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 September 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
7,697,704 shares, $.001 par value, as of September 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
SEPTEMBER 30, 2000
(Unaudited)
I N D E X
---------
Page No.
--------
Part I - Financial Information:
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
As at September 30, 2000 and December 31, 1999 ............................. 3
Consolidated Statements of Income
For the Nine Months Ended
September 30, 2000 and 1999 ................................................ 4
Consolidated Statements of Operations
For the Three Months Ended September 30, 2000
and 1999 ................................................................... 5
Consolidated Statements of Stockholders' Equity
For the Year Ended December 31, 1999 and Nine Months
Ended September 30, 2000 ................................................... 6
Consolidated Statements of Cash Flows
For the Nine Months Ended
September 30, 2000 and 1999 ................................................ 7
Notes to Consolidated Financial Statements.................................. 8 - 14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................................................ 15 - 22
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
September 30, December 31,
2000 1999
------------- ------------
Current assets:
Cash $ 4,773 $ 33,106
Net investment in direct financing leases 6,282,008 7,759,531
Interest receivable - related party 64,337 13,375
Prepaid expenses 10,000 --
----------- -----------
Total current assets 6,361,118 7,806,012
Vehicles held for sale or re-lease 2,225,414 1,300,843
Net investment in direct financing leases 21,057,048 19,349,913
Furniture and equipment - net of depreciation
and amortization 92,203 112,453
Interest due from related parties 67,796 68,296
Deferred charges 16,015 49,999
Other assets 4,023 10,277
----------- -----------
$29,823,617 $28,697,793
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of loans payable $ 5,770,302 $ 7,613,318
Accounts payable and accrued expenses 222,181 512,324
Loan payable stockholder 305,187 107,894
----------- -----------
Total current liabilities 6,297,670 8,233,536
Loans payable - net of current maturities 21,841,666 18,996,847
Deferred income taxes 740,000 706,000
----------- -----------
Total liabilities 28,879,336 27,936,383
----------- -----------
Stockholders' equity:
Preferred stock, $.001 par value, authorized - 1,000,000 shares, issued and
outstanding - none
Common stock, $.001 par value, authorized - 25,000,000 shares, issued and
outstanding - 7,697,704 shares at September 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 1,032,313 981,942
----------- -----------
1,457,781 1,242,410
Less: Due from related party 513,500 481,000
----------- -----------
Total stockholders' equity 944,281 761,410
----------- -----------
$29,823,617 $28,697,793
=========== ===========
See notes to consolidated financial statements.
3
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Nine
Months Ended
September 30,
------------------------
2000 1999
---------- ----------
Revenues:
Amortization of unearned lease income $3,066,373 $2,801,032
Gain on sale of vehicles 233,499 118,917
---------- ----------
Total revenues 3,299,872 2,919,949
---------- ----------
Costs and expenses:
Interest 1,930,758 1,315,308
Amortization of initial direct costs 272,092 154,644
Provision for bad debts 156,000 132,000
Salaries and wages 352,861 242,588
Payroll taxes 27,768 19,618
Rent and real estate taxes 103,875 89,850
Travel and entertainment 50,683 74,788
Professional fees 98,640 66,882
Amortization of deferred charges 33,974 17,884
Other selling and administrative expenses 183,906 180,781
---------- ----------
Total costs and expenses 3,210,557 2,294,343
---------- ----------
Income before provision for income taxes 89,315 625,606
Provision for income taxes 38,944 256,000
---------- ----------
Net income $ 50,371 $ 369,606
========== ==========
Earnings per share:
Basic and diluted:
Net income per share $ 0.01 $ 0.05
========== =========
Weighted average number of shares outstanding (A) 7,671,299 7,301,996
========== ==========
(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
September 30,
----------------------------
2000 1999
----------- -----------
Revenues:
Amortization of unearned
lease income $ 661,895 $ 1,388,041
Gain (loss) on sale of vehicles 140,611 (109,939)
----------- -----------
Total revenues 802,506 1,278,102
----------- -----------
Costs and expenses:
Interest 624,274 575,059
Amortization of initial direct costs 90,668 51,548
Provision for bad debts -- 4,000
Salaries and wages 114,140 108,776
Payroll taxes 6,412 5,207
Rent and real estate taxes 27,750 (17,219)
Travel and entertainment 13,218 24,838
Professional fees 55,963 61,260
Amortization of deferred charges 7,411 17,884
Other selling and administrative expenses (27,367) 6,316
----------- -----------
Total costs and expenses 912,469 837,669
----------- -----------
Income (loss) before provision for income taxes (109,963) 440,433
Provision (credit) for income taxes (53,167) 164,000
----------- -----------
Net income (loss) ($ 56,796) $ 276,433
=========== ===========
Earnings (loss) per share:
Basic and diluted:
Net income (loss) per share ($ 0.01) $ 0.04
=========== ===========
Weighted average number of shares outstanding (A) 7,732,492 7,481,781
=========== ===========
(A) Pro forma - See Note 1(e)
See notes to consolidated financial statements.
