UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB-A
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 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 June 30, 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
JUNE 30, 2000
(Unaudited)
I N D E X
---------
Page No.
--------
Part I - Financial Information:
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
As at June 30, 2000 and December 31, 1999 ............ F-3
Consolidated Statements of Operations
For the Six Months June 30, 2000 and 1999 ............ F-4
Consolidated Statements of Operations
For the Three Months Ended June 30, 2000
and 1999 (Unaudited) ................................. F-5
Consolidated Statements of Stockholders' Equity
For the Six Months Ended June 30, 2000 ............... F-6
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2000 and 1999 ...... F-7
Notes to Consolidated Financial Statements............ F-8 - F-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................. F-15 - F-21
Part II - Other Information:
Item 3 Through Item 9 - Not Applicable ...............
Signatures ...........................................
2
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
A S S E T S
-----------
June 30, December 31,
2000 1999
----------- -----------
Current assets:
Cash $ 7,056 $ 33,106
Net investment in direct financing leases 5,870,100 7,759,531
Prepaid expenses 43,476 13,375
----------- -----------
Total current assets 5,920,632 7,806,012
Vehicles held for sale or re-lease 2,082,575 1,300,843
Net investment in direct financing leases 22,080,231 19,349,913
Furniture and equipment - net of depreciation
and amortization 98,953 112,453
Due from related parties 70,796 68,296
Deferred charges 23,436 49,999
Other assets 6,316 10,277
----------- -----------
$30,282,939 $28,697,793
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of loans payable $ 7,889,562 $ 7,613,318
Accounts payable and accrued expenses 923,052 512,324
Loan payable - officer/stockholder -- 107,894
----------- -----------
Total current liabilities 8,812,614 8,233,536
Loans payable - net of current maturities 19,686,136 18,996,847
Deferred income taxes 793,111 706,000
----------- -----------
Total liabilities 29,291,861 27,936,383
----------- -----------
Stockholders' equity:
Preferred stock, $.001 par value, authorized -
1,000,000 shares, none issued and outstanding
Common stock, $.001 par value, authorized - 25,000,000 shares, issued and
outstanding - 7,697,709 shares at June 30, 2000 and 7,532,709
shares at December 31 ,1999 7,698 7,533
Additional paid-in capital 417,770 252,935
Retained earnings 1,089,110 981,942
----------- -----------
1,514,578 1,242,410
Less: Due from related party 523,500 481,000
----------- -----------
991,078 761,410
----------- -----------
$30,282,939 $28,697,793
=========== ===========
See notes to consolidated financial statements.
3
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Six
Months Ended
June 30,
-----------------------
2000 1999
---------- ----------
Revenues:
Amortization of unearned lease income $2,404,478 $1,412,991
Gain on sale of vehicles, net 92,888 228,856
---------- ----------
Total revenues 2,497,366 1,641,847
---------- ----------
Costs and expenses:
Interest 1,306,483 740,249
Amortization of initial direct costs 181,424 103,096
Provision for bad debts 156,000 128,000
Salaries and wages 238,721 133,812
Payroll taxes 21,356 14,411
Rent and real estate taxes 76,125 107,069
Travel and entertainment 37,465 49,950
Professional fees 42,677 5,622
Amortization of deferred charges 26,563 --
Other selling and administrative expenses 211,273 174,465
---------- ----------
Total costs and expenses 2,298,087 1,456,674
---------- ----------
Income before provision for income taxes 199,279 185,173
Provision for income taxes 92,111 92,000
---------- ----------
Net income $ 107,168 $ 93,173
========== ==========
Earnings per share:
Basic and diluted net income per share $ 0.01 $ 0.01
========== ==========
Weighted average number of shares outstanding (A) 7,596,919 7,226,632
========== ==========
(A) Pro forma - See Note 1(e).
See notes to consolidated financial statements.
4
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three
Months Ended
June 30,
--------------------------
2000 1999
----------- -----------
Revenues:
Amortization of unearned lease income $ 980,542 $ 637,269
Gain on sale of vehicles, net 128,324 198,971
----------- -----------
Total revenues 1,108,866 836,240
----------- -----------
Costs and expenses:
Interest 875,618 379,977
Amortization of initial direct costs 90,727 51,548
Provision for bad debts 54,694 128,000
Salaries and wages 115,056 79,268
Payroll taxes 9,358 6,682
Rent and real estate taxes 58,250 87,999
Travel and entertainment 15,663 22,634
Professional fees 25,381 1,900
Amortization of deferred charges 9,374 --
Other selling and administrative expenses 67,813 53,894
----------- -----------
Total costs and expenses 1,321,934 811,902
----------- -----------
Income (loss) before provision for income taxes (213,068) 24,338
Provision (credit) for income taxes (85,889) 23,000
----------- -----------
Net income (loss) ($ 127,179) $ 1,338
=========== ===========
Earnings (loss) per share:
Basic and diluted net income (loss) per share ($ 0.02) ($ -- )
=========== ===========
Weighted average number of shares outstanding (A) 7,698,709 7,481,509
=========== ===========
(A) Pro forma - See Note 1(e).
