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| MLES.OB > SEC Filings for MLES.OB > Form 10-Q on 13-Nov-2009 | All Recent SEC Filings |
13-Nov-2009
Quarterly Report
This Management's Discussion and Analysis contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which can be identified by the use of forward-looking terminology such as, "may", "believe", "expect", "intend", "anticipate", "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Important factors with respect to any such forward-looking statements include, but are not limited to, the risk factors described in the Company's Annual Report on Form 10-K and in this report. The following discussion of the results of operations and financial condition should be read in conjunction with the Financial Statements and related Notes thereto included herein and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2008.
Corporate History:
The Mint Leasing, Inc. (the "Company," "Mint," "we," and "us") was incorporated in Nevada on September 23, 1997 as Legacy Communications Corporation.
Effective July 18, 2008, The Mint Leasing, Inc., a Texas corporation, which was incorporated on May 19, 1999, and commenced operations on that date ("Mint Texas"), a privately-held company, completed the Plan and Agreement of Merger between itself and the Company (for the purposes of this paragraph, "Mint Nevada"), and the two shareholders of Mint Texas, pursuant to which Mint Nevada acquired all of the issued and outstanding shares of capital stock of Mint Texas. In connection with the acquisition of Mint Texas, Mint Nevada issued 70,650,000 shares of common stock, and 2,000,000 shares of Series B Convertible Preferred Stock to the selling stockholders and owners of Mint Texas. Consummation of the merger did not require a vote of the Mint Nevada shareholders. As a result of the acquisition, the shareholders of Mint Texas own a majority of the voting stock of Mint Nevada as described below, Mint Texas is a wholly-owned subsidiary of Mint Nevada, and the Company (Mint Nevada) changed its name to The Mint Leasing, Inc. No prior material relationship existed between the selling shareholders and Mint Nevada, any of its affiliates, or any of its directors or officers, or any associate of any of its officers or directors. Effective on July 18, 2008, our former operations as a developer and purchaser of radio stations ceased and since that date our operations have solely been the operations of Mint Texas, our wholly-owned subsidiary.
Unless otherwise stated, or the context suggests otherwise, the description of the Company's business operations below includes the operations of Mint Texas, the Company's wholly-owned subsidiary.
The board of directors approved a one-for-twenty reverse stock split (the "Reverse Stock Split") with respect to shares of common stock outstanding as of July 16, 2008. Unless otherwise stated, all share amounts listed herein retroactively reflect the Reverse Stock Split.
As set forth in the Company's Information Statement on Schedule 14C dated June 26, 2008, the Company adopted the Second Amended and Restated Articles of Incorporation and Amended Bylaws as of July 18, 2008. The Company further amended the Second Amended and Restated Articles of Incorporation on July 18, 2008 to change the Company's name from Legacy Communications Corporation to The Mint Leasing, Inc., effective as of July 21, 2008.
Effective in July 2008, the Company designated Series A Convertible Preferred Stock and Series B Convertible Preferred Stock, as described in greater detail below.
On or around January 6, 2009, the Company, entered into a renewal of its
$33,000,000 revolving credit facility with Sterling Bank of Houston, Texas
("Sterling Bank") that matured on October 2, 2009. The Company entered into a
renewal of the revolving credit facility effective the same date in October 2009
for a twelve month period. The new Secured Note Payable ("Note Payable") bears
interest at the prime rate plus 2% with a floor of 6%. The Note Payable is
secured by vehicles; related receivables associated with leased vehicles;
assignment of life insurance policies on Jerry Parish and Victor Garcia, and the
guaranties of Jerry Parish and Victor Garcia (the Company's majority
shareholders). Under the terms of the Note Payable the Company will be make six
monthly principal and interest payments of $650,000, five monthly principal and
interest payments of $700,000, with the unpaid balance due at maturity on
October 5, 2010. The Note Payable also requires the Company to meet financial
covenants related to tangible net worth and leverage. The Note Payable also
requires the Company to meet negative covenants, including, maximum allowable
operating expenses associated the servicing of the lease contracts securing the
Note Payable. At September 30, 2009, the outstanding balance on the Note Payable
was $29,238,162. Under the terms of the January 6, 2009 renewal and the Note
Payable the Company has been and will continue to be unable to borrow any new
funds under the credit facilities.
