Attached files
| file | filename |
|---|---|
| EX-31.1 - MINT LEASING INC | ex31-1.htm |
| EX-32.2 - MINT LEASING INC | ex32-2.htm |
| EX-21.1 - MINT LEASING INC | ex21-1.htm |
| EX-32.1 - MINT LEASING INC | ex32-1.htm |
| EX-31.2 - MINT LEASING INC | ex31-2.htm |
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
|
[X]
|
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
fiscal year ended December 31, 2009
|
[ ]
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from_________ to __________
Commission
file number: 000-52051
THE MINT LEASING,
INC.
(Exact
name of small business issuer as specified in its charter)
|
NEVADA
|
87-0579824
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer Identification No.)
|
323 N. Loop West, Houston,
Texas, 77008
(Address
of principal executive offices)
(713)
665-2000
(Registrant's
telephone number)
Securities
registered under Section 12(b) of the Exchange Act:
NONE
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $.001 par value per share
(Title of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes [ ] No
[X]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes [ ] No
[X]
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 (§ 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 [
] No [ ]
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer [ ]
|
Accelerated
filer[ ]
|
|
Non-accelerated
filer [ ]
|
Smaller
reporting company [X]
|
(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X].
The
issuer's revenues for the most recent fiscal year ended December 31, 2009 were
$16,996,135.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the closing value of the Registrant's
common stock on June 30, 2009, was approximately $670,951.
As of
March 25, 2010, the issuer had 82,224,504 shares of common stock, $0.001 par
value per share outstanding.
Documents
Incorporated by Reference: NONE
Transitional
Small Business Disclosure Format: Yes [ ] No [X]
THE
MINT LEASING, INC.
FORM
10-K
YEAR
ENDED DECEMBER 31, 2009
INDEX
Part
I
| Page | |
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Item
1. Business
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4 |
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Item
1A. Risk Factors
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8 |
|
Item
2. Properties
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12 |
|
Item
3. Legal Proceedings
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12 |
|
Item
4. Submission of Matters to a Vote of Security Holders
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12 |
Part
II
|
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
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13 |
|
Item
6. Selected Financial Data
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15 |
|
Item
7. Management's Discussion and Analysis or Plan of
Operation
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15 |
|
Item
8. Financial Statements and Supplementary Data
|
F-1 |
|
Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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20 |
|
Item
9A. Controls and Procedures
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20 |
|
Item
9B. Other Information
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21 |
Part
III
|
Item
10. Directors, Executive Officers and Corporate Governance
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22 |
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Item
11. Executive Compensation
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25 |
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Item
12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
28 |
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Item
13. Certain Relationships and Related Transactions
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29 |
|
Item
14. Principal Accountant Fees and Services
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29 |
Part
IV
|
Item
15. Exhibits, Financial Statement Schedules
|
30 |
PART
I
FORWARD-LOOKING
STATEMENTS
Portions
of this Form 10-K, including disclosure under “Management’s Discussion and
Analysis or Plan of Operation,” contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), Section 21E of the Securities and Exchange Act of 1934, as
amended (the “Exchange Act”), and the Private Securities Litigation Reform Act
of 1995, as amended. These forward-looking statements are subject to risks and
uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from the results, performance or
achievements expressed or implied by the forward-looking statements. You should
not unduly rely on these statements. Forward-looking statements involve
assumptions and describe our plans, strategies, and expectations. You can
generally identify a forward-looking statement by words such as may, will,
should, expect, anticipate, estimate, believe, intend, contemplate or project.
Factors, risks, and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements include, among
others,
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·
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our
ability to raise capital,
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|
·
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our
ability to provide our products and services at competitive
rates,
|
|
·
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our
ability to execute our business strategy in a very competitive
environment,
|
|
·
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our
degree of financial leverage,
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·
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risks
associated with our acquiring and integrating companies into our
own,
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·
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risks
related to market acceptance and demand for our
services,
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·
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the
impact of competitive services, and
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·
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other
risks referenced from time to time in our SEC
filings.
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With
respect to any forward-looking statement that includes a statement of its
underlying assumptions or bases, we caution that, while we believe such
assumptions or bases to be reasonable and have formed them in good faith,
assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material
depending on the circumstances. When, in any forward-looking statement, we or
our management express an expectation or belief as to future results, that
expectation or belief is expressed in good faith and is believed to have a
reasonable basis, but there can be no assurance that the stated expectation or
belief will result or be achieved or accomplished. All subsequent written and
oral forward-looking statements attributable to us, or anyone acting on our
behalf, are expressly qualified in their entirety by the cautionary statements.
Except as required by applicable law, including the securities laws of the
United States and/or if the existing disclosure fundamentally or materially
changes, we do not undertake any obligations to publicly release any revisions
to any forward-looking statements to reflect events or circumstances after the
date of this report or to reflect unanticipated events that may
occur.
INDUSTRY
DATA
In this
Form 10-K, we may rely on and refer to information regarding the automobile
industry from market research reports, analyst reports and other publicly
available information. Although we believe that this information is
reliable, we cannot guarantee the accuracy and completeness of this information,
and we have not independently verified any of it.
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. Additionally, the Company granted stock options to purchase
2,000,000 shares of common stock to Mr. Parish. The exercise price of
the options is $3.00 per share, and the options expire in
2018. One-third of the options vest to Mr. Parish on the first,
second and third anniversary of the grant date (July 28,
2008). 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.
-4-
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
make six monthly principal and interest payments of $650,000 and 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 December 31, 2009, the
outstanding balance on the Note Payable was $27,785,077. 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.
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. At
December 31, 2009, the Company was in compliance with all debt covenants under
the credit facility with Sterling Bank.
Effective
August 3, 2009, the Company entered into a secured $10,000,000 revolving credit
agreement (the “Revolver”) with Moody National Bank (“Moody” and “Moody 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 personal 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, which the Company was not in compliance with. The outstanding balance at
December 31, 2009 was $1,679,319 and subsequent to December 31, 2009, Moody
advanced an additional $820,681; increasing the outstanding balance to
$2,500,000. On February 28, 2010, the Company executed a second
renewal, extension and modification of the Revolver (the “Amended Moody
Revolver”). The Amended Moody Revolver extends the maturity date of
the facility to March 1, 2011; reduces the amount available under the facility
to $2,500,000; fixes the interest rate on the facility at 6.5%, and provides for
11 monthly payments of principle and interest of $37,817 with the remaining
balance due at maturity.
Description
of Business
Mint
Leasing is a company in the business of leasing automobiles and fleet
vehicles throughout the United States. Mint Leasing has partnerships with more
than 500 dealerships within 17 states. However, most of its customers are
located in Texas and six other states in the Southeast, with the majority of the
leases originated in 2009 with customers in the state of Texas. 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.
-5-
Lease
transactions are solicited and administered by the Company’s sales force and
staff. Mint’s customers are directed to the Company by 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. The Company’s sales are principally accomplished through the
Company’s sales force, which includes seven full-time employees. The
Company’s primary marketing and sales strategy is to market to automobile
dealers that have established a history of directing customers to the
Company.
Industry
Segment
With the
average cost of new cars rising annually, it is becoming increasingly vital for
consumers to understand the alternative financing options at their disposal.
This is one of the core missions of Mint Leasing – to educate the average
consumer about financing alternatives. It is imperative that consumers
understand that by choosing to lease the vehicle, rather than purchase, they may
reduce their risk and save money. Mint Leasing believes it provides consumers
with the best of both worlds – the ability to drive their dream car, without
having to spend more than they can afford. With car and housing prices at all
time highs over the past decade; the auto leasing industry has increased in
popularity.
Many
consumers are choosing to lease vehicles due to a significant decline in their
disposable incomes. During this decline, the Internal Revenue Service (“IRS”)
made substantial changes to the tax structures associated with the purchasing
and leasing of vehicles. These changes included the elimination of many tax
deductions associated with purchasing a car (some of which the new
administration has taken steps to re-implement), and the inclusion of many tax
deductions for leasing. Thus, the IRS has recently provided tax benefits to the
lessee that were not available to an owner of an automobile, which have
partially led to the increase in leases. Since those tax laws were changed,
leasing has enjoyed a steady increase in popularity over the past decade, the
popularity of which has only recently declined as a result of the recent credit
crunch and economic downturn. However, as stated below, the
Company believes that its leasing options, which appeal to those consumers who
are unable to obtain a traditional dealership lease will be positively affected
by the recent decline in dealer leases and leasing options.
The
Benefits of an Auto Lease
Mint
Leasing maintains two significant, distinct client sectors – (1) The Franchise
Dealer and (2) The Individual Consumer.
The Franchise
Dealer
The Chief
Executive Officer and Chairman of Mint Leasing, Jerry Parish, has been a part of
the automobile industry for most of his adult life. It is through his knowledge,
reputation and expertise that Mint Leasing has forged hundreds of partnerships
with dealers across the United States.
Mint
Leasing maintains these relationships with dealerships based on the Company’s
innovative lease structure. By partnering with Mint Leasing, dealers are
provided the opportunity to attract consumers who would otherwise fail to meet
their financing standards. We believe that this availability permits franchise
dealers to increase their client base, move inventory, and reduce the risk of
default, resulting in an increase in profit. In addition to these benefits, Mint
Leasing provides a unique payment structure which we believe actually increases
the dealer’s profit in the sale. Upon verification of a consumer’s
credit and execution of the lease, Mint Leasing will purchase the vehicle the
consumer desires to lease directly from the dealer. The newly purchased vehicle,
which is owned by Mint Leasing, is leased by Mint Leasing directly to the
consumer as described in greater detail below.
We
believe these benefits provide Franchise Dealers with an ideal partnership with
Mint Leasing.
The Individual
Consumer
While the
Company’s primary customer is the Franchise Dealer, Mint Leasing’s financial
relationship is with the consumer/lessee of the vehicle. The benefits of
offering leasing alternatives are clear for the dealer – leasing provides yet
another option for consumers looking to purchase (or lease) a new vehicle. The
benefits to the consumer are less clear.
We
believe that the choice to lease always provides one automatic benefit to the
consumer – the lack of initial cash expenditure. With leasing there is normally
a small amount of cash necessary to “close the deal”. At Mint Leasing, the
necessity of a “down payment” is determined by the customer’s credit score. As
with most terms, a Mint Leasing lease can be structured to meet the individual
consumer’s needs. Also, the tax benefits of an auto lease may exceed those of a
loan. With an auto loan, the buyer is typically required to pay the sales tax up
front in a lump sum. However, with an auto lease the lessee is permitted to
amortize the sales tax over the course of the lease, thereby reducing the up
front costs.
-6-
Additionally,
the availability of financing is critical to the sales of both used and new
cars. Americans overwhelmingly choose to, or need to, finance the purchase of
automobiles to cover the majority, if not all, of the sales price.
Role of Traditional Lending
at a Dealership
Typically,
auto financing is arranged through the dealer at the time of the car purchase.
Most car dealers provide financing through a wide variety of banks, manufacturer
finance subsidiaries and independent finance companies who lend to prime
customers. The dealer is typically compensated by the financier through a fee
based on the difference between the amount provided by the institution and the
loan negotiated with the customer. In the case of high-risk and sub-prime
sources, the dealer may, in fact, have to pay a discount in order to place the
loan.
The
Advantages of Mint Leasing
Mint
Leasing offers a different approach to auto financing. Mint Leasing doesn’t rely
on Finance Managers and salesmen to verify customers’ applications. Mint Leasing
relies on their trained, experienced credit analysts to verify every
transaction. Mint Leasing has entered into financial relationships with over 500
dealerships as a premier source for outside financing. Because the agreements
with the dealerships have been pre-negotiated, Mint Leasing is able to quickly
and efficiently respond to the dealerships and the individual customer’s
immediate needs.
As a
partner with the dealership, the finance manager/sales consultant at the
dealership can enter the application information into the sales office computer
while sitting beside the customer. The application is then instantly transmitted
to Mint Leasing for approval. Approvals are displayed instantly, allowing the
franchise dealer to quickly close the transaction.
Rather
than rely on a weighted average credit score of the end customer, Mint Leasing
chooses to apply a common sense approach to financing. While the customer’s
credit score is taken into account, there is no minimum, or “beacon score” to
determine approval. However, Mint Leasing does recognize the inherent risk in
lending to non-prime or sub-prime borrowers.
Mint
Leasing offers quality, affordable leasing to at-risk borrowers to provide
customers with the freedom associated with a vehicle. Because of this mission,
the Company employs a “reasonableness” test to determine the fitness of the
transaction. Mint Leasing relies on the decades of experience within its staff
to determine the character of the lease application. This standard ensures that
every transaction is approved or disapproved by a person, and not a
computer.
Independence
Mint
Leasing maintains a relationship with every major automobile manufacturer.
Because of this, Mint Leasing is able to retain an autonomous, independent
relationship with its dealers and work directly with the finance department to
provide fair leasing options.
Repossession
Rate
The Mint
Leasing repossession rate for 2009 and 2008 has been approximately 16% of total
units out on lease.
Marketing
and Advertising:
The
Company markets its leasing products through its partnerships with dealerships
and representatives in such dealerships. The Company also advertises
its vehicles on Autotrader.com, ebay.com and on the radio. The Company’s
advertising costs for the year ended December 31, 2009 totaled $33,353 and
advertising costs for the year ended December 31, 2008 totaled
$25,631.
Competition:
The
automobile leasing industry is highly competitive. The Company currently
competes with several larger competitors such as Americredit Corp. and Americas
Car Mart. Although we believe that our services compare favorably to our
competitors, the Company can make no assurance that it will be able to
effectively compete with these other companies or that competitive pressures,
including possible downward pressure on the prices we charge for our products
and services, will not arise. In the event that the Company cannot effectively
compete on a continuing basis or competitive pressures arise, such inability to
compete or competitive pressures could have a material adverse effect on the
Company’s business, results of operations and financial
condition.
-7-
Dependence
on One or a Few Major Customers:
Mint
Leasing does not depend on a few major customers for its revenues. As
stated above, it has partnerships with over 500 dealerships and has over
approximately 2,000 current leasing customers.
Patents,
Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor
Contracts
The
Company maintains a website at www.mintleasing.com,
which contains information the Company does not desire to be incorporated by
reference into this report. The Company also maintains a lessor
license and a dealer license.
Number
of Total Employees and Number of Full-Time Employees
The
Company currently employs 27 full-time employees, of which 7 employees are in
the Company’s sales department.
ITEM 1A. RISK
FACTORS
Our
securities are highly speculative and should only be purchased by persons who
can afford to lose their entire investment in our Company. If any of the
following risks actually occur, our business and financial results could be
negatively affected to a significant extent. The Company's business is subject
to many risk factors, including the following:
We
Will Need To Obtain Additional Financing To Continue To Execute On Our Business
Plan.
