UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB-A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number 0-29797
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
(Exact name of registrant as specified in its charter)
Delaware 22-368051
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
90 Jericho Turnpike
Floral Park, New York 11001
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code: 516-488-8600
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
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
7,697,709 shares, $.001 par value, as of March 31, 2000
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date)
1
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
I N D E X
Page No.
--------
Part I - Financial Information:
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
As at March 31, 2000 and December 31, 1999 ................................. F-3 - F-4
Consolidated Statements of Operations
For the Three Months Ended
March 31, 2000 and 1999 .................................................... F-5
Consolidated Statements of Stockholders' Equity
For the Three Months Ended
March 31, 2000 and 1999 .................................................... F-6
Consolidated Statements of Cash Flows
For the Three Months Ended
March 31, 2000 and 1999 .................................................... F-7
Notes to Consolidated Financial Statements ................................. F-8 - F-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .............................. F-14 - F-19
Part II - Other Information:
Item 3 Through Item 9 - Not Applicable ..................................
Signatures ..............................................................
2
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - RESTATED - SEE NOTE 2
(Unaudited)
A S S E T S
-----------
March 31, December 31,
2000 1999
----------- ------------
Current assets:
Cash $ 94,441 $ 33,106
Net investment in direct financing leases 7,290,884 7,759,531
Prepaid expenses 25,400 13,375
----------- ------------
Total current assets 7,410,725 7,806,012
Vehicles held for sale or re-lease 1,674,701 1,300,843
Net investment in direct financing leases 20,907,417 19,349,913
Furniture and equipment - net of
depreciation and amortization 106,831 112,453
Due from related parties 73,296 68,296
Deferred charges 32,810 49,999
Other assets 8,773 10,277
----------- ------------
$30,214,553 $ 28,697,793
=========== ============
See accompanying notes to financial statements.
3
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - RESTATED - SEE NOTE 2 (Continued)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
2000 1999
----------- ------------
Current liabilities:
Current maturities of loans payable $ 6,677,848 $ 7,613,318
Accounts payable and accrued expenses 337,057 512,324
Loans payable - officer/stockholder 115,486 107,894
----------- ------------
Total current liabilities 7,130,391 8,233,536
Loans payable - net of current liabilities 21,051,405 18,996,847
Deferred income taxes 872,000 706,000
----------- ------------
Total liabilities 29,053,796 27,936,383
----------- ------------
Stockholders' equity:
Common stock, no par value
Authorized 35,000,000 shares
Issued and outstanding - 7,697,709 shares
at March 31, 2000 and 7,532,709 shares
at December 31, 1999 7,698 7,533
Additional paid-in capital 417,770 252,935
Retained earnings 1,216,289 981,942
----------- ------------
1,641,757 1,242,410
Less: Due from related party 481,000 481,000
----------- ------------
Total stockholders' equity 1,160,757 761,410
----------- ------------
$30,214,553 $28,697,793
=========== ===========
See accompanying notes to financial statements.
4
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS - RESTATED - SEE NOTE 2
(Unaudited)
For the Three
Months Ended
March 31,
---------------------------
2000 1999
----------- ------------
Revenues:
Amortization of unearned lease income $1,423,936 $ 775,722
Gain (loss) on sale of vehicles ( 35,436) 29,885
----------- ------------
Total revenues 1,388,500 805,607
----------- ------------
Costs and expenses:
Interest 430,865 360,272
Amortization of initial direct costs 90,697 51,548
Provision for bad debts 101,306 -
Salaries and wages 123,665 54,544
Payroll taxes 11,998 7,729
Rent and real estate taxes 17,875 19,070
Travel and entertainment 21,802 27,316
Professional fees 17,296 3,722
Amortization of deferred charges 17,189 -
Other selling and administrative expenses 143,460 120,571
----------- ------------
Total costs and expenses 976,153 644,772
----------- ------------
Income before provision for income taxes 412,347 160,835
Provision for income taxes 178,000 69,000
----------- ------------
Net income $ 234,347 $ 91,835
=========== ============
Earnings per share:
Basic and diluted net income per share $ 0.03 $ 0.01
=========== ============
Weighted average shares outstanding (A) 7,586,979 6,980,562
=========== ============
(A) Pro forma - See Note 1(e).
See accompanying notes to financial statements.
