<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 1
to
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g)
of the Securities Exchange Act of 1934
Royal Acceptance Corporation
(Exact name of registrant as specified in its charter)
Delaware 22-3680581
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
90 Jericho Turnpike
Floral Park, NY 11001
(Address of registrant's principal executive offices) (Zip Code)
(516) 488-8600
(Registrant's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Act:
<TABLE>
Name of each exchange
Title of each class to be so registered: on which each class is to be registered:
- ----------------------------------------- -----------------------------------------
<S> <C>
None None
</TABLE>
Securities to be registered under Section 12(g) of the Act:
Common Stock,
par value $.001
Copies to: Gerald A. Adler, Esquire
Bondy & Schloss LLP
6 East 43rd Street
New York, New York 10017-4656
Telephone No. (212)-661-3535
Fax No. (212) 972-1677
<PAGE>
Index to Form 10-SB Registration Statement
Item Number and Caption
PART I
1. Description of Business
2. Management's Discussion and Analysis or Plan of Operations
3. Description of Property
4. Security Ownership of Certain Beneficial Owners and Management
5. Management
6. Executive Compensation
7. Certain Relationships and Related Transactions
8. Description of Securities
PART II
1. Market Price of and Dividends on the REgistrant's Common
Equity and Other Shareholder Matters
2. Legal Proceedings
3. Changes in and Disagreements with Accountants
4. Recent Sales of Unregistered Securities
5. Indemnification of Officers and Directors
PART F/S
Financial Statements
PART III
1. Index to Exhibits
2. Description of Exhibits
Signatures
<PAGE>
PART I
DESCRIPTION OF BUSINESS
The Company
The Company was formed in November 1996. On January 2, 1997, in a
corporate restructuring, it was merged with Royal Finance Company, a New Jersey
corporation ("RFC"). The Company had very limited operations and together with
RFC was a development stage company organized to develop and operate a financial
services business specializing in the acquisition and service of lease contracts
for previously owned automobiles. On August 1, 1999, the Company acquired from
Alliance Holdings Limited Partnership, all of the issued and outstanding shares
of RIT Auto Leasing Group, Inc. ("RIT") in exchange for 5,650,000 shares of the
Company's common stock.
RIT's Business
RIT is in the business of leasing new and pre-owned automobiles with
terms generally ranging from twelve to sixty months. It markets its leasing
services through telephone solicitation and advertising. The sources of RIT's
automobiles for lease are predominantly 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. Its
customer base is derived from the general public and corporate accounts.
RIT was incorporated in 1993, at which time it focused primarily on the
leasing of low end automotive and commercial vehicles. At that time it had a
lease portfolio of approximately 250 vehicles valued at approximately $3
Million. Presently, RIT has a leasing portfolio of approximately 1,500
vehicles with a value of $10.5 Million. Presently, its product lines consist
of commercial industrial equipment, high line vehicles (exotic and luxury),
limousines, ambulances, tow trucks, tractors, airplanes, boats and construction
equipment. RIT is also in the equipment leasing business.
RIT markets its leasing services through a network of dealer referrals,
trade shows and magazine advertising. The majority of RIT's leasing income is
derived from its dealers network throughout the country. RIT's management
estimates that approximately 75% of its gross leasing income is generated from
its dealer networks located in Florida, North Carolina, California, Georgia and
Illinois with the balance of its income generated from referrals, trade shows
and magazines. RIT has positive working relationships with commercial financial
institutions, including ford Motor Credit, European American Bank, Bombardier
Capital, 1st Source Bank and Associates Commercial Corp. RIT leases
approximately 50-90 units per month, generating anywhere from $3 Million to $5
Million in gross sales per month.
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RIT's business strategy is to (i) provide personal and attentive
service to its clientele, (ii) lease primarily to high-quality credit applicants
in order to continue to build a lease portfolio with low delinquency and credit
loss rates, (iii) finance its lease portfolio with competitive credit terms and
(iv) manage its residual risk relating to RIT's resale of automobiles after the
expiration of the lease term.
In general, companies have a variety of financing alternatives
available to them in acquiring the use of a new automobile, either through the
purchase or lease of such vehicle. In financing the purchase of a vehicle there
are various loan alternatives including, fully amortizing loans, balloon
payments, no money down or low down payments. In terms of leasing vehicles,
there are various options including, payment schedules, term, maintenance and
repurchase rights. The primary benefit of leasing over purchasing is that
leasing typically provides a consumer with the opportunity to acquire the use of
a new automobile at a lower monthly payment than financing the purchase of such
vehicle, usually without a significant initial cash outlay, and enables the
return of the automobile without any further liability at the end of the lease
term. Companies which provide employees with automobile transportation typically
lease such vehicles and expense the costs. The increase in new vehicle prices in
relation to annual median family income has been a contributing factor in the
growth in the leasing and used automobile markets. This has provided RIT with a
further opportunity for revenue growth through the resale of its vehicles after
the term of the lease or in the event there are defaults of the leases.
RIT'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. RIT's 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.
RIT purchases each vehicle pursuant to its client's specifications and
finances its purchase. RIT usually finances the purchase of each vehicle to
correspond with the term of the lease, such that upon the completion of the
lease term the lessees have the option of purchasing the automobile at a
predetermined purchase price or turn the automobiles in and have no further
obligation.
The term of the leases average generally between 24 and 39 months,
with the average lease being 36 months. In addition to setting forth the lease
term, the amount of the rental payments and the mileage allowance, each lease
requires the lessee to pay all
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fees, taxes, fines and other costs relating to the use of the vehicle.
Generally, the lessee pays the first months lease payment in advance of the
lease term and puts up a security deposit equal to a one month lease amount. The
lessee is required to maintain liability and casualty insurance on each vehicle
at specified limits and to name RIT as an additional insured and loss payee.
Each lease applicant must provide information regarding, among other things,
corporate history, length of time in business, ability to pay based both on
income level and credit history, including comparable borrowing experience and
past history. The foregoing procedures provide the general basis for RIT's
credit decisions.