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 (the “Note
Payable”) bears interest at the prime rate plus 2% with a floor of 6%. The Note
Payable is secured by vehicles; receivables associated with leased vehicles; the
assignment of life insurance policies on Jerry Parish and Victor Garcia, and the
personal 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, and 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 December 31, 2009, the
outstanding balance on the Note Payable was $27,785,077. 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 Moody National Bank (“Moody” and “Moody 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 personal 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, which the Company was not in compliance with. The Revolver matured on
December 31, 2009 and was renewed for an additional 60 days. The outstanding
balance at December 31, 2009 was $1,679,319 and subsequent to December 31, 2009,
Moody advanced an additional $820,681; increasing the outstanding balance to
$2,500,000. On February 28, 2010, the Company executed a second
renewal, extension and modification of the Revolver (the “Amended Moody
Revolver”). The Amended Moody Revolver extends the maturity date of
the facility to March 1, 2011, reduces the amount available under the facility
to $2,500,000, fixes the interest rate on the facility at 6.5%, and provides for
11 monthly payments of principle and interest of $37,817, with the remaining
balance due at maturity.
The availability of our credit facility
and similar financing sources depends, in part, on factors outside of our
control, including the availability of bank liquidity in general. The current
disruptions in the capital markets have caused banks and other credit providers
to restrict availability of new credit facilities and require more collateral
and higher pricing upon renewal of existing credit facilities, if such
facilities are renewed at all. Accordingly, as our existing credit facility
matures, we may be required to provide more collateral in the form of finance
receivables or cash to support borrowing levels which will affect our financial
position, liquidity, and results of operations. In addition, higher pricing
would increase our cost of funds and adversely affect our
profitability.
-8-
The
Company may not have sufficient funds on hand in October 2010 when the Sterling
Bank credit facility matures to retire the debt. Accordingly, we will need to
further extend the credit facility and/or seek alternative financing to repay
such credit facility. Additionally, in the future, we may need
additional credit to support our operations, which credit may not be available
from our current banking institutions. We do not currently have any
additional commitments of additional capital from third parties or from our
officers, directors or majority shareholders. We can provide no assurance that
additional financing will be available on favorable terms, if at all. If we
choose to raise additional capital through the sale of debt or equity
securities, such sales may cause substantial dilution to our existing
shareholders. If we are not able to raise the capital necessary to
repay the line of credit, we may be forced to abandon or curtail our business
plan, which may cause any investment in the Company to become
worthless.
Our
Credit Facility Requires Us To Observe Certain Covenants, And Our Failure To
Satisfy Such Covenants Could Render Us Insolvent.
Our
credit facilities require the Company to comply with certain affirmative and
negative covenants customary for restricted indebtedness, including covenants
requiring that: we make timely payments of principal and interest under the
credit facilities; maintain certain financial ratios; Jerry Parish, our Chief
Executive Officer and Chairman maintains at least 50% of the ownership of the
Company, and that Jerry Parish continues to serve as the Chief Executive Officer
of the Company.
Subject
to notice and cure period requirements where they are provided for, any unwaived
and uncured breach of the covenants applicable to our credit facilities could
result in acceleration of the amounts owed and the cross-default and
acceleration of indebtedness owing to other lenders, which default may cause the
value of our securities to decline in value or become worthless.
We
Rely Heavily On Jerry Parish, Our Chief Executive Officer and Chairman, And
If He Were To Leave, We Could Face Substantial Costs In Securing A Similarly
Qualified Officer and Director.
Our
success depends in large part upon the personal efforts and abilities of Jerry
Parish, our Chief Executive Officer and Chairman. Our ability to operate and
implement our business plan and operations is heavily dependent on the continued
service of Mr. Parish and our ability to attract and retain other qualified
senior level employees.
We face
continued competition for our employees, and may face competition for the
services of Mr. Parish in the future. We currently have $1,000,000 of key man
insurance on Mr. Parish. We also have a three-year employment
agreement with Mr. Parish which expires on July 10, 2011. Mr. Parish
is our driving force and is responsible for maintaining our relationships and
operations. We cannot be certain that we will be able to retain Mr. Parish
and/or attract and retain qualified employees in the future. The loss of Mr.
Parish, and/or our inability to attract and retain qualified employees on an
as-needed basis could have a material adverse effect on our business and
operations.
Our
Success In Executing On Our Business Plan Is Dependent Upon The Company’s
Ability To Attract And Retain Qualified Personnel.
Our
success depends heavily on the continued services of our executive management
and employees. Our employees are the nexus of our operational
experience and customer relationships. Our ability to manage business
risk and satisfy the expectations of our customers, stockholders and other
stakeholders is dependent upon the collective experience of our employees and
executive management. The loss or interruption of services provided
by one or more of our executive management team could adversely affect our
results of operations. Additionally, the Company’s ability to
successful expand the business in the future will be directly impacted by its
ability to hire and retain highly qualified personnel.
The
Company Has Established Preferred Stock Which Can Be Designated By The Company's
Board Of Directors Without Shareholder Approval And Has Established Series A and
Series B Preferred Stock, Which Gives The Holders Majority Voting Power Over The
Company.
The
Company has 20,000,000 shares of preferred stock authorized and 185,000 shares
of Series A Convertible Preferred Stock and 2,000,000 shares of Series B
Convertible Preferred Stock designated. As of the filing date of this
report, the Company has no Series A Convertible Preferred Stock shares issued
and outstanding and 2,000,000 Series B Convertible Preferred Stock shares issued
and outstanding, which shares are held by the Company’s Chief Executive Officer
and Chairman, Jerry Parish. The Company’s Series A Convertible
Preferred Stock allows the holder to vote 200 votes each on shareholder matters
and Series B Convertible Preferred Stock shares allow the holder to vote a
number of voting shares equal to the total number of voting shares of the
Company’s issued and outstanding stock as of any record date for any shareholder
vote plus one additional share. As a result, due to Mr. Parish’s
ownership of the Series B Convertible Preferred Stock shares, he has majority
control over the Company. Mr. Parish also holds voting rights to
approximately 48.1% of the Company’s outstanding common stock.
-9-
Additional
shares of preferred stock of the Company may be issued from time to time in one
or more series, each of which shall have distinctive designation or title as
shall be determined by the Board of Directors of the Company ("Board of
Directors") prior to the issuance of any shares thereof. The preferred stock
shall have such voting powers, full or limited, or no voting powers, and such
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof as adopted by the Board
of Directors. Because the Board of Directors is able to designate the powers and
preferences of the preferred stock without the vote of a majority of the
Company's shareholders, shareholders of the Company will have no control over
what designations and preferences the Company's preferred stock will have. As a
result of this, the Company's shareholders may have less control over the
designations and preferences of the preferred stock and as a result the
operations of the Company.
Jerry
Parish, Our Chief Executive Officer And Chairman, Can Exercise Voting Control
Over Corporate Decisions.
Jerry
Parish beneficially holds voting control over (a) 2,000,000 Series B Convertible
Preferred Stock shares, which provide him the ability to vote the total number
of outstanding shares of voting stock of the Company plus one vote, and (b)
approximately 48.1% of the Company’s outstanding common stock; which in
aggregate provides him voting control over approximately 74.2% of our total
voting securities. As a result, Mr. Parish will exercise control in
determining the outcome of all corporate transactions or other matters,
including the election of directors, mergers, consolidations, the sale of all or
substantially all of our assets, and also the power to prevent or cause a change
in control. The interests of Mr. Parish may differ from the interests of the
other stockholders and thus result in corporate decisions that are adverse to
other shareholders.
Our
Quarterly and Annual Results Could Fluctuate Significantly.
The
Company's quarterly and annual operating results could fluctuate significantly
due to a number of factors. These factors include:
|
·
|
access
to additional capital in the form of debt or
equity;
|
|
·
|
the
number and range of values of the transactions that might be completed
each quarter;
|
|
·
|
fluctuations
in the values of and number of our
leases;
|
|
·
|
the
timing of the recognition of gains and losses on such
leases;
|
|
·
|
the
degree to which we encounter competition in our markets,
and
|
|
·
|
other
general economic conditions.
|
As a
result of these factors, quarterly and annual results are not necessarily
indicative of the Company's performance in future quarters and future
years.
A
Prolonged Economic Slowdown Or A Lengthy Or Severe Recession Could Harm Our
Operations, Particularly If It Results In A Higher Number Of Customer
Defaults.
The risks
associated with our business are more acute during periods of economic slowdown
or recession, such as the one we are currently in, because these periods may be
accompanied by loss of jobs as well as an increased rate of delinquencies and
defaults on our outstanding leases. These periods may also be accompanied by
decreased consumer demand for automobiles and declining values of automobiles,
which weakens our collateral coverage with our financing source. Significant
increases in the inventory of used automobiles during periods of economic
recession may also depress the prices at which repossessed or resale automobiles
may be sold or delay the timing of these sales. Additionally, higher gasoline
prices, unstable real estate values, reset of adjustable rate mortgages to
higher interest rates, increasing unemployment levels, general availability of
consumer credit or other factors that impact consumer confidence or disposable
income, could increase loss frequency and decrease consumer demand for
automobiles as well as weaken collateral values on certain types of automobiles.
If the current economic slowdown continues to worsen, our business could
experience significant losses and we could be forced to curtail or abandon our
business operations.
There
Are Risks That We Will Not Be Able To Implement Our Business
Strategy.
Our
financial position, liquidity, and results of operations depend on our
management’s ability to execute our business strategy. Key factors involved in
the execution of the business strategy include achieving the desired leasing
volume, the use of effective credit risk management techniques and strategies,
implementation of effective lease servicing and collection practices, and access
to significant funding and liquidity sources. Our failure or inability to
execute any element of our business strategy could materially adversely affect
our financial position, liquidity, and results of operations.
-10-
The
Company’s Target Consumer Base Includes Customers Which Are Inherently at High
Risk for Defaults and Delinquencies.
A
substantial number of our leases involve at-risk customers, which do not meet
traditional dealerships’ qualifications for leases. While we take
steps to reduce the risks associated with such customers, including
post-verification of the information in their lease applications and requiring
down-payments ranging up to thirty percent of the MSRP of the vehicles we lease,
no assurance can be given that our methods for reducing risk will be effective
in the future. In the event that we underestimate the default risk or
under-price or under-secure leases we provide, our financial position,
liquidity, and results of operations would be adversely affected, possibly to a
material degree.
The
Company May Experience Write-Offs for Losses and Defaults, Which Could Adversely
Affect Its Financial Condition And Operating Results.
It is
common for the Company to recognize losses resulting from the inability of
certain customers to pay lease costs and the insufficient realizable value of
the collateral securing such leases. Additional losses will occur in the future
and may occur at a rate greater than the Company has experienced to
date. If these losses were to occur in significant amounts, our
financial position, liquidity, and results of operations would be adversely
affected, possibly to a material degree.
We
Incur Significant Costs As A Result Of Operating As A Fully Reporting Company In
Connection With Section 404 Of The Sarbanes Oxley Act, And Our Management Is
Required To Devote Substantial Time To Compliance Initiatives.
We
anticipate incurring significant legal, accounting and other expenses in
connection with our status as a fully reporting public company. The
Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") and new rules subsequently
implemented by the SEC have imposed various new requirements on public
companies, including requiring changes in corporate governance practices. As
such, our management and other personnel will need to devote a substantial
amount of time to these new compliance initiatives. Moreover, these rules and
regulations will increase our legal and financial compliance costs and will make
some activities more time-consuming and costly. In addition, the Sarbanes-Oxley
Act requires, among other things, that we maintain effective internal controls
for financial reporting and disclosure of controls and procedures. In
particular, for fiscal year 2010, Section 404 will require us to obtain a report
from our independent registered public accounting firm attesting to the
assessment made by management. Our testing, or the subsequent testing
by our independent registered public accounting firm, may reveal deficiencies in
our internal controls over financial reporting that are deemed to be material
weaknesses. Our compliance with Section 404 will require that we incur
substantial accounting expense and expend significant management efforts. We
currently do not have an internal audit group, and we may need to hire
additional accounting and financial staff with appropriate public company
experience and technical accounting knowledge. Moreover, if we are not able to
comply with the requirements of Section 404 in a timely manner, or if we or our
independent registered public accounting firm identifies deficiencies in our
internal controls over financial reporting that are deemed to be material
weaknesses, the market price of our stock could decline, and we could be subject
to sanctions or investigations by the SEC or other regulatory authorities, which
would require additional financial and management resources.
There
Is Currently Only A Limited Market For Our Common Stock, And The Market For Our
Common Stock May Continue To Be Illiquid, Sporadic And Volatile.
There is
currently only a limited market for our common stock, and as such, we anticipate
that such market will be illiquid, sporadic and subject to wide fluctuations in
response to several factors moving forward, including, but not limited
to:
|
(1)
|
actual
or anticipated variations in our results of operations;
|
|
(2)
|
our
ability or inability to generate new revenues;
|
|
(3)
|
the
number of shares in our public
float;
|
|
(4)
|
increased
competition; and
|
|
(6)
|
conditions
and trends in the market for automobiles and vehicle
leasing.
|
Furthermore,
because our common stock is traded on the Over-The-Counter Bulletin Board, our
stock price may be impacted by factors that are unrelated or disproportionate to
our operating performance. These market fluctuations, as well as general
economic, political and market conditions, such as recessions, interest rates or
international currency fluctuations may adversely affect the market price of our
common stock. Additionally, at present, we have a limited number of shares in
our public float, and as a result, there could be extreme fluctuations in the
price of our common stock. Further, due to the limited volume of our shares
which trade and our limited public float, we believe that our stock prices (bid,
ask and closing prices) are entirely arbitrary, are not related to the actual
value of the Company, and do not reflect the actual value of our common stock.
Shareholders and potential investors in our common stock should exercise caution
before making an investment in the Company, and should not rely on the publicly
quoted or traded stock prices in determining our common stock value, but should
instead determine the value of our common stock based on the information
contained in the Company's public reports, industry information, and those
business valuation methods commonly used to value private
companies.
-11-
Investors
May Face Significant Restrictions On The Resale Of Our Common Stock Due To
Federal Regulations Of Penny Stocks.
Our
common stock will be subject to the requirements of Rule 15(g)9, promulgated
under the Securities Exchange Act as long as the price of our common stock is
below $5.00 per share. Under such rule, broker-dealers who recommend low-priced
securities to persons other than established customers and accredited investors
must satisfy special sales practice requirements, including a requirement that
they make an individualized written suitability determination for the purchaser
and receive the purchaser's consent prior to the transaction. The Securities
Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional
disclosure in connection with any trades involving a stock defined as a penny
stock.
Generally,
the Commission defines a penny stock as any equity security not traded on an
exchange or quoted on NASDAQ that has a market price of less than $5.00 per
share. The required penny stock disclosures include the delivery, prior to any
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated with it. Such requirements could severely limit the market
liquidity of the securities and the ability of purchasers to sell their
securities in the secondary market.