5
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - RESTATED - SEE NOTE 2
(Unaudited)
Common Stock Additional Total
-------------------------- Paid-In Retained Due from Stockholders'
Shares Amount Capital Earnings Related Party Equity
------ ------ ------- -------- ------------- ------
For the Three Months Ended March 31, 2000:
Balance at January 1, 2000 7,532,709 $ 7,533 $252,935 $ 981,942 ($481,000) $ 761,410
Issuance of shares of common stock for cash 165,000 165 164,835 - - 165,000
Net income for the three months
ended March 31, 2000 - - - 234,347 - 234,347
---------- -------- --------- ---------- ---------- ----------
Balance at March 31, 2000 7,697,709 $ 7,698 $417,770 $1,216,289 ($481,000) $1,160,757
========== ======== ========= ========== ========== ==========
See accompanying notes to financial statements.
6
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - RESTATED - SEE NOTE 2
(Unaudited)
For the Three
Months Ended
March 31,
-----------------------
2000 1999
---------- --------
(Consolidated)
Cash flows from operating activities:
Net income $ 234,347 $ 91,835
----------- -----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 96,319 55,548
Deferred income taxes 166,000 68,000
Amortization of deferred changes 17,189 -
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Net investment in direct finance leases (1,179,554) ( 6,385,120)
Vehicles held for sale or re-lease ( 373,858) 14,183
Prepaid expenses ( 12,025) ( 14,514)
Other assets 1,504 -
Loans payable 1,119,088 510,914
Accounts payable and accrued expenses ( 175,267) 5,539,466
Proceeds of vehicles sold - 129,950
----------- -----------
Total adjustments ( 340,604) ( 81,573)
----------- -----------
Net cash provided by (used in) operating activities ( 106,257) 10,262
----------- -----------
Cash flows used in investing activities:
Due from related parties ( 5,000) ( 150,000)
----------- -----------
Cash flows from financing activities:
Sale of common stock 165,000 -
Loans payable - officer/stockholder 7,592 -
----------- -----------
Net cash provided by investing activities 172,592 -
----------- -----------
Net increase (decrease) in cash 61,335 ( 139,738)
Cash at beginning of period 33,106 237,957
----------- -----------
Cash at end of period $ 94,441 $ 98,219
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 430,865 $ 360,272
=========== ===========
Income taxes $ 7,000 $ -
=========== ===========
See accompanying notes to financial statements.
7
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - REVISED
MARCH 31, 2000
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) Organization:
Royal Acceptance Corporation ("Royal") was incorporated in
the State of Delaware on November 15, 1996. On July 15, 1999,
pursuant to a reorganization under section 368(a)(1)(B) of the
Internal Revenue Code, Royal acquired from Alliance Holdings Limited
Partnership ("Alliance") all of the issued and outstanding capital
stock of RIT Auto Leasing Group, Inc. ("RIT") in exchange for
5,650,000 shares of Royal's common stock. After the acquisition, the
former RIT stockholder, who is Alliance's general partner, and who
became President, Secretary and Director of Royal owned
approximately 72% of Royal's outstanding common stock. The
transaction is being accounted for as a reverse acquisition of Royal
by RIT. The results of operations of Royal are included in the
accompanying financial statements since the date of acquisition.
Royal, prior to the RIT acquisition, had been virtually inactive.
The following summarized unaudited pro forma information
assumes the acquisition had occurred on January 1, 1998.
For the Three
Months Ended
March 31, 1999
--------------
Revenues $805,607
========
Net income $ 38,056
========
Earnings per share:
Basic and diluted $0.01
=====
(b) Principles of Consolidation:
The accompanying balance sheet as of December 31, 1999
includes the accounts of Royal and its wholly owned subsidiary, RIT.
The accompanying balance sheet as of March 31, 2000 and for the
three months then ended include the accounts of Royal and RIT.
8
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLCIES. (Continued)
(c) Basis of Presentation:
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions for Form
10-Q and Article 10 of Regulations S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, the statements contain all adjustments
(consisting only of normal recurring accruals) necessary to present
fairly the financial position as of March 31, 2000 and the results
of operations and cash flows for the three months ended March 31,
2000 and 1999. The results of operations for the three months ended
March 31, 2000 and 1999 are not necessarily indicative of the
results to be expected for the full year.
The December 31, 1999 balance sheet has been derived from
the audited financial statements at the date included in the
Company's annual report contained in Form 10SB. Those unaudited
financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
annual report contained in Form 10SB.
