<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number 0-29797
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
(Exact name of registrant as specified in its charter)
Delaware 22-368051
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
90 Jericho Turnpike
Floral Park, New York 11001
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code: 516-488-8600
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
7,712,709 shares, $.001 par value, as of March 31, 2000
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date)
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ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
I N D E X
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I - Financial Information:
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
As at March 31, 2000 and December 31, 1999 ................................. F-3 - F-4
Consolidated Statements of Operations
For the Three Months Ended
March 31, 2000 and 1999 .................................................... F-5
Consolidated Stockholders' Equity
For the Three Months Ended
March 31, 2000 and 1999 .................................................... F-6
Statements of Cash Flows
For the Three Months
Ended March 31, 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 .................................................................
</TABLE>
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ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
A S S E T S
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 74,441 $ 33,106
Net investment in direct financing leases 7,271,434 7,712,004
Inventory 1,674,701 1,300,843
Prepaid expenses - 13,375
----------- -----------
Total current assets 9,020,576 9,059,328
Net investment in direct financing leases 20,907,417 19,349,913
Furniture and equipment - net of
depreciation and amortization 106,831 112,453
Due from related party 579,696 481,000
Other assets 8,775 78,573
----------- -----------
$30,623,295 $29,081,267
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
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ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
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<S> <C> <C>
Current liabilities:
Current maturities of loans payable $ 6,677,848 $ 7,613,318
Accounts payable and accrued expenses 336,424 517,091
Loans payable - stockholder 115,486 107,894
----------- -----------
Total current liabilities 7,129,758 8,238,303
Loans payable - net of current liabilities 21,051,405 18,996,847
Deferred income taxes 872,000 701,000
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Total liabilities 29,053,163 27,936,150
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Stockholder's equity:
Common stock, no par value
Authorized 35,000,000 shares
Issued and outstanding - 7,712,709 and
7,532,709 shares, respectively 7,713 7,533
Additional paid-in capital 1,367,513 1,222,693
Retained earnings (accumulated deficit) 194,906 ( 85,109)
----------- -----------
Total stockholder's equity 1,570,132 1,145,117
----------- -----------
$30,623,295 $29,081,267
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31,
------------------------------
2000 1999
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<S> <C> <C>
Revenues:
Amortization of unearned lease income $1,423,936 $ 775,722
Gain (loss) on sale of vehicles ( 35,436) 29,885
--------- ---------
Total revenues 1,388,500 805,607
--------- ---------
Costs and expenses:
Interest 430,865 360,272
Depreciation and amortization 67,842 30,088
Selling, general and administrative 431,780 324,314
--------- ---------
Total costs and expenses 930,487 714,674
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Income before provision for income taxes 458,013 90,933
Provision for income taxes 178,000 36,000
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Net income $ 280,013 $ 54,933
========= =========
Earnings per share:
Net income per share $0.04 $0.01
========= =========
Weighted average shares outstanding 7,578,661 6,971,755
========= =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' CAPITAL DEFICIENCY
(Unaudited)
<TABLE>
<CAPTION>
Retained
Additional Earnings Total
Paid-In (Accumulated Stockholder
Shares Amount Capital Deficit) Equity
------- ------ -------- --------- ------
<S> <C> <C> <C> <C> <C>
For the Three Months Ended March 31, 1999:
Balance at December 31, 1998 6,817,409 $6,817 $1,037,833 ($229,008) $ 815,642
Sale of shares of common stock 664,100 664 165,361 - 166,025
Net income for the three months
ended March 31, 1999 - - - 54,933 54,933
--------- ------- ---------- -------- ----------
Balance at March 31, 1999 7,481,509 $7,481 $1,203,194 ($174,075) $1,036,600
========= ======= ========== ======== ==========
For the Three Months Ended March 31, 2000:
Balance at December 31, 1999 7,532,709 $7,713 $1,367,513 ($ 85,109) $1,290,117
Sale of shares of common stock 180,000 180 144,820 - 145,000
Net income for the three months
ended March 31, 2000 - - - 280,013 280,013
--------- ------- ---------- -------- ----------