5
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
Common Shares Additional Due from Total
---------------------- Paid-In Retained Related Stockholder'
Shares Amount Capital Earnings Party Equity
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1999 7,532,709 $ 7,533 $ 252,935 $ 981,942 ($ 481,000) $ 761,410
Due from related party -- -- -- -- (32,500) (32,500)
Issuance of shares of common stock for cash 165,000 165 164,835 -- -- 165,000
Net income for the nine months
ended September 30, 2000 -- -- -- 50,371 -- 50,371
---------- ---------- ---------- ---------- ---------- ----------
Balance at September 30, 2000 7,697,709 $ 7,698 $ 417,770 $1,032,313 ($ 513,500) $ 944,281
========== ========== ========== ========== ========== ==========
See accompanying notes to financial statements.
6
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine
Months Ended
September 30,
-----------------------------
2000 1999
------------ ------------
Cash flows from operating activities:
Net income $ 50,371 $ 369,606
------------ ------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 292,342 130,781
Deferred income taxes 34,000 256,000
Amortization of deferred charges 33,984 17,884
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Net investment in direct financing leases (501,204) (11,334,025)
Vehicles held for sale or re-lease (924,571) (534,443)
Prepaid expenses (10,000) --
Other assets 6,254 --
Loans payable 1,001,803 10,930,728
Accounts payable and accrued expenses (290,143) 308,823
Interest receivable (50,962) --
------------ ------------
Total adjustments (408,497) (224,252)
------------ ------------
Net cash provided by (used in) operating activities (358,126) 145,354
------------ ------------
Cash flows from investing activities:
Acquisition of furniture and equipment -- (34,035)
Increase in loan to related party (32,500) (435,150)
------------ ------------
Net cash used in investing activities (32,500) (469,185)
------------ ------------
Cash flows from financing activities:
Sale of capital stock 165,000 --
Loans payable officer 197,293 103,394
------------ ------------
Net cash provided by financing activities 362,293 103,394
------------ ------------
Net decrease in cash (28,333) (220,437)
Cash acquired at acquisition
of Royal Acceptance -- 21,412
Cash at beginning of period 33,106 237,957
------------ ------------
Cash at end of period $ 4,773 $ 38,932
============ ============
Supplemental Disclosures of Cash Flow Information:
Interest $ 1,930,758 $ 1,315,308
============ ============
Income taxes $ -- $ --
============ ============
See notes to consolidated financial statements.
7
ROYAL ACCEPTANCE CORORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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.
The following summarized unaudited pro forma
information assumes the acquisition had occurred on January 1,
1999.
For the Nine For the Three
Months Ended Months Ended
September 30, 1999 September 30, 1999
------------------ ------------------
Revenues $2,919,949 $1,278,102
========== ==========
Net income $ 360,795 $ 189,716
========== ==========
Earnings per share:
Basic and diluted $0.05 $0.25
===== =====
(b) Principles of Consolidation:
The accompanying interim unaudited consolidated
financial statements include the accounts of Royal and its
wholly-owned subsidiary, RIT. All material intercompany
transactions have been eliminated in consolidation.
8
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (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 Regulation 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 September 30, 2000 and the results
of operations and cash flows for the three months and nine
months ended September 30, 2000 and 1999 and not necessarily
indicative of the results to be expected for the year ended
December 31, 2000.
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 10KSB. These
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 10KSB for the year
ended December 31, 1999.