(d) Financial Statement Presentation:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and
disclosures accordingly, actual results could differ from those
estimates.
(e) Per Share Data:
Net income per share was computed by the weighted average
number of shares outstanding during each period. In order to make
the share data more comparable, the weighted average number of
shares outstanding for the year ended December 31, 1999 and for the
three months ended March 31, 2000 reflect the acquisition of Royal
as if it had occurred on December 31, 1998.
9
NOTE 2 - RESTATEMENT.
The accompanying financial statements included in the
March 31, 2000, Form 10-QSB have been restated to give effect o
certain comments by the Securities and Exchange Commission
regarding the Company's filing of Amendment 2 to Form 10-SB as
follows:
As At March 31, 2000
--------------------------------------------------------------
As Difference
Originally Restated Over
As Restated Filed (Under) Original
----------- ---------- ----------------
A s s e t s
-----------
Current assets:
Cash $ 94,441 $ 94,441 $ -
Net investment in direct
finance leases 7,290,884 7,271,434 (a) 19,450
Prepaid expenses 25,400 - (b) 25,400
------------ ------------ --------
Total current assets 7,410,725 7,365,875 44,850
------------ ------------ --------
Vehicles held for sale or re-leases 1,674,701 1,674,701 -
Net investment in direct
finance leases 20,907,417 20,907,417 -
Furniture and fixtures - net 106,831 106,831 -
Due from related parties 73,296 - (b) 73,296
Deferred charges 32,810 - (e) 32,810
Other assets 8,773 107,469 (b) ( 98,696)
------------ ------------ --------
22,803,828 22,796,418 7,410
------------ ------------ --------
$ 30,214,553 $ 30,162,293 $ 52,260
============ ============ ========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of loans payable $ 6,677,848 $ 6,677,848 $ -
Accounts payable and
accrued expenses 337,057 336,424 (c) 633
Loans payable - officer/
stockholder 115,486 115,486 -
------------ ------------ --------
Total current liabilities 7,130,391 7,129,758 633
Loans payable - net of
current maturities 21,051,405 21,051,405 -
Deferred income taxes 872,000 872,000 -
------------ ------------ --------
Total liabilities 29,053,796 29,053,163 633
------------ ------------ --------
Stockholders' equity:
Common stock 7,698 7,698 -
Additional paid-in capital 417,770 328,472 (d) 89,298
Retained earnings 1,216,289 1,253,960 (a,d,e) ( 37,671)
Less: Due to related party ( 481,000) ( 481,000) -
------------ ------------ --------
Total stockholders' equity 1,160,757 1,109,130 51,627
------------ ------------ --------
$ 30,214,553 $30,162,293 $52,260
============ ============ ========
As At December 31, 2000
--------------------------------------------------------------
As Difference
Originally Restated Over
As Restated Filed (Under) Original
----------- ---------- ----------------
A s s e t s
-----------
Current assets:
Cash $ 33,106 $ 33,106 $ -
Net investment in direct
finance leases 7,759,531 7,712,004 (a) 47,527
Prepaid expenses 13,375 13,375 -
------------ ------------ --------
Total current assets 7,806,012 7,758,485 47,527
------------ ------------ --------
Vehicles held for sale or re-leases 1,300,843 1,300,843 -
Net investment in direct
finance leases 19,349,913 19,349,913 -
Furniture and fixtures - net 112,453 112,453 -
Due from related parties 68,296 - (b) 68,296
Deferred charges 49,999 - (e) 49,999
Other assets 10,277 78,573 (b) ( 68,296)
------------ ------------ --------
20,891,781 20,841,782 49,999
------------ ------------ --------
$ 28,697,793 $ 28,600,267 $ 97,526
============ ============ ========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of loans payable $ 7,613,318 $ 7,613,318 $ -
Accounts payable and
accrued expenses 512,324 517,091 (c) ( 4,767)
Loans payable - officer/
stockholder 107,894 107,894 -
------------ ------------ --------
Total current liabilities 8,233,536 8,238,303 ( 4,767)
Loans payable - net of
current maturities 18,996,847 18,996,847 -
Deferred income taxes 706,000 701,000 (a,e) 5,000
------------ ------------ --------
Total liabilities 27,936,383 27,936,150 233
------------ ------------ --------
Stockholders' equity:
Common stock 7,533 7,533 -
Additional paid-in capital 252,935 1,282,693 (d) ( 1,029,758)
Retained earnings 981,942 ( 145,109) (a,d,e) 1,127,051
Less: Due to related party ( 481,000) ( 481,000) -
------------ ------------ --------
Total stockholders' equity 761,410 664,117 97,293
------------ ------------ --------
$ 28,697,793 $ 28,600,267 $ 97,526
============ ============ ========
(a) Cumulative adjustment pursuant to change in accounting for amortization
of initial direct costs from the cash method to the interest method.