See notes to consolidated financial statements.
5
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
Common Shares Additional Due from Total
---------------------- Paid-In Retained Related Stockholders'
Shares Amount Capital Earnings Party Equity
--------- ---------- ---------- ---------- ---------- -------------
Balance at January 1, 2000 7,532,709 $ 7,533 $ 252,935 $ 981,942 ($ 481,000) $ 761,410
Increase in loan to related party -- -- -- -- ( 42,500) ( 42,500)
Issuance of shares of common stock for cash 165,000 165 164,835 -- -- 165,000
Net income for the six months ended June 30, 2000 -- -- -- 107,168 -- 107,168
--------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 2000 7,697,709 $ 7,698 $ 417,770 $1,089,110 ($ 523,500) $ 991,078
========= ========== ========== ========== ========== ==========
See notes to consolidated financial statements.
6
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six
Months Ended
June 30,
--------------------------
2000 1999
----------- -----------
Cash flows from operating activities:
Net income $ 107,168 $ 93,173
----------- -----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 194,924 126,043
Deferred income taxes 87,111 --
Amortization of deferred changes 26,563 92,000
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Net investment in direct financing leases ( 1,022,311) ( 9,079,543)
Vehicles held for sale or re-lease ( 781,732) --
Prepaid expenses ( 30,101) ( 16,374)
Long-term debt 965,533 8,447,228
Accounts payable and accrued expenses 410,728 426,844
Other assets 3,961 --
----------- -----------
Total adjustments ( 145,324) ( 3,802)
----------- -----------
Net cash provided by (used in) operating activities ( 38,156) 89,371
----------- -----------
Cash flows used in investing activities:
Due from related parties ( 45,000) ( 321,000)
----------- -----------
Cash flows from financing activities:
Sale of common stock 165,000 --
Loans payable stockholder ( 107,894) --
----------- -----------
Net cash provided by financing activities 57,106 --
----------- -----------
Net decrease in cash ( 26,050) ( 231,629)
Cash at beginning of period 33,106 237,957
----------- -----------
Cash at end of period $ 7,056 $ 6,328
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash payments during the period for:
Interest $ 1,306,483 $ 740,249
=========== ===========
Income taxes $ 5,111 $ --
=========== ===========
See notes to consolidated financial statements.
7
ROYAL ACCEPTANCE CORORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 since 1995.
The following summarized unaudited pro forma information
assumes the acquisition had occurred on January 1, 1998.
For the Six For the Three
Months Ended Months Ended
June 30, 2000 June 30, 1999
------------- -------------
Revenues $1,641,847 $ 836,240
========== ==========
Net income $ 41,248 $ 3,192
========== ==========
Earnings per share:
Basic and diluted $ 0.01 $ 0.00
========== ==========
(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 June 30, 2000 and the related
financial statements for the six months and three months then ended
include the accounts of Royal and RIT. All other periods presented
include only the accounts of RIT.
8
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(c) Basis of Presentation:
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial statements 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 June 30, 2000 and the results of
operations and cash flows for the six months and three months ended
June 30, 2000 and 1999. The results of operations for the six months
and three months ended June 30, 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 audited
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
per share data more comparable, the weighted average number of shares
outstanding for the year ended December 31, 1999 and for the six and
three months ended June 30, 1999 reflect the pro forma acquisition of
Royal as if it had occurred on December 31, 1998.
9
NOTE 2 - RESTATEMENT.