In
addition, various state securities laws impose restrictions on transferring
"penny stocks" and as a result, investors in the common stock may have their
ability to sell their shares of the common stock impaired.
ITEM 2.
PROPERTIES
The
Company leases approximately 6,000 square feet of office space from a limited
liability corporation that is owned by the Company’s Chief Executive Officer and
a significant shareholder, at the rate of $20,000 per month. The
lease expires on July 31, 2011, subject to the Company's right to five
additional one year extensions. Any extensions under the lease shall
be at a monthly rental cost mutually agreeable by the parties. The
payment of the rental costs due under the lease is secured by a lien on all of
the Company's goods and personal property located within the leased
premises.
ITEM 3. LEGAL
PROCEEDINGS
As a
consumer leasing company, we may be subject to various consumer claims and
litigation seeking damages and statutory penalties, based upon, among other
things, disclosure inaccuracies, wrongful repossession, violations of bankruptcy
stay provisions, certificate of title disputes, fraud, breach of contract and
discriminatory treatment of applicants. Some litigation against us could take
the form of class action complaints by consumers. Through our partnership with
various automobile dealers, we may also be named as a co-defendant in lawsuits
filed by consumers principally against dealers. The damages and penalties
claimed by consumers in these types of matters can be substantial. The relief
requested by the plaintiffs varies but can include requests for compensatory,
statutory and punitive damages.
From time
to time, we may become party to litigation or other legal proceedings that we
consider to be a part of the ordinary course of our business. We are not
currently involved in legal proceedings that could reasonably be expected to
have a material adverse effect on our business, prospects, financial condition
or results of operations. We may become involved in material legal proceedings
in the future.
ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS
The
Company had no matters submitted to a vote of security holders during the fiscal
quarter ended December 31, 2009.
-12-
PART
II
ITEM 5. MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market
Information and Holders
The
common stock of The Mint Leasing, Inc. commenced trading on the OTC Bulletin
Board under the symbol “LGCC” on August 14, 2006. Effective July 21,
2008, we changed our name and the trading symbol became “MLES”. The following
table sets forth the high and low trading prices of one (1) share of our common
stock for each fiscal quarter over the past two fiscal years. The quotations
provided are for the over the counter market, which reflect interdealer prices
without retail mark-up, mark-down or commissions, and may not represent actual
transactions. The values listed below retroactively reflect our 1:20
reverse stock split which was effective as of July 18, 2008.
|
QUARTER
ENDED
|
HIGH
|
LOW
|
|||
|
December
31, 2009
|
$
|
0.30
|
$
|
0.11
|
|
|
September
30, 2009
|
$
|
0.89
|
$
|
0.03
|
|
|
June
30, 2009
|
$
|
0.90
|
$
|
0.03
|
|
|
March
31, 2009
|
$
|
1.05
|
$
|
0.03
|
|
|
December
31, 2008
|
$
|
1.98
|
$
|
1.01
|
|
|
September
30, 2008
|
$
|
5.00
|
$
|
0.60
|
|
|
June
30, 2008
|
$
|
1.00
|
$
|
0.40
|
|
|
March
31, 2008
|
$
|
0.80
|
$
|
0.60
|
|
As of
March 25, 2010, we had 82,224,504 shares of common stock issued and outstanding
held by approximately 61 shareholders of record, no shares of Series A
Convertible Preferred Stock issued and outstanding and 2,000,000 shares of
Series B Convertible Preferred Stock issued and outstanding.
Dividends
We have
never declared or paid any cash dividends on our common stock, and we do not
anticipate paying any dividends in the foreseeable future. We intend
to devote any earnings to fund the operations and the development of our
business.
Common
Stock
Holders
of shares of common stock are entitled to one vote per share on each matter
submitted to a vote of shareholders. In the event of liquidation, holders of
common stock are entitled to share pro rata in the distribution of assets
remaining after payment of liabilities, if any. Holders of common stock have no
cumulative voting rights, and, accordingly, the holders of a majority of the
outstanding shares have the ability to elect all of the directors. Holders of
common stock have no preemptive or other rights to subscribe for shares. Holders
of common stock are entitled to such dividends as may be declared by the Board
out of funds legally available therefore. The outstanding shares of common stock
are validly issued, fully paid and non-assessable.
Series
A Convertible Preferred Stock
The
Company’s Series A Convertible Preferred Stock shares (the “Series A Stock”)
allow the holder to vote a number of voting shares equal to two hundred shares
for each share of Series A Stock held by such Series A Stock
shareholder. The Series A Stock has a liquidation preference over the
shares of common stock issued and outstanding equal to the stated value of such
shares, $1.00 per share multiplied by 12.5%. The Series A Stock is
convertible at the option of the holder into 200 shares of common stock for each
share of Series A Stock issued and outstanding, provided that no conversion
shall be allowed if the holder of such Series A Stock would own more than 4.99%
of the Company’s common stock upon conversion.
No
amendment to the Company’s Series A Stock shall be made while such Series A
Stock is issued and outstanding to amend, alter or repeal the Articles of
Incorporation or Bylaws of the Company to adversely effect the rights of the
Series A Stock holders; authorize or issue any additional shares of preferred
stock; or effect any reclassification of the Series A Stock unless a majority of
the outstanding Series A Stock vote to approve such modification or
amendment.
-13-
Series
B Convertible Preferred Stock
The
Company’s Series B Convertible Preferred Stock shares (the “Series B Stock”)
allow the holder to vote a number of voting shares equal to the total number of
voting shares of the Company issued and outstanding as of any record date for
any shareholder vote plus one additional share. The Series B Stock
has a liquidation preference over the shares of common stock issued and
outstanding. The Series B Stock is convertible at the option of the
holder with 61 days notice to the Company into 10 shares of common stock for
each share of Series B Stock issued and outstanding, which conversion rate may
be increased by the Company’s Board of Directors from time to time as provided
in the Series B Stock designation.
No
amendment to the Company’s Series B Stock shall be made while such Series B
Stock is issued and outstanding to amend, alter or repeal the Articles of
Incorporation or Bylaws of the Company to adversely effect the rights of the
Series B Stock holders; authorize or issue any additional shares of preferred
stock; or effect any reclassification of the Series B Stock unless a majority of
the outstanding Series B Stock vote to approve such modification or
amendment.
EQUITY
COMPENSATION PLAN INFORMATION
On June
26, 2008, the Board of Directors adopted, and on July 18, 2008, the stockholders
approved, the 2008 Directors, Officers, Employees and Consultants Stock Option,
Stock Warrant and Stock Award Plan (the “Plan”). Under the Plan, the
Board of Directors (or a committee thereof) may grant options, warrants or
restricted or unrestricted shares of the Company’s common stock or preferred
stock to its Directors, officers, employees or
consultants.
The
following table provides information as of December 31, 2009 regarding
compensation plans (including individual compensation arrangements) under which
equity securities are authorized for issuance:
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted-average
exercise price of outstanding options,
warrants
and rights
|
Number
of securities available for future issuance under equity compensation
plans (excluding those in first column)
|
|||
|
Equity
compensation plans approved by the security holders
|
2,100,000(1)
|
$2.91
|
22,900,000
|
|||
|
Equity
compensation plans not approved by the security holders
|
-
|
-
|
-
|
|||
|
Total
|
2,100,000(1)
|
$2.91
|
22,900,000
|
(1)
Includes options to purchase 2,000,000 common shares of stock granted to Jerry
Parish, the Company’s President and Chairman in July 2008 (a total of 666,667 of
which have vested to date), in connection with his employment agreement with
Mint Texas which was assumed by Mint Nevada on the closing date of the merger.
The exercise price of the options is $3.00 and the options expire ten years
after the grant date. One third of the options may be exercised respectively on
the first, second and third anniversary of the grant date. The Company recorded
the transaction as part of its recapitalization. Also includes
options to purchase 100,000 shares of common stock, which the Company granted to
William Sklar, its then Chief Financial Officer in December 2008, for
services.
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On
September 30, 2009, the Company and Mr. Parish and Victor Garcia, a Director of
the Company, entered into a Mutual Release and Termination Agreement with third
parties who were the holders of 8,278,872 shares of the Company’s common stock
and warrants to purchase an additional 2,100,000 common shares at prices ranging
from $0.10 to $2.00 per share. Messers. Parish and Garcia paid
$250,000 in cash and Mr. Parish delivered 125,000 shares of Arrayit Corporation
to the third parties for the 8,278,872 shares of the Company’s common stock, of
which 4,239,436 shares were issued to Messers. Parish and Garcia. The third
parties also agreed to cancel warrants to purchase 2,100,000 shares of the
Company’s common stock. In addition to the transfer of the shares,
all parties to the agreement agreed to release and discharge each other from any
and all claims or rights which any party may have owed to any other
party. As a consequence of the agreement, the third parties also
agreed to waive any rights they may have had to the issuance of additional
shares of the Company’s common stock in consideration for the conversion of
certain promissory notes of the Company dating from 2005, 2006 and
2007.
-14-
In
December 2009, the Company issued 300,000 shares of common stock to two
employees of the Company in consideration for services rendered.
In May
2009, the Company cancelled 5,000 shares of common stock. In February
2010, the Company cancelled 150,000 shares of common stock, which were
originally granted to a consultant in February 2009, which shares were never
earned by the consultant.
We claim
an exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended since the foregoing grant did not involve a public offering,
the recipient took the shares for investment and not resale and we took
appropriate measures to restrict transfer.
ITEM 6. SELECTED FINANCIAL
DATA
Not
required.
ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Critical
Accounting Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company to make
estimates and assumptions that affect amounts reported in the accompanying
consolidated financial statements and related footnotes. These estimates
and assumptions are evaluated on an on-going basis based on historical
developments, market conditions, industry trends and other information the
Company believes to be reasonable under the circumstances. There can be no
assurance that actual results will conform to the Company’s estimates and
assumptions, and that reported results of operations will not be materially
adversely affected by the need to make accounting adjustments to reflect changes
in these estimates and assumptions from time to time. The following
policies are those the Company believes to be the most sensitive to estimates
and judgments.
Principles
of Consolidation
The
consolidated financial statements of the Company include the accounts of The
Mint Leasing, Inc. and all of its subsidiaries. Inter-company
accounts and transactions are eliminated in consolidation.
Use
of Estimates
The
preparation of 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 of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates. Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance for doubtful
accounts and the estimated unguaranteed residual values on the lease receivable
contracts.
Although
Mint attempts to mitigate credit risk through the use of a variety of commercial
credit reporting agencies when processing customer applications, failure of the
customers to make scheduled payments under their automobile lease contracts
could have a material impact on the allowance for doubtful
accounts.
Realization
of unguaranteed residual values depends on many factors, several of which are
not within the Company's control, including general market conditions at the
time of the original lease contract's expiration, whether there has been unusual
wear and tear on, or use of, the vehicle, the cost of comparable new vehicles
and the extent, if any, to which the vehicle has become technologically or
economically obsolete during the lease contract term. These factors, among
others, could have a material impact on the estimated unguaranteed residual
values.
Revenue
Recognition for Sales-type Leases
The
Company’s customers typically finance vehicles over periods ranging from three
to nine years. These financing agreements are classified as operating
leases or sales-type leases as prescribed by the Financial Accounting Standards
Board (the “FASB”) guidance for accounting for leases. Revenues
representing the capitalized costs of the vehicles are recognized as income upon
inception of the leases. The portion of revenues representing the difference
between the gross investment in the lease (the sum of the minimum lease payments
and the guaranteed residual value) and the sum of the present value of the two
components is recorded as unearned income and amortized over the lease
term.
-15-
Cost
of Revenues
Cost of
Revenues comprises the vehicle acquisition costs for the vehicles to be leased
to the Company’s customers, the costs associated with servicing the leasing
portfolio and the direct costs of non-performing leases. Portfolio
servicing costs include direct wages, bank service fees and premises
costs.
Cash and Cash Equivalents
Investments
in highly liquid securities with original maturities of 90 days or less are
included in cash and cash equivalents.
Concentrations
of Credit Risk
Financial
instruments which potentially subject us to concentrations of credit risk are
primarily cash equivalents and finance receivables. Our cash equivalents are
placed through various major financial institutions. Finance
receivables represent contracts with consumers residing throughout the United
States, with borrowers located in Texas, Arkansas, Mississippi, Alabama,
Georgia, Tennessee and Florida. No other state accounted for more than 10% of
managed finance receivables.
Allowance
for Loan Losses
Provisions
for losses on investments in sales-type leases are charged to operations in
amounts sufficient to maintain the allowance for losses at a level considered
adequate to cover probable credit losses inherent in our receivables related to
sales-type leases. The Company establishes the allowance for losses
based on the determination of the amount of probable credit losses inherent in
the financed receivables as of the reporting date. The Company
reviews charge-off experience factors, delinquency reports, historical
collection rates, estimates of the value of the underlying collateral, economic
trends, and other information in order to make the necessary judgments as to
probable credit losses. Assumptions regarding probable credit losses
are reviewed periodically and may be impacted by actual performance of financed
receivables and changes in any of the factors discussed above.
Charge-off
Policy
The
Company charges off accounts when the automobile is repossessed or voluntarily
returned by the customer and legally available for disposition. The charge-off
amount generally represents the difference between the net outstanding
investment in the sales-type lease and the fair market value of the vehicle
returned to inventory. The charge-off amount is included in cost of revenues on
the accompanying statement of operations. Accounts in repossession that have
been charged off have been removed from finance receivables and the related
repossessed automobiles are included in Vehicle Inventory on the consolidated
balance sheet pending sale.
Vehicle
Inventory
Vehicle
Inventory includes repossessed automobiles, as well as vehicles turned in at the
conclusion of the lease. Inventory of vehicles is stated at the lower
of cost determined using the specific identification method, and market,
determined by net proceeds from sale or the NADA book value.
Property
and Equipment
Property
and equipment are recorded at cost less accumulated depreciation. Depreciation
and amortization on property and equipment are determined using the
straight-line method over the three to five year estimated useful lives of the
assets.
Expenditures
for additions, major renewal and betterments are capitalized, and expenditures
for maintenance and repairs are charged against income as incurred. When
property and equipment are retired or otherwise disposed of, the related cost
and accumulated depreciation are removed from the accounts, and any resulting
gain or loss is reflected in income.
Stock-based
Compensation
The
Company accounts for stock-based compensation using the modified prospective
application method in accordance with accounting guidance provided by the
Financial Accounting Standards Board (the “FASB”). This method provides for the
recognition of the fair value with respect to share-based compensation for
shares subscribed for or granted on or after January 1, 2006, and all
previously granted but unvested awards as of January 1, 2006. The cost is
recognized over the period during which an employee is required to provide
service in exchange for the options.