(b) Reclassification from "Other assets".
(c) Miscellaneous adjustment.
(d) Change in accounting for the reverse acquisition of Royal by RIT from a
pooling of interests to a purchase. (e) Cumulative effect of amortizating
value of stock issud for services over a two (2) year period.
10
NOTE 2 - RESTATEMENT. (Continued)
Statements of Operations:
For the Three Months Ended March 31, 2000
--------------------------------------------------------------
As Difference
Originally Restated Over
As Restated Filed (Under) Original
----------- ---------- ----------------
Revenues:
Amortization of unearned $ 1,423,936 $ 1,423,936 $ -
lease income
Gain (loss) on sale of vehicles ( 35,436) ( 35,436) -
------------ ------------ --------
Total revenues 1,388,500 1,388,500 -
------------ ------------ --------
Costs and expenses:
Interest 430,865 430,865 -
Amortization of initial direct costs 90,697 62,220 (a) 28,477
Provision for bad debts 101,306 101,306 -
Salaries and wages 123,665 123,665 -
Payroll taxes 11,998 - (b) 11,988
Rent and real estate taxes 17,875 - (b) 17,875
Travel and entertainment 21,802 - (b) 21,802
Professional fees 17,296 - (b) 17,296
Amortization of deferred charges 17,189 - (c) 17,189
Other selling and
administrative expenses 143,460 212,431 (b) ( 68,971)
------------ ------------ --------
976,153 930,487 45,656
------------ ------------ --------
Income before provision
for income taxes 412,347 458,013 ( 45,656)
Provision for income taxes 178,000 178,000 -
------------ ------------ --------
Net income $ 234,347 $ 280,013 ($45,656)
============ ============ ========
Earnings (loss) per share:
Basic and diluted:
Net income (loss) per share $ 0.03 $ 0.04 ($0.01)
============ ============ ========
Weighted average number
of shares outstanding 7,596,979 7,596,979 -
============ ============ ========
For the Three Months Ended March 31, 1999
--------------------------------------------------------------
As Difference
Originally Restated Over
As Restated Filed (Under) Original
----------- ---------- ----------------
Revenues:
Amortization of unearned $ 775,722 $ 775,722 $ -
lease income
Gain (loss) on sale of vehicles 29,885 29,885 -
------------ ------------ --------
Total revenues 805,607 805,607 -
------------ ------------ --------
Costs and expenses:
Interest 360,272 360,272 -
Amortization of initial direct costs 51,548 26,088 25,460
Provision for bad debts - - -
Salaries and wages 54,544 54,544 -
Payroll taxes 7,729 - 7,729
Rent and real estate taxes 19,070 - 19,070
Travel and entertainment 27,316 - 27,316
Professional fees 3,722 - 3,722
Amortization of deferred charges - - -
Other selling and
administrative expenses 120,571 178,408 ( 57,837)
------------ ------------ --------
644,772 619,312 25,460
------------ ------------ --------
Income before provision
for income taxes 160,835 186,295 ( 25,460)
Provision for income taxes 69,000 69,000 -
------------ ------------ --------
Net income $ 91,835 $ 117,295 ($25,460)
============ ============ ========
Earnings (loss) per share:
Basic and diluted:
Net income (loss) per share ($0.01) ($0.02) $ -
============ ============ ========
Weighted average number
of shares outstanding 6,980,562 6,980,562 -
============ ============ ========
(a) Reduction of amortization of initial direct cost pursuant of change to
interest method which decreased income by $28,477 and $25,460, respectively.
(b) Reclassification of other selling, general and administrative expenses which
had no effect on net income in both periods.
(c) Adjustment pursuant to change in period of amortization of value of stock
issued for services rendered decreased income by $17,189 in 2000.