(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 nine and three
months ended September 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 September 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:
As At September 30, 2000
----------------------------------------------
Difference
Restated Over
As Restated Filed (Under) Original
----------- --------- ----------------
Current assets:
Cash $ 4,773 $ 4,773 $ --
Net investment in direct finance leases 6,282,008 6,247,722 (a) 34,286
Interest receivable from related party 64,337 -- (b) 64,337
Prepaid expenses 10,000 10,000 --
------------ ------------ ----------
Total current assets 6,361,118 6,262,495 98,623
------------ ------------ ----------
Vehicles held for sale or re-lease 2,225,414 2,225,414 --
Net investment in direct finance leases 21,057,048 21,057,048 --
Furniture and fixtures - net 92,203 92,203 --
Interest due from related parties 67,796 67,796 --
Deferred charges 16,015 -- (c) 16,015
Other assets 4,023 4,025 (2)
------------ ------------ ----------
23,462,499 23,446,486 16,013
------------ ------------ ----------
$ 29,823,617 $ 29,708,981 $114,636
============ ============ ==========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of loans payable $ 5,770,302 $ 5,770,302 $ --
Accounts payable and accrued expenses 222,181 222,110 (d) 71
Loans payable - stockholder 305,187 305,187 --
------------ ------------ ----------
Total current liabilities 6,297,670 6,297,599 71
Loans payable - net of current maturities 21,841,666 21,841,666 --
Deferred income taxes 740,000 761,000 (e) (21,000)
------------ ------------ ----------
28,879,336 28,900,265 (20,929)
------------ ------------ ----------
Stockholders' equity:
Common stock 7,698 7,733 (f) (35)
Additional paid-in capital 417,770 328,257 (g) 89,513
Retained earnings 1,032,313 1,050,563 (g) (18,250)
Less: Due to related party (513,500) (577,837) (b) 64,337
------------ ------------ ----------
Total stockholders' equity 944,281 808,716 135,565
------------ ------------ ----------
$ 29,823,617 $ 29,708,981 114,636
============ ============ ==========
As At December 31, 2000
--------------------------------------------------
Difference
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
Interest receivable from related party 13,375 13,375 --
Prepaid expenses -- -- --
------------ ------------ --------------
Total current assets 7,806,012 7,758,485 47,527
------------ ------------ --------------
Vehicles held for sale or re-lease 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 --
Interest 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 - 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
------------ ------------ --------------
27,936,383 27,936,150 233
------------ ------------ --------------
Stockholders' equity:
Common stock 7,533 7,533 --
Additional paid-in capital 252,935 1,282,633 (g)(1,029,698)
Retained earnings 981,942 (145,109) (g) 1,127,051
Less: Due to related party (481,000) (481,000) --
------------ ------------ --------------
Total stockholders' equity 761,410 664,057 97,353
------------ ------------ --------------
$ 28,697,793 $ 28,600,207 $ 97,586
============ ============ ==============
(a) Cumulative adjustment pursuant to change in amortization of initial direct
costs in the amount of $34,286 for September 30, 2000. and $47,527 for
December 31, 2000.
(b) Reclassification from "Due from related parties" as at September 30, 2000
and "Other assets" at December 31, 1999.
(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 (decrease) in deferred taxes pursuant to increase (decrease) in
income.
(f) Reduction in amount of shares sold during the nine months ended September
30, 2000.
(g) For September 30, 2000 - the effect of adjustment (a) and (c) above which
aggregated $50,301 and change to the purchase method in accounting for the
reverse acquisition of Royal by RIT which increased retained earnings and
paid-in capital.
10
NOTE 2 - RESTATEMENT. (Continued)
Statements of Operations:
For the Nine Months Ended September 30, 2000
------------------------------------------------------------
Difference
Restated Over
As Restated Filed (Under) Original
----------- --------------- ----------------
Revenues:
Amortization of unearned $3,066,373 $3,066,307 $ 66
lease income
Gain on sale of vehicles 233,499 233,499 -
-------------- -------------- -------------
Total revenues 3,299,872 3,299,806 66
-------------- -------------- -------------
Costs and expenses:
Interest 1,930,758 1,930,758 -
Amortization of initial direct costs 272,092 258,765 (a) 13,327
Provision for bad debts 156,000 156,000 -
Salaries and wages 352,861 352,861 -
Payroll taxes 27,768 - (b) 27,768
Rent and real estate taxes 103,875 - (b) 103,875
Travel and entertainment 50,683 - (b) 50,683
Professional fees 98,640 - (b) 98,640
Amortization of deferred charges 33,974 - (c) 33,974
Other selling and
administrative expenses 183,906 464,806 (b) ( 280,900)
-------------- -------------- -------------
3,210,557 3,163,190 47,367
-------------- -------------- -------------
Income before provision
for income taxes 89,315 136,616 (a,c) ( 47,301)
Provision for income taxes 38,944 60,000 (d) ( 21,056)
-------------- --------------- -------------
Net income $ 50,371 $ 76,616 (e) $ (26,245)
============== ============== =============
Earnings per share:
Basic and diluted:
Net income per share $0.01 $ 0.01 $ -
============== ============== =============
Weighted average number
of shares outstanding 7,671,299 7,687,984 (e) ( 16,045)
============== ============== =============
For the Nine Months Ended September 30, 1999
--------------------------------------------------------
Difference
Restated Over
As Restated Filed (Under) Original
----------- -------------- ----------------
Revenues:
Amortization of unearned $2,801,032 $2,801,032 $ -
lease income
Gain on sale of vehicles 118,917 118,917 -
------------ -------------- ------------
Total revenues 2,919,949 2,919,949 -
------------ -------------- ------------
Costs and expenses:
Interest 1,315,308 1,315,308 -
Amortization of initial direct costs 154,644 181,155 (a) ( 26,511)
Provision for bad debts 132,000 132,000 -
Salaries and wages 242,588 242,588 -
Payroll taxes 19,618 - (b) 19,618
Rent and real estate taxes 89,850 - (b) 89,850
Travel and entertainment 74,788 - (b) 74,788
Professional fees 66,882 - (b) 66,882
Amortization of deferred charges 17,884 - 17,884
Other selling and
administrative expenses 180,781 467,707 (b) (286,926)
------------ -------------- ------------
2,294,343 2,338,758 (44,415)
------------ -------------- ------------
Income before provision
for income taxes 625,606 581,191 (a,c) 44,415
Provision for income taxes 256,000 236,000 (d) 20,000
----------- -------------- ------------
Net income $ 369,606 $ 345,191 $ 24,415
============ ============== ============
Earnings per share:
Basic and diluted:
Net income per share $ 0.05 $ 0.05 $ -
============ ============== ============
Weighted average number
of shares outstanding 7,301,996 7,301,996 -
============ ============== ============
(a) Reduction of amortization of initial direct cost pursuant to change to
interest method.