Effective August 3, 2009, the Company entered into a secured $10,000,000 revolving credit agreement (the "Revolver") with a bank to finance the purchase of vehicles for lease. The interest rate on the Revolver is the prime rate plus 1% with a floor of 6%. The Revolver is secured by purchased vehicles, the related receivables associated with leased vehicles, and the guaranties of Jerry Parish and Victor Garcia (the Company's majority shareholders). The credit agreement also requires the Company to meet a debt to tangible net worth ratio of 2.5 to one at December 31, 2009. At September 30, 2009, the availability under the $10,000,000 Revolver was limited to $2,500,000. The Revolver matures on December 31, 2009. The outstanding balance at September 30, 2009 was $447,373; with $2,052,627 available to the Company.
Description of Business:
Mint Leasing is a company in the business of leasing automobiles and fleet vehicles throughout the United States. Most of its customers are located in Texas and six other states in the Southeast. Despite this, Mint Leasing has partnerships with more than 150 dealerships within 17 states. The credit analysts at Mint Leasing review every deal individually, refusing to depend on a target "beacon score" to determine authorization for each deal and instead relying on a common-sense approach for deal approval.
Lease transactions are solicited and administered by the Company's sales force and staff. Mint's customers are primarily comprised of brand-name automobile dealers that seek to provide leasing options to their customers, many of whom would otherwise not have the opportunity to acquire a new or late-model-year vehicle.
PLAN OF OPERATIONS FOR THE NEXT TWELVE MONTHS
As a result of the current economic environment, the Company will focus its operations for the next twelve months to the Texas market. The Company will focus most of its marketing efforts to re-enforcing existing auto dealer relationships and developing new business relationships with auto dealers in the state of Texas.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009, COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2008
For the three months ended September 30, 2009, total revenues were $3,133,201, compared to $8,005,198 for the three months ended September 30, 2008, a decrease in total revenues of $4,871,997 or approximately 60.9% from the prior period. For the three months ended September 30, 2009, revenues from sales-type leases, net decreased $5,460,259 or 81.4% to $1,245,701 for the three months ended September 30, 2009, from $6,705,960 for the three months ended September 30, 2008. Revenues from amortization of unearned income related to sales-type leases increased $588,262 or 45.3% to $1,887,500 for the three months ended September 30, 2009, from $1,299,238 for the three months ended September 30, 2008.
The $5,460,259 decrease in revenues from sales-type leases, net was primarily
due the Company's limited ability to purchase vehicles and issue new leases as a
result of the Company's restricted borrowing capacity during the three months
ended September 30, 2009, compared to the three months ended September 30,
2008. The Company was unable to borrow any funds under the Sterling Bank
facility and the Moody Bank facility was not available to the Company for the
entire period. The Company believes that if it had access to additional capital
during the three months ended September 30, 2009, its revenues would have been
similar to the Company's revenues for the three months ended September 30, 2008.
Gross profit decreased $4,398,651 or 180.2% to a gross loss of $1,958,213 for the three months ended September 30, 2009 compared to a gross profit of $2,440,438 for the three months ended September 30, 2008. Gross profit for the period decreased primarily as a result of significantly higher costs incurred associated with early termination of leases and repossessions and the reduction in the volume of lease transactions completed by the Company due to its limited access to capital, discussed above, to purchase vehicles to lease to customers.
General and administrative expenses were $1,740,013 and $892,239, for the three months ended September 30, 2009 and September 30, 2008, respectively, constituting an increase of $847,774 or 95.0% from the prior period. The increase in general and administrative expenses was the result of the Company increasing its allowance for doubtful accounts by $840,700 and unusually high legal and accounting expenses of approximately $146,000. These increases in bad debt and legal and accounting expenses were offset by reductions in other general and administrative expenses as the Company downsized its administrative staffing and expenses to accommodate the reduced volume of activity for the period.
