<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/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
7,732,709 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)
<PAGE>
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 Income
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 Year Ended December 31, 1999 and 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-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations F-10 - F-12
Part II - Other Information:
Item 3 Through Item 9 - Not Applicable
Signatures
F-2
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
A S S E T S
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Current assets:
Cash $ 7,056 $ 33,106
Net investment in direct financing leases 7,536,164 7,712,004
Prepaid expenses -- 13,375
------------ ------------
Total current assets 7,543,220 7,758,485
============ ============
Vehicles held for sale or re-lease 2,082,575 1,300,843
Net investment in direct financing leases 20,375,554 19,349,913
Furniture and equipment - net of depreciation
and amortization 98,953 112,453
Due from related parties 114,272 #REF!
Other assets 6,025 78,573
------------ ------------
$ 30,220,599 $ 28,600,267
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of loans payable $ 7,889,562 $ 7,613,318
Accounts payable and accrued expenses 927,819 517,091
------------ ------------
Loan payable stockholder -- 107,894
============ ============
Total current liabilities 8,817,381 8,238,303
Loans payable - net of current maturities 19,686,136 18,996,847
Deferred income taxes 788,000 701,000
------------ ------------
Total liabilities 29,291,517 27,936,150
============ ============
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 -
7,732,709 shares at June 30, 2000 and 7,532,709
shares at December 31 ,1999 7,733 7,533
Additional paid-in capital 1,447,313 1,282,693
Accumulated deficit (2,464) (145,109)
------------ ------------
1,452,582 1,145,117
Less: Due from related party 523,500 481,000
------------ ------------
929,082 664,117
------------ ------------
$ 30,220,599 $ 28,600,267
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(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 172,510 52,000
Provision for bad debts 156,000 128,000
Salaries and wages 238,721 133,812
Other selling and administrative costs 388,896 446,879
---------- ----------
Total costs and expenses 2,262,610 1,500,940
========== ==========
Income before provision for income taxes 234,756 140,907
Provision for income taxes 92,111 54,000
---------- ----------
Net income $ 142,645 $ 86,907
========== ==========
Earnings per share:
Basic $ 0.02 $ 0.01
========== ==========
Diluted $ 0.02 $ 0.01
========== ==========
Weighted average number of shares outstanding 7,596,919 7,226,632
========== ==========
See notes to consolidated financial statements.
F-4
<PAGE>
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 110,290 25,912
Provision for bad debts 54,694 128,000
Salaries and wages 115,056 79,268
Other selling and administrative costs 176,465 173,109
----------- -----------
Total costs and expenses 1,332,123 786,266
=========== ===========
Income (loss) before provision for income taxes (223,257) 49,974
Provision (credit) for income taxes (85,889) 18,000
----------- -----------
Net income (loss) ($ 137,368) $ 31,974
=========== ===========
Earnings (loss) per share:
Basic ($ 0.02) $ .00
=========== ===========
Diluted ($ 0.02) $ .00
=========== ===========
Weighted average number of shares outstanding 7,733,709 7,481,509
=========== ===========
See notes to consolidated financial statements.
F-5
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
AND THE SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Common Shares Additional Due from Total
----------------------- Paid-In Accumulated Related Stockholders'
Shares Amount Capital Deficit Party Equity
---------- ---------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 6,817,409 $ 6,817 $1,097,833 ($ 289,008) $ -- $ 815,642
Issuance of shares of common stock for cash,
net of offering costs 415,300 416 110,160 -- -- 110,576
Issuance of shares of common stock for
services rendered 300,000 300 74,700 -- -- 75,000
Due from related party -- -- -- -- (481,000) (481,000)
Net income for the year ended
December 31, 1999 -- -- -- 143,899 -- 143,899
========= ========== ========== ========== ========== ==========
Balance at December 31, 1999 7,532,709 7,533 1,282,693 (145,109) (481,000) 664,117
Increase in loan to related party -- -- -- -- (42,500) (42,500)
Issuance of shares of common stock for cash 200,000 200 164,620 -- -- 164,820
Net income for the six months ended June 30, 2000 -- -- -- 142,645 -- 142,645
--------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 2000 7,732,709 $ 7,733 $1,447,313 ($ 2,464) ($ 523,500) $ 929,082
========= ========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
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 $ 142,645 $ 86,907
=========== ===========
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 186,010 67,480
Gain on sale of vehicles (92,888) (228,856)
Deferred income taxes 87,000 54,000
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) (9,083,978)
Vehicles held for sale or re-lease (688,844) 8,997
Prepaid expenses 13,375 (15,924)
Long-term debt 965,533 8,738,543
Accounts payable and accrued expenses 410,728 402,606
----------- -----------
Total adjustments (141,397) (57,132)
=========== ===========
Net cash provided by operating activities 1,248 29,775
=========== ===========
Cash flows used in investing activities:
Due to related party (84,224) (321,000)
----------- -----------
Cash flows from financing activities:
Sale of common stock 164,820 106,025
Loans payable stockholder (107,894) --
----------- -----------
Net cash provided by financing activities 56,926 106,025
Net (decrease) in cash (26,050) (185,200)
Cash at beginning of period 33,106 237,957
----------- -----------
Cash at end of period $ 7,056 $ 52,757
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest $ 1,306,483 $ 740,249
=========== ===========
Income taxes $ 5,111 $ --
=========== ===========
See notes to consolidated financial statements.