RIT's corporate headquarter are located at 90 Jericho Turnpike, Floral
Park, New York. RIT currently has ten employees and maintains an auto lease
portfolio of approximately 1,500 vehicles. It has satellite offices in
California, Florida, Georgia and North Carolina and intends to open three
additional satellite offices within the next twelve months. Mr. Toporek, RIT's
principal shareholder and chief executive officer has over 25 years of
experience in the equipment, auto financing and leasing business.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Introduction:
For a complete understanding of these activities, this management's discussion
and analysis should be read in conjunction with Part 1. Item 1. description of
Business and Part F/S Financial Statements to the Form 10-SB.
General:
Royal Acceptance Corporation (the "Company") was incorporated in the State of
Delaware on June 23, 1994. On July 15, 1999, it acquired all the issued and
outstanding capital stock of RIT Auto Leasing Company ("RIT") in exchange for
5,650,000 shares of its common stock. The transaction has been accounted for as
a reverse acquisition in a manner similar to a pooling of interests which
reflects the acquisition as if it had occurred on December 31, 1997 in the
accompanying consolidated financial statements.
RIT was incorporated in New York on April 1, 1993 and is in the business of
leasing primarily new and pre-owned vehicles with terms generally ranging from
twelve to sixty months. It markets its leasing services through its dealer
network and advertising. The sources of RIT's automobiles for lease are
predominantly automobile dealers in the eastern region of the United States. RIT
also leases and finances commercial industrial equipment such as computers,
airplanes, boats and construction equipment.
Forward Looking Statements and Certain Risk Factors:
The Company cautions readers that certain important factors may affect the
Company's actual
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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
10-SB or that are otherwise made by or on behalf of the Company. For this
purpose, any statements contained in the Form 10-SB 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", or "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:
Years ended December 31, 1999 and 1998
Revenue, consisting of amortization of unearned income and gains on sales of
vehicles, for 1999 was $3,993,141, a 77% increase from 1998 when total revenues
aggregated $2,257,457. When adjusted for rental income and gains on sale of
vehicles which totaled $393,586 in 1999 compared to $724,397 in 1998, revenues
actually increased $2,066,495 or 135%. 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 financal institutions. The additional sources of financing have given the
Company the ability to consummate additional lease agreements. Increases in
customer referrals have also had a favorable impact on the Company's revenues.
The Company's major costs consist of interest and depreciation which aggregated
$2,224,391 (56% of total revenues) for 1999 and $1,208,194 (54% of total
revenues) for 1998. The Company recognizes income from certain initial payments
made by its lessees. The gross margin therefore increased as a percentage of
sales (2%) in the current period primarily due to the increase in such initial
lease payments.
Selling, general and administrative expenses were $1,481,851 (37% of total
revenues) for the year ended December 31, 1999 and $913,951 (41% of total
revenues) for 1998. The increase of $567,900 (96%) was principally due to the
hiring of
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additional personnel and increases in professional fees. The decrease in
selling, general and administrative expenses as a percentage of revenues (4%)
was due to the presence of fixed costs, which does not increase commensurately
with the revenues.
The increase in the provision for taxes of $89,000 is due to deferred taxes on
the difference between book and tax income. The effective income tax rate was
50% for 1999 compared with 40% for 1998. The difference is due to the rate
increases on higher levels of income.
The Company's net income for 1999 totaled $143,899, or $.02 per share, compared
to $81,312 or $.01 per share 1998. As discussed above, the current period
included a large increase in lease revenue, less costs as a percentage of such
revenues and increases in selling, general and administrative expenses.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenue, consisting of amortization of earned income, rental income and gains on
sales of vehicles for 1998 was $2,257,457, a 46% increase form the year earlier
when total revenues aggregated $1,547,259. The decreases in rental income and
gains on vehicle sales in the current year of $218,664 was more than offset by
an increase in amortization of unearned income of $928,862. In 1997, few of the
company's leases qualified as direct finance leases and were classified as
operating leases thus accounting for the decrease in rental income and gains
from vehicle sales. This increase in amortization of unearned income is a direct
result of entering into more finance leases as well as management's efforts to
increase its dealer networks and an increase in its financial relationships to
include several new major financial institutions. The additional financing
availability has given the Company the ability to consummate additional lease
agreements.
The Company's major costs consists of interest and depreciation which totaled
$1,028,194 (54% of total revenue) in 1998 and $1,102,096 (72% of total revenues)
in 1997. The 18% decrease in interest and depreciation as a percentage of total
revenues is primarily due to the Company's ability to enter into more profitable
closed-end direct financing 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 operating leases. The Company also recognized more
income on initial payments made by its lessees in the current period. The gross
margin therefore increased in the current period due to the increase in such
revenues without incurring comparable increased costs.
Selling, general and administrative expenses were $913,951 (40% of revenues) for
1999 and $391,309 (25% of revenues) for 1998. The increase of $522,642 (134%)
was principally due to the hiring of additional personnel to service the
increased business and an increase in fixed costs in the current year over the
prior year. The increased costs incurred in 1998 were required to increase and
enhance the Company's dealer network.
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The increase in the provision for income taxes of $40,000 is due to deferred
taxes on the difference between book and tax income. The effective income tax
rate was 40% in both 1999 and 1998.
The Company's net income for 1999 totaled $81,312 or $.01 per share, compared to
$21,854 or $.00 per share for 1998. As discussed above, 1998 included more lease
revenue, less costs as a percentage of such revenues and increases in selling,
general and administrative expenses.
FINANCIAL CONDITION:
December 31, 1999 Compared to December 31, 1998
The Company's cash position at December 31, 1999 showed a decrease of $179,611.
The net investment in direct financing leases represents the aggregate future
lease payments due to the Company from its leasees. Such amount was $27,061,917
at December 30, 1999 and $13,151,516 at December 31, 1998. The Company feels
that it has adequately reserved for any possible bad debts. The Company finances
the purchase of its leased vehicles under several separate credit facilities.
Such indebtedness aggregated $26,610,165 and $12,717,524 at December 31, 1999
and December 31, 1998, respectively.