Income
Taxes
Prior to
July 18, 2008, the Company’s financial statements do not include a provision for
Income Taxes because the taxable income of Mint is included in the Income Tax
Returns of the stockholders under the Internal Revenue Service "S" Corporation
elections. As an “S” Corporation the Company was eligible to and did
so elect to be taxed on a cash basis under the provisions of the Internal
Revenue Service.
-16-
Upon
completion of the July 18, 2008 transaction with Legacy as more fully described
in Note 1 to the audited consolidated financial statements, Mint ceased to be
treated as an "S" Corporation for Income Tax purposes, resulting in (1) the
imposition of income tax at the corporate level instead of the shareholder level
and (2) the inability to continue to elect to be taxed on a cash
basis.
Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
The
Company’s significant accounting policies are more fully described in
Note 2 to our consolidated financial statements.
PLAN
OF OPERATIONS FOR THE NEXT TWELVE MONTHS
Throughout
the remainder of fiscal 2010, we plan to continue investing to support our
long-term growth initiatives. We plan to partner with new dealerships, enter new
markets and further expand our presence in existing markets.
COMPARISON
OF OPERATING RESULTS
RESULTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2009, COMPARED TO THE YEAR ENDED
DECEMBER 31, 2008
For the
year ended December 31, 2009, total revenues were $16,996,135, compared to
$50,029,292 for the year ended December 31, 2008, a decrease in total revenues
of $33,033,157 or 66.0% from the prior period. For the year ended
December 31, 2009, revenues from sales-type leases, net, decreased $32,752,435
or 74.8% to $11,026,164 for the year ended December 31, 2009, from $43,778,599
for the year ended December 31, 2008. Revenues from amortization of
unearned income related to sales-type leases decreased $280,722 or 4.5% to
$5,969,971 for the year ended December 31, 2009, from $6,250,693 for the year
ended December 31, 2008.
The $32,752,435 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 year ended December 31, 2009, compared
to the year ended December 31, 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 year ended
December 31, 2009, its revenues would have been similar to the Company’s
revenues for the year ended December 31, 2008.
Cost of
revenues decreased $16,566,800 or 48.0% to $17,913,838 for the year ended
December 31, 2009, compared to $34,480,638 for the year ended December 31,
2008. Cost of revenues decreased mainly as a result of the lower
revenue for the year ended December 31, 2009, compared to the year ended
December 31, 2008. Cost of revenues associated with sales-type leases decreased
by $18,512,182 or 77.0% to $5,533,678 for the year ended December 31, 2009,
compared to $24,045,860 for the year ended December 31, 2008. The reduction of
costs of revenues as a result of lower revenues was partially offset by
$1,945,382 or a 18.6% increase in the costs associated with early lease
terminations and repossessions of vehicles, to $12,380,160 for the year ended
December 31, 2009, compared to $10,434,778 for the year ended December 31,
2008.
Gross
profit decreased $16,466,357 or 105.9% to a gross loss of $917,703 for the year
ended December 31, 2009 compared to gross profit of $15,548,654 for the year
ended December 31, 2008. Gross profit decreased largely due to the
77.0% decrease in revenues from sales-type leases, net, and the $1,945,382
increase in cost of revenues associated with early lease terminations and
repossessions of vehicles.
Gross
profit as a percentage of revenues was negative 5.4% for the year ended December
31, 2009 compared to positive 31.1% for the year ended December 31,
2008. As stated above, the decreases in the gross profit in actual
dollars and as a percentage of revenues are primarily attributable to the 77.0%
decrease in revenues from sales-type leases. The gross profit margin
achieved in 2009 on revenues generated from sales-types leases increased by 4.7
percentage points in 2009 over 2008. The Company achieved a gross
margin of 49.8% in 2009, as compared to 45.1% gross margin in 2008 on revenues
generated from sales-type leases. The negative impact on the overall gross
margin in 2009 was further exacerbated by the $1,945,382 or 18.6% increase in
expenses related to early termination of leases and repossessions of
vehicles.
-17-
General
and administrative expenses were $3,422,173 and $4,664,898, for the years ended
December 31, 2009 and December 31, 2008, respectively, resulting in a decrease
of $1,242,725 or 26.6% from the prior period. The decrease in general
and administrative expense was primarily the result of overall reductions in
expenses and headcount due to the significant reduction in revenues for the
year.
Other
expense, consisting solely of interest expense, was $1,863,899 and $2,108,991
for the years ended December 31, 2009 and December 31, 2008,
respectively. The main reason for the $245,092 or 11.6% decrease in
interest expense for the year ended December 31, 2009, compared to the year
ended December 31, 2008, was due to lower effective interest rates on our credit
facilities and lower outstanding debt balances for the year ended December 31,
2009, compared to the year ended December 31, 2008.
The
Company had cumulative effect on prior year of changing the method of valuing
the collectability of its net investment in sales-type leases of $4,812,471 for
the year ended December 31, 2008 compared to $0 for the year ended December 31,
2009.
The
Company had a benefit from income tax of $2,183,947 for the year ended December
31, 2009, compared to provision for income tax of $1,476,164 for the year ended
December 31, 2008. The benefit recorded in 2009 is the result of recognition of
the future reduction of income taxes payable as a result of the carry forward of
the 2009 loss before income taxes of $6,203,775 to future periods. In 2008, the
Company generated income before income taxes of $4,007,288 and recorded an
income tax provision of $1,476,164. The 2008 provision was unusually low as the
Company was only taxable on the profits generated in the last half of the year
as it converted from an “S” Corporation to a “C” Corporation under the IRS
regulations in the third quarter of 2008.
The
Company had a net loss of $4,019,828 for the year ended December 31, 2009,
compared to net income of $2,531,124 for the year ended December 31, 2008, a
decrease in net income of $6,550,952 or 258.8% from the prior
period. The decrease in net income during 2009 was the cumulative
effect of the 77.0% decrease in revenues from sales-type leases; the 4.5%
decrease in revenues from the amortization of unearned income; and the 18.6%
increase in cost of revenues associated with repossessions and early lease
terminations. The negative impacts of these items were only slightly
offset by the 26.6% decrease in general and administrative expense and the
decrease in interest expense in 2009 compared to 2008. The cumulative
$10,211,063 (after consideration of the cumulative effect of the change in
accounting in 2008) negative impact on earnings of these items was offset by the
$3,660,111 reduction in the tax provision for the year ended December 31, 2009,
compared to the year ended December 31, 2008.
LIQUIDITY
AND CAPITAL RESOURCES
We had
total assets of $39,617,933 as of December 31, 2009, which included cash and
cash equivalents of $1,231,594, investment in sales-type leases, net, of
$36,681,689, vehicle inventory of $765,690, property and equipment, net, of
$103,940, a deferred tax asset of $736,620 and $98,400 of other
assets.
We had
total liabilities as of December 31, 2009 of $31,299,102, which included
$1,204,406 of accounts payable and accrued liabilities, $29,464,396 of amounts
due under our credit facilities (described in greater detail below), and
$630,300 of notes payable to related parties.
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; accounts receivables associated with leased vehicles;
assignment of life insurance policies on Jerry Parish and Victor Garcia, and the
personal 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 and 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 December 31, 2009, the
outstanding balance on the Note Payable was $27,785,077. 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.
Our
credit facilities with Sterling Bank require us to comply with certain
affirmative and negative covenants customary for restricted indebtedness,
including but not limited to covenants requiring that: we maintain certain
financial ratios; Jerry Parish, our Chief Executive Officer and
Chairman continues to own at least 50% of the ownership of the Company;
prohibiting the termination of the employment of Mr. Parish; or the transfer of
any ownership interest of Mint Texas without the approval of Sterling
Bank. At December 31, 2009, the Company was in compliance with all
debt covenants.
-18-
Effective
August 3, 2009, the Company entered into a secured $10,000,000 revolving credit
agreement (the “Revolver”) with Moody National Bank (“Moody” or “Moody 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
personal 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; which the
Company was not in compliance with. The Revolver matured on December 31, 2009
and was renewed for an additional 60 days. The outstanding balance at December
31, 2009 was $1,679,319 and subsequent to December 31, 2009, Moody advanced an
additional $820,681; increasing the outstanding balance to
$2,500,000. On February 28, 2010, the Company executed a second
renewal, extension and modification of the Revolver (the “Amended Moody
Revolver”). The Amended Moody Revolver extends the maturity date of
the facility to March 1, 2011, reduces the amount available under the facility
to $2,500,000, fixes the interest rate on the facility at 6.5%, and provides for
11 monthly payments of principle and interest of $37,817, with the remaining
balance due at maturity.
Additionally,
Jerry Parish, the Company’s Chief Executive Officer and Director, and Victor
Garcia, our Director, 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 of $630,300 and $435,300 as of December 31, 2009 and December 31,
2008, respectively. These notes and advances payable are non-interest
bearing and subordinated to the credit facilities with the
banks. Accordingly, they have been classified as long term. The
Company imputed interest on these note payables at a rate of 8.75% per
year. Interest expense of $38,088 and $32,658 was recorded as
contributed capital for the years ended December 31, 2009 and 2008.
We
generated $3,707,196 in cash from operating activities for the year ended
December 31, 2009, which was mainly due from collections and reductions of net
investment in sales-type leases of $8,322,613 and an increase in accounts
payable and accrued expenses of $754,526. Non-cash charges for the
period included the change in the allowance for doubtful accounts, share based
compensation, depreciation, and imputed interest which were $628,661, $63,600,
$33,353, and $38,088, respectively, which also contributed positively to the
cash provided by operating activities. Those items negatively impacting the cash
provided by operations for the year ended December 31, 2009, were the net loss
of $4,019,828, the deferred tax benefit of $2,183,947, and an increase in
prepaid expenses and other assets of $19,130.
We had
$15,977 of net cash used in investing activities for the year ended December 31,
2009, which was solely due to purchases of property, plant and
equipment.
We had
$3,340,604 of net cash used in financing activities for the year ended December
31, 2009, which was due to $5,214,923 of payments on notes payable, offset by
$1,679,319 of proceeds from borrowings on the Moody Bank credit facility,
$100,000 advance from an affiliated company, and $95,000 of shareholder loan,
which represented payments made by our Chief Executive Officer, Jerry Parish, to
a placement agent on our behalf.
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.
-19-
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
THE
MINT LEASING, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
|
PAGE
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
|
FINANCIAL
STATEMENTS
|
|
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
F-4 |
|
Consolidated
Statements of Operations for the years ended December 31, 2009 and
2008
|
F-5 |
|
Consolidated
Statements of Stockholders’ Equity for the years ended December 31, 2009
and 2008
|
F-6 |
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and
2008
|
F-7 |
|
Notes
to Consolidated Financial Statements
|
F-8 |
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors
The Mint
Leasing, Inc.
Houston,
Texas
We have
audited the accompanying consolidated balance sheet of The Mint Leasing, Inc.
(the “Company”) as of December 31, 2009 and the related statements of
operations, stockholders' equity and cash flows for the twelve month period then
ended. The financial statements for the year ended December 31, 2008
were audited by other auditors whose report expressed an unqualified opinion on
those statements. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of The Mint Leasing, Inc. as of
December 31, 2009 and the results of its operations and cash flows for the
period described above in conformity with accounting principles generally
accepted in the United States of America.
/s/
M&K CPAS, PLLC
www.mkacpas.com
Houston,
Texas
March 9,
2010
F-2
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
The Mint
Leasing, Inc.
(formerly
Legacy Communications Corporation)
Houston,
Texas
We have
audited the accompanying consolidated balance sheet of The Mint Leasing, Inc.
(formerly Legacy Communications Corporation) and subsidiary as of December 31,
2008, and the related consolidated statements of income, stockholders' equity,
and cash flows for the year ended December 31, 2008. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of The Mint Leasing, Inc.
(formerly Legacy Communications Corporation) and subsidiary as of December 31,
2008, and the results of their operations and their cash flows for year ended
December 31, 2008, in conformity with U.S. generally accepted accounting
principles.
We were
not engaged to examine management's assessment about the effectiveness of The
Mint Leasing, Inc.’s (formerly Legacy Communications Corporation) internal
control over financial reporting as of December 31, 2008 and, accordingly, we do
not express an opinion thereon.
HJ
& Associates, LLC
Salt Lake
City, Utah
April 14,
2009
F-3
|
The
Mint Leasing, Inc.
|
||||||||
|
Consolidated
Balance Sheets
|
||||||||
|
December
31, 2009 and 2008
|
||||||||
|
ASSETS
|
2009
|
2008
|
||||||
|
Cash
and cash equivalents
|
$
|
1,231,594
|
$
|
880,979
|
||||
|
Investment
in sales-type leases, net
|
36,681,689
|
45,632,963
|
||||||
|
Vehicle
inventory
|
765,690
|
854,950
|
||||||
|
Property
and equipment, net
|
103,940
|
121,316
|
||||||
|
Deferred
income tax receivable
|
736,620
|
-
|
||||||
|
Other
assets
|
98,400
|
79,270
|
||||||
|
TOTAL
ASSETS
|
$
|
39,617,933
|
$
|
47,569,478
|
||||
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||
|
LIABILITIES
|
||||||||
|
Accounts
payable and accrued liabilities
|
$
|
1,204,406
|
$
|
449,880
|
||||
|
Credit
facilities
|
29,464,396
|
33,000,000
|
||||||
|
Deferred
income taxes payable
|
-
|
1,447,327
|
||||||
|
Notes
payable to related parties
|
630,300
|
435,300
|
||||||
|
TOTAL
LIABILITIES
|
31,299,102
|
35,332,507
|
||||||
|
STOCKHOLDERS'
EQUITY
|
||||||||
|
Preferred
stock Series A, 18,000,000 shares authorized at $0.001
par value, 0 and 0 shares outstanding,
respectively
|
-
|
-
|
||||||
|
Preferred
stock Series B, 2,000,000 shares authorized at $0.001 par
value, 2,000,000 and 0 shares outstanding, respectively
|
2,000
|
2,000
|
||||||
|
Common
stock, 480,000,000 shares authorized at $0.001 par value, 82,224,504 and
81,929,504 shares issued and outstanding, respectively
|
82,225
|
81,930
|
||||||
|
Additional
paid in capital
|
9,319,073
|
9,217,680
|
||||||
|
Retained
earnings (deficit)
|
(1,084,467
|
)
|
2,935,361
|
|||||
|
TOTAL
STOCKHOLDERS’ EQUITY
|
8,318,831
|
12,236,971
|
||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
39,617,933
|
$
|
47,569,478
|
||||
See
accompanying notes to the consolidated financial statements
F-4
|
The
Mint Leasing, Inc.
