1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Earn-A-Car, Inc. (formerly Victoria Internet Services,
Inc.) was incorporated in the State of Nevada on October 9, 2009. The company
was organized to operate as an online tax preparation service in the North
American market. On December 7, 2011, prior to commencing those operations, the
company has opted to change its business focus to the daily rental of vehicles
in the South African market.
On December 7, 2011, a simultaneous execution and closing was held under an
Agreement and Plan of Reorganization (the Plan"), by and among Victoria Internet
Services, Inc. (the "Company" "us" "we" ), Leon Golden (our then principal
shareholder) ("Golden") and Earn-A-Car (PTY), LTD., a corporation organized
under the laws of the Republic of South Africa ("EAC") and Depassez Investments
Ltd, a Seychelles corporation ("DPL"), owned by Graeme Hardie (our new principal
Under the Plan DPL acquired 78,500,000 shares of our common stock from Golden
for $150,000 and the balance of Golden's 205,000,000 shares were submitted to
the transfer agent for cancellation and DPI contributed all of the shares of EAC
to the Company so that EAC became a wholly owned subsidiary of the Company and
the business of the Company is now the business of EAC. Mr. Golden also resigned
as an officer and director of the Company and John Storey ("Storey") and Hardie
were elected as directors and Storey was appointed CEO and President with Hardie
being appointed Chairman of the board.
On February 10, 2012 the Company filed an amendment with the Secretary of State
for Nevada to gain permission to change its name from Victoria Internet
Services, Inc. to Earn-A-Car, Inc. In conjunction with the name change the
Company also filed to have a new symbol on the Over The Counter Bulletin Board
(OTCBB). As of March 8, 2012 the Company no longer is listed with the symbol
VRIS, and is now listed on the OTCBB as EACR.
Earn-A-Car (PTY) LTD - The wholly owned subsidiary was incorporated in South
Africa on July 2, 2005, and is primarily engaged in the business of the daily
rental of vehicles to business and leisure customers through company-owned
stores in the country of South Africa. On July 18, 2011, its name was changed
from "EasyCars Rental and Sales (PTY) Ltd." to "Earn-A-Car (PTY) Ltd.".
Earn-A-Car Assets (Pty) LTD. - The wholly owned subsidiary was incorporated in
South Africa on August 8, 2011 under the name Civiwize (Pty) Ltd... Currently
the name is in the process of being changed to Earn-A-Car Assets (Pty) Ltd. This
company operates as the holding company for all vehicles purchased using
specific bank funding and will lease those vehicles solely to the parent
Basis of Presentation- The accompanying financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America and are presented in U.S. Dollars. In the opinion of management, all
adjustments necessary in order for the financial statements to be not misleading
have been reflected herein. The Company has selected a February 28 year end.
Estimates - The preparation of the Company's consolidated financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts and disclosures in the consolidated financial statements.
Actual results could differ materially from those estimates.
Cash and Cash Equivalents - Cash and cash equivalents include cash on hand and
on deposit, including highly liquid investments with initial maturities of three
months or less. At November 30, 2012 and February 29, 2012 the Company had
$791,103 and $171,354 in cash and cash equivalents, respectively.
Allowance for Doubtful Accounts - An allowance for doubtful accounts is
generally established during the period in which receivables are recorded. The
allowance is maintained at a level deemed appropriate based on loss experience
and other factors affecting collectability. As at November 30, 2012 and February
29, 2012 the Company had $228,627 and $264,189 in impaired receivables,
respectively. The allowance for these impaired receivables was $164,295 for
fiscal year ended February 29, 2012.
Financing Issue Costs - Financing issue costs related to vehicle debt are
deferred and amortized to interest expense over the term of the related debt
using the effective interest method.
Receivables and Payables- Trade receivables and payables are measured at initial
recognition at fair value, and are subsequently measured using the effective
interest rate method of valuation. Appropriate allowances for estimated
uncollectible receivable balances are recognized in profit or loss when there is
evidence of impairment.