The Company's vehicle inventory increased from $504,701 at December 31, 1998 to
$1,300,843 at December 31, 1999. Such increase was due to the higher volume of
autos coming off lease during 1999 compared with the year ended December 31,
1998.
As at December 31, 1999, the Company loaned $481,000 to an entity owned by its
president. Such amount is due on demand and bears interest at 9%. There were no
amounts outstanding to this entity at December 31, 1998.
Accounts payable at December 31, 1999 was $512,091 compared with $43,307 at
December 31, 1998, an increase of $468,784. Such increase is related to the
higher volume of leases being entered into by the Company.
At December 31, 1999, the Company is indebted to its President in the amount of
$107,894. No such debt was outstanding at December 31, 1998.
Stockholders' equity increased by $529,475 during the period from December 31,
1998 to December 31, 1999. Such increase was the result of the sale of 415,300
shares for $93,775 in cash, issuance of 300,000 common shares for services
rendered valued at $75,000, and net income for the year ended December 31, 1999
of $143,899.
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Liquidity and Capital Resources:
The Company generated a negative cash flow from operations of $1,700,000 during
the year ended December 31, 1999. This negative cash flow from operations was
offset by (i) $1,265,000 provided primarily through the sale of vehicles; (ii)
$110,000 provided through the sale of 415,300 common shares and (iii) $108,000
provided through a loan by the Company by its president.
The Company's working capital at December 31, 1999 and 1998 was $809,355 and
$855,649, respectively. When the above working capital is adjusted for the
current portion of the unearned income, working capital increases to $3,423,585
and $1,963,440, respectively, which portrays the Company in a more liquid
position.
During 1999, the Company raised approximately $111,000 through the sale of
415,300 shares of its common stock and, during the first quarter of 2000, raised
an additional $180,000 through the sale of 180,000 common shares. Such shares
were sold in a Rule 504 offering of up to 600,000 common shares at $1.00 per
share. The private placement offering period commenced on October 5, 1999 and
has been extended to June 30, 2000. The proceeds of the offering will be used
primarily for working capital, acquisition of lease portfolios and hiring
additional personnel.
Management's primary goal is to expand its leasing operations, increase and
obtain better terms with respect to the financing of the vehicles it leases and
to increase the profitability of its vehicle remarketing program. The strategy
for continued growth is to (i) increase lease origination by a) increased name
recognition, b) acquisition of similar companies or their assets, c) the
development, expansion and retention of existing clients, and d) the expansion
into new geographic markets, ii) increase and improve the terms of its financing
arrangements, iii) further develop and increase the profitability of its used
automobile remarketing operations and (iv) lease primarily to high quality
credit applicants in order to continue to build a lease portfolio with low
delinquency and credit loss rates.
Management believes that anticipated cash flow from operations and the proceeds
raised through its private offering will be sufficient to fund its operations
for the next 12 months assuming that those operations are consistent with
management's expectations of its anticipated increase in revenues. The Company
may need additional financing thereafter. There can be no assurance that the
Company will be able to obtain financing on a favorable or timely basis. The
type, timing and terms of financing elected by the Company will depend upon its
cash needs, the availability of other financing sources and the prevailing
conditions in the financial markets. Moreover, any statement regarding the
Company's ability to fund its operations from
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expected cash flows is speculative in nature and inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified.
PROPERTY
RIT leases approximately 2,000 square feet of office space and a lot
for automobiles of approximately 11,500 square feet, both at 90 Jericho
Turnpike, Floral Park, New York 11001 at an annual rental of $120,000 per year
which lease expires in June, 2002. The property is leased directly from the
Alliance Holdings Limited Partnership, of which Richard Toporek is the General
Partner.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the name and address of each officer and
director of the Company and each person who owns beneficially more than five
percent of the Common Stock of the Company, and the number of shares owned by
each such person and by all officers and directors as a group:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Name and Address of Beneficial Owner Amount and Nature of Ownership Approximate % of Class
- ------------------------------------ --------------------------------- ----------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
Richard Toporek, President/Secretary 5,650,000(1) 75%
and Director
- ------------------------------------------------------------------------------------------------------
Mark Caulo, -
Chief Financial Officer and Director
- ------------------------------------------------------------------------------------------------------
Robert Ricciuti, -
Vice President and Director
- ------------------------------------------------------------------------------------------------------
Alliance Holdings Limited Partnership 5,650,000 75%
- ------------------------------------------------------------------------------------------------------
Directors and Officers as a Group 5,650,000 75%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Toporek owns these shares beneficially solely by virtue of his status as
the general partner of Alliance Holdings Limited Partnership. He disclaims
beneficial ownership of such shares.
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MANAGEMENT
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Richard Toporek 48 President/Secretary and
Director
Mark Caulo 41 Chief Financial Officer
and Director
Robert Ricciuti 45 Vice President and Director
</TABLE>
Richard Toporek has over 25 years of experience in the equipment, auto
financing and leasing industry. He has been President and a Director of RIT
since 1993. His responsibilities include overseeing all aspects of the daily
management and operation of RIT, including the management of over $25 Million of
leases as well as RIT's credit facilities. Mr. Toporek has also been the Chief
Executive Officer of Professional Vehicle Leasing since 1976 and has been a Vice
President of Alpha Acceptance Corp. since 1990. He is also a Director of Chariot
Limousine, and Transportation, Ltd. and Liberty Sales & Truck Leasing, Inc. Mr.
Toporek is founder and past president of the Tri-State Chapter of the National
Vehicle Leasing Association. Mr. Toporek will not be devoting all of his time to
the business of the Company as some of his time will be devoted to Professional
Vehicle Leasing and Alpha Acceptance Corp. He is a graduate of Queens College
with a Bachelor of Arts degree. See "Risk Factors--Dependence on Richard
Toporek."
