UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2013

or

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION FROM ______ TO ______.

 

Commission File Number: 000-55002

_______________________

 

ARROW CARS INTERNATIONAL INC.

 

(Exact name of registrant as specified in its charter)

 

Florida		99-0374918
(State or other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
Calle del Escritor Herrara Santaolalla, No. 2 Churriana, Malaga, Spain		29140
(Address of principal executive offices)		(Zip code)

 

Registrant’s telephone number: (0034) 952623297

 

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 Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated 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]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS

DURING THE PRECEDING FIVE YEARS

 

Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [  ] No [  ]

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 6, 2013, there were 30,450,000 outstanding shares of the Registrant’s Common Stock, $.001 par value.

  

 

 

	INDEX
			Page
PART I – FINANCIAL INFORMATION			F-1
Item 1.	Financial Statements.		F-1
	Notes to Financial Statements (Unaudited)		F-5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		6
Item 4.	Controls and Procedures		6
PART II – OTHER INFORMATION			7
Item 1.	Legal Proceedings.		7
Item 1A.	Risk Factors		8
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		8
Item 3.	Defaults Upon Senior Securities		8
Item 4.	Mine Safety Disclosure		8
Item 5.	Other Information.		8
Item 6.	Exhibits		8
	SIGNATURES		10

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

  

Arrow Cars International Inc and subsidiary

Consolidated Balance Sheets

 

		September 30, 2013				December 31, 2012
		(Unaudited)				(Audited)
ASSETS
Cash		$	1,409			$	6,198
Accounts receivable - trade			16,852				7,940
Tax rebates receivable			26,130				3,617
Capital asset sales receivable, net of allowance for uncollectable accounts			244,015				258,754
Total Current Assets			288,406				276,508
Fixed assets
Revenue earning equipment - cars, net of accumulated depreciation			502,428				599,778
Property and equipment, net of accumulated depreciation			7,553				6,987
Lease deposits			7,166				14,730
Guarantor deposits - related party			38,248				89,656
Guarantor deposits - third party			41,912				22,676
Total fixed assets			597,307				733,826
Total Assets		$	885,713			$	1,010,335
LIABILITIES and SHAREHOLDERS’ DEFICIT
Current Liabilities
Accounts Payable		$	20,338			$	47,681
Deferred revenue - Capital asset sales			46,810				44,042
Leasing contracts - current			31,263				143,985
Lines of credit			582,967				582,607
Deposits on rental cars			9,893				21,770
Due to shareholders			72,625				41,431
Due to third parties			20,032				15,878
Salaries payable			4,627				5,348
Taxes payable			99,685				51,589
Total Current Liabilities			888,241				954,331
Long Term Liabilities
Secured loans			34,363				47,002
Leasing contracts			257,751				267,400
Total Long Term Liabilities			292,114				314,402
Total liabilities			1,180,355				1,268,733
Common stock; 100,000,000 authorized; $0.001 par value; 30,450,000 and 30,450,000 issued and outstanding as per September 30, 2013 and December 31, 2012 respectively.			30,450				30,450
Additional paid in capital			145,145				145,145
Accumulated deficit			(466,406	)			(423,390	)
Other comprehensive (Loss) / Gain			(3,831	)			(10,603	)
Total Shareholders’ Deficit			(294,642	)			(258,398	)
Total Liabilities and Shareholders´ Deficit		$	885,713			$	1,010,335

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Arrow Cars International Inc and subsidiary

Consolidated Statement of Operations

 

		Three Months				Three Months				Nine Months				Nine Months
		September 30, 2013				September 30, 2012				September 30, 2013				September 30, 2012
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Revenues
Car Rental Income		$	109,160			$	123,917			$	351,847			$	390,547
Total Revenues			109,160				123,917				351,847				390,547
Cost of Rental Sales			22,434				37,411				62,143				102,343
Total Cost of Sales			22,434				37,411				62,143				102,343
Gross profit			86,726				86,507				289,705				288,204
Operating Expenses
General and Administrative			90,022				114,394				290,168				336,569
Depreciation			9,879				11,509				37,886				37,929
Total operating expenses			99,901				125,903				328,055				374,498
Loss before other Income (Expenses)			(13,176	)			(39,396	)			(38,350	)			(86,294	)
Other income (expenses)
Auto Sales - Net (including Deferred Revenue)		$	9,635			$	60,348			$	28,947			$	129,536
Bad debt expense			-				-				1,606				-
Interest Income			143				1,942				3,778				2,543
Interest Expense			12,738				14,238				35,784				40,900
Exchange Rate Difference			-				-				-				156
Total other (Income) and Expenses		$	2,959			$	48,052			$	4,666			$	91,023
Net loss before provision for Income Tax			(16,135	)			8,656				(43,016	)			4,729
Provision for Income Taxes			-				-				-				-
Net loss		$	(16,135	)		$	8,656			$	(43,016	)		$	4,729
Basic and Diluted loss per Share		$	(0.00	)		$	0.00			$	(0.00	)		$	0.00
Basic and Diluted Weighted Average Number of Shares Outstanding			30,450,000				30,450,000				30,450,000				18,685,602