11
NOTE 2 - RESTATEMENT. (Continued)
Consolidated Statements of Changes in Stockholders' Equity:
For the Three Months Ended March 31, 2000
--------------------------------------------------------------
As Difference
Originally Restated Over
As Restated Filed (Under) Original
----------- ---------- ----------------
Common shares:
Balance at beginning of period 7,532,709 7,532,709 -
Sale of shares for cash 165,000 165,000 -
------------ ------------ --------
Balance at end of period 7,697,709 7,697,709 -
============ ============ ========
Common stock amount:
Balance at beginning of period $ 7,533 $ 7,533 $ -
Sale of shares for cash 165 165 -
------------ ------------ --------
Balance at end of period $ 7,698 $ 7,698 $ -
============ ============ ========
Additional paid-in capital:
Balance at beginning of period $ 252,935 $ 163,637 (a) $ 89,298
Sale of shares for cash 164,835 164,835 -
------------ ------------ --------
Balance at end of period $ 417,770 $ 328,472 $ 89,298
============ ============ ========
Retained earnings:
Balance at beginning of period $ 981,942 $ 973,947 (a) $ 7,995
Net income 234,347 280,013 (b) ( 45,666)
------------ ------------ --------
Balance at end of period $ 1,216,289 $ 1,253,960 ($37,671)
============ ============ ========
Due from related party:
Balance at beginning of period ($ 481,000) ($ 481,000) $ -
Sale of shares for cash - - -
------------ ------------ --------
Balance at end of period ($ 481,000) ($ 481,000) $ -
============ ============ ========
Total stockholders' equity:
Balance at beginning of period $ 761,410 $ 664,117 $ 97,293
Sale of shares for cash 165,000 165,000 -
Net income (loss) 234,347 280,013 ( 45,666)
------------ ------------ --------
Balance at end of period $ 1,160,757 $1,109,130 $ 51,627
============ ============ ========
(a) Change in accounting for the reverse acquisition of Royal by RIT from a
pooling of interests to a purchase.
(b) Reduction of amortization of initial direct cost pursuant to change to
interest method and adjustment pursuant to change in period of
amortization of value of stock issued for services rendered.
12
NOTE 2 - RESTATEMENT. (Continued)
Consolidated Statements of Cash Flows:
For the Three Months Ended March 31, 2000
--------------------------------------------------------------
As Difference
Originally Restated Over
As Restated Filed (Under) Original
----------- ---------- ----------------
Cash flows from operating activities:
Net income (loss) $ 234,347 $ 280,013 (a) ($45,656)
------------ ------------ --------
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 96,319 67,842 (b) 28,477
Gain (loss) on sale of vehicles - ( 29,885) (e) 29,885
Deferred income taxes 166,000 171,000 (c) ( 5,000)
Amortization of deferred charges 17,189 - (d) 17,189
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Net investment in direct finance leases 1,179,554) ( 1,262,856) (e) 83,302
Interest receivable from officer/stockholders' ( 12,025) 13,375 (f) ( 25,400)
Prepaid expenses - - -
Vehicles held for sale or re-lease ( 373, 858) ( 373,858) -
Loans payable 1,119,088 1,119,088 -
Accounts payable and accrued expenses ( 175,267) ( 180,667) 5,400
Other assets 1,504 ( 28,898) (f) 30,402
Proceeds from vehicles sold - 113,589 -
------------ ------------ --------
Total adjustments ( 340,604) ( 391,270) 164,255
------------ ------------ --------
Net cash provided by (used in)
in operating activities ( 106,257) ( 111,257) 118,599
------------ ------------ --------
Cash flows used in investing activities
Due from related party ( 5,000) - (f) ( 5,000)
------------ ------------ --------
Cash flows from financing activities:
Sale of common stock 165,000 165,000 -
Loans payable - officer/stockholder 7,592 7,592 -
------------ ------------ --------
Net cash provided by (use in)
financing activities 172,592 172,592 -
------------ ------------ --------
Net increase (decrease) in cash 61,335 61,335 113,599
Cash at beginning of period 33,106 33,106 -
------------ ------------ --------
Cash at end of period $ 94,441 $ 94,441 $113,599
============ ============ ========
For the Three Months Ended March 31, 1999
--------------------------------------------------------------
As Difference
Originally Restated Over
As Restated Filed (Under) Original
----------- ---------- ----------------
Cash flows from operating activities:
Net income (loss) $ 91,835 $ 117,295 (b) ($ 25,460)
------------ ------------ --------
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 55,548 30,088 (b) 25,460
Gain (loss) on sale of vehicles - 35,436 (e) ( 35,436)
Deferred income taxes 68,000 68,000 -
Amortization of deferred charges - - -
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Net investment in direct finance leases ( 6,385,120) ( 6,420,556) (e) 35,436
Interest receivable from officer/stockholders' - - -