The accompanying financial statements included in the
June 30, 2000 Form 10-QSB have been restated to give effect to
certain comments by the Securities and Exchange Commission regarding
the Company's filing of Amendment 2 to Form 10-SB as follows:
Consolidated Balance Sheets As At June 30, 2000
--------------------------- ---------------------------------------------------
As Difference
A s s e t s Originally Restated Over
----------- As Restated Filed (Under) Original
------------ ------------ -------------------
Current assets:
Cash $ 7,056 $ 7,056 $ --
Net investment in direct finance leases 5,870,100 7,536,164 (a) ( 1,666,064)
Prepaid expenses 43,476 -- (b) 43,476
------------ ------------ ------------
Total current assets 5,920,632 7,543,220 ( 1,622,588)
------------ ------------ ------------
Vehicles held for sale or re-leases 2,082,575 2,082,575 --
Net investment in direct finance leases 22,080,231 20,375,554 (a) 1,704,677
Furniture and fixtures - net 98,953 98,953 --
Due from related parties 70,796 114,272 (b) ( 43,476)
Deferred charges 23,436 -- (c) 23,436
Other assets 6,316 6,025 (d) 291
------------ ------------ ------------
24,362,307 22,677,379 1,684,928
------------ ------------ ------------
$ 30,282,939 $ 30,220,599 $ 62,340
============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of loans payable $ 7,889,562 $ 7,889,562 $ --
Accounts payable and accrued expenses 923,052 927,819 (d) ( 4,767)
Loans payable - officer/stockholder -- -- --
------------ ------------ ------------
Total current liabilities 8,812,614 8,817,381 ( 4,767)
Loans payable - net of current maturities 19,686,136 19,686,136 --
Deferred income taxes 793,111 788,000 (e) 5,111
------------ ------------ ------------
Total liabilities 29,291,861 29,291,517 344
------------ ------------ ------------
Stockholders' equity:
Common stock 7,698 7,733 (f) ( 35)
Additional paid-in capital 417,770 1,447,313 (g) ( 1,029,543)
Retained earnings (deficit) 1,089,110 ( 2,464) (g) 1,091,574
Less: Due to related party ( 523,500) ( 523,500) --
------------ ------------ ------------
Total stockholders' equity 991,078 929,082 61,996
------------ ------------ ------------
$ 30,282,939 $ 30,220,599 $ 62,340
============ ============ ============
Consolidated Balance Sheets As At December 31, 1999
--------------------------- ---------------------------------------------------
As Difference
A s s e t s Originally Restated Over
----------- As Restated Filed (Under) Original
------------ ------------ -------------------
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 -- (c) 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 (d) ( 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 (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 (g) ( 1,029,758)
Retained earnings (deficit) 981,942 ( 145,109) (g) 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) Reclassification of $1,704,677 to non current assets for the six
months ended June 30, 2000 and reduction of initial costs in the
amount of $38,613 and $47,527 for the six months ended June 30, 2000
and 1999, respectively.
(b) Reclassification from "Due from related parties".
(c) Adjustment pursuant to change in accounting for amortization of
initial direct costs from the cash method to the interest method.
(d) Miscellaneous adjustment.
(e) Increase in deferred taxes pursuant to increase in income.
(f) Reduction in amount of shares sold during the six months ended June
30, 2000.
(g) Effect of adjustments in (a) and (b) and (c) above which aggregated
$61,996 and $97,526 during the six months ended June 30, 2000 and
1999, respectively, and change to the purchase in accounting for the
reverse acquisition of Royal by RIT.
10
NOTE 2 - RESTATEMENT. (Continued)
Consolidated Statements of Operations:
For the Six Months Ended June 30, 2000
----------------------------------------------
As Difference
Originally Restated Over
As Restated Filed (Under) Original
----------- ----------- ------------------
Revenues:
Amortization of unearned
lease income $ 2,404,478 $ 2,404,478 $ --
Gain on sale of vehicles 92,888 92,888 --
----------- ----------- -----------
Total revenues 2,497,366 2,497,366 --
----------- ----------- -----------
Costs and expenses:
Interest 1,306,483 1,306,483 --
Amortization of initial direct costs 181,424 172,510 (a) 8,914
Provision for bad debts 156,000 156,000 --
Salaries and wages 238,721 238,721 --
Payroll taxes 21,356 -- (b) 21,356
Rent and real estate taxes 76,125 -- (b) 76,125
Travel and entertainment 37,465 -- (b) 37,465
Professional fees 42,677 -- (b) 42,677
Amortization of deferred charges 26,563 -- (c) 26,563
Other selling and
administrative expenses 211,273 388,896 (b) ( 177,623)
----------- ----------- -----------
2,298,087 2,262,610 35,477
----------- ----------- -----------
Income (loss) before provision
for income taxes 199,279 234,756 ( 35,477)
Provision (credit) for income taxes 92,111 92,111 --
----------- ----------- -----------
Net income (loss) $ 107,168 $ 142,645 ($ 35,477)
=========== =========== ===========
Earnings (loss) per share:
Basic and diluted:
Net income (loss) per share $ 0.01 $ 0.02 $ --
=========== =========== ===========
Weighted average number
of shares outstanding 7,596,919 7,596,919 --
=========== =========== ===========
For the Three Months Ended June 30, 2000
----------------------------------------------
As Difference
Originally Restated Over
As Restated Filed (Under) Original
----------- ----------- ----------------
Revenues:
Amortization of unearned
lease income $ 980,542 $ 980,542 $ --
Gain on sale of vehicles 128,324 128,324 --
----------- ----------- ---------
Total revenues 1,108,866 1,108,866 --
----------- ----------- ---------
Costs and expenses:
Interest 875,618 875,618 --
Amortization of initial direct costs 90,727 110,290 (a) ( 19,563)
Provision for bad debts 54,694 54,694 --
Salaries and wages 115,056 115,056 --
Payroll taxes 9,358 -- (b) 9,358
Rent and real estate taxes 58,250 -- (b) 58,250
Travel and entertainment 15,663 -- (b) 15,663
Professional fees 25,381 -- (b) 25,381
Amortization of deferred charges 9,374 -- (c) 9,374
Other selling and
administrative expenses 67,813 176,465 (b) ( 108,652)
----------- ----------- ---------
1,321,934 1,332,123 ( 10,189)
----------- ----------- ---------
Income (loss) before provision
for income taxes ( 213,068) ( 223,257) 10,189
Provision (credit) for income taxes ( 85,889) ( 85,889) --
----------- ----------- ---------
Net income (loss) ($ 127,179) ($ 137,368) $ 10,189
=========== =========== =========
Earnings (loss) per share:
Basic and diluted:
Net income (loss) per share ($ 0.02) ($ 0.02) $ --
=========== =========== =========
Weighted average number
of shares outstanding 7,733,709 7,733,709 --
=========== =========== =========
(a) Reduction of amortization of initial direct cost pursuant to change
to interest method.