Mark Caulo is a certified public account and is currently with MCM Tax
Services Ltd. and Kornelia M. Sevfried CPA, PC, an accounting and tax planning
and preparation service founded by him in 1984. Mr. Caulo's experience is
concentrated in leasing and automotive related industries as well as the
financial services industries. His firm is presently the outside accounting firm
for RIT. Upon completion of the Offering, Mr. Caulo will join the Company as its
chief financial officer and will be devoting the majority of his time to the
business of the Company. Mr. Caulo is a graduate of St Frances College with a
Bachelor of Science Degree.
Robert Ricciuti has been Director of Operations of Great American
Commercial Leasing of Great Neck, New York, a commercial equipment and
automobile leasing company since February, 1997 where he is responsible for all
of the functions of the company's work flow from the initial marketing programs
to the finalization of lease transactions. From 1991 to 1997 he was Director of
Auto Portfolios for National Star Leasing where he was responsible for the
credit analysis of all applications for equipment, automobile and truck
leasing. From 1988 to 1991 he was an Assistant Vice President of Oxford
Resources, a major financial institution where he directed and oversaw all
aspects related to operations, collections and customer service.
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EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options Compensation
- ----------------------- ---- ------ ----- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard Toporek, 1999 $75,281 - - -
President, Secretary and 1998 26,000 - -
Director 1997 10,068
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Richard Toporek, the President, Secretary and a Director of the
Company is the general partner of Alliance Holdings Limited Partnership, the
owner of 5,650,000 shares of the Company's common stock.
The Company leases space on a month to month basis from Toporek Family
Limited Partnership which is controlled by, Mr. Toporek. Minimum annual rental
payments are $120,000 per annum, plus escalations and real estate taxes. Rent
expense for the years ended December 31, 1999 and 1998 was $175,569 and
$117,598, respectively.
At December 31, 1999, Chariot Limosine and Transportation, Ltd., a
company owned by Mr. Toporek, owed the Company $481,000. This amount is due on
demand, bears interest at 9% and is secured by Chariot's assets. The debt is
also guaranteed by Mr. Toporek, who has further secured the loan with his shares
of the Company's common stock.
At December 31, 1999, the Company owed Mr. Toporek $107,894. The
obligation is payable on demand and bears interest at 9%.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 25,000,000 shares of common stock,
$.001 par value, of which 7,532,709 shares were issued and outstanding as of
February 28, 2000. The holders of common stock have one vote per share. None of
the shares have preemptive or cumulative voting rights, have any rights of
redemption or are liable for assessments or further calls. None of the shares
have any conversion rights. The holders of common stock are entitled to
dividends, when and as declared by the Board of Directors from funds legally
available therefor. Upon liquidations of the Company the holders of common stock
are entitled to share pro rata in any distribution to shareholders.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock,
$.001 par value none of which issued and outstanding.
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Olde Monmouth Stock Transfer Co., 77 Memorial Parkway, Suite 101,
Atlantic Highlands, NJ 07716, is the transfer agent and registrar for the
Company's common stock.
Shares Eligible for Future Sale
The Company has 7,532,709 shares of common stock outstanding, but, of
these shares, only 819,759 shares are freely tradable. All of the remaining
shares of common stock are considered "restricted securities" and in the future,
may be sold only in compliance with rule 144 or in an exempt transaction under
the Securities Act of 1933 (the "Act") unless registered under the Act (the
"restricted shares").
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain conditions, a person, including an affiliate of the
Company (or persons whose shares are aggregated), who has owned restricted
shares of common stock beneficially for at least one year is entitled to sell,
within any three month period, a number of shares that does not exceed the
greater of 1% of the total number of outstanding shares of the same class or, if
the common stock is quoted on a national quotation system, the average weekly
trading volume during the four calendar weeks preceding the sale. A person who
has not been an affiliate of the Company for at least the three months preceding
the sale and who has beneficially owned shares of common stock for at least two
years is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above.
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PART II
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's securities trade are traded on the OTC Bulletin Board and
in the over-the-counter market "pink sheets". The Company's trading symbol is
"RYFC". Over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not represent actual
transactions. The following sets forth the range of high and low bid information
for the quarterly periods as reported by the National Quotation Bureau:
High Low
---- ---
1998: 2nd Quarter .25 .25
3rd Quarter .25 .25
4th Quarter .25 .25
1999: 1st Quarter 2.00 .25
2nd Quarter 2.375 .25
3rd Quarter 1.40625 .03125
4th Quarter 3.375 1.03125
Holders
As of February 28, 2000, the number of holders of record of common
stock, excluding the number of beneficial owners whose securities are held in
street name, was approximately 95.
Dividend Policy
The Company does not anticipate paying any cash dividends on its common
stock in the foreseeable future because it intends to retain its earnings to
finance the expansion of its business. Thereafter, the declaration of dividends
will be determined by the Board of Directors in light of conditions then
existing, including, without limitation, the Company's financial condition,
capital requirements and business condition.
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LEGAL PROCEEDINGS
The Company is not party to any material pending legal proceedings and
has no knowledge that any such proceedings are threatened.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
RECENT SALES OF UNREGISTERED SECURITIES
The following paragraphs set forth certain information with respect to
all securities sold by the Company within the past three years without
registration under the Securities Act of 1933, as amended (the "Securities
Act"). The information includes the names of the purchasers, the date of
issuance, the title and number of securities sold and the consideration received
by the company for the issuance of these shares.
On December 27, 1997, the Company issued to Loren Investment Group, Inc.,
250,000 shares of common stock as a retainer for its agreement to provide
consulting services to the Company. 100,000 shares were issued pursuant to Rule
504 of Regulation D and 150,000 shares were issued pursuant to Section 4(2) of
the Act.
On December 27, 1997, the Company issued to Bondy & Schloss LLP, 250,000 shares
of common stock as a retainer for legal services rendered. 100,000 shares were
issued pursuant to Rule 504 of Regulation D and 150,000 shares were issued
pursuant to Section 4(2) of the Act.
On December 27, 1997, the Company issued to Gerald Ponsiglione, an officer and
director of the Company 200,000 shares of common stock in consideration for his
agreement to serve in such capacity. The aforesaid shares were issued pursuant
to Section 4(2) of the Act.