Loss before other expense from continuing operations was $3,698,226 for the three months ended September 30, 2009 compared to income of $1,548,199 for the three months ended September 30, 2008, resulting in a decrease of $5,246,425 or 338.9% from the prior period. The increase in loss before other expense from continuing operations was due to the 60.9% decrease in revenues; the significant costs incurred associated with early termination of leases and repossessions, which are included in cost of goods sold; the $840,700 charge for bad debt expenses, and the high legal and accounting expenses incurred during the three months ended September 30, 2009, compared to the same period in 2008.
Other expense, consisting mainly of interest expense, was $492,279 and $535,589 for the three months ended September 30, 2009 and September 30, 2008, respectively. The $43,310 or 8.1% decrease in interest expense for the three months ended September 30, 2009, compared to the three months ended September 30, 2008, was mainly due to decreasing interest rates on our credit facilities and approximately a $2.6 million lower debt balance for the three months ended September 30, 2009, compared to the three months ended September 30, 2008.
The Company had a benefit from income tax of $1,576,354 for the three months ended September 30, 2009, compared to provision for income tax of $3,130,000 for the three months ended September 30, 2008. In 2009, the Company records its income tax provision using an estimated effective tax rate for the year of 38%. In the third quarter of 2008 the Company's tax provision included a deferred tax provision of $2,750,000 for taxes which may become payable as a consequence of the Company no longer being eligible to elect to be taxed as an "S" Corporation under the IRS regulations.
The Company had a net loss of $2,614,151 for the three months ended September
30, 2009, compared to a net loss of $2,111,993 for the three months ended
September 30, 2008, an increase in net loss of $502,158 or 23.8% from the prior
period. The increase in net loss was the cumulative effect of the 60.9% decrease
in revenues; the significant costs incurred associated with early termination of
leases and repossessions; the $840,700 charge for bad debt expenses, and the
high legal and accounting expenses incurred during the three months ended
September 30, 2009 compared to the same period in 2008. The cumulative
$5,208,512 negative impact on earnings of these items was offset by the
$4,706,354 reduction in the tax provision for the three months ended September
30, 2009, compared to the three months ended September 30, 2008.
For the nine months ended September 30, 2009, total revenues were $15,140,320, compared to $36,762,855 for the nine months ended September 30, 2008, a decrease in total revenues of $21,622,535 or 58.8% from the prior period. For the nine months ended September 30, 2009, revenues from sales-type leases, net decreased $22,859,078 or 69.0% to $10,258,234 for the nine months ended September 30, 2009, from $33,117,312 for the nine months ended September 30, 2008. Revenues from amortization of unearned income related to sales-type leases increased $1,236,543 or 33.9% to $4,882,086 for the nine months ended September 30, 2009, from $3,645,543 for the nine months ended September 30, 2008.
The $22,859,078 decrease in revenues from sales-type leases, net was primarily due to the Company's limited ability to purchase vehicles and issue new leases as a result of the Company's restricted borrowing capacity during the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008. The Company was unable to borrow any funds under the Sterling Bank facility and the Moody Bank facility was not available to the Company until midway through the third quarter. The Company believes that if it had access to additional capital during the nine months ended September 30, 2009, its revenues would have been similar to the Company's revenues for the nine months ended September 30, 2008.
Cost of revenues decreased $12,249,570 or 44.5% to $15,300,641 for the nine months ended September 30, 2009, compared to $27,550,211 for the nine months ended September 30, 2008. Cost of revenues decreased mainly as a result of the lower revenue for the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008. The reduction of costs of revenues as a result of lower revenues was partially offset by higher costs associated with early lease terminations and repossessions of vehicles.
Gross profit decreased $9,372,965 or 101.7% to a gross loss of $160,321 for the nine months ended September 30, 2009 compared to a gross profit of $9,212,644 for the nine months ended September 30, 2008. Gross profit decreased largely due to the 69.0% decrease in revenues from sales-type leases, net and increased cost of revenues associated with early lease terminations and repossessions of vehicles.