(b) Reclassification of other selling, general and administrative
expenses which had no effect on income.
(c) Adjustment pursuant to change in period of amortization of value of
stock issued for services rendered.
11
NOTE 2 - RESTATEMENT. (Continued)
Consolidated Statements of Operations: (Continued)
For the Six Months Ended June 30, 1999
----------------------------------------------
As Difference
Originally Restated Over
As Restated Filed (Under) Original
----------- ----------- -----------------
Revenues:
Amortization of unearned $ 1,412,991 $ 1,412,991 $ --
lease income
Gain on sale of vehicles 228,856 228,856 --
----------- ----------- ----------
Total revenues 1,641,847 1,641,847 --
----------- ----------- ----------
Costs and expenses:
Interest 740,249 740,249 --
Amortization of initial direct costs 103,096 52,000 (a) 51,096
Provision for bad debts 128,000 128,000 --
Salaries and wages 133,812 133,812 --
Payroll taxes 14,411 -- (b) 14,411
Rent and real estate taxes 107,069 -- (b) 107,069
Travel and entertainment 49,950 -- (b) 49,950
Professional fees 5,622 -- (b) 5,622
Amortization of deferred charges -- -- --
Other selling and
administrative expenses 174,465 446,879 (b) ( 272,414)
----------- ----------- ----------
1,456,674 1,500,940 ( 44,266)
----------- ----------- ----------
Income before provision
for income taxes 185,173 140,907 44,266
Provision for income taxes 92,000 54,000 (c) 38,000
----------- ----------- ----------
Net income $ 93,173 $ 86,907 $ 6,266
=========== =========== ==========
Earnings (loss) per share:
Basic and diluted:
Net income (loss) per share $ 0.01 $ 0.01 $ --
=========== =========== ==========
Weighted average number
of shares outstanding 7,226,632 7,226,632 --
=========== =========== ==========
For the Three Months Ended June 30, 1999
----------------------------------------------
As Difference
Originally Restated Over
As Restated Filed (Under) Original
----------- ----------- ----------------
Revenues:
Amortization of unearned $ 637,269 $ 637,269 $ --
lease income
Gain on sale of vehicles 198,971 198,971 --
----------- ----------- ---------
Total revenues 836,240 836,240 --
----------- ----------- ---------
Costs and expenses:
Interest 379,977 379,977 --
Amortization of initial direct costs 51,548 25,912 (a) 25,636
Provision for bad debts 128,000 128,000 --
Salaries and wages 79,268 79,268 --
Payroll taxes 6,682 -- (b) 6,682
Rent and real estate taxes 87,999 -- (b) 87,999
Travel and entertainment 22,634 -- (b) 22,634
Professional fees 1,900 -- (b) 1,900
Amortization of deferred charges -- -- (b) --
Other selling and
administrative expenses 53,894 173,109 (b) ( 119,215)
----------- ----------- ---------
811,902 786,266 25,636
----------- ----------- ---------
Income before provision
for income taxes 24,338 49,974 ( 25,636)
Provision for income taxes 23,000 18,000 (c) 5,000
----------- ----------- ---------
Net income $ 1,338 $ 31,974 ($ 30,636)
=========== =========== =========
Earnings (loss) per share:
Basic and diluted:
Net income (loss) per share $ -- $ -- $ --
=========== =========== =========
Weighted average number
of shares outstanding 7,481,509 7,481,509 --
=========== =========== =========
(a) Reduction of amortization of initial direct costs pursuant to change
to interest method.
(b) Reclassification of other selling, general and administrative
expenses and change in the purchase method in accounting for the
reverse acquisition of Royal by RIT.
(c) Adjustment pursuant to change in period of amortization of value of
stock issued for services rendered.
(d) Change in provision for income taxes.