|
||||||||
|
Consolidated
Statements of Operations
For
the Years Ended December 31, 2009 and 2008
|
||||||||
|
2009
|
2008
|
|||||||
|
REVENUES
|
||||||||
|
Sales-type
leases, net
|
$
|
11,026,164
|
$
|
43,778,599
|
||||
|
Amortization
of unearned income related to sales-type leases
|
5,969,971
|
6,250,693
|
||||||
|
Total
Revenues
|
16,996,135
|
50,029,292
|
||||||
|
COST
OF REVENUES
|
||||||||
|
Cost of sales-type leases
|
5,533,678
|
24,045,860
|
||||||
|
Repossession
and cancelled lease expense
|
12,380,160
|
10,434,778
|
||||||
|
Total
Cost Of Revenues
|
17,913,838
|
34,480,638
|
||||||
|
GROSS
PROFIT (LOSS)
|
(917,703
|
)
|
15,548,654
|
|||||
|
GENERAL
AND ADMINISTRATIVE EXPENSE
|
3,422,173
|
4,664,898
|
||||||
|
INCOME
(LOSS) BEFORE OTHER INCOME (EXPENSE) FROM CONTINUING
OPERATIONS
|
(4,339,876
|
)
|
10,883,756
|
|||||
|
OTHER
INCOME (EXPENSE)
|
||||||||
|
Interest
expense
|
(1,863,899
|
)
|
(2,108,991
|
)
|
||||
|
Other
income
|
-
|
44,994
|
||||||
|
Total
Other Income (Expense)
|
(1,863,899
|
)
|
(2,063,997
|
)
|
||||
|
Income
(loss) before cumulative effect of change in accounting principle and
income tax provision
|
(6,203,775
|
)
|
8,819,759
|
|||||
|
Cumulative
effect on prior years of changing the method of determination of allowance
for doubtful accounts
|
-
|
(4,812,471
|
)
|
|||||
|
INCOME
(LOSS) BEFORE TAX
|
(6,203,775
|
)
|
4,007,288
|
|||||
|
Income
Tax (Benefit) Provision
|
(2,183,947
|
)
|
1,476,164
|
|||||
|
NET
INCOME (LOSS)
|
$
|
(4,019,828
|
)
|
$
|
2,531,124
|
|||
|
Basic
average shares outstanding
|
81,933,353
|
81,929,504
|
||||||
|
Basic
Earnings Per Share
|
||||||||
|
Net
income (loss) before cumulative effect of change in accounting
principle
|
$
|
(0.05
|
)
|
$
|
0.09
|
|||
|
Cumulative
effect on prior years of changing the method of determination
of
allowance
for doubtful accounts
|
$
|
-
|
$
|
(0.06
|
)
|
|||
|
Basic
Earning Per Share
|
$
|
(0.05
|
)
|
$
|
0.03
|
|||
|
Basic
average shares outstanding
|
81,933,353
|
81,929,504
|
||||||
|
Incremental
shares from assumed exercise of stock option and warrants and
conversion
of preferred stock
|
-
|
24,108,197
|
||||||
|
Diluted
average shares outstanding
|
81,933,353
|
106,037,701
|
||||||
|
Diluted
Earnings Per Share
|
||||||||
|
Net
income (loss) before cumulative effect of change in accounting
principle
|
$
|
(0.05
|
)
|
$
|
0.07
|
|||
|
Cumulative
effect on prior years of changing the method of determination
of
allowance
for doubtful accounts
|
$
|
-
|
$
|
(0.05
|
)
|
|||
|
Diluted
Earnings Per Share
|
$
|
(0.05
|
)
|
$
|
0.02
|
|||
See
accompanying notes to the consolidated financial statements
F-5
|
The
Mint Leasing, Inc.
Consolidated
Statements of Stockholders’ Equity
For
the Years Ended December 31, 2009 and 2008
|
|||||||||||||||||||||||||||||||||||
|
Additional
|
Total
|
||||||||||||||||||||||||||||||||||
|
Preferred
Series A
|
Preferred
Series B
|
Common
Stock
|
Paid
In
|
Retained
|
Stockholders'
|
||||||||||||||||||||||||||||||
|
Description
|
Number
|
Dollar
|
Number
|
Dollar
|
Number
|
Dollar
|
Capital
|
Earnings (Deficit)
|
Equity
|
||||||||||||||||||||||||||
|
Balance,
December 31, 2007
|
-
|
$
|
-
|
-
|
$
|
-
|
70,650,000
|
$
|
70,650
|
$
|
(69,650
|
)
|
$
|
10,028,305
|
$
|
10,029,305
|
|||||||||||||||||||
|
Distributions
paid
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(415,760
|
)
|
(415,760
|
)
|
||||||||||||||||||||||||
|
Preferred
stock issued for cash
|
185,000
|
185
|
-
|
-
|
-
|
-
|
184,815
|
-
|
185,000
|
||||||||||||||||||||||||||
|
Reclassification
of retained earnings to additional paid in capital in conjunction with
S-election termination
|
-
|
-
|
-
|
-
|
-
|
-
|
9,208,308
|
(9,208,308
|
)
|
-
|
|||||||||||||||||||||||||
|
Share
transactions in reverse merger transaction
|
(185,000
|
)
|
(185
|
)
|
2,000,000
|
2,000
|
11,279,504
|
11,280
|
(196,095
|
)
|
-
|
(183,000
|
)
|
||||||||||||||||||||||
|
Imputed
interest on related party notes
|
-
|
-
|
-
|
-
|
-
|
-
|
32,658
|
-
|
32,658
|
||||||||||||||||||||||||||
|
Options
granted
|
-
|
-
|
-
|
-
|
-
|
-
|
57,644
|
-
|
57,644
|
||||||||||||||||||||||||||
|
Net
income for the year ended December 31, 2008
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2,531,124
|
2,531,124
|
||||||||||||||||||||||||||
|
Balance,
December 31, 2008
|
-
|
-
|
2,000,000
|
2,000
|
81,929,504
|
81,930
|
9,217,680
|
2,935,361
|
12,236,971
|
||||||||||||||||||||||||||
|
Imputed
interest on related party Notes
|
-
|
-
|
-
|
-
|
-
|
-
|
38,088
|
-
|
38,088
|
||||||||||||||||||||||||||
|
Cancelled
shares
|
(5,000)
|
(5)
|
5
|
-
|
-
|
||||||||||||||||||||||||||||||
|
Warrants
issued
|
-
|
-
|
-
|
-
|
-
|
-
|
12,600
|
-
|
12,600
|
||||||||||||||||||||||||||
|
Common
stock based compensation
|
-
|
-
|
-
|
-
|
300,000
|
300
|
50,700
|
-
|
51,000
|
||||||||||||||||||||||||||
|
Net
loss for the year ended December 31, 2009
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(4,019,828
|
)
|
(4,019,828
|
)
|
||||||||||||||||||||||||
|
Balance,
December 31, 2009
|
-
|
$
|
-
|
2,000,000
|
$
|
2,000
|
82,224,504
|
$
|
82,225
|
$
|
9,319,073
|
$
|
(1,084,467
|
)
|
$
|
8,318,831
|
|||||||||||||||||||
|
See
accompanying notes to the consolidated financial
statements
|
|||||||||||||||||||||||||||||||||||
F-6
|
The
Mint Leasing, Inc.
|
Consolidated
Statements of Cash Flows
For
the Years Ended December 31, 2009 and 2008
|
2009
|
2008
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Net
income (loss)
|
$
|
(4,019,828
|
)
|
$
|
2,531,124
|
|||
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
||||||||
|
Depreciation
|
33,353
|
22,570
|
||||||
|
Change
in allowance for doubtful accounts
|
628,661
|
631,823
|
||||||
|
Share
based compensation
|
63,600
|
57,644
|
||||||
|
Imputed
interest
|
38,088
|
32,658
|
||||||
|
Deferred
income taxes
|
(2,183,947
|
)
|
1,447,327
|
|||||
|
Change
in operating assets and liabilities:
|
||||||||
|
Net
investment in sales-type leases
|
8,322,613
|
(16,452,433
|
)
|
|||||
|
Inventory
|
89,260
|
(179,583
|
)
|
|||||
|
Prepaid
expenses and other assets
|
(19,130
|
)
|
274,658
|
|||||
|
Accounts
payable and accrued expenses
|
754,526
|
(640,619
|
||||||
|
Net
Cash provided by (used in) Operating Activities
|
3,707,196
|
(12,274,831
|
)
|
|||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Purchase
of property, plant and equipment
|
(15,977
|
)
|
(13,769
|
)
|
||||
|
Net
Cash used in Investing Activities
|
(15,977
|
)
|
(13,769
|
)
|
||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Payments
on Credit Facilities
|
(5,214,923
|
)
|
-
|
|||||
|
Proceeds
from Credit Facilities
|
1,679,319
|
13,033,164
|
||||||
|
J Proceeds
from Notes to Related Parties
|
195,000
|
-
|
||||||
|
Distribution
to shareholders
|
-
|
(415,767
|
)
|
|||||
|
Net
Cash provided by (used in) Financing Activities
|
(3,340,604
|
)
|
12,617,397
|
|||||
|
INCREASE
IN CASH and CASH EQUIVALENTS
|
350,615
|
328,797
|
||||||
|
CASH
and CASH EQUIVALENTS, AT BEGINNING OF PERIOD
|
880,979
|
552,182
|
||||||
|
C CASH
and CASH EQUIVALENTS, AT END OF PERIOD
|
$
|
1,231,594
|
$
|
880,979
|
||||
|
Supplemental
disclosure of cash flow information
|
||||||||
|
Cash
paid for interest
|
$
|
1,858,927
|
$
|
2,016,715
|
||||
|
Cash
paid for taxes
|
$
|
-
|
$
|
-
|
||||
See
accompanying notes to the consolidated financial statements
F-7
NOTE
1 – ORGANIZATION AND NATURE OF BUSINESS ACTIVITY
A.
Organization
The Mint
Leasing, Inc. (“Mint” or the “Company") was incorporated on May 19, 1999, in the
State of Texas and commenced operations on that date.
Effective
July 18, 2008, The Mint Leasing, Inc., a Texas corporation (“Mint Texas”), a
privately held company, completed the Plan and Agreement of Merger between
itself and The Mint Leasing, Inc. (formerly Legacy Communications Corporation)
(“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
described herein, 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. 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 and
Mint Texas is a wholly-owned subsidiary of Mint Nevada. 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.
Upon
completion of the July 18, 2008 transaction with Mint Nevada, Mint Texas ceased
to be treated as an "S" Corporation for Income Tax purposes In
accordance with accounting guidance issued by the staff of the Securities and
Exchange Commission (the “SEC”), the Company had included in its financial
statements all of its undistributed earnings on that date as additional paid in
capital. This is to assume constructive distribution to owners followed by a
contribution to the capital of the Company.
B. Description
of Business
Mint 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. Lease transactions are solicited and administered
by the Company’s sales force and staff. Mint’s customers are comprised of
brand-name automobile dealers that seek to provide leasing options to their
customers and individuals, many of whom would otherwise not have the opportunity
to acquire a new or late-model-year vehicle.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of
Consolidation
The
consolidated financial statements of the Company include the accounts of The
Mint Leasing, Inc. and all of its subsidiaries. Inter-company
accounts and transactions are eliminated in consolidation.
B. Use
of Estimates
The
preparation of 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 of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates. Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance for doubtful
accounts and the estimated unguaranteed residual values on the lease receivable
contracts.
Although
Mint attempts to mitigate credit risk through the use of a variety of commercial
credit reporting agencies when processing customer applications, failure of the
customers to make scheduled payments under their automobile lease contracts
could have a material impact on the allowance for doubtful
accounts.
Realization
of unguaranteed residual values depends on many factors, several of which are
not within the Company's control, including general market conditions at the
time of the original lease contract's expiration, whether there has been unusual
wear and tear on, or use of, the vehicle, the cost of comparable new vehicles
and the extent, if any, to which the vehicle has become technologically or
economically obsolete during the lease contract term. These factors, among
others, could have a material impact on the estimated unguaranteed residual
values.
F-8
C. Revenue
recognition
The
Company’s customers typically finance vehicles over periods ranging from three
to nine years. These financing agreements are classified as operating
leases or sales-type leases as prescribed by the Financial Accounting Standards
Board (the “FASB”) guidance for accounting for leases. Revenues
representing the capitalized costs of the vehicles are recognized as income upon
inception of the leases. The portion of revenues representing the difference
between the gross investment in the lease (the sum of the minimum lease payments
and the guaranteed residual value) and the sum of the present value of the two
components is recorded as unearned income and amortized over the lease
term.
For the
years ended December 31, 2009 and 2008, amortization of unearned income totaled
$5,969,971 and $6,250,693, respectively.
Taxes
assessed by governmental authorities that are directly imposed on
revenue-producing transactions between the Company and its customers (which may
include, but are not limited to, sales, use, value added and some excise taxes)
are excluded from revenues.
Lessees
are responsible for all taxes, insurance and maintenance costs.
D. Cost
of Revenues
Cost of
Revenues comprises the vehicle acquisition costs for the vehicles to be leased
to the Company’s customers, the costs associated with servicing the leasing
portfolio and the direct costs of non-performing leases. Portfolio
servicing costs include direct wages, bank service fees, and premises
costs. Cost of revenues include the following:
|
Description
|
2009
|
2008
|
||||||
|
Portfolio
servicing costs
|
$
|
3,197,935
|
$
|
2,515,493
|
||||
|
Purchase
and delivery of the vehicle to the lessee
|
2,335,743
|
21,530,367
|
||||||
|
Non-performing
leases
|
12,380,160
|
10,434,778
|
||||||
|
Total
|
$
|
17,913,838
|
$
|
34,480,638
|
||||
E. Cash and Cash
Equivalents
Investments
in highly liquid securities with original maturities of 90 days or less are
considered cash equivalents and are included in cash and cash equivalents in the
accompanying balance sheets.
At
December 31, 2009 and 2008, the Company had deposits of $0 and $605,210,
respectively, which exceeds FDIC insurance coverage limits.
F.
Concentrations of Credit Risk
Financial
instruments which potentially subject us to concentrations of credit risk are
primarily cash equivalents and finance receivables. Our cash equivalents are
placed through various major financial institutions. Finance
receivables represent contracts with consumers residing throughout the United
States, with borrowers located in Texas, Arkansas, Mississippi, Alabama,
Georgia, Tennessee and Florida. No other state accounted for more than 10% of
managed finance receivables.
F-9
G. Allowance
for Loan Losses
Provisions
for losses on investments in sales-type leases are charged to cost of revenues
in amounts sufficient to maintain the allowance for losses at a level considered
adequate to cover probable credit losses inherent in our receivables related to
sales-type leases. The Company establishes the allowance for losses
based on the determination of the amount of probable credit losses inherent in
the financed receivables as of the reporting date. The Company
reviews charge-off experience factors, delinquency reports, historical
collection rates, estimates of the value of the underlying collateral, economic
trends, and other information in order to make the necessary judgments as to
probable credit losses. Assumptions regarding probable credit losses
are reviewed periodically and may be impacted by actual performance of financed
receivables and changes in any of the factors discussed above.