Gross profit as a percentage of revenues was a negative 1.1% for the nine months ended September 30, 2009 compared to 25.1% for the nine months ended September 30, 2008. The decrease in gross profit as a percentage of revenues is primarily attributable to the significant costs incurred in the third quarter associated with early termination of leases and repossessions of vehicles. In addition, during the nine months ended September 30, 2009, the percentage of vehicle leases related to vehicles reacquired from prior lessees (which do not afford the Company as high a margin as leases of newly purchased vehicles), to all leased vehicles was higher in comparison to the percentage for the nine months ended September 30, 2008.
General and administrative expenses were $4,128,708 and $2,515,784, for the nine months ended September 30, 2009 and September 30, 2008, respectively, for an increase of $1,612,924 or 64.1% from the prior period. The increase in general and administrative expenses were primarily the result of higher costs associated with bad debt expenses, legal and accounting, and consulting costs incurred in the efforts to obtain additional financing for the business.
Other expense, consisting mainly of interest expense, was $1,397,546 and $1,632,132 for the nine months ended September 30, 2009 and September 30, 2008, respectively. The main reason for the $234,586 or 14.4% decrease in interest expense for the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008, was mainly due to decreasing interest rates on our credit facilities and lower outstanding debt balances for the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008.
The Company had cumulative effect on prior years of changing the method of
valuing the collectability of its net investment in sales-type leases of
$4,812,471 for the nine months ended September 30, 2008 compared to $0 for the
nine months ended September 30, 2009.
The Company had a net loss of $3,578,011 for the nine months ended September 30, 2009, compared to a net loss of $2,836,444 for the nine months ended September 30, 2008, an increase in net loss of $741,567 or 26.1% from the prior period. The increase in net loss was the cumulative effect of the 58.8% decrease in revenues; the significant costs incurred associated with early termination of leases and repossessions of vehicles incurred during the third quarter; an overall reduction in gross margin achieved on lease transactions; and the general and administrative costs associated with bad debt expenses, legal and accounting and consulting expenses incurred during the nine months ended September 30, 2009 compared to the same period in 2008. The cumulative $5,980,130 negative impact on earnings of these items was offset by the $5,238,564 reduction in the tax provision for the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008.
LIQUIDITY AND CAPITAL RESOURCES
We had total assets of $39,297,636 as of September 30, 2009, which included cash and cash equivalents of $514,898, investment in sales-type leases, net of $37,038,605, vehicle inventory of $925,283, property and equipment, net of $92,613, deferred tax asset of $661,237, and other assets of $65,000.
We had total liabilities as of September 30, 2009, of $30,502,509, which included $281,674 of accounts payable and accrued liabilities, $29,685,535 of amount due under our credit facilities (described in greater detail below), and $535,300 of notes payable to related parties.
On or around January 6, 2009, the Company, entered in a renewal of its $33,000,000 line of credit facility with Sterling Bank of Houston, Texas ("Sterling Bank"). Under the terms of the January 2009 renewal the Company was required to make monthly principal and interest payment of approximately $870,000 and the outstanding balance would be due on October 5, 2009. Effective October 5, 2009, the Company executed a twelve month renewal and extension of the $33,000,000 line of credit facility with Sterling Bank (the "October Renewal"). Under the terms of the October Renewal the line of credit was converted to a Note Payable. The Note Payable bears interest at the prime rate plus 2% with a floor of 6%. The Note Payable is secured by purchased vehicles; related receivables associated with leased vehicles; assignment of life insurance policies on Jerry Parish and Victor Garcia, and the guaranties of Jerry Parish and Victor Garcia (the Company's majority shareholders). Under the terms of the Note Payable, the Company will make six monthly principal and interest payments of $650,000, five monthly principal and interest payments of $700,000, with the unpaid balance due at maturity on October 5, 2010. The Note Payable also requires the Company to meet financial covenants related to tangible net worth and leverage. The Note Payable also requires the Company to meet negative covenants, including, maximum allowable operating expenses associated with the servicing of the lease contracts securing the Note Payable. At September 30, 2009, the outstanding balance on the Note Payable was $29,238,162.
