By: /s/ John Storey -------------------------------------------- John C Storey Chief Executive Officer (Principal Executive Officer) By: /s/ Bruce J Dunnington -------------------------------------------- Bruce J Dunnington Chief Financial Officer (Principal Financial and Accounting Officer) 18 EX-31.1 2 ex31-1.txt EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John C. Storey, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended November 30, 2013 of Earn-A-Car, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this annual report is being prepared; b. Designed such internal control over financial reporting, or caused such control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles: c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 14, 2014 /s/ John C. Storey -------------------------------- John C. Storey CEO and President EX-31.2 3 ex31-2.txt EXHIBIT 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Bruce J. Dunnington, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended November 30, 2013 of Earn-A-Car, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this annual report is being prepared; b. Designed such internal control over financial reporting, or caused such control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles: c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 14, 2014 /s/ Bruce J. Dunnington ---------------------------------- Bruce J. Dunnington, CFO EX-32.1 4 ex32-1.txt EXHIBIT 32.1 SECTION 1350 CERTIFICATION STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned is the CEO and President of Earn-A-Car, Inc. This Certification is made pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This Certification accompanies the Quarterly Report on Form 10-Q of Earn-A-Car, Inc. for the quarter ended November 30, 2013. The undersigned certifies that such 10-Q Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such 10-Q Report fairly presents, in all material respects, the financial condition and results of operations of Earn-A-Car, Inc. as of November 30, 2013. This Certification is executed as of January 14, 2014. /s/ John C. Storey ------------------------------- John C. Storey CEO and President EX-32.2 5 ex32-2.txt EXHIBIT 32.2 SECTION 1350 CERTIFICATION STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned is the CFO of Earn-A-Car, Inc. This Certification is made pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This Certification accompanies the Quarterly Report on Form 10-Q of Earn-A-Car, Inc. for the quarter ended November 30, 2013. The undersigned certifies that such 10-Q Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such 10-Q Report fairly presents, in all material respects, the financial condition and results of operations of Earn-A-Car, Inc. as of November 30, 2013. This Certification is executed as of January 14, 2014. /s/ Bruce J. Dunnington --------------------------------------- Bruce J. Dunnington, CFO