H. Charge-off
Policy
The
Company charges off accounts when the automobile is repossessed or voluntarily
returned by the customer and legally available for disposition. The charge-off
amount generally represents the difference between the net outstanding
investment in the sales-type lease and the fair market value of the vehicle
returned to inventory. The charge-off amount is included in cost of revenues on
the accompanying statement of operations. Accounts in repossession that have
been charged off have been removed from finance receivables and the related
repossessed automobiles are included in Vehicle Inventory on the consolidated
balance sheet pending sale.
I. Vehicle
Inventory
Vehicle
Inventory includes repossessed automobiles, as well as vehicles turned in at the
conclusion of the lease. Inventory of vehicles is stated at the lower
of cost determined using the specific identification method, and market,
determined by net proceeds from sale or the NADA book value.
J. Property
and Equipment
Property
and equipment are recorded at cost less accumulated depreciation. Depreciation
and amortization on property and equipment are determined using the
straight-line method over the three to five year estimated useful lives of the
assets.
Expenditures
for additions, major renewal and betterments are capitalized, and expenditures
for maintenance and repairs are charged against income as incurred. When
property and equipment are retired or otherwise disposed of, the related cost
and accumulated depreciation are removed from the accounts, and any resulting
gain or loss is reflected in income.
K.
Stock-based Compensation
The
Company accounts for stock-based compensation using the modified prospective
application method in accordance with accounting guidance issued by the FASB.
This method provides for the recognition of the fair value with respect to
share-based compensation for shares subscribed for or granted on or after
January 1, 2006, and all previously granted but unvested awards as of
January 1, 2006. The cost is recognized over the period during which an
employee is required to provide service in exchange for the
options.
L.
Advertising
Advertising
costs are charged to operations when incurred. Advertising costs for the years
ended December 31, 2009 and 2008 totaled $33,353 and $25,631,
respectively.
M. Income
Taxes
Prior to
July 18, 2008, the Company’s financial statements do not include a provision for
Income Taxes because the taxable income of Mint is included in the Income Tax
Returns of the stockholders under the Internal Revenue Service "S" Corporation
elections. As an “S” Corporation the Company was eligible to and did
so elect to be taxed on a cash basis under the provisions of the Internal
Revenue Service.
F-10
Upon
completion of the July 18, 2008 transaction with Legacy as more fully described
in Note 1, Mint ceased to be treated as an "S" Corporation for Income Tax
purposes, resulting in (1) the imposition of income tax at the corporate level
instead of the shareholder level and (2) the inability to continue to elect to
be taxed on a cash basis.
Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
We
adopted the provisions of the FASB’s guidance related to accounting for
uncertainty as to income tax positions on January 1, 2008. As of December
31, 2009 and 2008, we had no liabilities, included on the consolidated balance
sheets, associated with uncertain tax positions.
N.
Earnings per Common and Common Equivalent Share
The
computation of basic earnings per common share is computed using the weighted
average number of common shares outstanding during the year. The computation of
diluted earnings per common share is based on the weighted average number of
shares outstanding during the year plus common stock equivalents which would
arise from their exercise using the treasury stock method and the average market
price per share during the year. At December 31, 2009 and 2008, we
have common stock equivalents as follows:
|
2009
|
2008
|
|||||||
|
Stock
options
|
2,100,000 | 2,008,197 | ||||||
|
Convertible
Preferred Stock
|
20,000,000 | 20,000,000 | ||||||
|
Warrants
|
300,000 | 2,100,000 | ||||||
|
Total
|
22,400,000 | 24,108,197 | ||||||
O.
Preferred Stock Rights and Privileges
We have a
total of 20,000,000 shares of preferred stock (the “Preferred Stock”)
authorized. The rights and privileges of the Preferred Stock are
detailed as follows:
Series A Convertible
Preferred Stock
As of
December 31, 2009, we had 185,000 shares of Series A Convertible Preferred Stock
designated and 0 shares issued and outstanding.
The
Company’s Series A Convertible Preferred Stock shares (the “Series A Stock”)
allow the holder to vote a number of voting shares equal to two hundred shares
for each share of Series A Stock held by such Series A Stock
shareholder. The Series A Stock has a liquidation preference over the
shares of common stock issued and outstanding equal to the stated value of such
shares, $1.00 per share multiplied by 12.5%. The Series A Stock is
convertible at the option of the holder into 200 shares of common stock for each
share of Series A Stock issued and outstanding, provided that no conversion
shall be allowed if the holder of such Series A Stock would own more than 4.99%
of the Company’s common stock upon conversion.
No
amendment to the Company’s Series A Stock shall be made while such Series A
Stock is issued and outstanding to amend, alter or repeal the Articles of
Incorporation or Bylaws of the Company to adversely effect the rights of the
Series A Stock holders; authorize or issue any additional shares of preferred
stock; or effect any reclassification of the Series A Stock unless a majority of
the outstanding Series A Stock vote to approve such modification or
amendment.
F-11
Series B Convertible
Preferred Stock
As of
December 31, 2009, we had 2,000,000 shares of Series B Convertible Preferred
Stock designated, authorized, issued and outstanding. The Series B Convertible
Preferred Stock is non-redeemable and the dividend is
non-cumulative.
Each
share of Series B Convertible Preferred Stock shall be convertible into shares
of common stock of the Company, par value $0.001 per share. Each
share of Preferred Stock shall be convertible into fully paid and non-assessable
shares of Common Stock at the rate of 10 shares of Common Stock for each full
share of Preferred Stock.
Each
holder of Series B Convertible Preferred Stock has the number of votes equal to
the number of votes of all outstanding shares of capital stock plus one
additional vote such that the holders of a majority of the outstanding shares of
Series B Preferred Stock shall always constitute a majority of the voting rights
for the Company.
Upon
liquidation, dissolution or winding up of the Company, holders of Series B
Convertible Preferred Stock shall have liquidation preference over all of
the Company’s Preferred and Common Stock as to asset distribution.
P.
Effect of New Accounting Pronouncements
In
September 2008, the FASB issued provisions regarding the accounting associated
with instruments which are indexed to an entity’s own stock. These provisions
trigger liability accounting on all options and warrants exercisable at strike
prices denominated in any currency other than the Company’s functional currency
or warrants with certain reset provisions to the strike price because of a
“down-round” financing. The provisions are effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. Early application is not permitted. We adopted these
provisions on January 1, 2009 and analyzed all of the outstanding
options and none contained down-round reset exercise price provisions
which would have precluded equity treatment. Therefore, the adoption
did not have a material impact on our financial position, results of operations
or cash flows. In April 2009, the FASB issued additional guidance for accounting
for assets acquired and liabilities assumed in a business combination that arise
from contingencies. This provision amends and clarifies earlier guidance on
business combinations to address application issues raised by preparers,
auditors, and members of the legal profession on initial recognition and
measurement, subsequent measurement and accounting, and disclosure of assets and
liabilities arising from contingencies in a business combination.
This provision is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company has not made any acquisitions that would require
such disclosure during the first quarter of 2010.
In
April 2009, the FASB issued additional guidance for determining fair value
of a financial asset. This provision clarified the application of
earlier guidance related to determining fair value of financial assets by
providing additional guidance for estimating fair value when the volume and
level of activity for the asset or liability have significantly decreased. These
provisions also include guidance on identifying circumstances that indicate a
transaction is not orderly. This guidance is effective for interim and annual
reporting periods ending after June 15, 2009, and shall be applied
prospectively. This guidance does not require disclosures for earlier periods
presented for comparative purposes at initial adoption. In periods after initial
adoption, these provisions require comparative disclosures only for periods
ending after initial adoption. Revisions resulting from a change in valuation
technique or its application shall be accounted for as a change in accounting
estimate in accordance with FASB provisions. In the period of adoption, a
reporting entity shall disclose a change, if any, in valuation technique and
related inputs resulting from the application of this provision, and quantify
the total effect of the change in valuation technique and related inputs, if
practicable, by major category. This pronouncement did not have a
material impact on our results of operations or financial position.
In
April 2009, the FASB Staff issued guidance on interim disclosures about
fair value of financial instruments. This provision amends earlier
guidance to require disclosures about fair value of financial instruments for
interim reporting periods of publicly traded companies as well as in annual
financial statements and disclosures in summarized financial information at
interim reporting periods. This provision does not require disclosures for
earlier periods presented for comparative purposes at initial adoption. In
periods after initial adoption, this guidance requires comparative disclosures
only for periods ending after initial adoption. This pronouncement did
not have a material impact on our results of operations or financial
position.
F-12
We
adopted the provisions issued by the FASB on January 1, 2008 related to fair
value measurements. This provision defines fair value, establishes a framework
for measuring fair value and expands disclosure of fair value
measurement. This guidance applies under other accounting
pronouncements that require or permit fair value measurements and accordingly,
does not require any new fair value measurements. The guidance clarifies that
fair value is an exit price, representing the amount that would be received to
sell an asset or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a market-based measurement
that should be determined based on assumptions that market participants would
use in pricing an asset or liability. As a basis for considering such
assumptions, the provisions established a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value as follows:
|
·
|
Level
1. Observable inputs such as quoted prices in active
markets;
|
|
·
|
Level
2. Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly;
and
|
|
·
|
Level
3. Unobservable inputs in which there is little or no market data, which
require the reporting entity to develop its own assumptions.
|
The
following table presents assets that are measured and recognized at fair value
on a non-recurring basis at December 31, 2009:
|
Total
|
|||||||||||
|
Gains
|
|||||||||||
|
Description
|
Level
1
|
Level
2
|
Level
3
|
(Losses)
|
|||||||
|
Cash
and cash equivalents
|
$
|
$
|
1,231,594
|
$
|
-
|
$
|
-
|
||||
|
Investment
in sales-type leases – net
|
36,681,689
|
-
|
|||||||||
|
Credit
facilities
|
29,464,396
|
-
|
-
|
||||||||
|
Notes
payable to shareholders
|
630,300
|
-
|
-
|
||||||||
The
FASB’s guidance became effective for us on January 1, 2008 and establishes a
fair value option that permits entities to choose to measure eligible financial
instruments and certain other items at fair value at specified election dates. A
business entity shall report unrealized gains and losses on items for which the
fair value options have been elected in earnings at each subsequent reporting
date. For the year ended December 31, 2009, there were no applicable items on
which the fair value option was elected. This FASB provision may impact our
consolidated financial statements in the future.
|
NOTE
3 - CUMULATIVE EFFECT ADJUSTMENT UPON ADOPTION OF STAFF ACCOUNTING
BULLETIN 108 (“SAB 108”)
|
The
Company applied the provisions of SAB 108 using the cumulative effect transition
method in connection with the preparation of its interim financial statements
for the year ended December 31, 2008. The application of SAB 108 resulted in net
change of $4,812,471 in Investment in Sales-Type Leases.
The
Company’s SAB 108 adjustments relate to the valuation of the collectability of
Sales-Type Leases. Based on its approach for assessing misstatements prior to
the adoption of SAB 108, it had previously concluded that these amounts were
immaterial under the income statement approach.
F-13
NOTE
4 - NET INVESTMENT IN SALES-TYPE LEASES
The
Company’s leasing operations consist principally of leasing vehicles under
sales-type leases expiring in various years to 2014. Following is a summary of
the components of the Company’s net investment in sales-type leases at December
31, 2009 and 2008:
|
2009
|
2008
|
|||||||
|
Total
Minimum Lease Payments to be Received
|
$
|
37,112,817
|
$
|
51,599,716
|
||||
|
Residual
Values
|
11,843,408
|
9,660,780
|
||||||
|
Lease
Carrying Value
|
48,956,225
|
61,260,496
|
||||||
|
Less:
Allowance for Uncollectible Amounts
|
(1,260,484
|
)
|
(631,823
|
)
|
||||
|
Less:
Unearned Income
|
(11,014,052
|
)
|
(14,995,710
|
)
|
||||
|
Net
Investment in Sales-Type Leases
|
$
|
36,681,689
|
$
|
45,632,963
|
||||
Note
5 – EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Cost and
accumulated depreciation of equipment and leasehold improvements as of December
31, 2009 and 2008 are as follows:
|
2009
|
2008
|
|||||||
|
Leasehold
Improvements
|
$
|
5,980
|
$
|
5,980
|
||||
|
Furniture
and Fixtures
|
97,981
|
97,981
|
||||||
|
Computer
and Office Equipment
|
179,572
|
161,199
|
||||||
|
283,533
|
265,160
|
|||||||
|
Less:
Accumulated Depreciation
|
(179,593
|
)
|
(143,844
|
)
|
||||
|
Net
Property and Equipment
|
$
|
103,940
|
$
|
121,316
|
||||
Depreciation
expense charged to operations was $33,353 and $22,570 for the years ended
December 31, 2009 and 2008, respectively.
NOTE
6 – CREDIT FACILITIES
Effective
August 3, 2009, the Company entered into a secured $10,000,000 revolving credit
agreement (the “Revolver”) with Moody National Bank (“Moody” and “Moody 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 personal 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; which the Company did not meet. At December 31, 2009, the availability
under the $10,000,000 Revolver was limited to $2,500,000. The outstanding
balance at December 31, 2009 was $1,679,319. The Revolver matured on December
31, 2009 and was renewed for an additional 60 days at which time an additional
$820,681 was advanced to the Company. On February 28, 2010, the Company executed
a second renewal, extension and modification of the Revolver (the “Amended Moody
Revolver”). The Amended Moody Revolver extends the maturity date of
the facility to March 1, 2011, reduces the amount available under the facility
to $2,500,000, fixes the interest rate on the facility at 6.5%, and provides for
11 monthly payments of principle and interest of $37,817, with the remaining
balance due at maturity.
In addition, effective October 5, 2009, the Company renewed the $33,000,000 revolving credit facility with another bank that matured on October 2, 2009 into a secured note payable (the “Note Payable”) for a twelve (12) month period. The Note Payable bears interest at the prime rate plus 2% with a floor of 6%. The Note Payable is secured by vehicles; accounts receivable associated with leased vehicles; assignment of life insurance policies on Jerry Parish and Victor Garcia, and the personal 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 and 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 December 31, 2009, the outstanding balance on the Note Payable was $27,785,077.
F-14
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.
NOTE
7 – TRANSACTIONS WITH AN AFFILIATE
During
May 2008, the Company leased 40 vehicles to Mint Car and Truck Rentals, LLC.
(“Rentals”) a limited liability partnership controlled by the Company’s majority
shareholder. Since the Company was the source of virtually all of Rentals
inventory available for rental, the Company had a decisive influence over
Rentals’ profitability. The Company concluded that, as a result of its common
ownership, and because substantially all of the activities of Rentals either
involved or were conducted on vehicles provided by the Company, Rentals was a
variable interest entity. Accordingly, the Company considered itself to be the
primary beneficiary of Rentals, and in accordance with FASB guidance included
Rentals’ financial results in its consolidated financial statements through
December 31, 2008.