Our credit facility with Sterling Bank, requires us to comply with certain affirmative and negative covenants customary for restricted indebtedness, including covenants requiring that: our statements, representations and warranties made in the credit facility and related documents are correct and accurate; if Jerry Parish, our Chief Executive Officer and Chairman fails to own at least 50% of the ownership of the Company; the death of either of the guarantors of the credit facility, Jerry Parish or Victor Garcia; the termination of the employment of Mr. Parish; or the transfer of any ownership interest of Mint Texas without the approval of Sterling Bank.
On or around August 3, 2009, we entered into a Loan Agreement with Moody National Bank ("Moody" and the "Moody Loan"). Pursuant to the Moody Loan, Moody agreed to loan the Company up to an aggregate of $10,000,000 pursuant to a revolving line of credit, subject to certain limitations.
Additionally, the Company obtained a Waiver from Sterling Bank to allow Mint
Texas, Jerry Parish, the Company's Chief Executive Officer and Director and
Victor Garcia, our Director, to jointly and severally guaranty the repayment of
the Moody Loan pursuant to individual Guaranty Agreements entered into in favor
of Moody in connection with the Moody Loan. The amount outstanding under the
Moody Loan is secured by a security interest in any leases made with such funds
and the underlying vehicles. Sterling Bank agreed to allow the Moody Loan,
subject to certain restrictions, including that the Company is required to
segregate the assets and proceeds of any leases and cash flow associated with
the Moody Loan from those associated with Sterling Bank's loan.
Additionally, Jerry Parish, the Company's Chief Executive Officer and Director, Victor Garcia, our Director, and Mint Texas jointly and severally agreed to guaranty the repayment of the Moody Loan pursuant to individual Guaranty Agreements entered into in favor of Moody in connection with the Moody Loan. The amount outstanding under the Moody Loan is secured by a security interest in any leases made with such funds and the underlying vehicles.
The Company has notes and advances payable to Jerry Parish, Victor Garcia and an affiliate through its wholly-owned subsidiary, Mint Texas of $630,300 and $435,300 as of September 30, 2009 and December 31, 2008, respectively. These note and advances payable are non-interest bearing and subordinated to the credit facilities with the banks. The Company imputed interest on these note payables at a rate of 8.75% per year. Interest expense of $28,567 and $24,494 was recorded as contributed capital for the nine months ended September 30, 2009 and 2008.
We generated $2,771,758 in cash provided by operating activities for the nine months ended September 30, 2009, which was mainly due to collections and reductions of net investment in sales-type leases of $7,528,711. Non-cash charges for bad debt expense, depreciation and amortization and imputed interest were $1,065,646, $47,076, and $28,567, respectively, for the period also contributed positively to the cash provided by operating activities. Those items which negatively impacted the cash provided by operations for the nine months ended September 30, 2009, included the net loss of $3,578,011; the deferred tax benefit of $2,108,564; a reduction in accounts payable and accrued liabilities of $168,204; increases in other assets of $14,270, and inventory of $70,333.
We had $18,374 of net cash used in investing activities for the nine months ended September 30, 2009, which was solely due to purchase of property, plant and equipment.
We had $3,119,465 of net cash used in financing activities for the nine months ended September 30, 2009, which was due to $3,761,838 of payments on notes payable offset by $447,373 of proceeds from borrowings on the Moody Loan; $100,000 advance from an affiliated company, and a $95,000 loan from our Chief Executive Officer, Jerry Parish.
We believe that the Company has adequate cash flow being generated from its investment in sales-type leases and inventories to meet its financial obligations to the banks in an orderly manner, provided, we are able to continue to renew the current credit facilities when they come due and the outstanding balances are amortized over a four to five year period. The Company has historically been able to negotiate such renewals with its lenders. However, there is no assurance that the Company will be able to negotiate such renewals in the future on terms that will be acceptable to the Company. In the future, if we are not able to negotiate renewals and/or expansion of our current credit facilities we may be required to seek additional capital by selling debt or equity securities. The sale of additional equity or debt securities, if accomplished, may result in dilution to our then shareholders. We provide no assurance that such financing will be available to the Company in amounts or on terms acceptable to us, or at all.
Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements. . . .
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