On March 25, 1998, the Company issued to William Hayde, 250,000 shares
of common stock as a retainer for his agreement to provide consulting services
to the Company. 100,000 shares were issued pursuant to Rule 504 of Regulation D
and 150,000 shares were issued pursuant to Section 4(2) of the Act.
Commencing in September 1998, the Company sold 410,300 shares of common
stock at a price of $0.25 per share to the following persons, each in the amount
set forth opposite his, her or its name:
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Harvey Bayard 30,000
Georgianna Gostkowski 200
Robert J. Ryan 1,000
A. Ruthenberg 3,000
Staci Gassoso 20,000
Tutta Italia Inc 10,000
Robert Tarantola 2,000
Joanne Gallo 2,000
John M. Young Jr. 10,000
Gus Sclafani 6,000
Darlene Bosco 37,000
Lillian and Richard Misiak 15,000
Larry Schwartz 5,000
Richard Cullen 4,000
Darryl Mathews and Donna
Mathews JTWROS 5,000
Daniel Miele 2,400
Rocco Urgo 6,000
Enice Lorenzo 2,500
Joe Lorenzo & Sons Provisions, Inc. 8,000
Vincent Lorenzo 2,500
Craig Fligel 4,000
Enice Lorenzo 2,500
Naim Haddad 10,000
Angela Vergona 4,000
Mary F. Calabro 4,000
Bethanne Thomas 100,000
Craig Fligel 4,000
Harvey Bayard 40,000
Catherine DeWitt 9,000
Joseph C. Larezza 4,000
Joseph C. Larezza 1,000
L. Rolls (Nominees) Ltd. 20,000
L. Rolls (Nominees) Ltd. 20,000
AJ & Company of New York Limited 2,000
Hugh Conlin 4,000
Monica Lloyd 2,000
Jacquelyn Rado 1,000
Rosella Valente 2,000
Anthony Amitrano 1,200
15
<PAGE>
In March of 1999, the Company sold the following shares at a price of
$2.00 per share to the following individuals under Rule 504:
Bhavin Patel 5,000
Patricia Novinski 2,000
Commencing November 1, 1999, the Company has offered and sold the
following shares to the listed individuals at a price of $1.00 per share under
Rule 504:
Jerome Breslaw 20,000
Jon Farbman 10,000
Henrietta Meltzer 20,000
Abraham Stahl 15,000
Solomon Shapiro 25,000
16
<PAGE>
PART III
Index and Description of Exhibits
1. Index to Exhibits
Exhibit No. Description
- ---------- ------------
3.1 Certificate of Incorporation, together with all amendments*
3.2 Certificate of Merger*
3.3 By-Laws*
4.1 Specimen Common Stock Certificate*
10.1 Exchange Agreement, dated as of July 13, 1999, by and between the
Company, RIT Auto Leasing Group, Inc. and Alliance Holdings
Limited Partnership*
27.1 Financial Data Schedule
* Previously filed.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL")
provides that a corporation may indemnify directors and officers as well as
other employees and individuals against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation, a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such actions, and the statute requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
bylaws, disinterested director vote, stockholder vote, agreement or otherwise.
The Company's Certificate of Incorporation contains no specific
provision pertaining to the liability or indemnification of its officers or
directors. However, the Company's by- laws provide that no director or officer
of the corporation shall be liable for the acts, defaults or neglects of any
other director or officer, or for any loss sustained by the corporation, unless
the same has resulted from his own willful misconduct, willful neglect, or
negligence. The by-laws further provide as follows:
Each director and officer of the corporation and each person who shall
serve at the corporation's request as a director or officer of another
corporation in
17
<PAGE>
which the corporation owns shares of capital stock or of which it is a
creditor shall be indemnified by the corporation against all reasonable
costs, expenses and liabilities (including reasonable attorney's fees)
actually and necessarily incurred by or imposed upon him in connection
with, or resulting from, any claim, action, suit, proceeding,
investigation or inquiry of whatever nature in which he may be involved
as a party or otherwise by reason of his being or having been a
director or officer of the corporation or such director or officer of
such other corporation, at the time of the incurring or imposition of
such costs, expenses or liabilities, except in relation to matters as
to which he shall be finally adjudged in such action, suit, proceeding,
investigation or inquiry to be liable for willful misconduct, willful
neglect, or gross negligence toward or on behalf of the corporation in
the performance of his duties as such director or officer of the
corporation or as such director or officer of such other corporation.
As to whether or not a director or officer was liable by reason of
willful misconduct, willful neglect, or gross negligence toward or on
behalf of the corporation in the performance of his duties as such
director or officer of the corporation or as such director or officer
of such other corporation, in the absence of such final adjudication of
the existence of such liability, the Board of Directors and each
director and officer may conclusively rely upon an opinion of legal
counsel selected by or in the manner designated by the Board of
Directors. The foregoing right to indemnification shall be in addition
to and not in limitation of all other rights to which such person may
be entitled as a matter of law and shall inure to the benefit of the
legal representative of such person.
CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
FINANCIAL SCHEDULES AND EXHIBITS
(a) The following financial statement are filed herewith:
Financial Statements. The financial statements filed as part of this
Form 10-SB are indexed below and are included at page F-1.
18
<PAGE>
Independent Auditors' Report.............................................. F-1
Consolidated Balance Sheet as at September 30, 1999 (unaudited)
and December 31, 1999 and 1998 (audited)...................................F-2
Consolidated Statement of Operations for the period
ended September 30, 1999 (unaudited) and for the
two years ended December 31, 1999 and 1998 (audited) ......................F-3
Statement of Stockholders' Equity for the period
ended September 30, 1999 (unaudited) and for the
years ended December 31, 1999 and 1998 (audited) ..........................F-4
Statements of Cash Flows for the years ended
December 30, 1998 and 1997 (audited)...................................... F-5
Notes to Financial Statements ......................................F-6 - F-20
Exhibits.
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf the
undersigned thereto duly authorized.
Dated: April 11, 2000
Royal Acceptance Corporation.