   

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Arrow Cars International Inc and subsidiary

Statement of Cash Flows

 

		September 30, 2013				September 30, 2012
		(Unaudited)				(Unaudited)
Cash Flows from Operating Activities
Net loss		$	(43,016	)		$	4,729
Depreciation			37,886				120,064
Issuance of stock for services			-				3,000
Adjustments to reconcile net loss to net cash provided (used in) operating activities:
Changes in Operating Assets and Liabilities:
Accounts receivable - trade		$	(8,912	)		$	1,270
Tax rebates receivable			(22,514	)			8,093
Capital asset sales receivable			14,739				(253,693	)
Lease deposit			7,565				93
Guarantor deposits - related party			51,407				701
Guarantor deposits - third party			(19,235	)			5,319
Accounts payable			(27,344	)			(17,176	)
Deferred revenue - Capital asset sales			2,769				-
Deposits on rental cars			(11,877	)			4,400
Due to shareholders			31,194				(1,644	)
Due to third party			4,153				(10,895	)
Salaries payable			(721	)			(659	)
Taxes payable			48,096				20,106
Net cash provide by (used in) operating activities:		$	64,191			$	(116,293	)
Cash Flows from Investing Activities
Property and Equipment			(566	)			-
Revenue Earning Assets - Cars			59,463				(7,093	)
Net cash provided by investing activities:		$	58,897			$	(7,093	)
Cash Flows from Financing Activities:
Proceeds - line of credit, net			361				(91	)
Payments - Secured Loans			(12,639	)			(13,011	)
Proceeds (Payments) - Leasing Contracts			(122,371	)			67,203
Proceeds from common stock sold			-				80,500
Net cash provided by (used in) financing activities:		$	(134,649	)		$	134,601
Other comprehensive (Loss) / Gain			6,772				(445	)
Net decrease in cash			(4,789	)			10,770
Cash at Beginning of Year			6,198				7,517
Cash at End of the Period		$	1,409			$	18,287
Supplementary Cash Flow Information:
Interest Paid		$	35,784			$	41,003
Taxes Paid		$	-			$	-
Allowance for bad debt		$	-			$	-

  

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Arrow Cars International Inc and subsidiary

Consolidated Statement of Stockholders’ Deficit

 

		Common Stock								Additional				Accumulated				Other comprehensive				Total Stockholders’
		Shares				Amount				Paid in Capital				Deficit				(Loss) / Gain				Defict
December 31, 2010			27,000,000			$	27,000			$	65,095			$	(29,158	)		$	1,639			$	64,576
Net Loss			-				-				-				(318,607	)			-				(318,607	)
Exchange rate gain / loss			-				-				-				-				(1,639	)			(1,639	)
December 31, 2011			27,000,000			$	27,000			$	65,095			$	(347,765	)		$	-			$	(255,670	)
Common stock issued for services			3,000,000				3,000				-				-				-				3,000
Common stock sold at $0.20			450,000				450				89,550				-				-				90,000
Successor losses pre-Reverse Capitalization			-				-				(9,500	)			-				-				(9,500	)
Net Loss			-				-				-				(75,625	)			-				(75,625	)
Other comprehensive Loss			-				-				-				-				(10,603	)			(10,603	)
December 31, 2012			30,450,000			$	30,450			$	145,145			$	(423,390	)		$	(10,603	)		$	(258,398	)
Net loss			-				-				-				(43,016	)			-				(43,016	)
Other comprehensive Loss			-				-				-				-				6,772				6,772
September 30, 2013			30,450,000			$	30,450			$	145,145			$	(466,406	)		$	(3,831	)		$	(294,642	)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