Prepaid expenses ( 14,514) ( 14,514) -
Vehicles held for sale or re-lease 14,183 14,183 -
Loans payable 5,539,466 5,539,466 -
Accounts payable and accrued expenses 510,914 510,914 -
Other assets - - -
Proceeds from vehicles sold 129,950 129,950 -
------------ ------------ --------
Total adjustments ( 81,573) ( 107,033) 25,460
------------ ------------ --------
Net cash provided by (used in)
in operating activities 10,262 10,262 -
------------ ------------ --------
Cash flows used in investing activities
Due from related party ( 150,000) ( 321,000) -
------------ ------------ --------
Cash flows from financing activities:
Sale of common stock - 106,025 (g) ( 106,025)
Loans payable - officer/stockholder - -
------------ ------------ --------
Net cash provided by (use in)
financing activities - 106,025 (g) ( 106,025)
------------ ------------ --------
Net increase (decrease) in cash ( 139,738) ( 204,713) ( 106,025)
Cash at beginning of period 237,957 237,957 -
------------ ------------ --------
Cash at end of period $ 98,219 $ 33,244 ($106,025)
============ ============ ========
(a) See restatement of statements of operations. (F-11)
(b) Reduction of amortization of initial direct cost pursuant to change to
interest method.
(c) Adjustment for the provision for income tax which relates to currently
payable portion.
(d) Adjustment pursuant to change in period of amortization of value for stock
issued for services rendered.
(e) Cumulative effect of reduction in amortization of additional direct costs
and reclassification of gain (loss) on sale of vehicles.
(f) Reclassification of interest receivable due from officer.
(g) Change in accounting for reverse acquisition of Royal by RIT from a
pooling of interests to a purchase.
13
ITEM 2. MANAGEMENT'S AND DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General:
The Company is in the business of leasing predominately new and pre-owned
automobiles with terms generally ranging from twelve to sixty months. It markets
its leasing services through its dealer network and advertising. The sources of
its automobile for lease are generally automobile dealers in the Eastern region
of the United States. The Company also leases and finances commercial industrial
equipment such as computers, airplanes, boats and construction equipment.
However, through March 31, 2000 commercial industrial equipment accounts for an
insignificant portion of company leases.
Forward Look Statements and Certain Risk Factors:
The Company cautions readers that certain important factors may affect the
Company's actual results and could cause such results to differ materially from
any forward-looking statements that may be deemed to have been made in this Form
10SB or that are otherwise made by or on behalf of the Company. For this
purpose, any statements contained in the Form 10-QSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generally of the foregoing, words such as "may", "expect", "believe",
"anticipate", "intend", "could", "estimate", or the negative variations thereof
or comparable terminology are intended to identify forward-looking statements.
Factors that may affect the Company's results include, but are not limited to,
the lack of substantial profits, its dependence on key personnel, its ongoing
need for additional financing and its dependence on the automobile industry. The
Company is also subject to other risks detailed herein or which will be detailed
from time to time in the Company's future filings with the Securities and
Exchange Commission.
Results of Operations:
Three Months Ended March 31, 2000 and 1999:
Revenues are summarized as follows:
For the Three Months Ended March 31,
------------------------------------
%
Increase Increase
2000 1999 (Decrease) (Decrease)
----- ----- ---------- ----------
(a) Amortization of unearned
lease income $1,423,936 $ 775,722 $648,214 83.6
(b) Gain (loss) on sale
of vehicles ( 35,436) 29,885 ( 65,321) ( 218.6)
---------- --------- -------- -------
$1,388,500 $ 805,607 $582,893 72.4
========== ========= ======== =======
14
Revenues are summarized as follows: (Continued)
a) The total amount of unearned lease income on leases in force at the
beginning of the periods and on leases entered during the three month
periods was $10,352,481 during the March 2000 quarter and $4,805,373
during the March 1999 quarter. Amortization of unearned lease income
represented 14% of total unearned income during the March 2000 quarter
and 16% during the March 1999 quarter. The dollar value increase of
$648,214 (a 84% increase) was a result of management's efforts to
increase its dealer network, which has been expanded to include locations
in Florida, North Carolina, California, Georgia and Illinois. Increase in
customer referrals has also had an impact on the Company's revenues.