Balance at March 31, 2000 7,712,709 $7,893 $1,512,333 $194,904 $1,715,130
========= ======= ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31,
---------------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 280,013 $ 54,933
--------- ---------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 67,842 30,088
(Gain) loss on sale of vehicles ( 29,885) 35,436
Deferred income taxes 171,000 36,000
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Net investment in direct finance leases 1,087,049) ( 6,336,678)
Inventory ( 373,858) 14,183
Prepaid expenses 13,375 ( 14,514)
Other assets 69,798 -
Accounts payable and accrued expenses ( 180,667) 510,914
Loans payable 1,119,088 5,539,466
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Total adjustments ( 230,356) ( 185,105)
--------- ---------
Net cash provided by operating activities 49,657 ( 130,172)
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Cash flows from investing activities:
Purchases of furniture and equipment ( 62,218) ( 25,591)
Due to related party ( 98,696) ( 150,000)
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Net cash used in investing activities ( 160,914) ( 175,591)
--------- ---------
Cash flows from financing activities:
Loans payable - stockholder 7,592 -
Sale of capital stock 145,000 166,025
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Net cash provided by investing activities 152,592 166,025
--------- ---------
Net increase (decrease) in cash 41,335 ( 139,738)
Cash at beginning of period 33,106 237,957
--------- ---------
Cash at end of period $ 74,441 $ 98,219
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period:
Interest $ 430,865 $ 360,272
========= =========
Income taxes $ 7,000 $ -
========= =========
</TABLE>
See accompanying notes to financial statements.
F-7
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ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) Organization:
Royal Acceptance Corporation ("Royal") was
incorporated in the state of Delaware on 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 Regulations S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
the statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial
position as of March 31, 2000 and the results of operations and
cash flows for the three months ended March 31, 2000 and 1999.
The results of operations for the three months ended March 31,
2000 and 1999 are not necessarily indicative of the results to be
expected for the full year.
F-8
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLCIES. (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.
(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 the acquisition of
RIT (note 1(a))has been retroactively reflected in the
computation as if it had occurred on December 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
General
The Company is in the business of leasing predominately new and pre-owned
automobiles with terms generally ranging from twelve to sixty months. It markets
its leasing services through its dealer network and advertising. The sources of
its 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 March 31, 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.
F-9
<PAGE>
Results of Operations
Three Months Ended March 31, 2000 and 1999
Compared to Three Months Ended March 31, 1999
Revenues for the three months ended March 31, 2000 and 1999, consisting
primarily of amortization or unearned lease income, aggregated $1,388,500 and
$805,607, respectively, which is an increase of $582,893 or approximately 72%.
Such amortization is computed on the interest method and includes certain
upfront payments made by leasees which consists of the first and last monthly
lease payments and maintenance fees which aggregated $183,937 and $201,207,
respectively. This increase is a result of management's efforts to increase its
dealer network, which has been expanded to include locations in Florida, North
Carolina, California, Georgia and Illinois. Management has also expanded its
financial relationships to include several new major financing institutions. The
additional financing has given the Company the ability to consummate additional
lease agreements. Increase in customer referrals has also had an impact on the
Company's revenues.
The Company's major costs consist of interest and amortization of initial lease
costs which aggregated $498,707 (36% of total revenues) for the three months
ended March 31, 2000 and $390,360 (48% of total revenues) during the prior
period. The 12% decrease in interest and amortization as a percentage of total
revenues is primarily due to the Company's ability to enter into new more
profitable closed-end leases for luxury automobiles which are more profitable
than leases entered into during the prior period which consisted of a larger
percentage of open-end leases. In the luxury car leases the Company normally
obtains higher interest rates coupled with high residual values. Therefore the
spread between the effective interest inherent in the lease and the Company's
cost of funds is far greater.