By: /s/ Richard Toporek
--------------------------------
Name: Richard Toporek
Title: President
19
<PAGE>
ROYAL ACCEPTANCE CORPORATION
AND SUBSIDIARY
CONSOLDIATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
DECEMBER 31, 1999
I N D E X
---------
Page No.
--------
FINANCIAL STATEMENTS:
Independent Accountants' Report ............................... F-2
Consolidated Balance Sheets
As of December 31, 1999 and December 31, 1998............... F-3
Consolidated Statements of Income
For the Years Ended December 31, 1999 and 1998 ............. F-4
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1999 and 1998 ............ F-5
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998 ............. F-6 - F-7
Notes to Consolidated Financial Statements ....................F-8 - F-15
F-1
<PAGE>
[GRAPHIC WEINICK 1515 BROADWAY
OMITTED] SANDERS NEW YORK, N.Y. 10036-5788
LEVENTHAL & CO., LLP
CERTIFIED PUBLIC ACCOUNTANTS
212-869-3333
FAX 212-764-3060
WWW.WSLCO.COM
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
To the Stockholders and Board of Directors
Royal Acceptance Corporation
We have audited the accompanying consolidated balance sheets of Royal
Acceptance Corporation and Subsidiary as at December 31, 1999 and 1998,
and the related statements of operations, cash flows, and stockholders'
equity for the years then ended. These consolidated financial statements
are the responsibility of the Companies management. Our responsibility is
to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the over-all
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Royal
Acceptance Corporation and Subsidiary as at December 31, 1999 and 1998,
and the results of their operations and their cash flows for the two
years then ended, in conformity with generally accepted accounting
principles.
F-2
<PAGE>
New York, New York
March 29, 2000
ROYAL ACCEPTANCE CORPORAITON AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
----- ----
<S> <C> <C>
Current assets:
Cash $ 58,346 $ 237,957
Net investment in direct financing leases 7,712,004 3,868,228
Inventory 1,300,843 504,701
Prepaid assets 13,375 -
----------- ---------
Total current assets 9,084,568 4,610,886
Net investment in direct financing leases 19,349,913 9,423,666
Furniture and equipment - net of depreciation
and amortization 112,453 97,146
Due from related party 481,000 -
Other assets 78,573 7,775
----------- ---------
$29,106,507 $14,139,473
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 25,240 $ -
Current maturities of loans payable 7,613,318 3,711,930
Accounts payable and accrued expenses 512,091 43,307
Loan payable stockholder 107,894 -
----------- -----------
Total current liabilities 8,258,543 3,755,237
Loans payable - net of current maturities 18,996,847 9,005,594
Deferred income taxes 706,000 563,000
----------- -----------
Total liabilities 27,961,390 13,323,831
----------- -----------
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 -
7,532,709 shares at December 31, 1999,
6,817,409 shares at December 31, 1998 7,533 6,817
Additional paid-in capital 1,222,693 1,037,833
Accumulated deficit (85,109) (229,008)
----------- -----------
Total stockholder's equity 1,145,117 815,642
----------- -----------
$29,106,507 $14,139,473
=========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended
December 31,
------------------------
1999 1998
----- ----
Revenues:
Amortization of unearned
lease income $3,599,555 $1,533,060
Rental income - 219,622
Gain on sale of vehicles 393,586 504,775
---------- ----------
Total revenues 3,993,141 2,257,457
---------- ----------
Costs and expenses:
Interest 1,937,172 1,154,214
Depreciation and
amortization 287,219 53,980
Selling, general and
administrative 1,481,851 913,951
---------- ---------
Total costs and expenses 3,706,242 2,122,145
---------- ----------
Income before provision
for income taxes 286,899 135,312
Provision for income taxes 143,000 54,000
---------- ----------
Net income $ 143,899 $ 81,312
========== ==========
Earnings per share:
Basic and diluted:
Net income per share 0.02 $ 0.01
========== ==========
Weighted average shares
outstanding 7,357,798 6,143,300
========== ==========
See notes to financial statements.
F-4
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Additional Total
Common Shares Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------ ------ -------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 6,567,409 $6,567 $1,035,583 ($310,320) $ 731,830
Sale of common stock for cash 250,000 250 2,250 - 2,500
Net income for the year ended December 31, 1998 - - - 81,312 81,312
--------- ------- --------- --------- ---------
Balance at December 31, 1998 6,817,409 6,817 1,037,833 (229,008) 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
Net income for the year ended
December 31, 1999 - - - 143,899 143,899
--------- ------- --------- --------- ----------
Balance at December 31, 1999 7,532,709 $ 7,533 $1,222,693 ($ 85,109) $1,145,117
========= ======= ========== ========= ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------
1999 1998
----- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 143,899 $ 81,312
---------- ---------
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Common stock issued for services 75,000 9,500
Depreciation and amortization 287,219 53,980
Gain on sale of vehicles (393,586) (504,775)
Deferred income taxes 143,000 54,000
Increase (decrease) in cash
flows as a result of
changes in asset and
liability account balances:
Net investment in direct
finance leases (15,424,880) (5,702,687)
Inventory (796,142) 64,857
Prepaid expenses (13,375) -
Other assets (70,798)
Loans payable 13,892,641 5,259,038
Accounts payable and
accrued expenses 468,784 (140,917)
---------- ---------
Total adjustments (1,832,137) (907,004)
------------ ---------
Net cash used in operating activities (1,688,238) (825,692)
---------- ---------
Cash flows from investing
activities:
Due to related party (481,000) -
Purchases of furniture
and equipment (34,035) (38,080)
Proceeds of vehicles sold 1,779,953 1,015,936
---------- ---------
Net cash provided by
investing activities 1,264,918 977,856
---------- ---------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended
December 31,
-------------------
1999 1998
---- ----
Cash flows from financing
activities:
Bank overdraft $ 25,240 $ -
Sale of capital stock 110,575 -
Loans payable officer 107,894 -
---------- ---------
Net cash provided by
financing activities 243,709 -
---------- ---------
Net increase (decrease) in cash (179,611) 152,164
Cash at beginning of period 237,957 85,793
---------- ---------
Cash at end of period $ 58,346 $ 237,957
========== =========
Supplemental Disclosures of
Cash Flows Information:
Interest $1,937,172 $1,154,214
========== ==========
Income taxes $ - $ -
========== ==========
Supplemental Disclosures of
Non-Cash Investing and
Financing Activities:
Common stock issued for
services rendered $ 75,000 $ 9,500
========== =========
See notes to financial statements.