Included in unearned income are initial payments received from leases
which during the March 2000 quarter aggregated $179,320 and $201,207 for
the March 1999 quarter. Approximately 50% of which represents
nonrefundable payments of the first month lease payment. It is the
Company's policy to charge these amounts to operations when received.
Such recognition policy results in approximately the same revenues as
would be recognized if the interest method were used.
b) In the event that the purchase option is not exercised by the lessee or
the vehicle is repossessed, the Company either re-leases or sells the
vehicle. In the event of a sale, the variant between the selling price
and the carrying amount of the lease is picked up in income. During the
March 2000 quarter the Company incurred a loss of $35,436, during the
March 1999 quarter the Company realized a $29,885 gain. The loss during
the March 2000 quarter was the result of the mix of vehicles which came
off leases. During the March 2000 quarter, the leases on many of the
vehicles which were sold did not go to full term as many of the
vehicles were repossessed. During the March 1999 quarter most of the
vehicles which were sold went to full term and the Company was able to
recoup the residual values and in many cases make a profit on the sale
of the vehicles.
15
Interest expense:
Average yield of implicit on income earnings assets versus average cost of
financing.
For the Three Months Ended March 31,
--------------------------------------------
%
Increase
2000 1999 (Decrease)
----- ----- ----------
Average yield implicit on income
earning assets:
Amortization of unearned lease income $ 1,423,936 $ 775,722
Average investment in leases $27,654,000 $17,200,000
----------- -----------
Rate of return on income earning assets 20.6% 18.0% 2.6
==== ====
Average cost of financing:
Interest expense $ 430,865 $ 360,272
Average loans payable balance $27,170,000 $15,626,000
----------- -----------
6.3% - % (2.9)
=== === ----
Percentage spread 14.3% 9.2% 5.1
==== === ====
The profitability of the Company's leases is primarily based upon the difference
between the interest rate implicit in it's leases and it's cost of funds (the
"Spread"). As summarized above the Spread during the 2000 quarter was 14.3% as
compared to 8.8% during the 1999 quarter. In order for the Company to increase
its leasing business, it was necessary to accept less credit worthy leases. In
order for the Company to compensate for its increased risk, the interest rate
implicit in its leases were increased. In addition, the Company leased more
expensive care during the 2000 quarter which generally carries higher implicit
interest rate.
For the Three Months Ended March 31,
---------------------------------------------------------
%
Increase Increase
2000 1999 (Decrease (Decrease)
----- ----- --------- ----------
Amortization of unearned
lease income $1,423,936 $775,722 $648,214 83.6
Amortization of initial
direct costs 90,697 57,548 33,149 57.6
---------- -------- -------- ----
Percentage 6.4% 7.4% 1.0%
==== ==== ====
Initial Direct Costs:
Initial direct costs consists primarily of commissions, automobile repairs and
repair costs. Such costs are amortized over the life of the lease using the
interest method basis. As a percentage of revenue, such amortization decreased
by .28% from the March 1999 quarter as compared to the March 2000 quarter
16
Selling, general and administrative expenses as a percentage of total revenues:
For the Three Months Ended March 31,
------------------------------------
Increase
2000 1999 (Decrease)
----- ----- ----------
Total revenues $1,388,500 $805,607 $582,893
Selling, general and
administrative expenses 454,591 232,952 221,639
---------- -------- --------
Increase as percentage of revenues 32.7% 28.9% 3.8%
===== ===== ====
Selling, general and administrative expenses increased from $232,952 during the
March 1999 quarter to $454,591 during the March 2000 quarter (3.8% increase on
total revenues). This increase was attributed to increases in bad debts and
salaries and wages caused by the large increase in revenues.
Such increases are summarized as follows:
For the Three Months Ended March 31,
------------------------------------
%
Increase
2000 1999 (Decrease)
----- ----- ----------
Provision for bad debts $101,306 $ - $101,306
Salaries and wages 123,665 54,544 69,121
Payroll taxes 11,998 7,729 4,269
Rent and real estate taxes 17,875 19,070 ( 1,195)
Travel and entertainment 21,802 27,316 ( 5,514)
Professional fees 17,296 3,722 13,574
Amortization of deferred charges 17,189 - 17,189
Other selling, general and
administrative expenses 143,460 120,571 22,889
-------- -------- --------
$454,591 $232,952 $221,639
======== ======== ========
The expansion of leasing operations during the latter part of 1999 and during
the March 2000 quarter necessitated the hiring of additional office personnel.