F-7
<PAGE>
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 June 23, 1994. On July 15, 1999, pursuant to a
reorganization under section 368(a)(1)(B) of the Internal Revenue
Code, Royal acquired 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, owned approximately 72% of Royal's outstanding common
stock. The transaction is being accounted for as a reverse acquisition
in a manner similar to a pooling of interests and, accordingly, the
accompanying consolidated financial statements reflect the acquisition
as if it had occurred at the beginning of the periods presented.
Royal, prior to the RIT acquisition, had been virtually inactive since
1995 and has incurred losses since its inception to July 1999, of
$987,000.
(b) Principles of Consolidation:
The accompanying interim unaudited consolidated financial
statements include the accounts of Royal and its wholly-owned
subsidiary, RIT. All material inter-company transactions have been
eliminated in consolidation.
(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 June 30, 2000 and the results of
operations and cash flows for the six months and three months ended
June 30, 2000 and 1999 and not necessarily indicative of the results
to be expected for the year ended December 31, 2000.
F-8
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(c) Basis of Presentation: (Continued)
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. 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 10SB 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. The issuance of all common
shares in connection with the acquisition of RIT (Note 1(a)) has been
retroactively reflected in the computation as if it had occurred on
December 31, 1998.
F-9
<PAGE>
RESULTS OF OPERATIONS
---------------------
For the six months ended June 30, 2000 Compared to the Six Months Ended June 30,
1999
Revenues aggregating $2,404.478 and $1,141,991 for the six months ended June 30,
2000 and 1999, respectively, consisting primarily of amortization of unearned
income, represents an increase of $991,487 or approximately 70%. Amortization of
unearned income is recognized using the interest method and includes certain
non-refundable up-front payments made by the lessee consisting of the first and
last monthly lease payments and fees aggregating $328,703 and $405,187 for the
six months ended June 30, 2000 and 1999 respectively This increase in unearned
income is a result of management's efforts to increase its dealer referral
network, which has expanded to include Florida, North Carolina, California,
Georgia, Illinois Michigan, South Carolina, Ohio, Massachusetts, Alabama,
Arizona, Colorado, Kansas, Missouri, Nevada, Wisconsin and Tennessee. Mangement
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. However, due to numerous interest rate increases over the
past several months, the Company's cost of borrowing has increased dramatically.
In order for the Company to remain competitive, the Company has not always
passed these increases along to its customers. This has resulted in an increase
in interest expense of $255,000 for the three months ended June 30, 2000. In
addition, the automobile industry historically has seasonal lulls in the months
of June through August as customers await the new automobile model year to
arrive. These two factors have resulted in additional costs and a temporary slow
down in revenue.
Selling, general and administrative expenses were $627,617 (25.1% of revenues)
for the six months ended June 30, 2000 and $580,691 (35.36% of revenues) for the
same period in 1999. The increase of $46,926 was principally due to the hiring
of additional personnel. However this increase of selling, general and
administrative expenses, as a percentage of revenues which was due to the
existence of certain fixed costs, which normally do not vary with increases in
revenues.
The Company's net income for the six months ended June 30, 2000 was $142,645 or
$.02 per share as compared to $86,907 or $.01 per share for the same period in
1999. As discussed above, the current period included increased lease revenues
and fewer costs as a percentage of these revenues. In addition, although
selling, general and administrative expenses increased, lease revenues increased
by a higher proportionate rate.
Financial Condition
-------------------
June 30, 2000 Compared to June 30, 1999
The Company's cash position as at June 30, 2000 showed a decrease of $26,050
from the balance at December 31, 1999. This was due primarily to the Company's
purchase of $172,000 of automobiles that were financed by several of the
Company's financing sources as of June 30, 2000.
The net investment in direct financing leases, representing the aggregate future
lease payments due to the Company from its lessees, were $27,911,718 at June 30,
2000 and $27,061,917 at December 31, 1999. The Company believes that it has
adequately reserved for any possible bad debts. The Company finances the
purchase of its lease vehicles through several credit facilities. The
indebtedness under these credit facilities aggregated $27,575,698 and
$26,610,165 at June 30, 2000 and December 31, 1999, respectively.