12
NOTE 2 - RESTATEMENT. (Continued)
Consolidated Statement of Changes in Stockholders' Equity:
For the Six Months Ended June 30, 2000
--------------------------------------------------
As Differences
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 165,000 200,000 (a) ( 35,000)
----------- ----------- ------------
Balance at end of period 7,697,709 7,732,709 ( 35,000)
=========== =========== ============
Common stock amount:
Balance at beginning of period $ 7,533 $ 7,533 $ --
Sale of shares for cash 165 200 (a) ( 35)
----------- ----------- ------------
Balance at end of period $ 7,698 $ 7,733 ($ 35)
=========== =========== ============
Additional paid-in capital:
Balance at beginning of period $ 252,935 $ 1,282,693 (b) ($ 1,029,758)
Sale of shares for cash 164,835 164,620 (a) 215
----------- ----------- ------------
Balance at end of period $ 417,770 $ 1,447,313 ($ 1,029,543)
=========== =========== ============
Retained earnings:
Balance at beginning of period $ 981,942 ($ 145,109) (b) $ 1,127,051
Net income 107,168 142,645 (c) ( 35,477)
----------- ----------- ------------
Balance at end of period $ 1,089,110 ($ 2,464) $ 1,091,574
=========== =========== ============
Due from related party:
Balance at beginning of period ($ 481,000) ($ 481,000) $ --
Sale of shares for cash ( 42,500) ( 42,500) --
----------- ----------- ------------
Balance at end of period ($ 523,500) ($ 523,500) $ --
=========== =========== ============
Total stockholders' equity:
Balance at beginning of period $ 761,410 $ 664,117 $ 97,293
Sale of shares for cash 165,000 164,820 180
Net income (loss) 107,168 142,645 ( 35,477)
Additional loans ( 42,500) ( 42,500) --
----------- ----------- ------------
Balance at end of period $ 991,078 $ 929,082 $ 61,996
=========== =========== ============
(a) Reduction in amount of shares sold during the six months ended
June 30, 2000.
(b) Change in accounting for the reverse acquisition of Royal by RIT from
a pooling of interests to a purchase.
(c) 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.
13
NOTE 2 - RESTATEMENT. (Continued)
Consolidated Statements of Cash Flows:
For the Six Months Ended June 30, 2000
------------------------------------------------
As Difference
Originally Restated Over
As Restated Filed (Under) Original
----------- ----------- ------------------
Cash Flows from operating activities:
Net income $ 107,168 $ 142,645 (a) ($ 35,477)
----------- ----------- ----------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 194,924 186,010 (b) 8,914
Gain on sale of vehicles -- ( 92,888) (e) 92,888
Deferred income taxes 87,111 87,000 (c) 111
Amortization of deferred charges 26,563 -- (d) 26,563
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Net investment in direct finance leases ( 1,022,311) ( 1,022,311) --
Interest receivable from related party ( 30,101) 13,375 (e) ( 43,476)
Prepaid expenses -- -- --
Vehicles held for sale or re-lease ( 781,732) ( 688,844) (e) ( 92,888)
Loans payable 965,533 965,533 --
Accounts payable and accrued expenses 410,728 410,728 --
Other assets 3,961 -- (e) 3,961
----------- ----------- ----------
Total adjustments ( 145,324) ( 141,397) ( 3,927)
----------- ----------- ----------
Net cash provided by (used in)
operating activities ( 38,156) 1,248 ( 39,404)
----------- ----------- ----------
Cash flows provided by (used in) investing activities:
Due to related party ( 45,000) ( 84,224) (e) 39,224
----------- ----------- ----------
Cash flows from financing activities:
Sale of common stock 165,000 164,820 (f) 180
Loans payable - stockholder ( 107,894) ( 107,894) --
----------- ----------- ----------
Net cash provided by (use in)
operating activities 57,106 56,926 180
----------- ----------- ----------
Net decrease in cash ( 26,050) ( 26,050) --
Cash at beginning of period 33,106 33,106 --
----------- ----------- ----------
Cash at end of period $ 7,056 $ 7,056 $ --
=========== =========== ==========
For the Six Months Ended June 30, 1999
----------------------------------------------------
As Difference
Originally Restated Over
As Restated Filed (Under) Original
----------- ----------- ---------------------
Cash Flows from operating activities:
Net income $ 93,173 $ 86,907 (a) $ 6,266
----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 126,043 67,480 (b,g) 58,563
Gain on sale of vehicles ( 228,856) ( 228,856) --
Deferred income taxes 92,000 54,000 (c) 38,000
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 ( 8,850,687) ( 9,083,978) (g) 233,291
Interest receivable from related party -- -- --
Prepaid expenses -- ( 15,924) (h) 15,924
Vehicles held for sale or re-lease ( 16,374) 8,997 ( 25,371)
Loans payable 8,447,228 8,738,543 (g) ( 291,315)
Accounts payable and accrued expenses 426,844 402,606 (h) 24,238
Other assets -- -- --
----------- ----------- -----------
Total adjustments ( 3,802) ( 57,132) 53,330
----------- ----------- -----------
Net cash provided by (used in)
operating activities 89,371 29,775 59,596
----------- ----------- -----------
Cash flows provided by (used in) investing activities:
Due to related party ( 321,000) ( 321,000) --
----------- ----------- -----------
Cash flows from financing activities:
Sale of common stock -- 106,025 (h) ( 106,025)
Loans payable - stockholder -- -- --
----------- ----------- -----------
Net cash provided by (use in)
operating activities -- 106,025 ( 106,025)
----------- ----------- -----------
Net decrease in cash ( 231,629) ( 185,200) ( 46,429)
Cash at beginning of period 237,957 237,957 --
----------- ----------- -----------
Cash at end of period $ 6,328 $ 52,757 ($ 46,429)
=========== =========== ===========
(a) See restatement of statement of operations.