ARROW CARS INTERNATIONAL INC AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2013 AND SEPTEMBER 30, 2012

 

Note 1 - Background

 

A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:

 

Arrow Cars International Inc. (“Successor”, “Company”, or “ACI”) a private company, was organized under the laws of Florida on March 8 2012. Arrow Cars SL (“ACSL” or “Predecessor”) a private limited company, was organized under the laws of Spain on January 21, 2008. On April, 1, 2012, Arrow Cars SL executed a reverse recapitalization with Arrow Cars International Inc. See Note 3. ACI (Successor) is a holding company that conducts operations through its wholly owned subsidiary ACSL (Predecessor). The company’s business model, described below, involves leasing and rent-to-own concepts Clients may go through a website called www.AutoOasis.com or walk-in to the offices to conduct transactions.

 

The Company’s brand name is AutoOasis and the vehicles are leased and/or sold under this identity. The process works as follows:

 

1.

A new vehicle is provided by the AutoOasis “Easy Car Leasing” service. For twelve months the vehicle will be used for longer term, flexible rentals of 28 day minimum duration periods. The client may extend the rental or return the car without penalty. This feature is for clients that do not wish to purchase the vehicle.

 

2.

Once the vehicle surpasses the “Easy Car Leasing” phase (12 to 36 month period), the Company transfers it to the Extended Leasing service and substantially “sells” the car under a rent-to-own 36 month contract.

 

3.

When the 36 month rent-to-own contract expires, the customer may either keep the vehicle as it will have been paid in full, or,

 

4.

Return the car to AutoOasis, using the vehicle as a deposit for a newer rent-to-own car and continue to pay monthly lease payments for an additional 36 months.

 

5.

Returned Extended Lease vehicles are restored and “re-sold” continuing the lease revenue for an additional 36 month term.

 

On December 16, 2010, the Company executed an agreement with GEP Partners Plc., a public limited company based in the United Kingdom. GEP Partners agreed to act as financial advisor in assisting the Company to merge with a fully listed, compliant, and registered company listed on the OTCBB in the United States. In exchange, the Company agreed to pay $135,000 in fees and exchange 3,000,000 company’s equity at a valuation of $0.001 per share. In March 2012, it was mutually agreed that the Company would be acquired by a private Florida corporation and subsequently file a registration statement with the SEC.

 

 

ARROW CARS INTERNATIONAL INC AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2013 AND SEPTEMBER 30, 2012

 

Note 2 - Basis of Presentation and Recently Issued Accounting Pronouncements

 

Basis of Presentation

 

Arrow Cars International Inc and its fully owned subsidiary provide long term car rental services to businesses and consumers in Spain. The accompanying Financial Statements include the accounts and transactions of ACSL (Predecessor) and ACI (Successor).

 

In presenting the Financial Statements in accordance with accounting principles generally accepted in the United States, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates.

 

Accounting Principles

 

The Company’s Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

 

Cash Equivalents

 

Cash equivalents include all highly liquid investments with an original maturity of three months or less. We maintain cash and cash equivalents at several Spanish financial institutions whereby the balances are not insured. However, we have not experienced any losses in such accounts and believe we are not exposed to any significant credit risks on such accounts. As of September 30, 2013 and September 30, 2012, there were no cash equivalents.

 

Use of Estimates and Assumptions

 

The use of estimates and assumptions as determined by management is required in the preparation of the Financial Statements in conformity with GAAP. These estimates are based on management’s evaluation of historical trends and other information available when the Financial Statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate. Actual results could differ from those estimates.

 

Revenue Earning Equipment

 

Revenue earning equipment is carried at cost, net of accumulated depreciation. Depreciation for vehicles is calculated on a straight line basis according to GAAP and assumes a residual salvage value.

 

Revenue Recognition

 

Revenue from newer vehicles leased from the Company, in conjunction with the shorter term leases, is recognized when the lease agreement is signed in conjunction with the following:

  

·

Persuasive evidence of an arrangement exists.

 

·

Delivery has occurred or services have been rendered.

 

·

The seller’s price to the buyer is fixed or determinable.

 

·

Collectability is reasonably assured using management´s estimates and empirical evidence through various years of experience.

 

 

ARROW CARS INTERNATIONAL INC AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2013 AND SEPTEMBER 30, 2012

 

In connection with the lease/purchase feature, revenue is recognized upon execution of the agreement which provides for non-refundable thirty-six month lease terms. Generally, the customer has the right to acquire title through payment of all required lease payments.