The
Company had leased forty vehicles to Rentals during the year ended December 31,
2008. The Company terminated the leases and the vehicles were repurchased by the
dealer from whom the Company originally purchased them. At December
31, 2008, the net investment in sales-type leases disclosed on the balance sheet
was $0. The Company did not enter into any transactions with Rentals during
2009.
For the
year ended December 31, 2008, the net revenue from these leases totaled $294,442
as follows:
|
Revenue
from sales-type leases
|
$
|
1,664,612
|
||
|
Less:
Cancelled lease expense
|
(1,370,170
|
)
|
||
|
Revenue
from sales-type lease, net of canceled lease expenses
|
$
|
294,442
|
NOTE
8 – FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB
guidance regarding fair value measurements requires disclosure of fair value
information about financial instruments, whether recognized or not in our
consolidated balance sheet. Fair values are based on estimates using present
value or other valuation techniques in cases where quoted market prices are not
available. Those techniques are significantly affected by the assumptions used,
including the discount rate and the estimated timing and amount of future cash
flows. Therefore, the estimates of fair value may differ substantially from
amounts that ultimately may be realized or paid at settlement or maturity of the
financial instruments and those differences may be material. The FASB provision
excludes certain financial instruments and all non-financial instruments from
the Company’s disclosure requirements. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the
Company.
F-15
Estimated
fair values, carrying values and various methods and assumptions used in valuing
our financial instruments as of December 31, 2009 are set forth
below:
|
December
31, 2009
|
|||||||||
|
Carrying
Value
|
Estimated
Fair Value
|
||||||||
|
Financial
assets:
|
|||||||||
|
Cash
and cash equivalents
|
(a)
|
$
|
1,231,594
|
$
|
1,231,594
|
||||
|
Investment
in sales-type leases – net
|
(b)
|
36,681,689
|
36,681,689
|
||||||
|
Financial
liabilities:
|
|||||||||
|
Credit
facilities
|
(c)
|
$
|
29,464,396
|
$
|
29,464,396
|
||||
|
Notes
payable to shareholders
|
(d)
|
630,300
|
630,300
|
||||||
|
(a)
|
The
carrying value of cash and cash equivalents is considered to be a
reasonable estimate of fair value since these investments bear interest at
market rates and have maturities of less than 90 days. This valuation is a
type 1 indicator.
|
|
(b)
|
The
fair value of finance receivables is estimated by discounting future cash
flows expected to be collected using current rates at which similar loans
would be made to borrowers with similar credit ratings and the same
remaining maturities. This valuation is a type 3
indicator.
|
|
(c)
|
Credit
facilities have variable rates of interest and maturities of one year or
less. Therefore, carrying value is considered to be a reasonable estimate
of fair value. This valuation is a type 1
indicator.
|
|
(d)
|
The
fair value of Shareholder notes payable is estimated based on rates
currently available for debt with similar terms and remaining maturities.
This valuation is a type 1
indicator.
|
NOTE
9 -RELATED PARTY TRANSACTIONS
Under an
informal arrangement, consulting fees totaling $306,800 and $274,400 were paid
to a shareholder for services rendered during the years ended December 31, 2009
and 2008, respectively. The Company leased office space from a partnership,
which is owned by the Company’s two majority shareholders, pursuant to a lease
which expired on August 31, 2008, at the rate of $10,000 per month. The lease
was subsequently renewed to July 31, 2011, which included an adjacent property
at the rate of $20,000 per month. We believe these rental rates are consistent
with rental rates for similar properties in the Houston, Texas real estate
market. Rent expense under the lease amounted to $240,000 and
$170,000 for the years ended December 31, 2009 and 2008,
respectively.
The
Company has notes payable to Jerry Parish, Victor Garcia, and a partnership
which is owned by the Company’s two majority shareholders (Mr. Parish and Mr.
Garcia) through its wholly-owned subsidiary, Mint Texas. The amounts outstanding
as of December 31, 2009 and December 31, 2008 were $630,300 and $435,300,
respectively. These notes payable are non-interest bearing and due
upon demand. The Company imputed interest on these notes payable at a
rate of 8.75% per year. Interest expense of $38,088 and $32,658 was
recorded as contributed capital for the years ended December 31, 2009 and 2008,
respectively.
NOTE
10 – CAPITAL STOCK TRANSACTIONS
On July
18, 2008, the Company entered into the following simultaneous
transactions:
|
·
|
Declaration
of a 1:20 reverse stock split (the “Reverse Stock Split”) of the Company’s
Common Stock, $.001 par value per share, outstanding as of July 16, 2008
(the “Pre-Combination Common
Stock”);
|
|
·
|
Amendment
and Restatement of the Company’s Articles of Incorporation to increase the
authorized capital of the Company to 500,000,000 shares, $.001 par value
per share, of which 480,000,000 are Common Stock, $.001 par value per
share (the “Post-Combination Common Stock”), and 20,000,000 are Preferred
Stock, $.001 par value per share;
|
|
·
|
Cancellation
of 185,000 shares of the Company’s Series A Redeemable Preferred Stock,
$.001 par value per share (the “Series A Preferred Stock”) which had been
previously issued in a private placement pursuant to a Stock Purchase
Agreement (the “Stock Purchase Agreement”) for an aggregate purchase price
of $185,000;
|
F-16
|
·
|
Amendment
of the Company’s Amended and Restated Articles of Incorporation to change
the name of the Company from Legacy Communications Corporation to The Mint
Leasing, Inc.;
|
|
·
|
Adoption
of a Certificate of Designations for the Company’s Series
B Preferred Stock, $.001 par value per share (the “Series B
Preferred Stock”) having voting rights equal to the voting rights of all
other shares of voting stock plus one
vote;
|
|
·
|
Acquisition
of all of the outstanding shares of The Mint Leasing, Inc., a Texas
corporation (“Mint Texas”), from private stockholders in exchange for
70,650,000 shares of Post-Combination Common Stock and 2,000,000 shares of
Series B Convertible Preferred Stock, $.001 par value per share (the
“Series B Preferred Stock”) pursuant to the terms of an Agreement and Plan
of Reorganization (the “Reorganization Agreement”);
and
|
|
·
|
Exchange
11,279,504 net shares of the Company’s Pre-Combination Common Stock owned
by E. Morgan Skinner, Jr., Lavon Randall, Jeffrey B. Bate, R. Michael
Bull, and trusts which they control (the “Major Stockholders”) for all of
the issued and outstanding shares of Legacy Media Corporation pursuant to
the terms of a Trust Receipt, Irrevocable Instruction and Irrevocable
Proxy (the “Trust Receipt”).
|
In May
2009, 5,000 shares of the Company's common stock were cancelled by an entity
associated with a former officer and director of the Company, who resigned as of
the effective date of the Reorganization Agreement.
In
December 2009, the Company issued 300,000 shares of common stock to two
employees. In accordance with accounting guidance issued by the FASB,
the Company recorded $51,000 of compensation expense which is reflected in the
2009 operating results of the Company.
NOTE
11 –OPTIONS AND WARRANTS
In July 2008, the Company granted
options to purchase 2,000,000 common shares of stock to the selling stockholder
who was elected Director, President and CEO of Mint Nevada. The exercise price
of the options is $3.00 per share and such options expire ten years after the
grant date. One third of the options may be exercised respectively on the first,
second and third anniversary of the grant date. The Company recorded the
transaction as part of its recapitalization.
In July
2008, the Company also granted warrants to purchase 2,100,000 common shares at
prices of $0.10, $0.50, $1.00, $1.50 and $2.00 per share to two consultants in
connection with consulting agreements executed with Mint Texas as of June 1,
2007 and assumed by Mint Nevada on the closing date. The Company recorded the
transaction as part of its recapitalization. The warrants to purchase 2,100,000
shares were cancelled by the holders on September 30, 2009 as discussed
below. In December 2008, the Company granted options to purchase
100,000 common shares of stock at an exercise price of $1.01 per share, to a
consultant for services and recorded compensation cost of $57,644.
On or
around July 17, 2009, we entered into a letter agreement (the “Letter
Agreement”) to confirm certain terms of our Engagement Agreement with a
placement agent. Pursuant to the Letter Agreement, the agent agreed to waive any
rights to any consideration pursuant to the Engagement Agreement in connection
with funding by certain financial institutions in consideration for the grant by
us of warrants to purchase 300,000 shares of our common stock at an exercise
price of $0.50 per share, which warrants have a term of 5 years, include a
cashless exercise provision and piggy-back registration rights, which warrants
were subsequently granted. The Company recorded $12,600 of consulting
expense in the third quarter of 2009 and a similar amount of additional
paid-in-capital. The $12,600 of consulting expense was calculated as
the fair market value of the warrants using the Black-Scholes option-pricing
model. The significant variables used in the calculation were; stock
price of $0.17/share; $0.50/share exercise price of warrant; volatility of 88%;
time to expiration of 1,750 days; and risk free interest rate of
2.31%.
On
September 30, 2009, the Company and Mr. Parish and Victor Garcia, a Director of
the Company, entered into a Mutual Release and Termination Agreement with third
parties who were the holders of 8,278,872 shares of the Company’s common stock
and warrants to purchase an additional 2,100,000 common shares at prices ranging
from $0.10 to $2.00 per share. Messers. Parish and Garcia paid
$250,000 in cash and Mr. Parish delivered 125,000 shares of Arrayit Corporation
to the third parties for the 8,278,872 shares of the Company’s common stock, of
which 4,239,436 shares were issued to Mr. Parish and 4,239,436 shares were
issued to Mr. Garcia. The third parties also agreed to cancel the warrants to
purchase the 2,100,000 shares of the Company’s common stock.
F-17
A summary
of activity under the Employee Stock Plans for the years ended December 31, 2009
and 2008 is presented below:
|
Weighted
Average
Exercise Price
|
|||||
|
Outstanding
– December 31, 2007
|
-
|
$
|
-
|
||
|
Granted
|
2,100,000
|
$
|
2.91
|
||
|
Exercised
|
-
|
$
|
-
|
||
|
Forfeited
or Expired
|
-
|
$
|
-
|
||
|
Distributed
|
-
|
$
|
-
|
||
|
Outstanding
– December 31, 2008
|
2,100,000
|
$
|
2.91
|
||
|
Granted
|
300,000
|
$
|
0.50
|
||
|
Exercised
|
-
|
$
|
-
|
||
|
Forfeited
or Expired
|
-
|
$
|
-
|
||
|
Distributed
|
-
|
$
|
-
|
||
|
Outstanding
– December 31, 2009
|
2,400,000
|
$
|
2.61
|
||
|
Exercisable
– December 31, 2009
|
966,667
|
$
|
2.22
|
||
The
following table summarizes information about outstanding
warrants at December 31, 2009 and
2008:
|
Year
Issued
|
Number
Outstanding
|
Remaining
Contractual Life in Years
|
Weighted
Average Exercise Price
|
|
2008
|
2,100,000
|
2.42
|
$0.82
|
|
2009
|
300,000
|
4.50
|
$0.50
|
NOTE
12 – COMMITMENTS AND CONTINGENCIES
Leases
The
Company leases office space from its President and majority shareholder, a
related party, pursuant to a lease which expired on August 31, 2008 at the rate
of $10,000 per month. The lease was renewed to July 31, 2011 at the rate of
$20,000 per month. Rent expense related to this operating lease
totaled $240,000 and $170,000 for the years ended December 31, 2009 and 2008,
respectively.
Operating
lease commitments for the years ending December 31 are as follows:
|
2010
|
$
|
240,000
|
||
|
2011
|
140,000
|
|||
|
2012
|
-
|
|||
|
2013
|
-
|
|||
|
2014
|
-
|
|||
|
Thereafter
|
-
|
|||
|
$
|
380,000
|
|||
F-18
Legal
Proceedings
As a
consumer finance company, we are subject to various consumer claims and
litigation seeking damages and statutory penalties, based upon, among other
things, usury, disclosure inaccuracies, wrongful repossession, violations of
bankruptcy stay provisions, certificate of title disputes, fraud, breach of
contract and discriminatory treatment of credit applicants. Some litigation
against us could take the form of class action complaints by consumers and/or
shareholders. As the assignee of finance contracts originated by dealers, we may
also be named as a co-defendant in lawsuits filed by consumers principally
against dealers. The damages and penalties claimed by consumers in these types
of matters can be substantial. The relief requested by the plaintiffs varies but
can include requests for compensatory, statutory and punitive damages. We
believe that we have taken prudent steps to address and mitigate the litigation
risks associated with our business activities. In the opinion of management, the
ultimate aggregate liability, if any, arising out of any such pending or
threatened litigation will not be material to our consolidated financial
position or our results of operations and cash flows.
NOTE
13 – INCOME TAXES
Deferred
tax assets and liabilities are recorded based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Mint Leasing calculates a provision for income taxes using the asset and
liability method, under which deferred tax assets and liabilities are recognized
by identifying the temporary differences arising from the different treatment of
items for tax and accounting purposes.
The
income tax provision (benefit) for the years ended December 31, 2009 and
December 31, 2008 consists of the following:
|
2009
|
2008
|
|||||||
|
Current
income tax expense (benefit)
|
$ | - | $ | 28,837 | ||||
|
Deferred
income tax expense (benefit)
|
(2,183,947 | ) | 1,447,327 | |||||
|
Total
income tax provision
|
$ | (2,183,947 | ) | $ | 1,476,164 | |||
Significant
components of our deferred tax assets and liabilities at December 31, 2009
and 2008 are as follows:
|
2009
|
2008
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
NOL
carry-forwards
|
$ | 2,358,480 | $ | 295,221 | ||||
|
Accrued
expenses
|
294,169 | 221,138 | ||||||
|
Property
|
1,235 | 380 | ||||||
|
Other
|
7,452 | 7,452 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Accounts
Receivable
|
(1,924,716 | ) | (1,955,584 | ) | ||||
|
Other
|
- | (15,934 | ) | |||||
|
Net
deferred tax (liabilities) assets
|
$ | 736,620 | $ | (1,447,327 | ) | |||
F-19
The total
income tax provision recognized by the Company for the years ended December 31,
2009 and December 31, 2008, reconciled to that computed under the federal
statutory corporate rate, is as follows:
|
2009
|
2008
|
|||||||
|
Tax
provision (benefit) at federal statutory rate
|
$ | (2,169,841 | ) | $ | 1,392,421 | |||
|
State
income taxes — net of federal
|
(15,934 | ) | 53,979 | |||||
|
Valuation
allowance
|
- | - | ||||||
|
Other
|
1,828 | 927 | ||||||
|
Income
tax provision (benefit)
|
$ | (2,183,947 | ) | $ | 1,447,327 | |||
The
Company adopted accounting guidance issued by the FASB related to accounting for
uncertainty as it relates to income taxes. These provisions became effective
January 1, 2008 and provide that a tax benefit from an uncertain tax position
may be recognized in the financial statements only when it is more likely than
not that the position will be sustained upon examination, including resolution
of any related appeals or litigation processes, based on the technical merits
and a consideration of the relevant taxing authority’s widely understood
administrative practices and precedents. Once the recognition threshold is met,
the portion of the tax benefit that is recorded represents the largest amount of
tax benefit that is greater than 50 percent likely to be realized upon
settlement with a taxing authority. The adoption of this guidance did not have a
material impact on Mint's consolidated financial statements.