Selling, general and administrative expenses were $431,780 (31.1% of revenues)
for the three months ended March 31, 2000 and $324,314 (40% of revenues) for the
same period in the prior year. The increase of $107,466 was principally due to
the hiring of additional personnel. However, as a percentage of sales, selling,
general and administrative expenses decreases by 9%. The decrease was due to the
presence of fixed costs, which do not vary with sales volume.
The Company's net income for the three months ended March 31, 2000 was $280,013,
or $.04 per share, compared to $54,933 or $.01 per share for the same period in
1999. As discussed above, the current period included more lease revenue and
fewer costs as a percentage of such revenues. In addition, although selling,
general and administrative expenses increased, lease revenue increased by a much
higher rate proportionately.
Financial Condition
March 31, 2000 Compared to March 31, 1999
The Company's cash position at March 31, 2000 showed an increase of $41,335 from
the $33,106 balance which existed on December 31, 1999.
The net investment in direct financing leases represents the aggregate future
lease payments due to the Company from its leasees; such amount was $28,178,851
at March 31, 2000 and $27,061,917 at December 31, 1999. The Company feels that
it has adequately reserved for any possible bad debts. The Company finances the
purchase of its lease vehicles under several separate credit facilities. Such
indebtedness aggregated $27,729,253 and $26,610,165 at March 31, 2000 and
December 31, 1999, respectively.
F-10
<PAGE>
The Company's vehicle inventory increased from $1,300,843 at December 31, 1999
to $1,674,701 at March 31, 2000. Such increase was due to the higher volume of
automobiles coming off lease at March 31, 2000 compared with the year ended
December 31, 1998.
Through March 31, 2000, the Company had loaned $570,696 to an entity owned by
its President. Such amount is due on demand and bears interest at 9%. At
December 31, 1999 this loan aggregated $481,000.
Accounts payable at March 31, 2000 was $336,434 compared with $517,091 at
December 31, 1999, a decrease of $180,677.
At March 31, 2000, the Company is indebted to its President in the amount of
$115,436. Such debt outstanding at December 31, 1999 was $107,894.
Stockholders' equity increased by $425,013 during the period from January 1,
2000 to March 31, 2000. Such increase was the result of the sale of 377,100
shares for $145,000 and net income for the three months ended March 31, 2000 of
$280,013.
Liquidity and Capital Resources:
The Company generated a positive cash flow from operations of $49,657 during the
three month period ended March 31, 2000. During the same period, cash of
$160,914 was used in investing activities as follows: $98,696 was loaned to an
affiliate and $62,218 was used to purchase furniture and equipment.
Cash was also provided through the sale of 180,000 common shares for $145,000.
Working capital at March 31, 2000 was $1,890,818, which is $1,069,793 over the
working capital balance at December 31, 1999. Its primary source of working
capital has been the proceeds from the financing of its leased vehicles and the
sale of its common stock. The Company feels it has adequate credit facilities
with several banks and is currently seeking additional facilities.
Management's primary goal is to expand its leasing operations, increase and
obtain better terms with respect to the financing of the vehicles it leases and
to increase the profitability of its vehicle remarketing program. The strategy
for continued growth is to (i) increase lease origination by a) increased name
recognition, b) acquisition of similar companies or their assets, c) the
development, expansion and retention of existing clients, and d) the expansion
into new geographic markets, (ii) increase and improve the terms of its
financing arrangements, (iii) further develop and increase the profitability of
its used automobile remarketing operations and, (iv) lease primarily to high
quality credit applicants in order to continue to build a lease portfolio with
low delinquency and credit loss rates.
Pursuant to a confidential private offering 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 February 25, 2000, the Company has
sold 182,550 shares for $190,200. The proceeds of the offering will be used
primarily for working capital, the acquisition of a profitable lease portfolio
and the hiring of additional personnel.
F-11
<PAGE>
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 twelve months assuming that those operations are consistent with
management's expectations.
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.
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: June 23, 2000 Royal Acceptance Corporation
(Registrant)
By: /s/ Richard Toporek
--------------------------
Richard Toporek, President
F-12