 

Deferred Revenue

 

The Company has made a provision for possible bad debt on the capital assets sold during the period ended September 30, 2013 hence deferring 10% of the revenues until such a time that the “Rent to Own” contracts are complete paid and title of the vehicle is passed over to the client.

 

Allowance for doubtful accounts

 

The Company has made a provision for possible non collectability of the capital asset sales receivable and allocated 5% of these receivables to an allowance account.

 

Property and Equipment

 

Property and equipment (including leasehold improvements) are stated at cost, net of accumulated depreciation and amortization. Depreciation is computed utilizing the straight-line method over the estimated useful lives of the related assets. Amortization of leasehold improvements is computed utilizing the straight-line method over the estimated benefit period of the related assets, which may not exceed 20 years, or the lease term, if shorter.

 

Useful lives are as follows:

 

Buildings		39 years
Furniture, fixtures & equipment		3 to 10 years
Capitalized software		3 to 7 years
Buses and support vehicles		4 to 15 years
Revenue earning assets - Cars		1 to 4 years

 

Impairment of Long-Lived Assets

 

The Company is required to assess goodwill and other indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. The Company performs its annual impairment assessment in the fourth quarter of each year at the reporting unit level. If the carrying value of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

 

The Company assesses goodwill for such impairment by comparing the carrying value of each reporting unit to its fair value using the present value of expected future cash flows. When available and as appropriate, comparative market multiples and other factors are used to corroborate the discounted cash flow results.

 

 

ARROW CARS INTERNATIONAL INC AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2013 AND SEPTEMBER 30, 2012

 

The Company also evaluates the recoverability of its other long-lived assets, including amortizable intangible assets, if circumstances indicate impairment may have occurred. This analysis is performed by comparing the respective carrying values of the assets to the expected future cash flows, on an undiscounted basis, to be generated from such assets. Property and equipment is evaluated separately within each segment. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value.

 

Advertising Expenses

 

Advertising costs are generally expensed in the period incurred. Advertising expenses, recorded within general and administrative expense on our Statements of Operations, include radio, television, “yellow pages” and other advertising, Internet advertising and other promotions and were $4,231 and $11,264 at September 30, 2013 and September 30, 2012 respectively.

 

Taxes

 

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences 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. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

 

The Company records net deferred tax assets to the extent it believes that it is more likely than not that these assets will be realized. In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent results of operations. In the event the Company were to determine that it would be able to realize the deferred income tax assets in the future in excess of their net recorded amount, the Company would adjust the valuation allowance, which would reduce the provision for income taxes.

 

The Company reports revenues net of any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer.

 

Loss per Common Share

 

Basic earnings (loss) per common share are based upon the weighted average number of common shares outstanding during each period presented. Diluted earnings per common share are based upon the weighted average number of common shares outstanding during the period, plus, if dilutive, the assumed exercise of stock options at the beginning of the year, or for the period outstanding during the year for current year issuances.

 

New Accounting Pronouncements

 

In September 2011, the FASB issued Accounting Standards Update 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment (“ASU 2011-08”), which allows companies to waive comparing the fair value of a reporting unit to its carrying amount in assessing the recoverability of goodwill if, based on qualitative factors, it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. ASU 2011-08 will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permissible. The adoption of this standard is not expected to have a material impact on our consolidated statement of earnings, financial condition, and statement of cash flows or earnings per share.

 

 

ARROW CARS INTERNATIONAL INC AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2013 AND SEPTEMBER 30, 2012

 

In June 2011, the FASB issued Accounting Standards Update 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”), which allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permissible. The adoption of ASU 2011-05 will not have a financial impact on our consolidated statement of earnings, financial condition, and statements of cash flows or earnings per share.

 

In May 2011, the FASB issued Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The amendments in this ASU generally represent clarification of Topic 820, but also include instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRS. The amendments are effective for interim and annual periods beginning after December 15, 2011 and are to be applied prospectively. Early application is not permitted. The adoption of ASU 2011-04 will not have a material impact on our consolidated statement of earnings, financial condition, and statement of cash flows or earnings per share.

 

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that we adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of any other recently issued standards that are not yet effective are either not applicable to us at this time or will not have a material impact on our consolidated financial statements upon adoption.