F-7
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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
reverse stock split and 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) Description of Business:
RIT was incorporated in New York on April 1, 1993
and is in the business of leasing new and pre-owned vehicles
with terms generally ranging from twelve to sixty months. RIT
markets its leasing services through its dealer network and
through advertising. The sources of RIT's vehicles for lease
are predominantly automobile dealers in the Eastern region of
the United States. RIT also leases and finances commercial
industrial equipment such as computers, airplanes, boats and
construction equipment.
(c) Principles of Consolidation:
The accompanying consolidated financial statements
as at December 31, 1999 and 1998 and the years then ended
include the accounts of Royal and its wholly owned subsidiary,
RIT. All material inter-company transactions have been
eliminated in consolidation.
(d) Classification of Leases and Revenue Recognition:
Leases are either classified as "direct financing"
or "operating", pursuant to the provisions of Statement of
Financial Accounting Standards Board Statement No. 13, as
amended - "Accounting for Leases."
F-8
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(d) Classification of Leases and Revenue Recognition: (Continued)
(i) Direct Financing Leases:
Includes all leases containing open-end lessee purchase options
and/or bargain purchase options. Open-end lessee purchase
options require each lessee upon termination to either purchase
the related vehicle for the stated purchase option price or, if
returned, to be responsible for any deficiency between the
stated option price and the eventual price realized by the
Company upon the vehicles disposition. Direct financing leases
also include certain leases containing closed-end lessee
options whereby the Company expects the lessee to purchase
(although not a requirement) the vehicle for the stated option
price. The majority of these leases are situations where large
capital cost reductions were made and/or purchase option prices
are well below the anticipated value of the related vehicle.
The Company finances its vehicles purchases through several
financial institutions. A security interest is granted to the
financial institutions both in the lease and the underlying
leased asset as collateral for the loans. If the leasee does
not exercise the purchase option at the end of the lease, or in
the case of default, the Company takes possession of the
underlying leased asset and either sells or releases it and
remits to the financial institution the outstanding loan
balance.
The net investment in direct financing leases includes all
future lease payments, the purchase options and the unamortized
portion of initial direct lease costs, net of unearned income.
Revenue under the direct financing leases is accounted for by
recognizing the excess of aggregate rentals receivable and
lessee purchase options over the cost of the leased vehicles
during the term of the lease in decreasing amounts related to
the declining balance of the unrecovered cost.
F-9
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(d) Classification of Leases and Revenue Recognition: (Continued)
(ii) Operating Leases:
Operating leases consist of vehicles, which do not meet the
direct financing lease criteria. The majority of which are
closed-end leases, which may or may not contain lessee purchase
options. Leases that are classified as operating leases are
stated at cost, less accumulated depreciation. Depreciation is
computed on the straight-line basis over the terms of the
leases up to the vehicles estimated residual values at the
expiration of the lease periods. Rentals from operating leases
are recognized as revenue over the life of the lease on the
straight-line basis and expenses are charged against such
revenues as incurred. Initial lessee capital cost reduction
payments are amortized on a straight-line basis consistent with
depreciation periods and initial direct costs are included as a
component of the vehicles held and are amortized on a
straight-line basis over the lives of the related leases. All
operating leases in force as of December 31, 1997 expired
during 1998. As at December 31, 1998 and 1999 the Company had
no operating leases.
(e) Inventory:
As at December 31, 1999 and 1998 the inventory is
comprised of vehicles were held at either a used car facility
owned by a related entity or at dealers throughout the country.
The purchase option on these vehicles were either not exercised
by the lessees at the end of the lease or were repossessed due
to lessee defaults. The Company has valued the vehicles based
on the lower of cost of market. The Company determined the
lower of cost or market to be the wholesale value of such
vehicles as defined by industry standards, as compared to the
remaining lease value at the date such vehicles were acquired
in inventory. Such amount totaled $1,300,843 and $504,701 as at
December 31, 1999 and 1998, respectively. The Company records a
loss in instances where the wholesale value was less than the
remaining lease value. During the years ended December 31, 1999
and 1998 such losses were immaterial.
(f) Furniture and Equipment:
Depreciation of furniture and equipment is computed
on the straight-line method over the estimated useful lives of
the related assets. Expenditures for repairs and maintenance
are charged to income as incurred.
F-10
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(g) 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.
(h) 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, 1997.
NOTE 2 - NET INVESTMENT IN DIRECT FINANCING LEASES.
The net investment in direct financing leases
consists of the following:
December 31,
1999 1998
---- ----
Total minimum lease payments to be received $28,943,337 $12,981,102
Estimated residual value of leased property 6,354,828 4,031,623
Deferred initial direct lease costs
(less accumulated amortization) 751,503 290,818
Allowance for uncollectable payments (328,198) (229,312)
---------- ----------
35,721,470 17,074,231
Less: Unearned income 8,659,553 3,922,715
---------- ----------
Net investment in direct financing leases 27,061,917 13,151,516
Less: current portion 7,712,004 3,727,850
---------- -----------
Non current portion $19,349,913 $ 9,423,666
=========== ============
F-11
<PAGE>
NOTE 2 - NET INVESTMENT IN DIRECT FINANCING LEASES. (Continued)
The minimum lease payments to be received as of
December 31, 1999 for each of the next five (5) years are:
2000 $ 9,195,610
2001 7,253,029
2002 6,214,323
2003 4,689,491
2004 1,590,884
-----------
$28,943,337
===========
NOTE 3 - FURNITURE AND EQUIPMENT.