(b) Reduction of amortization of initial direct cost pursuant to change
to interest method.
(c) Deferred taxes on adjustments to income.
(d) Adjustment pursuant to change in period of amortization of value for
stock issued for services rendered.
(e) Reclassification which had no effect on results of operations.
(f) Change in amount received from sale of stock.
(g) Reclassification between net investment in direct leases and loans
payable of $291,854 and reduction in amortization of initial direct
costs of $58,563 which had the effect of increasing the net
investment in direct financing leases.
(h) Change in accounting for reverse acquisition of Royal by RIT from a
pooling of interests to a purchase.
14
MANAGEMENT DISCUSSION AND ANALYSIS
----------------------------------
Results of Operations:
- ----------------------
Six Months Ended June 30, 2000 and 1999:
Revenues are summarized as follows:
For the Six Months Ended June 30,
--------------------------------------------------
%
Increase Increase
2000 1999 (Decrease) (Decrease)
---------- ---------- ---------- ----------
Amortization of unearned
lease income $2,404,478 $1,412,991 $ 991,487 70.2
Gain (loss) on sale of vehicles 92,888 228,856 ( 135,968) (59.4)
---------- ---------- ---------- ----
Total revenues $2,497,366 $1,641,847 $ 855,519 52.1
========== ========== ========== ====
Revenues for the six months ended June 30, 2000 increased by approximately 52.1%
when compared with the same period in 1999. The increase was a result of
management's efforts to increase its dealer networks which has been expanded to
include locations in Florida, North Carolina, California, Georgia and Illinois.
Management has also expanded its financial relationships to include several new
major financing sources enabling the Company to consummate additional lease
agreements. Increase in customer referrals has also had an impact on the
Company's revenues.
Included in unearned income is initial payments received from leases which,
aggregated $433,483 and $495,839 during the six months ended June 30, 2000 and
1999, respectively. 50% of such payments consisted of application fees and
approximately 50% of nonrefundable payment of the first months lease payment. It
is the policy to charge these amounts to operations when received. Such
recognition policy results in approximately the same revenue as would be
recognized if the interest method were used.
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 income. During the six months ended June 30,
2000 and 1999, the Company realized a gain on the sale of vehicles of $92,888
and $228,856, respectively. The reduction in the gain during the 2000 period,
was a function of the types of vehicles sold during the period. During the 1999
period, many of the vehicles sold went to full term, thus enabling the Company
to recoup the residual values.
15
Results of Operations: (Continued)
Average yield implicit on leases versus average cost of financing:
For the Six Months Ended June 30,
---------------------------------------
%
Increase
2000 1999 (Decrease)
----------- ----------- ----------
Yield implicit in income earning assets:
Amortization of unearned lease income $ 2,404,478 $ 1,412,991
Average investment in leases $27,529,888 $19,803,822
Rate of return on income earning assets 17.5% 14.3% 3.2
----------- ----------- ---
Average cost of financing:
Interest expense $ 1,306,483 $ 740,249
Average loans payable balance $21,656,171 $18,182,888
Annualized average cost of financing 12.1% 8.1% 3.9
----------- ----------- ---
Percentage spread 5.4% 6.1% ( .7)
=========== =========== ===
The profitability of the Company's leases is primarily based upon the difference
between the interest rate implicit in its leases and it's cost of funds (the
"Spread"). As summarized below during the six months ended June 30, 2000 was
5.40% as compared to 6.13% a year earlier.
For the Six Months Ended June 30,
----------------------------------------------------
%
Increase Increase
2000 1999 (Decrease) (Decrease)
---------- ---------- ---------- ----------
Total lease revenue $2,404,478 $1,412,991 $ 991,487 70.2
Amortization of initial direct costs 181,424 103,096 78,329 76.0
---------- ---------- ----------
Percentage 7.55% 7.30% 0.25%
========== ========== ==========
Initial direct costs consists primarily of commissions, automobile repairs and
repossession costs. Such costs are amortized over the life of the lease on the
interest method. As a percentage of revenue, such amortization increased by
0.25% from the six months ended June 30, 2000 as compared to the same period in
1999. The dollar increase was due to a large increase in leases entered into
during the six months ended June 30, 2000 as compared to a year earlier.