Revenue-Earning Vehicles and Related Vehicle Depreciation Expense -
Revenue-earning vehicles are stated at cost, net of related discounts.
The Company must estimate what the residual values of these vehicles will be at
the expected time of disposal to determine monthly depreciation rates. The
estimation of residual values requires the Company to make assumptions regarding
the age and mileage of the car at the time of disposal, as well as the general
used vehicle auction market. The Company evaluates estimated residual values
periodically, and adjusts depreciation rates accordingly, on a prospective
Differences between actual residual values and those estimated by the Company
result in a gain or loss on disposal and are recorded as an adjustment to
depreciation expense. Actual timing of disposal either shorter or longer than
the life used for depreciation purposes could result in a loss or gain on sale.
Generally, the average holding term for vehicles is approximately 7 years.
Property and Equipment - Property and equipment are recorded at cost and are
depreciated using principally the straight-line method over the estimated useful
lives of the related assets. Estimated useful lives generally range from ten to
thirty years for buildings and improvements and two to seven years for furniture
and equipment. Leasehold improvements are amortized over the estimated useful
lives of the related assets or leases, whichever is shorter. The average useful
lives of fixed assets are as follows:
Motor vehicles 6 years
Computer equipment 3 years
Computer software 2 years
Leased assets - motor vehicles 6 years
Long-Lived Assets - The Company reviews the value of long-lived assets,
including software, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable based upon
estimated future cash flows and records an impairment charge, equaling the
excess of the carrying value over the estimated fair value, if the carrying
value exceeds estimated future cash flows.
Foreign Currency Translation - The Company's functional currency is the South
African Rand, the translation into US dollars is the presentation bases of these
financial statements. Foreign assets and liabilities are translated using the
exchange rate in effect at the balance sheet date, and results of operations are
translated using an average rate for the period. Translation adjustments are
accumulated and reported as a component of accumulated other comprehensive
income or loss.
Revenue Recognition - Revenues from vehicle rentals are recognized as earned on
a daily basis under the related rental contracts with customers. We also charge
upfront administrative fees, which are non-refundable and fully earned at
inception of the rental period, and which are recorded as income at the start of
the rental period which is month to month.
Advertising Costs - Advertising costs are primarily expensed as incurred. During
the nine months ended November 30, 2012 and November 30, 2011, the Company
incurred advertising expense of $66,802 and $9,714, respectively.
Income Taxes - The Company has provided for income taxes on its separate taxable
income or loss and other tax attributes. Deferred income taxes are provided for
the temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities. The Company has no tax liability
in the United States.
Earnings Per Share - Basic earnings per share ("EPS") is computed by dividing
net income (loss) by the weighted average number of common shares outstanding
during the period. Diluted EPS is based on the combined weighted average number
of common shares and common share equivalents outstanding which include, where
appropriate, the assumed exercise of options. There were no such common stock
equivalents outstanding at November 30, 2012. Earnings per share and weighted
average shares outstanding as of November 30, 2011 have been adjusted in these
financial statements to reflect the November 14, 2011 stock split.
Other Comprehensive Income (Loss) - Comprehensive income (loss) consists of net
income (loss) and other gains and losses affecting stockholder's equity that,
under GAAP, are excluded from net income (loss), including foreign currency
translation adjustments, gains and losses related to certain derivative
contracts, and gains or losses, prior service costs or credits, and transition
assets or obligations associated with pension or other postretirement benefits
that have not been recognized as components of net periodic benefit cost.
Stock-Based Compensation- Stock-based compensation is accounted for at fair
value in accordance with SFAS No. 123 and 123 (R) (ASC 718). To date, the
Company has not adopted a stock option plan and has not granted any stock
New Accounting Standards - The Company does not expect the adoption of recently
issued accounting pronouncements to have a significant impact on the Company's
results of operations, financial position or cash flow.