(b) Reclassification of other selling, general and administrative expenses.
(c) Adjustment pursuant to change in period of amortization of value of stock
issued for services rendered.
(d) Change in provision for taxes pursuant to (a) and (b) above.
(e) Reduction in common shares sold during nine months ended September 30,
2000.
11
NOTE 2 - RESTATEMENT. (Continued)
Statements of Operations:
For the Three Months Ended September 30, 2000
---------------------------------------------
Difference
Restated Over
As Restated Filed (Under) Original
-------------- -------------- ----------------
Revenues:
Amortization of unearned $ 661,896 $ 661,829 $ 67
lease income
Gain on sale of vehicles 140,610 140,610 --
-------------- -------------- --------------
Total revenues 802,506 802,439 67
-------------- -------------- --------------
Costs and expenses:
Interest 624,275 624,274 1
Amortization of initial direct costs 90,668 86,255 (a) 4,413
Provision for bad debts -- -- --
Salaries and wages 114,140 114,140 --
Payroll taxes 6,412 -- (b) 6,412
Rent and real estate taxes 27,750 -- (b) 27,750
Travel and entertainment 13,218 -- (b) 13,218
Professional fees 55,963 -- (b) 55,963
Amortization of deferred charges 7,411 -- (c) 7,411
Other selling and
administrative expenses ( 27,367) 76,006 (b) ( 103,373)
-------------- -------------- --------------
912,470 900,675 11,795
-------------- -------------- --------------
Income (loss) before provision
for income taxes ( 109,964) ( 98,236) ( 11,728)
Provision (credit) for income taxes ( 53,167) ( 32,167) (d) ( 21,000)
============== ============== ==============
Net income (loss) ($ 56,797) ($ 66,069) $ 9,272
============== ============== ==============
Earnings (loss) per share:
Basic and diluted:
Net income (loss) per share ($ 0.01) ($ 0.01) $ --
======= ======= ======
Weighted average number
of shares outstanding 7,732,492 7,732,492 --
============== ============== ==============
For the Three Months Ended September 30, 1999
---------------------------------------------
Difference
Restated Over
As Restated Filed (Under) Original
-------------- -------------- ---------------
Revenues:
Amortization of unearned $ 1,388,041 $ 1,388,041 $ --
lease income
Gain on sale of vehicles ( 109,939) ( 109,939) --
-------------- -------------- --------------
Total revenues 1,278,102 1,278,102 --
-------------- -------------- --------------
Costs and expenses:
Interest 575,059 575,059 --
Amortization of initial direct costs 51,548 129,155 (a) ( 77,607)
Provision for bad debts 4,000 4,000 --
Salaries and wages 108,776 108,776 --
Payroll taxes 5,207 -- (b) 5,207
Rent and real estate taxes ( 17,219) -- (b) ( 17,219)
Travel and entertainment 24,838 -- (b) 24,838
Professional fees 61,260 -- (b) 61,260
Amortization of deferred charges 17,884 -- (c) 17,884
Other selling and
administrative expenses 6,316 116,190 (b,c) ( 109,874)
-------------- -------------- --------------
837,669 933,180 ( 95,511)
-------------- -------------- --------------
Income (loss) before provision
for income taxes 440,433 344,922 95,511
Provision (credit) for income taxes 164,000 144,000 (d) 20,000
-------------- -------------- --------------
Net income (loss) $ 276,433 $ 200,922 $ 75,511
============== ============== ==============
Earnings (loss) per share:
Basic and diluted:
Net income (loss) per share $ 0.04 $ 0.03 $ 0.01
============== ============== ==============
Weighted average number
of shares outstanding 7,481,781 7,481,781 --
============== ============== ==============
(a) Reduction of amortization of initial direct cost pursuant to change to
interest method.