F-10
<PAGE>
The Company's vehicle inventory increased from $1,300,843 at December 31, 1999
to $2,082,575 at June 30, 2000. This increase was due to the higher volume of
automobiles coming off lease and early lease terminations at June 30, 2000 as
compared to the year ended December 31, 1999.
Through June 30, 2000 the Company had made advances totaling $523,500 to an
entity owned by its President. These advances are due on demand and bear
interest at two percentage points above the prevailing prime rate. At December
31, 1999 these advances aggregated $481,000.
Accounts Payable at June 30, 2000 was $927,819 compared with $517,091 at
December 31, 1999 representing an increase of $410,728.
At June 30, 2000 the Company is indebted to its President for $163,406. Such
debt outstanding at December 31, 1999 was $107,894 at June 30, 2000 and December
31, 1999, respectively.
Stockholders' equity increased $307,465 during the six months ended June 30,
2000 . The increase was due to the sale of 200,000 shares of common stock for
$164,620 and net income for the six months ended June 30, 2000 of $142,645.
Liquidity and Capital Resources
-------------------------------
The Company generated a negative cash flow of $26,050, during the six months
ended June 30, 2000. During the same period, cash of $84,224 was used in
investing activities as follows: $42,500 was loaned to an affiliate and $41,724
was used to purchase furniture and equipment. The Company's source of working
has been the proceeds from the financing of its leased vehicles and the sale of
its common stock. Management feels it has adequate credit facilities with
numerous banks and is currently seeking additional facilities.
Cash was also provided through the sale of 200,000 common stock for $164,820.
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 remarketing program. The strategies for
continued growth are 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 customers 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 through the development of its web
site and (iv) lease primarily to high quality credit applicants in order to
continue to build a lease portfolio with low delinquency and loss rates.
Pursuant to a confidential private memorandum, the Company is offering 600,000
shares of its common stock at a price of $1.00 per share. The offering period
commenced on October 5, 1999. Through June 30, 2000, the company has sold
200,000 shares for $164,820. The proceeds of the offering will be used primarily
for working capital, the acquisition of profitable lease portfolios, the hiring
of additional personnel, and the expansion of the Company's administrative
headquarters.
F-11
<PAGE>
Management believes that the anticipated cash flows from operations and the
proceeds raised through its private offering will be sufficient to fund its
operations for the next twelve months, assuming that those operations are
consistent with management's expectations.
The Company may need additional financing thereafter. There can be no assurances
that the company will be able to obtain the 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.
Results of Operations
---------------------
Three Months ended June 30, 2000
Compared to the Three Months ended June 30, 1999
Revenues for the three months ended June 30, 2000 and 1999 consisted primarily
of amortization of unearned income, aggregated $1,108,866 and $836,240,
respectively, which is an increase of $272,626 or approximately 33%. Such
amortization is computed on the interest method and includes certain
non-refundable up front payments made by the lessee. They consist of the first
and last monthly lease payments and fees which aggregated $144,766 and $203,480,
respectively. This increase in amortization of unearned lease income is a result
of management's effortss to increase its dealers referral network, which has
been expanded to include Florida, North Carolina, California, Georgia, Illinois,
Michigan, South Carolina, Ohio, Massachusetts, Alabama, Arizona, Colorado,
Kansas, Missouri, Nevada, Wisconsin and Tennessee. Management has also expanded
its financial relationships to include several new major financing sources. The
additional financing sources have given the Company the ability to consummate
additional lease agreements. Increase in customer referrals has also had an
impact on the Company's revenues. However, due to numerous interest rate
increases over the past several months, the Company's cost of borrowing has
increased dramatically. In order for the Company to remain competitive, the
Company has not always passed these increases along to its customers. This has
resulted in an increase interest expense of $496,000 for the three months ended
June 30, 2000. In addition, the automobile industry historically has seasonal
lull's in the months of June to August as customers await the model year to
arrive. These two factors have resulted in additional costs and a temporary slow
down in revenue. The increase of $39,144 was principally due to the hiring of
additional personnel. However, this increase of selling, general and
administrative expenses, as a percentage of revenues decreased by 3.9% which was
due to the existence of certain fixed costs, which do not vary with increases in
revenues.
The Company's net loss for the three months ended June 30, 2000 was ($137,368)
or ($.02) per share as compared to $31,974 or $.00 per share for the same period
in 1999. This decrease was due to a larger increase in interest costs which was
not offset by the increase in revenue.
F-12
<PAGE>
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.
Royal Acceptance Corporation
(Registrant)
Date: August 21, 2000 /s/ Richard Toporek
--------------------------------------
Richard Toporek, President