 

Note 3 - Reverse Recapitalization

 

On April 1, 2012, the ACI (Successor) merged with ACSL (Predecessor), a private corporation, and ACSL became the surviving corporation, in a transaction treated as a reverse recapitalization. ACI did not have any material operations and majority-voting control was transferred to ACSL.

 

In the recapitalization, ACI issued 27,000,000 shares of common stock in exchange for all of ACSL’s 3,006 issued and outstanding shares of commons stock. For financial reporting purposes, the 3,006 shares have been recast to 27,000,000 shares in accordance with an exchange ratio of 8,982 for 1. The transaction resulted in ACSL’s shareholders acquiring approximately 100% control.

 

The transaction also required a recapitalization of ACSL. Since ACSL acquired a controlling voting interest, it was deemed the accounting acquirer, while ACI was deemed the legal acquirer. The historical financial statements of the Company are those of ACSL and of the consolidated entities from the date of recapitalization and subsequent.

 

 

ARROW CARS INTERNATIONAL INC AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2013 AND SEPTEMBER 30, 2012

 

Since the transaction is considered a reverse recapitalization, the presentation of pro-forma financial information was not required. All share and per share amounts have been retroactively restated to the earliest periods presented to reflect the transaction.

 

Note 4 - Vehicles and Property and Equipment

 

The Company’s tangible assets at September 30, 2013 and September 30, 2012 consisted of the following:

 

		September 30, 2013				September 30, 2012
Vehicles		$	747,415			$	871,653
Property			18,259				17,361
Subtotal			765,674				889,014
Depreciation Vehicles			244,987				237,109
Depreciation Property			10,706				2,998
Subtotal			255,692				240,107
Net Value		$	509,981			$	648,907

 

Leased vehicles are carried at cost, net of accumulated depreciation. Depreciation for vehicles is provided using straight line method taking into consideration the estimated residual value at the expected date of disposition.

 

Depreciation expense for the period ending September 30, 2013 and September 30, 2012 were $37,886 and $37,929 respectively.

 

Note 5 - Debt

 

A)

Due to Shareholders

 

From time to time, the Company receives advances from shareholders in the normal course of business. As of September 30, 2013 and September 30, 2012 the Company owed shareholders $72,625 and $41,431 respectively. The advances are non-interest bearing, un-secured and due on demand.

 

 

ARROW CARS INTERNATIONAL INC AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2013 AND SEPTEMBER 30, 2012

 

B)

Due to Third Party

 

On April 15, 2010, the Company executed an agreement with a third party who provided personal guarantor loan collateral so the Company could secure financing for a fleet of cars. The third party offered his personal residence as collateral in exchange for 7% of the value of the house paid annually for three years. On April 16, 2013 this agreement was renewed for a further 12 months.

 

C)

Loans and Lines of Credit

 

The Company’s “Other debt” consists of a combination of leasing contracts, secured loans and letters of credit (overdraft facilities):

 

		September 30, 2013				September 30, 2012
Leasing Contracts
Banco Popular (various loans all maturing June 2, 2015 bearing 4.24% interest rate)		$	139,565			$	229,590
Bankinter (various loans maturing during 2014 and 2015 with varying interest rates from 3.19% to 3.96%)			140,221				168,676
Banco Santander (maturing February 15, 2015 bearing interest rate of 7.49%)			9,228				8,137
		$	289,014			$	406,403
Secured Loans
Banco Popular			34,363				50,104
		$	34,363			$	50,104
Renewable letters of Credit
Bankinter - 0799 50 000032.7			269,722				257,108
Bankinter - 0799 50 050111.4			270,398				257,108
Banco Popular - 075 0953 0050 010449			42,847				57,736
		$	582,967			$	571,952

 

 

ARROW CARS INTERNATIONAL INC AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2013 AND SEPTEMBER 30, 2012

 

Note 6 - Equity

 

A)

Common Stock

 

The Company has 100,000,000 authorized common shares and 30,450,000 issued and outstanding at September 30, 2013.

 

The issuance of the common stock to date was as follows:

 

●

On April 1, 2012, the Company issued 27,000,000 common shares to the shareholders of Arrow Cars SL (predecessor) as a result of the reverse recapitalization ($0.001 per share).

 

●

On April 4, 2012, the Company issued 3,000,000 common shares for services rendered to the Company ($0.001 per share).