(b) Reclassification of other selling, general and administrative expenses.
(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)
Statements of Changes in Stockholders' Equity:
For the Nine Months Ended September 30, 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 165,000 200,000 (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 $ 163,637 (b) $ 89,298
Sale of shares for cash 164,835 164,620 (a) 215
---------- ---------- ---------
Balance at end of period $ 417,770 $ 328,257 $ 89,513
========== ========== =========
Retained earnings:
Balance at beginning of period $ 981,942 $ 973,947 (b) $ 7,995
Net income 50,371 76,616 (c) ( 26,245)
---------- ---------- ---------
Balance at end of period $1,032,313 $1,050,563 ($ 18,250)
========== ========== =========
Due from related party:
Balance at beginning of period ($ 481,000) ($ 481,000) $ -
Additional loans ( 32,500) ( 96,837) (d) 64,337
---------- ---------- ----------
Balance at end of period ($ 513,500) ($ 577,837) $ 64,337
========== ========== ==========
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 50,371 76,616 ( 26,245)
Additional loans ( 32,500) ( 96,837) 64,337
---------- ---------- ---------
Balance at end of period $ 944,281 $ 808,716 $135,565
========== ========== =========
(a) Reduction in amount of shares sold during the nine months ended September
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; adjustment pursuant to change in period of amortization
of value of stock issued for services rendered net of income tax effect.
(d) Reclassification to interest receivable.
13
NOTE 2 - RESTATEMENT. (Continued)
Statements of Cash Flows:
For the Nine Months Ended September 30, 2000
--------------------------------------------
Difference
Restated Over
As Restated Filed (Under) Original
------------ ------------ ---------------
Cash Flows from operating activities:
Net income (loss) $ 50,371 $ 76,616 (a) ($ 26,245)
------------ ------------ ------------
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 292,342 279,015 (b) 13,327
Gain on sale of vehicles -- ( 233,499) (e) 233,499
Deferred income taxes 34,000 60,000 (c) ( 26,000)
Amortization of deferred charges 33,984 -- (d) 33,984
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Net investment in direct finance leases ( 501,204) ( 501,616) (f) 412
Interest receivable from related party ( 50,962) -- (e) ( 50,962)
Prepaid expenses ( 10,000) 3,375 (e) ( 13,375)
Vehicles held for sale or re-lease ( 924,571) ( 691,072) (e) ( 233,499)
Loans payable 1,001,803 1,001,803 --
Accounts payable and accrued expenses ( 290,143) ( 294,983) (f) 4,840
Other assets 6,254 2,000 (e) 4,254
------------ ------------ ------------
Total adjustments ( 408,497) ( 374,977) ( 33,520)
------------ ------------ ------------
Net cash provided by (used in)
operating activities ( 358,126) ( 298,361) ( 59,765)
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of furniture and equipment -- --
Due to related party ( 32,500) -- (e) ( 32,500)
------------ ------------ ------------
Net cash used in investing activities ( 32,500) -- ( 32,500)
------------ ------------ ------------
Cash flows from financing activities:
Sale of common stock 165,000 164,820 (f) 180
Increase in loans to related party -- ( 92,085) (e) 92,085
Loans payable - stockholder 197,293 197,293 --
------------ ------------ ------------
Net cash provided by (use in)
financing activities 362,293 270,028 92,265
------------ ------------ ------------
Net decrease in cash ( 28,333) ( 28,333) --
Cash acquired at acquisition of Royal -- -- --
Cash at beginning of period 33,106 33,106 --
------------ ------------ ------------
Cash at end of period $ 4,773 $ 4,773 $ --
============ ============ ============
For the Nine Months Ended September 30, 1999
--------------------------------------------
Difference
Restated Over
As Restated Filed (Under) Original
------------ ------------ ----------------
Cash Flows from operating activities:
Net income (loss) $ 369,606 $ 345,191 (a) $ 24,415
------------ ------------ ------------
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 130,781 193,080 (b) ($ 62,299)
Gain on sale of vehicles -- ($ 118,917) (e) 118,917
Deferred income taxes 256,000 232,000 (c) 24,000
Amortization of deferred charges 17,884 -- (d) 17,884
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Net investment in direct finance leases ( 11,334,025) ( 11,196,495) (e) ( 137,530)
Interest receivable from related party -- -- --
Prepaid expenses -- -- --
Vehicles held for sale or re-lease ( 534,443) ( 534,443) --
Loans payable 10,930,728 10,930,728 --
Accounts payable and accrued expenses 308,823 308,823 --
Other assets -- -- --
------------ ------------ ------------
Total adjustments ( 224,252) ( 185,224) ( 39,028)
------------ ------------ ------------
Net cash provided by (used in)
operating activities 145,354 159,967 ( 14,613)
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of furniture and equipment ( 34,035) ( 34,035) --
------------ ------------ ------------
Due to related party ( 435,150) -- (e) ( 435,150)
Net cash used in investing activities ( 469,185) ( 34,035) ( 435,150)
Cash flows from financing activities:
Sale of common stock -- -- --
Increase in loans to related party 103,394 103,394 --
------------ ------------ ------------
Loans payable - stockholder -- ( 435,150) (e) 435,150
Net cash provided by (use in)
financing activities 103,394 ( 331,756) 435,150
Net decrease in cash ( 220,437) ( 205,824) ( 14,613)
Cash acquired at acquisition of Royal 21,412 2,412 (e) 19,000
Cash at beginning of period 237,957 237,957 --
------------ ------------ ------------
Cash at end of period $ 38,932 $ 34,545 $ 4,387
============ ============ ============
(a) See restatement of statements 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
(e) Reclassification which had no effect on income.