Selling, general and administrative expenses as a percentage of total revenues:
For the Six Months Ended June 30,
----------------------------------------------------
%
Increase Increase
2000 1999 (Decrease) (Decrease)
---------- ---------- ---------- ----------
Total revenues $2,497,366 $1,641,847 $855,519 52.1
Selling, general and
administrative expenses 783,617 613,329 17,288 27.8
---------- ---------- --------
Percentage 31.4% 37.4% 6.1%
========== ========== ========
16
Selling, general and administrative expenses increased from $613,329 during the
six months ended June 30, 1999 to $783,617 during the six months ended June 30,
2000 (an increase of $170,288). This increase was attributed to increase in bad
debts and salaries and wages and professional fees which were caused by the
large increase in revenues. However, as a percentage of revenues, SG&A expenses
decreased by 6.0%. Such increases are summarized as follows:
For the Six Months Ended June 30,
--------------------------------------
%
Increase
2000 1999 (Decrease)
-------- -------- ----------
Provision for bad debts $156,000 $128,000 $ 28,000
Salaries and wages 238,721 133,812 104,909
Payroll taxes 21,356 14,411 6,945
Rent and real estate taxes 76,125 107,069 ( 30,944)
Travel and entertainment 37,465 49,950 ( 12,485)
Professional fees 42,677 5,622 37,055
Other selling, general and
administrative expenses 211,273 174,465 36,808
-------- -------- --------
$783,617 $613,329 $170,288
======== ======== ========
The expansion of leasing operations during the latter part of 1999 and during
the six months ended June 30, 2000 necessitated the hiring of additional office
personnel. Due to the increase in leasing operations a higher provision for bad
debts was required during the nine months ended June 30, 2000. Whereas a smaller
provision was necessary during the same period in 1999. Professional fees
increased by approximately $37,000 and other selling, general and administrative
expenses increased by $36,808.
Three months ended June 30, 2000 and 1999:
Revenues are summarized as follows:
For the Three Months Ended June 30,
----------------------------------------------------
%
Increase Increase
2000 1999 (Decrease) (Decrease)
---------- -------- ---------- ----------
Amortization of unearned lease income $ 980,542 $637,269 $343,273 53.9
Gain (loss) on sale of vehicles, net 128,324 198,971 ( 70,647) (35.5)
---------- -------- -------- ----
$1,108,866 $836,240 $272,626 32.6
========== ======== ======== ====
Revenues for the quarter ended June 30, 2000 increased by approximately 54% when
compared with the same period in 1999. The Company enjoyed a large increase in
revenues due to an expansion of their dealer networks which had been expanded to
include locations in Florida, North Carolina, California, Georgia and Illinois.
Included in unearned income are initial payments received from leases which
aggregated $104,780 and $63,627 during the three months ended June 30, 2000 and
1999, respectively. 50% of such payment a consisted of application fees and
approximately 50% of nonrefundable payment of the first months 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.
17
In the event that the purchase option is not exercised by the leasee or the
vehicle is repossessed, the Company either re-leases or sells the vehicle. In
the event of sale, the variant between the selling price and the carrying amount
of the lease is picked up in income. During the three months ended June 30,
2000, the Company realized a gain from the sale of vehicles of $128,324 as
compared with a gain on $198,971 the year before. The decrease in the gain on
the sale of vehicles is a function of the types of vehicles sold and whether the
underlying lease went to full term. During the June 1999 quarter many of the
vehicles which were sold went to full term. Profits on such vehicles are
generally higher than those which did not go to full term.
Average yield implicit on leases versus average cost of financing:
For the Three Months Ended June 30,
---------------------------------------
%
Increase
2000 1999 (Decrease)
------------ ----------- ----------
Yield implicit in income earning assets:
Amortization of unearned lease income $ 980,542 $ 637,269
Average investment in leases $27,950,000 $23,433,000
Rate of return on income earning assets 14.1% 10.9% 3.2
----------- ----------- ---
Average cost of financing:
Interest expense $ 875,618 $ 379,977
Average loans payable balance $27,575,698 $20,552,000
Annualized average cost of financing 12.7% 7.4% 5.3
----------- ----------- ---
Percentage spread 1.3% 3.5% (2.2)
=========== =========== ===
The profitability of the Company's leases is primarily based upon the difference
between the interest rate implicit in its leases and it's cost of funds (the
"Spread"). As summarized above the Spread during the three months ended June 30,
2000 was only 1.3% as compared 3.5% a year earlier. Due to increased competition
during the June 2000 quarter, the Company was forced to decrease the interest
rate inherent in its leases which sharply decrease the rate of return on its
income earning assets. Such decrease was a major cause of the loss during the
June 2000 quarter.