 

●

On April 15, 2012, the Company issued 87,500 common shares at $0.20 per share to private placement investors.

 

●

On April 20, 2012, the Company issued 75,000 common shares at $0.20 per share to private placement investors.

 

●

On April 21, 2012, the Company issued 75,000 common shares at $0.20 per share to private placement investors.

 

●

On May 9, 2012, the Company issued 25,000 common shares at $0.20 per share to private placement investors.

 

●

On May 12, 2012, the Company issued 12,500 common shares at $0.20 per share to a private placement investor.

 

●

On May 23, 2012, the Company issued 50,000 common shares at $0.20 per share to private placement investors.

 

●

On May 24, 2012, the Company issued 12,500 common shares at $0.20 per share to a private placement investor.

 

●

On June 1, 2012, the Company issued 12,500 common shares at $0.20 per share to a private placement investor.

 

●

On June 15, 2012, the Company issued 50,000 common shares at $0.20 per share to private placement investors.

 

●

On July 17, 2012, the Company issued 12,500 common shares at $0.20 per share to a private placement investor.

 

●

On July 17, 2012, the Company issued 12,500 common shares at $0.20 per share to private placement investors.

 

Note 7 - Capital asset sales and Capital asset sales receivable

 

Once the vehicle surpasses the initial 12 to 36 month rental phase, the Company transfers it to the Extended Leasing service and substantially “sells” the car under a rent-to-own 36 month contract. When this vehicle is sold, it is taken out of inventory and amount receivable becomes receivable in 36 equal installments.

 

The Company has made a provision for possible bad debt on the capital assets sold during the period ended September 30, 2013 hence deferring 10% of the revenues until such a time that the “Rent to Own” contracts are complete paid and title of the vehicle is passed over to the client.

 

 

ARROW CARS INTERNATIONAL INC AND SUBSIDIARY

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2013 AND SEPTEMBER 30, 2012

 

The Company has made a provision for possible non collectability of the capital asset sales receivable and allocated 5% of these receivables to an allowance account.

 

Note 8 - Leases

 

The Company executed a five year lease for its offices and a warehouse on December 1, 2009 expiring November 30, 2014. On April 30, 2012 this lease agreed was mutually rescinded and the Company entered into a new agreed to lease a different and larger premises. The Company executed a one year renewable up to five years lease for its new offices and a warehouse on May 12, 2012. The rental expense was $29,630 and $35,638 as of September 30, 2013 and September 30, 2012 respectively.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

For the nine months ended September 30, 2013 and September 30, 2012

 

The Company had revenues derived from “Car Rentals” amounting to $351,847 and $390,547 for the nine months September 30, 2013 and September 30, 2012 respectively. The decrease in rental income was mainly due to the increase in the number of vehicles that went from the “Easy Car Leasing” scheme to the “Rent to Own” scheme.

 

The cost of car rentals amounted to $62,143 and $102,343 for the nine months September 30, 2013 and September 30, 2012 respectively. This cost is made up of repairs and maintenance, road tax and car insurance. The decrease in this cost was mainly due to fact that we commenced to repair and maintain the vehicles in house rather than outsourcing these services.

 

The gross profit at for the nine months ended September 30, 2013 and September 30, 2012 respectively was $289,705 and $288,204.

 

The general and administrative costs for the nine months ended September 30, 2013 and September 30, 2012 respectively were $290,169 and $218,289; these expenses were made up of the following:

 

		September 30,
		2013				2012				Differences
Rent			29,630				35,638				(6,008	)
Salaries			144,854				132,005				12,848
Profesional services rendered			53,740				98,180				(44,440	)
Bank Service charges			8,835				7,296				1,539
Marketing and Advertising			4,231				11,264				(7,032	)
Soft costs			7,857				6,869				988
Other costs and services			41,021				45,316				(4,294	)
		$	290,169			$	336,568			$	(46,399	)

 

The decrease in G&A was due to less money being spent on rent, professional services and advertising.

 

Depreciation expense amounted to $37,886 and $37,929 nine months ended September 30, 2013 and September 30, 2012 respectively.

 

The net operating loss nine months ended September 30, 2013 and September 30, 2012 respectively amounted to $(38,350) and $(86,294).