(f) Miscellaneous adjustment.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
General
The Company is in the business of leasing predominantly 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 automobiles 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 September 30, 2000 commercial industrial equipment accounts for
an insignificant portion of company leases.
Forward Looking 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 generality of the foregoing, words such as "may", "expect", "believe",
"anticipate", "intend", "could", "estimate", "continue", 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
Nine months ended September 30, 2000 and 1999:
Revenues are summarized as follows:
For the Nine
Months Ended
September 30,
------------------------------- Increase % Increase
2000 1999 (Decrease) (Decrease)
---------- ---------- ---------- ----------
a) Amortization of unearned
lease income $3,066,373 $2,801,032 $265,341 9.5%
b) Gain (loss) on sale of
vehicles 233,499 118,917 114,582 96.4%
---------- ---------- -------- -----
Total revenues $3,299,872 $2,919,949 $379,923 13.1%
========== =========== ======== =====
15
Results of Operations (Continued)
a) Total revenues for the nine months ended September 30, 2000 increased by
approximately 13% 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 are initial payments received from leases which
aggregated $433,483 and $495,839 during the nine months ended September 30,
2000 and 1999, respectively. 50% of such payments consist 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 revenue as would be recognized if the interest method was used.
b) In the event that the lessee does not exercise the purchase option 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 nine months
ended September 30, 2000 and 1999 the Company realized a gain from the sale
of vehicles of $233,499 and $118,917, respectively. The increase in profit
from 1999 and 2000 was the result of a loss on the sale of vehicles during
the three months ended September 30, 1999.
Interest expense:
Average yield of implicit on leases versus average cost of financing.
For the Nine
Months Ended
September 30,
----------------------------
2000 1999
----------- -----------
Average yield implicit in income earning assets:
Amortization of unearned lease income $ 3,066,373 $ 2,801,032
Average investment in leases 27,183,344 19,803,822
----------- -----------
Annualized rate of return on income earning assets 15.0% 18.9%
=========== ===========
Average cost of financing:
Interest expense $ 1,930,758 $ 1,315,308
Average loans payable balance 27,111,067 18,182,888
----------- -----------
Annualized average cost of financing 9.5% 9.7%
=========== ===========
Spread 5.5% 9.2%
=========== ===========
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 below during nine months ended September 30, 2000 the
Spread was 5.5% as compared to 9.2% a year earlier. During the nine months ended
September 30, 2000 the Company's cost of financing remained relatively constant.
Due to increased competition the Company had to decrease the interest rate
inherent in its leases which sharply decreased the rate of return on its income
earning assets.
16
Initial direct costs:
For the Nine
Months Ended
September 30
--------------------------- Increase % Increase
2000 1999 (Decrease) (Decrease)
---------- ---------- ---------- ---------
Total lease revenue $3,066,373 $2,801,032 $ 265,341 9.5%
Amortization of initial
direct costs 272,092 154,644 117,448 75.9%
---------- ---------- ---------- ----
Percentage 8.9% 5.5% 3.4%
========== ========== ====
Initial direct costs consists primarily of commissions, auto repairs and
repossession costs. Such costs are amortized over the life of the lease using
the interest method. As a percentage of revenue, such amortization increased by
3.4% for the nine months ended September 30, 2000 as compared to the same period
in 1999. Such increase was due to a large increase in leases entered into during
the nine months ended September 30, 2000 as compared to a year earlier.