NOTE
15 – SUBSEQUENT EVENTS
On
February 28, 2010, the Company executed the Amended Moody Revolver which
extended the maturity date of the facility to March 1, 2011, reduces the amount
available under the facility to $2,500,000, fixes the interest rate on the
facility at 6.5%, and provides for 11 monthly payments of principle and interest
of $37,817, with the remaining balance due at maturity. This transaction is
discussed in detail in Note 6 above.
No other
subsequent event occurred after the date of these financial statements and prior
to their issuance, which would require its disclosure in these financial
statements.
F-20
ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Effective
May 5, 2009, the client auditor relationship between the Company and HJ &
Associates, LLC, of Salt Lake City, Utah ("HJ") was terminated as HJ was
dismissed by the Company. The Company appreciated working with HJ,
but believed it would be more efficient to change to an auditing firm located
closer to the Company’s principal operations in Houston,
Texas. Effective May 5, 2009, the Company engaged M&K CPAS, PLLC,
of Houston, Texas ("M&K") as its principal independent public accountant for
the fiscal year ended December 31, 2009. The decision to change accountants was
recommended, approved and ratified by the Company's Board of Directors effective
May 5, 2009.
HJ's
report on the financial statements of the Company for the fiscal years ended
December 31, 2008 and 2007, and any later interim period, including the interim
period up to and including the date the relationship with HJ ceased, did not
contain any adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles.
In
connection with the audit of the Company's fiscal years ended December 31, 2008
and December 31, 2007, and any later interim period, including the interim
period up to and including the date the relationship with HJ ceased, there were
no disagreements between HJ and the Company on a matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreement, if not resolved to the satisfaction of HJ would have caused
HJ to make reference to the subject matter of the disagreement in connection
with its report on the Company's financial statements.
There
have been no reportable events as provided in Item 304(a)(1)(iv) of Regulation
S-K during the Company's fiscal years ended December 31, 2008 and December 31,
2007, and any later interim period, including the interim period up to and
including the date the relationship with HJ ceased.
The
Company authorized HJ to respond fully to any inquiries of any new auditors
hired by the Company relating to their engagement as the Company's independent
accountant. The Company has requested that HJ review the disclosure and HJ has
been given an opportunity to furnish the Company with a letter addressed to the
Commission containing any new information, clarification of the Company's
expression of its views, or the respect in which it does not agree with the
statements made by the Company herein. Such letter is incorporated by reference
as an exhibit to this Report.
The
Company has not previously consulted with M&K regarding either (i) the
application of accounting principles to a specific completed or contemplated
transaction; (ii) the type of audit opinion that might be rendered on the
Company's financial statements; or (iii) a reportable event (as provided in Item
304(a)(1)(iv) of Regulation S-K) during the Company's fiscal years ended
December 31, 2008 and December 31, 2007, and any later interim period, including
the interim period up to and including the date the relationship with HJ ceased.
M&K has reviewed the disclosure required by Item 304(a) before it was filed
with the Commission and has been provided an opportunity to furnish the Company
with a letter addressed to the Commission containing any new information,
clarification of the Company's expression of its views, or the respects in which
it does not agree with the statements made by the Company in response to Item
304 (a). M&K did not furnish a letter to the
Commission.
ITEM 9A. CONTROLS AND
PROCEDURES
Management’s
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over our financial reporting. Internal control over financial reporting
is a process designed to provide reasonable assurance to our management and
board of directors regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
U.S. generally accepted accounting principles.
Our
internal control over financial reporting includes those policies and procedures
that
|
(i)
|
pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect our transactions;
|
|
|
(ii)
|
provide
reasonable assurance that transactions are recorded as necessary for
preparation of our financial
statements;
|
|
(iii)
|
provide
reasonable assurance that receipts and expenditures of Company assets are
made in accordance with management authorization; and
|
|
|
(iv)
|
provide
reasonable assurance that unauthorized acquisition, use or disposition of
Company assets that could have a material effect on our financial
statements would be prevented or detected on a timely
basis.
|
-20-
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because changes in conditions may occur or the degree of compliance
with the policies or procedures may deteriorate.
Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2009. This assessment is based on the criteria for
effective internal control described in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission. As of the date of our assessment we concluded our
internal controls over financial reporting were ineffective due to discovery of
material weaknesses.
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis. As a result of
management’s evaluation of our internal control over financial reporting,
management identified the following two material weaknesses in our internal
control over financial reporting:
|
·
|
Inadequate and ineffective
controls over the period-end financial reporting close process
- The controls were not adequately designed or operating
effectively to provide reasonable assurance that the financial statements
could be prepared in accordance with GAAP. Specifically, we did not have
sufficient personnel with an appropriate level of technical accounting
knowledge, experience and training to adequately review manual journal
entries recorded, ensure timely preparation and review of period-end
account analyses and the timely disposition of any required adjustment,
review of our customer contracts to determine revenue recognition in the
proper period, and ensure effective communication between operating and
financial personnel regarding the occurrence of new transactions;
and
|
|
·
|
Adequacy of accounting systems
at meeting company needs — The accounting system in place at the
time of the assessment lacks the ability to provide high quality financial
statements from within the system, and there were no procedures in place
or built into the system to ensure that all relevant information is
secure, identified, captured, processed, and reported within the
accounting system. Failure to have an adequate accounting system with
procedures to ensure the information is secure and accurately recorded and
reported amounts to a material weakness to the Company’s internal controls
over its financial reporting
processes.
|
In light
of the foregoing, management plans to develop the following additional
procedures to help address these material weaknesses:
|
·
|
We
will create and refine a structure in which critical accounting policies
and estimates are identified, and together with other complex areas, are
subject to multiple reviews by qualified consultants. We
believe these actions will remediate the material weaknesses by focusing
additional attention on our internal accounting functions. However, the
material weaknesses will not be considered remediated until the applicable
remedial controls operate for a sufficient period of time and management
has concluded, through testing, that these controls are operating
effectively.
|
|
·
|
We
will hire a permanent Chief Financial Officer to oversee financial
reporting specifically in lease accounting and financial
reporting.
|
|
·
|
We
will continue to work with the experienced third party accounting firm in
the preparation and analysis of our interim and financial reporting to
ensure compliance with generally accepted accounting principles and to
ensure corporate compliance.
|
|
·
|
We
will upgrade our existing accounting information system to one that is
tailored for lease accounting to better meet the Company’s
needs.
|
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual
report.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting during our most
recent fiscal quarter that materially affected, or were reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER
INFORMATION
None.
-21-
PART
III
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
following sets forth our officers and Directors as of the date of this
filing:
|
Name
|
Position
|
Year
of Appointment
|
|
Jerry
Parish
|
Chief
Executive Officer, President, Secretary
and
Chairman
Class
III Director
|
2008
|
|
Warren
L. Williams
|
Interim
Chief Financial Officer
|
2009
|
|
Victor
Garcia
|
Class
II Director
|
2009
|
|
Randy
Foust
|
Class
I Director
|
2009
|
Jerry
Parish, Age 67
Jerry
Parish, founder of The Mint Leasing, Inc. currently serves as the Chief
Executive Officer, President, Secretary and Chairman of the Board of Directors
of the Company. Mr. Parish is an accomplished businessman, manager and salesman
having spent his entire professional career in the automobile industry. Mr.
Parish has served as both the Sales Manager and General Manager of several
franchise dealerships in Texas, including Austin-Hemphill, Red McComb
Automotive, Westway Ford and the Davis Chevrolet Organization. In recognition of
Mr. Parish’s dedicated service to Red McComb Automotive, he received a number of
awards including Salesman of the Year (in addition to his numerous “Salesman of
the Month” awards). Mr. Parish, a native of Houston, Texas began his career with
military service in the United States Navy.
Warren
L. Williams, Age 54
Mr.
Williams was appointed as the Chief Financial Officer of the Company on October
28, 2009. Mr. Williams currently serves as a consultant with the
Woodhill Financial Group, Ltd. He has 31 years of financial and accounting
experience, having served in a variety of leadership positions within a number
of industries, including engineering and construction, oilfield services,
manufacturing, wholesaling and distribution. From 2000 to August 2006
Mr. Williams served as the Vice President of Finance and Chief Financial Officer
of Willbros Group, Inc., a NYSE-listed company, Mr. Williams’ responsibilities
included oversight of the accounting, finance, human resources, and IT
departments. From 1998 to 2000, he served as a Vice President and
Chief Financial Officer of TransCoastal Marine Services, Inc, a publicly-traded
pipeline construction company. Prior to 1998 Mr. Williams spent fifteen years in
public accounting with Ernst & Young in Houston and Dallas, Texas. Mr.
Williams is a Texas certified public accountant and has a BBA in Accounting
degree from the University of Houston.
Victor
Garcia, Age 45
Victor
Garcia has served as a Director of the Company since March 2009. Mr.
Garcia has served as the President of Tecbrake since April 1995. Mr.
Garcia has twenty years of experience with engine brake manufacturing and
distribution. Mr. Garcia received a business degree from the
Thunderbird School of Global Management in Glendale, Arizona.
Randy
Foust, Age 50
Randy
Foust has served as a Director of the Company since March 2009. Mr.
Foust has served as General Manager of McDavid Nissan since January
2000. Mr. Foust has twenty years of experience in the automobile
industry. Mr. Foust graduated from Lamar University.
The
Company has a classified Board of Directors, which is divided into three classes
of Directors designated Class I, Class II and Class III. The members
of each class are elected for a term of three years and until their successors
are elected and qualified. The term of Class I Directors expire on
the next annual meeting of stockholders, the term of Class II Directors expire
on the date of the second annual meeting of stockholders following the adoption
of the Amended and Restated Articles of Incorporation (July 18, 2009, the
“Adoption Date”), and the Class III Director’s terms expire on the third annual
meeting of stockholders following the Adoption Date. Thereafter, at
each succeeding annual meeting of stockholders, directors of each class shall be
elected for three-year terms. Notwithstanding the foregoing, any
Director whose term shall expire at any annual meeting shall continue to serve
until such time as his successor shall have been duly elected and shall have
qualified.
-22-
Officers
hold their positions at the pleasure of the Board of Directors, absent any
employment agreement. Our officers and Directors may receive compensation as
determined by us from time to time by vote of the Board of Directors. Such
compensation might be in the form of stock options. Directors may be reimbursed
by the Company for expenses incurred in attending meetings of the Board of
Directors. Vacancies in the Board are filled by majority vote of the remaining
Directors.
Independence
of Directors
We are
not required to have independent members of our Board of Directors, and do not
anticipate having independent Directors until such time as we are required to do
so.
Audit
Committee and Financial Expert
The
Company is not required to have an audit committee and as such, does not have
one.
Code
of Ethics for the CEO and CFO
On July
18, 2008, the Board of Directors of the Company adopted a Code of Ethics for the
Company’s senior officers. The Board of Directors believes that these
individuals must set an exemplary standard of conduct, particularly in the areas
of accounting, internal accounting control, auditing and
finance. This code sets forth ethical standards to which the
designated officers must adhere and other aspects of accounting, auditing and
financial compliance.
Changes
in Officers and Directors:
Messrs.
Lavon Randall and Jeffrey B. Bate resigned as Directors of the Company and Mr.
R. Michael Bull resigned as the Company’s Chief Accounting Officer, effective as
of June 26, 2008. Mr. E. Morgan Skinner, Jr. became the active Chief
Financial Officer as a result of Mr. Bull’s resignation.
Mr. E.
Morgan Skinner, Jr. resigned as a Director and as the President, Chief Executive
Officer, Chief Financial Officer, and Chief Accounting Officer of the Company
effective as of July 18, 2008.
Mr. Jerry
Parish was elected as a member of the Company’s Board of Directors, as the
Company’s Chief Executive Officer, Chief Accounting Officer, President and
Secretary on July 18, 2008.
Additionally
on July 18, 2008, Michael J. Hluchanek and Kelley V. Kirker were appointed as
Directors of the Company and Anacelia Olivarez was appointed as the Company’s
Chief Financial Officer and Treasurer.
On or
around November 18, 2008, William L. Sklar was appointed as Chief Financial
Officer of the Company, and Ms. Olivarez resigned.
On March
1, 2009, William L. Sklar resigned as Chief Financial Officer of the Company and
Jerry Parish was appointed as interim Chief Financial Officer and Chief
Accounting Officer.
Effective
March 4, 2009, Kelley V. Kirker and Michael Hluchanek resigned as Directors of
the Company.
Effective
March 18, 2009, the number of Directors of the Company was increased to four (4)
and Victor Garcia, Gary W. Dugger and Randy Foust were appointed Directors of
the Company.
Effective
April 17, 2009, Gary W. Dugger resigned as a Director of the
Company.
On
October 28, 2009, the Board of Directors of the Company appointed Warren L.
Williams as interim Chief Financial Officer of the Company as the Company
conducts a search for a permanent Chief Financial Officer.
-23-
SECTION
16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors, executive officers and persons who own more than 10% of a class of
our equity securities which are registered under the Exchange Act of 1934, as
amended, to file with the Securities and Exchange Commission initial reports of
ownership and reports of changes of ownership of such registered securities.
Such executive officers, directors and greater than 10% beneficial owners are
required by Commission regulation to furnish us with copies of all Section 16(a)
forms filed by such reporting persons.
To our
knowledge, based solely on a review of the copies of such reports furnished to
us Jerry Parish, Warren Williams, Victor Garcia and Randy Foust are currently
subject to Section 16(a) filing requirements and Randy Foust has not
made his required filings with the Commission.
-24-
ITEM 11. EXECUTIVE
COMPENSATION
SUMMARY
COMPENSATION TABLE
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus($)
|
Stock
Awards ($)
|
Options
Awards
($)
|
All
Other Compensation
|
Total
($)
|
||||||||||||
|
Jerry
Parish
|
2009
|
$
|
337,096
|
$
|
5,000
|
$
|
-
|
$ -
|
$
-
|
$
|
342.096
|
||||||||
|
CEO
and President (1)
|
2008
|
$
|
307,500
|
$
|
1,000
|
$
|
-
|
$ 5,135,692
|
$
-
|
$
|
5,444,192
|
||||||||
|
Warren
L. Williams (2) (7)
|
2009
|
$
|
-
|
$
|
-
|
$
|
-
|
$ -
|
$
-
|
$
|
-
|
||||||||
|
Chief
Financial Officer
|
|||||||||||||||||||