Furniture and equipment consist of the following:
December 31,
------------
1999 1998
----- ----
Furniture and equipment $193,035 $159,000
Less: Accumulated depreciation 80,582 61,854
--------- ---------
Net furniture and equipment $112,453 $ 97,146
========= =========
Depreciation charged to operations $ 18,728 $ 15,900
========= =========
NOTE 4 - LOANS PAYABLE.
The Company has lines of credit with several
financial institutions exclusively for the financing of leased
vehicles. One of the financial institutions limits the
Company's borrowings to $10,000,000. Borrowings from this
financial institution aggregated $7,500,000 at December 31,
1999. The lines of credit with the other financial institutions
have no credit limits. The obligations are secured by the
leases and the underlying leased property and are payable
monthly with interest ranging from 8% to 14% per annum. The
President of the Company has personally guaranteed the loans.
Following are maturities of loans payable as of
December 31, 1999 for each of the next five (5) years:
2000 $ 7,613,318
2001 6,826,739
2002 5,803,501
2003 4,297,679
2004 2,068,928
-----------
$26,610,165
===========
F-12
<PAGE>
NOTE 5 - DEFERRED TAXES.
During the initial years of the leases, the Company
receives the benefit for income tax purposes of deductions for
depreciation on the vehicles, and interest on the debt that in
the aggregate exceed the rental income from the related leases.
During the later years rental income will exceed related
deductions. Provision has been made for the deferred income
taxes that arise from these timing differences using the
deferred method.
The components of the provision for income taxes are as follows:
For the Years Ended
December 31,
-------------------------
1999 1998
---- ----
Currently payable:
Federal $ - $ -
State and local 3,000 2,000
------- -------
3,000 2,000
------- -------
Deferred:
Federal 100,000 42,000
State and local 40,000 10,000
------- ------
140,000 52,000
-------- ------
Total provision $143,000 $54,000
======== =======
The net deferred tax liability consists of the following temporary
differences:
December 31,
1999 1998
---- ----
Net investment in finance leases ($1,499,000) ($853,000)
Net operating loss carryforward 766,000 275,000
Other 32,000 17,000
-------- -------
Total ($ 701,000) ($561,000)
======== =======
F-13
<PAGE>
NOTE 5 - DEFERRED TAXES. (Continued)
The difference between income taxes computed using
the statutory federal income tax rate and the rate shown in the
financial statements is summarized as follows:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------------------------------
1999 % 1998 %
---- ----- ---- ----
<S> <C> <C>
Increase before provision for taxes $286,899 $135,312
-------- --------
Computed tax provision at statutory rate 97,000 34.0 46,000 34.0
Non-deductible portion of common
stock issuances 24,000 8.6 - -
State tax provision, net of
federal tax effect 15,000 5.4 7,000 5.2
Other, net 7,000 2.6 1,000 0.7
-------- ---- ------ ---
$143,000 50.6 $ 54,000 39.9
========= ===== ======== ====
</TABLE>
The net operating loss carryforwards at December 31, 1999 expired as
follows:
Year Ending
December 31,
2009 $ 10,000
2011 180,000
2013 497,000
2014 1,057,000
---------
$1,744,000
NOTE 6 - CAPITAL STOCK.
(a) Stock Issued for Consideration Other Than Cash:
In March 1998, the Company issued 250,000 shares of
its common stock to a consultant at their fair value of $2,500
for consulting services rendered. Of the 250,000 shares,
150,000 are restricted under Rule 144 of the Securities Act of
1933.
In March 1999, the Company issued 150,000 restricted
shares of its common stock to an officer/stockholder and
150,000 restricted shares to a consultant at their fair
aggregate value of $75,000 for services rendered.
References made to note 1(a) regarding 5,650,000
issued pursuant to the RIT acquisition.
F-14
<PAGE>
NOTE 6 - CAPITAL STOCK. (Continued)
(b) Stock Issued for Cash:
During the year ended December 31, 1999, the Company
sold 415,300 shares of its common stock for $110,576.
On October 5, 1999, Royal offered 600,000 shares of
its common stock at a price of $1.00 per share pursuant to a
confidential private offering memorandum, the ("Offering").
The offering period, as extended, ends on June 30, 2000. No
shares were sold from October 5, 1999 through December 31,1999.
During the period from January 1, 2000 through March
29, 2000 the Company sold 180,000 shares at $1.00 per share
under the Offering.
NOTE 7 - RELATED PARTY TRANSACTIONS.
(a) Leases:
The Company leases space on a month to month basis
from an entity, which is owned by the Company's president.
Minimum annual rental payments are $120,000 per annum, plus
escalations and real estate taxes. Rent expense for the years
ended December 31, 1999 and 1998 was $175,569 and $117,598,
respectively.
(b) Due from related party:
At December 31, 1999, a corporation owned by the
Company's President was indebted to the Company in the amount
of $481,000. The amount is due on demand, bears interest at 9%
and is collateralized by a security interest in the
corporations assets. The obligation is also guaranteed by the
Company's President, who has further secured the loan with his
shares of common stock of the Company.
(c) Loan payable - Stockholder:
At December 31, 1999, the Company is indebted to its
President in the amount of $107,894. The obligation is due on
demand and bears interest at 9%.
F-15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Royal Acceptance Corporation and Subsidiary as at
December 31, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 58,946
<SECURITIES> 0
<RECEIVABLES> 990,969
<ALLOWANCES> 0
<INVENTORY> 1,300,843
<CURRENT-ASSETS> 9,084,568
<PP&E> 193,035
<DEPRECIATION> 80,582
<TOTAL-ASSETS> 29,106,507
<CURRENT-LIABILITIES> 8,258,543
<BONDS> 0
0
0
<COMMON> 7,533
<OTHER-SE> 1,137,584
<TOTAL-LIABILITY-AND-EQUITY> 29,106,507
<SALES> 0
<TOTAL-REVENUES> 3,993,141
<CGS> 0
<TOTAL-COSTS> 1,769,070
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,937,172
<INCOME-PRETAX> 286,899
<INCOME-TAX> 143,000
<INCOME-CONTINUING> 143,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 143,899
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