 

 

The Company’s other income and (expenses) amounted to $4,666 and $91,023 nine months ended September 30, 2013 and September 30, 2012 respectively:

 

		Nine Months				Nine Months
Other income (expenses)		September 30, 2013				September 30, 2012
Auto Sales - Net (including Deferred Revenue)		$	28,947			$	129,536
Bad debt expense			1,606				-
Interest Income			3,778				2,543
Interest Expense			35,784				40,900
Exchange Rate Difference			-				156
Total other (Income) and Expenses		$	4,666			$	91,023

 

The main reason for the decrease in other income and expenditure was due to the decrease in “auto sales”.

 

The interest expense for the nine month ended September 30, 2013 decreased by $5,115 due to a slight decrease in interest rates on certain loans with financial institutions.

 

The net profit (loss) for the nine months ended September 30, 2013 and September 30, 2012 respectively was $(43,016) and $4,729.

 

For the three months ended September 30, 2013 and September 30, 2012

 

The Company had revenues derived from “Car Rentals” amounting to $109,160 and $123,917 for the three months September 30, 2013 and September 30, 2012 respectively. The decrease in rental income was mainly due to the increase in the number of vehicles that went from the “Easy Car Leasing” scheme to the “Rent to Own” scheme.

 

The cost of car rentals amounted to $22,434 and $37,411 for the three months September 30, 2013 and September 30, 2012 respectively. This cost is made up of repairs and maintenance, road tax and car insurance. The decrease in this cost was mainly due to fact that we commenced to repair and maintain the vehicles in house rather than outsourcing these services.

 

The gross profit at for the three months ended September 30, 2013 and September 30, 2012 respectively was $86,726 and $86,507.

 

The general and administrative costs for the three months ended September 30, 2013 and September 30, 2012 respectively were $90,022 and $114,394. The decrease in G&A was due to less money being spent on rent, professional services and advertising.

 

Depreciation expense amounted to $9,879 and $11,509 three months ended September 30, 2013 and September 30, 2012 respectively.

 

The net operating loss three months ended September 30, 2013 and September 30, 2012 respectively amounted to $(13,176) and $(39,396).

 

The Company’s other income and (expenses) amounted to $(16,135) and $8,656 three months ended September 30, 2013 and September 30, 2012 respectively. The main reason for the decrease in other income and expenditure was due to the decrease in “auto sales”.

 

 

The interest expense for the three month ended September 30, 2013 decreased by $1,500 due to a slight decrease in interest rates on certain loans with financial institutions.

 

The net profit (loss) for the three months ended September 30, 2013 and September 30, 2012 respectively was $(16,135) and $8,656.

 

LIQUIDITY AND CAPITAL RESERVES

 

As of September 30, 2013, the Company had $1,409 in cash and net cash used in operations of $64,191. The working capital deficit amounted to $599,835. Finally, the Company had a Shareholders’ Equity deficit amounting to $294,642.

 

The company’s debt amounted to $906,344; this debt was made up of $34,363 of secured loans granted by Banco Popular, $582,967 of credits lines with two banks (Banco Popular and Bank Inter) and finally $289,014 of leasing contracts also financed by Banco Popular and Bank Inter.

 

The basic terms of this debt are as follows:

 

		September 30, 2013				September 30, 2012
Leasing Contracts
Banco Popular (various loans all maturing June 2, 2015 bearing 4.24% interest rate)		$	139,565			$	229,590
Bank inter (various loans maturing during 2014 and 2015 with varying interest rates from 3.19% to 3.96%			140,221				168,676
Banco Santander (maturing February 15, 2015 bearing interest rate of 7.49%			9,228				8,137
		$	289,014			$	406,403
Secured Loans
Banco Popular			34,363				50,104
		$	34,363			$	50,104
Renewable letters of Credit
Bankinter - 0799 50 000032.7			269,722				257,108
Bankinter - 0799 50 050111.4			270,398				257,108
Banco Popular - 075 0953 0050 010449			42,847				57,736
		$	582,967			$	571,952

 

 

Cautionary Forward - Looking Statement

 

The following discussion and analysis of the results of operations and financial condition of Arrow Cars International Inc. should be read in conjunction with the unaudited financial statements, and the related notes. References to “we,” “our,” or “us” in this section refers to the Company and its subsidiaries. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions.. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

 

Certain matters discussed herein may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties include, but are not limited to, the following:

 

	●	the volatile and competitive nature of our industry,
	●	the uncertainties surrounding the rapidly evolving markets in which we compete,
	●	the uncertainties surrounding technological change of the industry,
	●	our dependence on its intellectual property rights,
	●	the success of marketing efforts by third parties,
	●	the changing demands of customers and
	●	the arrangements with present and future customers and third parties.