For the Nine
Months Ended
September 30,
--------------------------- Increase % Increase
2000 1999 (Decrease) (Decrease)
---------- ---------- ---------- ----------
Total revenues $3,299,872 $2,919,949 $ 379,923 13.0
---------- ---------- ---------- -------
Selling, general and administrative expenses:
Provision for bad debts 156,000 132,000 24,000 18.2
Salaries and wages 352,861 242,588 110,273 45.4
Payroll taxes 27,768 55,618 (27,850) (50.1)
Rent and real estate taxes 103,875 89,850 14,025 15.6
Travel and entertainment 50,683 74,788 (24,105) (32.2)
Professional fees 98,640 30,882 67,758 219.4
Amortization of deferred charges 33,974 17,884 16,090 90.0
Other selling, general and
administrative expenses 183,906 216,569 (32,663) (15.1)
---------- ---------- ---------- -------
1,007,707 860,179 147,528 17.2
---------- ---------- ---------- -------
Percent of total revenues 30.5% 29.4% 1.1% 1.1
========== ========== ========== =======
Selling, general and administrative expenses ("SG&A") increased from $860,179
during the nine months ended September 30, 1999 to $1,007,707 during the nine
months ended September 30, 2000 (an increase of $147,528). This increase was
attributed to increases 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 only 1.1% due to revenues
increasing at the same rate as SG&A expenses.
17
Three months ended September 30, 2000 and 1999.
Revenues are summarized as follows:
For the Three
Months Ended
September 30,
---------------------------- Increase % Increase
2000 1999 (Decrease) (Decrease)
----------- ----------- ---------- ----------
a) Amortization of unearned
lease income $ 661,895 $ 1,388,041 ($ 726,146) (52.3)
b) Gain (loss) on sale of
of vehicles 140,611 (109,939) 250,550 (227.9)
----------- ----------- ----------- -------
$ 802,506 $ 1,278,102 ($ 475,596) 37.2
=========== =========== =========== =======
a) Revenues for the quarter ended September 30, 2000 decreased by
approximately 52.3% when compared with the same period in 1999. The Company
enjoyed a extremely large increase in revenue during the September 1999
quarter due to an expansion of their dealer networks which has been
expanded to include locations in Florida, North Carolina, California,
Georgia and Illinois. The aforementioned large revenue increase during the
September 1999 quarter, coupled with a soft leasing period during the
September 2000 quarter combined to account for the large decrease in
revenues.
Included in unearned income are initial payments received from leases which
aggregated $104,780 and $163,627 during the three months ended September
30, 2000 and 1999, respectively. 50% of such payments consists of
application fees and approximately 50% of nonrefundable payment of the
first month's 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 was used.
b) In the event that the purchase option is not exercised by the leases 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 three
months ended September 30, 2000 the Company realized a gain from the sale
of vehicles of $140,611 compared with a loss of $109,939 the year before.
The loss during the September 1999 quarter was the result of the sale of
many vehicles which did not go to full term. Loss on such sales is common
since the lease values on the books are extremely high.
18
Interest expense:
Average rate of return on income earning assets versus average cost of
financing.
For the Three
Months Ended
September 30, %
----------------------------- Increase
2000 1999 (Decrease)
----- ----- ----------
Average yield implicit in income earning assets:
Amortization of unearned lease income $ 661,895 $ 1,388,041
Average investment in leases 28,000,553 23,433,249
----------- -----------
Annualized rate of return on income
earning asset 9.5% 23.7% (14.2)
----------- -----------
Average cost of financing:
Interest expense 624,274 575,059
Average loans payable balance 27,593,000 22,552,000
----------- -----------
Annualized average cost of financing 9.1% 10.1% ( 1.2)
--- ----- ----
Spread 0.4% 13.5% (13.0)
=== ==== ====
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 three months ended September
30, 2000 was only 0.4% as compared to a year earlier. Due to increased
competition during the September 2000 quarter, the Company decreased the
interest rate inherent in its lease which sharply decreased the rate of return
on its income earning assets. Such decrease was a major cause of the loss during
the September 2000 quarter.
Initial direct costs:
For the Three
Months Ended
September 30, %
----------------------------- Increase Increase
2000 1999 (Decrease) (Decrease)
---------- ---------- ---------- ----------
Amortization of unearned
lease revenue $ 661,895 $1,388,041 ($ 726,146) (52.3)
Amortization of initial
direct costs 90,688 51,548 ( 39,140) (76.0)
---------- ---------- ----------
Increase as a percentage
of revenue 13.7% 3.7% 10.1%
==== === ====
Initial direct costs consists primarily of commissions, auto repairs and
repossession costs. Such costs are amortized over the life of the leases using
the interest method. As a percentage of revenue, such amortization increased by
10.0% for the three months ended September 30, 2000 as compared to the same
period in 1999. Such increase was due to direct costs incurred on the large
increase in leases entered into during the three months ended September 30, 1999
as compared to the three months ended September 30, 2000.