Due to the increase in leasing operations a provision for bad debts was required
during the March 2000 quarter whereas no provision was necessary, during the
March 1999 quarter. All other expenses remained relatively constant.
17
Financial Condition:
The Company's cash position at March 31, 2000 showed an increase of $61,335 from
the $33,106 balance which existed on December 31, 1999.
The net investment in direct financing leases represents the aggregate future
lease payments due to the Company from its leases; such amount was $28,198,301
at March 31, 2000 and $27,109,444 at December 31, 1999. The Company feels that
it has adequately reserved for any possible bad debts. The Company finances the
purchase of its lease vehicles under several separate credit facilities. Such
indebtedness aggregated to $27,729,253 and $26,610,165 at March 31, 2000 and
December 31, 1999, respectively.
Vehicles held for sale or re-leases increased from $1,300,843 at December 31,
1999 to $1,674,701 at March 31, 2000. Such increase was due to the higher volume
of automobiles coming off leases at March 31, 2000 compared with the year ended
December 31, 1999.
Through March 31, 2000, the Company had loaned $481,000 to an entity owned by
its President. Such amount is due on demand and bears interest at 9%. This loan
is accounted for as a reduction of stockholders' equity because the President
has collateralized the loan with his stock of the Company.
Accounts payable and accrued expenses at March 31, 2000 was $337,057 compared
with $512,324 at December 31, 1999, a decrease of $175,267.
At March 31, 2000, the Company is indebted to its President in the amount of
$115,436. Such debt outstanding at December 31, 1999 was $107,894.
Stockholders' equity increased by $339,347 during the period from December 31,
1999 to March 31, 2000. Such increase was the result of the sale of 165,000
common shares for $165,000 and net income of $234,347.
18
Liquidity and Capital Resources:
During the March 2000 quarter the Company used $106,257 in its operation which
resulted from (i) net income of $549,291 which is adjusted for noncash items of
$314,944, (ii) proceeds from the sale of vehicles of $113,589 and (iii) an
increase in prepaid expenses of $12,025. Offsetting the aforementioned increases
in cash flows was (i) a net decrease in the investment of direct finance
vehicles held for sale or re-lease of $373,858 and (iii) other items aggregating
$209,565.
During the March 2000 quarter, the Company raised $165,000 through the sale of
165,000 shares of its common stock pursuant to Rule 504 offerings.
The Company's working capital at March 31, 2000 was $280,334, an increase of
$707,858 over the negative working capital balance at December 31, 1999. When
the March 31, 2000 working capital balance is adjusted for the current portion
of unearned income of $1,768,995, the resulting working capital is $4,054,441.
Management's primary goal is to expand its leasing operations, increase and
obtain better terms with respect to the financing of the vehicles it leases and
to increase the profitability of its vehicle remarketing program. The strategy
for continued growth is to (i) increase lease origination by (a) increased name
recognition, (b) acquisition of similar companies or their assets, (c) the
development, expansion and retention of existing clients, and (d) the expansion
into new geographic markets, (ii) increase and improve the terms of its
financing arrangements, (iii) further develop and increase the profitability of
its used automobile remarketing operations and (iv) lease primarily to high
quality credit applicants in order to continue to build a lease portfolio with
low delinquency and credit loss rates.
Management believes that anticipated cash flow from operations and the proceeds
raised through its private offering will be sufficient to fund its operations
for the next 12 months assuming that those operations are consistent with
management's expectations of its anticipated increase in revenues. The Company
may need additional financing thereafter. There can be no assurance that the
Company will be able to obtain financing on a favorable or timely basis. The
type, timing and terms of financing elected by the Company will depend upon its
cash needs, the availability of other financing sources and the prevailing
conditions in the financial markets. Moreover, any statement regarding the
Company's ability to fund its operations from expected cash flows is speculative
in nature and inherently subject to risks and uncertainties, some of which
cannot be predicted or quantified.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 16, 2001 Royal Acceptance Corporation
(Registrant)
By: /s/ Richard Toporek
------------------------------
Richard Toporek
President