 

Should one or more of these risks or uncertainties materialize or should any of the underlying assumptions prove incorrect, actual results of current and future operations may vary materially from those anticipated.

 

Item 3. Quantitative and Qualitative Disclosure about Market Risk.

 

Not applicable.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934) were effective.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

 

	(1)	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
	(2)	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and
	(3)	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

 

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 of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

At September 30, 2013, we carried out an evaluation required by Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.

 

Based upon such evaluation, such person concluded that as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level because, due to financial constraints, the Company does not maintain a sufficient complement of personnel with an appropriate level of technical accounting knowledge, experience and training in the application of generally accepted accounting principles commensurate with our financial accounting and reporting requirements. In the event that we may receive sufficient funds for internal operational purposes, we plan to retain the services of additional internal management staff to provide assistance to our current management with the monitoring and maintenance of our internal controls and procedures.

 

This Quarterly Report does not include an attestation report of the Company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

 

Changes in internal control over financial reporting.

 

We did not change our internal control over financial reporting during our last fiscal quarter that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings.

 

We are not involved in any pending legal proceeding nor are we aware of any pending or threatened litigation against us, except as follows:

 

Arrow Cars SL previously contracted with Peter Stuart Rogers for him to provide certain services to Arrow Cars SL. On November 10, 2010, Arrow Cars SL unilaterally cancelled the contract with Mr. Rogers. In December, Mr. Rogers then filed an arbitration action against Arrow Cars SL claiming damages for the cancellation of the contract. The arbitration action was filed before the Arbitration & Settlement Office (“CMAC”), file numbers 12627/2010 and 12625/2010. The arbitration case was closed without agreement. As a consequence, Mr. Rogers filed a claim against Arrow Cars SL in the Malaga Employment Courts, with the same numbers. Prior to appearing in court, Arrow Cars SL and Mr. Rogers agreed privately that Arrow Cars SL would pay 18,500 Euros (U.S. $24,420) to Mr. Rogers, which has been paid. In addition, in the event Arrow Cars SL successfully raises 4 million Euros (U.S.$5,000,000) in a public offering in the United States, Arrow Cars SL will be obligated to pay an additional 100,000 Euros ($125,000) to Mr. Rogers, one half of which amount will have to be paid within 16 weeks after the Company receives $5,000,000 in the proceeds of such public offering. The balance of 50,000 Euros will be payable to Mr. Rogers one year later.

 

The Company believes that if it, in fact, raises the $5,000,000 pursuant to its initial public offering, then it will owe 100,000 Euros (equivalent U.S. Dollars according to the exchange rate at the time such payments are due). In the event the Company is unsuccessful in raising the $5,000,000 pursuant to such initial public offering, the Company will not owe Mr. Rogers any additional money pursuant to the arbitration proceeding.

 

  

Item 1A.	Risk Factors.
	Not applicable.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.
	None.
Item 3.	Defaults upon Senior Securities.
	None.
Item 4.	Mine Safety Disclosures.
	Not applicable.
Item 5.	Other Information.
	None.
Item 6.	Exhibits.
	See Exhibit Index below for exhibits required by Item 601 of regulation S-K.

 

 

EXHIBIT INDEX

 

Exhibit No.

Description

 

List of Exhibits attached or incorporated by reference pursuant to Item 601 of Regulation S-K:

 

Exhibit	Description
31.1 *	Certification under Section 302 of Sarbanes-Oxley Act of 2002
31.2 *	Certification under Section 302 of Sarbanes-Oxley Act of 2002
32.1 * 32.2 *	Certification under Section 906 of Sarbanes-Oxley Act of 2002 Certification under Section 906 of Sarbanes-Oxley Act of 2002

 

101.INS	XBRL Instance Document**
101.SCH	XBRL Taxonomy Extension Schema Document**
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB	XBRL Taxonomy Extension Label Linkbase Document**
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document**

 

* Filed herewith.

 

** In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  

	ARROW CARS INTERNATIONAL INC.
Date: November 13, 2013	/s/ Jeremy D. Harris
	Jeremy D. Harris
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: November 13, 2013	/s/ Sergio Perez Conejo
	Sergio Perez Conejo
	Chief Financial Officer
	(Principal Accounting and Financial Officer)