19
Selling, General and Administration Expenses ("SG&A") As a Percentage of Total
Revenues:
For the Three
Months Ended
September 30, %
----------------------------- Increase Increase
2000 1999 (Decrease) (Decrease)
---------- ---------- ---------- ----------
Total revenues $ 802,439 $1,278,102 ($ 475,663) (37.2)
Selling, general and
administrative expenses 197,527 211,062 ( 9,535) ( 6.4)
---------- ---------- ---------
Increase as a percentage
of revenues 24.6% 16.5% 8.1%
==== ==== ====
SG&A expenses decreased from $211,092 during the September 1999 quarter to
$197,527 during the September 2000 quarter (a $13,565 decrease). This decrease
was attributed to decreases in bad debts and professional fees. As a percentage
of revenues, SG&A expenses increase by 8.1% due to the presence of fixed costs
which remained relatively constant on decrease revenues.
Such increases are summarized as follows:
For the Three
Months Ended
September 30, %
------------------------------- Increase
2000 1999 (Decrease)
--------- --------- ---------
Provision for bad debts $ - $ 4,000 ($ 4,000)
Salaries and wages 114,140 108,776 5,364
Payroll taxes 6,412 5,207 1,205
Rent and real estate taxes 27,750 ( 17,219) 44,969
Travel and entertainment 13,218 24,838 ( 11,620)
Professional fees 55,963 61,260 ( 5,297)
Amortization of deferred charges 7,411 17,884 ( 10,473)
Other selling and administrative expenses ( 27,367) 6,316 ( 33,683)
--------- --------- ---------
$197,527 $211,062 ($13,535)
========= ========= =========
The expansion of leasing operations during the latter part of 1999 and during
the nine months ended September 30, 2000 necessitated the hiring of additional
office personnel. Other SG&A expenses decreased due to a decrease in
professional fees. Travel and entertainment and amortization of deferred
charges.
20
Financial Condition
The Company's cash position at September 30, 2000 was $4,773, a decrease of
$28,333 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 $27,339,056 at September 30, 2000 and $27,109,444 at
December 31, 1999. Management feels that it has adequately reserved for any
possible bad debt. Purchase of leased vehicles is financed under several
separate credit facilities. Such indebtedness aggregated $27,611,968 at
September 30, 2000 and $26,610,165 at December 31, 1999.
Vehicle held for sale or re-lease increased from $1,300,843 at December 31, 2000
to $2,225,414. Such increase was the result of an increase in vehicle coming off
lease during the first nine months of 2000 compared with, $222,181 the same
period in 1999.
Accounts payable and accrued expenses decreased from $512,324 at December 31,
2000 to $222,181 at September 30, 2000. The balance at December 31, 1999 was
very high due to a slowdown by the Company in paying its bills due to
insufficient operating funds. Approximately $197,000 was loaned to the Company
by its president during the nine months ended September 30, 2000, thus
increasing the loan balance to approximately $305,000.
Due to the timing difference between book and tax treatment of leasing
operations, the Company has a deferred tax liability as of September 30, 2000 of
$740,000. Such amount increased by $34,000 during the nine months ended
September 30, 2000.
Stockholders' equity increased by $182,871 during the nine months ended
September 30, 2000. Such increases were the result of income of $50,371 and the
sale of 165,000 common shares for $165,000. These increases in stockholders'
equity were partially offset by additional amounts loaned to related party of
$32,500.
Liquidity and Capital Resources:
During the nine months ended September 30, 2000 cash of $358,126 was used in
operations which is summarized as follows: (i) net income of $50,371, which is
adjusted for non cash items of $126,827, (ii) an increase in loans payable of
$1,001,803 and (iii) a decrease in prepaid expenses and other assets of $10,000.
Offsetting these increase in cash flows was: (i) a decrease in the net
investment in direct finance leases in the amount of $267,705, (ii) an increase
in vehicles held for sale or re-lease of $924,571 and (iii) a decrease in
accounts payable and accrued expenses of $290,143.
During the nine months ended September 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.
Working capital at September 30, 2000 of $63,448, showed an improvement over the
negative working capital balance at December 31, 1999 of $427,524.
21
Liquidity and Capital Resources: (Continued)
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.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Royal Acceptance Corporation
(Registrant)
By: /s/ Richard Toporek
-------------------------
Richard Toporek
President