Initial direct costs:
For the Three Months Ended June 30,
----------------------------------------------------
%
Increase Increase
2000 1999 (Decrease) (Decrease)
---------- -------- ---------- ----------
Total lease revenue $980,542 $637,269 $343,273 53.9
Amortization of initital direct costs 90,727 51,548 39,179 76.0
-------- -------- -------- ----
Percentage 9.3% 8.1% 1.2%
======== ======== ========
Initial direct costs consists primarily of commissions, automobile repairs and
repossession costs. Such costs are amortized over the life of the lease using
the interest method. As a percentage of revenues, such amortization increased by
1.16% for the three months ended June 30, 2000 as compared to the same period in
1999.
18
Selling, general and administrative expenses as a percentage of total revenues:
For the Three Months Ended June 30,
----------------------------------------------------
%
Increase Increase
2000 1999 (Decrease) (Decrease)
---------- -------- ---------- ----------
Total revenues $1,108,866 $836,240 $272,626 32.6
Selling, general and
administrative expenses 346,215 380,377 ( 34,162) ( 9.0)
---------- -------- -------- ----
31.2% 45.5% ( 14.3%)
========== ======== ========
Selling, general and administrative expenses decreased from $380,377 during the
June 1999 quarter to $346,215 during the June 2000 quarter (a decrease of
$34.162). As a percentage of revenues< SG&A expenses decreased by 14.3% due to
the presence of fixed costs which remained relatively constant on increased
revenues. Such decreases are summarized as follows:
For the Three Months Ended June 30,
---------------------------------------
%
Increase
2000 1999 (Decrease)
------------ ----------- ----------
Provision for bad debts $ 54,694 $128,000 ($73,306)
Salaries and wages 115,056 79,268 35,788
Payroll taxes 9,358 6,682 2,676
Rent and real estate taxes 58,250 87,999 ( 29,749)
Travel and entertainment 15,663 22,634 ( 6,971)
Professional fees 25,381 1,900 23,481
Other selling, general and
administrative expenses 67,813 53,894 13,919
-------- -------- -------
$346,215 $380,377 ($34,162)
======== ======== =======
The expansion of leasing operations during the latter part of 1999 and during
the six months ended June 30, 2000 necessitated the hiring of additional office
personnel. The provision for bad debts decreased due to the extraordinary large
provision during the June 1999 quarter.
19
Liquidity and Capital Resources:
During the six months ended June 30, 2000, cash of $38,156 was used in
operations which is summarized as follows: (i) net income of $107,168 which is
adjusted for non-cash items of $215,710, (ii) an increase in long-term debt of
$965,533 and (iii) an increase in accounts payable in the amount of $410,728.
Offsetting these increases in cash flows was: (i) a decrease in the net
investment in direct finance leases of $929,423, (ii) an increase in vehicles
held for sale or re-lease of $781,732 and (iii) an increase in prepaid expenses
and other assets of $26,140.
During the six months ended June 30, 2000, the Company raised $165,000 through
the sale of 165,000 shares of its common stock pursuant to Rule 504 offerings at
$1.00 per share. In addition, the Company repaid a loan from its President in
the amount of $107,894 and loaned a related party $45,000.
The Company had negative working capital at June 30, 2000 of $2,891,982 an
increase over the negative working capital balance at December 31, 1999 which
was $427,524. When the current portion of unearned income is added back to the
June 30, 2000 working capital deficiency, the result is a negative working
capital balance of $1,251,153.
Financial Condition at June 30, 2000:
The Company's cash position at June 30, 2000 was $7,056, a decrease of $26,050
from December 31, 1999. The net investment in direct finance leases represents
the aggregate future lease payments due to the Company from its leases. Such
amount was $27,950,331 at June 30, 2000 compared with $27,109,444 at December
31, 1999. The Company feels that it has adequately reserved for all possible bad
debts. The purchase of leased vehicles are financed under several separate
credit facilities. Such indebtedness aggregated $27,575,698 at June 30, 2000
compared with $26,610,165 at December 31, 1999.
Vehicles held for sale or re-lease increased from $1,300,843 at December 31,
1999 to $2,082,575 at June 30, 2000. Such increase was the result of an increase
in vehicle coming off lease during the first six months of 2000.
Accounts payable and accrued expenses increased from $512,324 at December 31,
2000 to $923,052 at June 30, 2000. Such increase was a result of a slowdown in
payments to vendors caused by a shortage of working capital. Approximately
$108,000 loaned to the Company by its president was repaid during the six months
ended June 30, 2000.
Due to the timing difference between book and tax treatment of leasing
operations, the Company has a deferred tax liability as of June 30, 2000 of
$793,000, an increase of $87,000 over the balance at December 31, 1999.
Stockholders' equity increased by $229,668 during the six months ended June 30,
2000. Such increase was the result of net income of $107,168, the sale of
165,000 common shares for $165,000.
These increases in stockholders' equity was partially offset by additional
amounts to an affiliate of $42,500.
20
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 rate.
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.
21
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 Torporek
President