<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 2
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 incorporated on November 15, 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 July 15, 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. From time to time, the Company also receives requests for
financing of commercial industrial equipment such as computers, airplanes, boats
and construction equipment. The Company typically refers these leases to other
companies for a fee. These fees, however, contribute an insignificant amount to
its revenues. The Company's 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 approximately $10.5 million. Presently, its product lines
consist primarily of high line vehicles (exotic and luxury), limousines,
ambulances, tow trucks, and tractors.
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 dealer networks 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, representing from $3 to $5 million
in gross lease revenues per month. From these leases, the Company received on
average revenues of approximately $127,755 per month for 1998, $229,962 per
month for 1999 and $474,645 per month for the first quarter of 2000.
1
<PAGE>
Industry and Competition
The auto leasing industry in which the Company operates is highly
competitive and has experienced consolidation in recent years. The Company has
many competitors but none which dominate the industry. The Company believes that
its two largest competitors are MIC Leasing Corp. and Car Corp. are its two
largest competitors, but it also believes that its portfolio of leases is larger
than either of theirs. The Company does not consider financing companies which
are affiliated with large auto dealers, such as Daimler Chrysler, to be its
direct competitors since customers who qualify for financing through these
dealer affiliates will not normally approach the Company for financing. The
Company and leasing companies like it provide alternative financing sources for
customers who are unable to obtain financing from primary sources.
Business Strategy
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) increase name
recognition, (b) acquire 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
2
<PAGE>
fees, taxes, fines and other costs relating to the use of the vehicle.
Generally, the lessee pays the first month's 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.
Direct Financing Leases
The Company focuses its operations and its marketing efforts on direct
financing leases rather than operating leases. Direct financing leases generally
contain open-end lessee purchase options and/or bargain purchase options. Open
end lessee purchase options require the 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 vehicle's disposition.
These leases also include certain leases containing closed-end lessee options
whereby the Company expects (although not a requirement) the lessee to purchase
the vehicle for the stated option price. The Company takes a large down payment,
or "capital cost reduction" on the majority of these closed-end leases and the
purchase option prices are generally well below the anticipates value of the
related vehicle.
The Company finances its vehicle purchases through several financial
institutions. A security interest is granted to the financial institution both
in the lease and the underlying leased asset as collateral for each loan. If the
lessee 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 re-leases it and remits to the financial institution the
outstanding loan balance.
The Company currently has no operating leases and does not focus its
marketing efforts on these types of leases. All operating leases in force as of
December 31, 1997 expired during 1998. At December 31, 1998 and 1999, the
Company had no operating leases.
<PAGE>
Other Sources of Revenue
In addition to revenues it receives from its leasing operations, the
Company generates revenues by selling or renting vehicles which have been
returned to it either prior to the expiration of the lease term or after the
lease term in cases where the lessee does not exercise its option to purchase
the vehicle. Revenues from these sources, however, are significantly less than
those from the Company's leasing operations, and, in some periods, the Company
experiences a loss on vehicle sales due to an inability to sell vehicles at a
sufficient price to cover balances due by the Company on the respective leases.
During the year ended December 31, 1999, for example, the Company generated no
revenues from vehicle rentals and $393,586 (9.0% of revenues) from sales of
vehicles. For the three months ended March 31, 2000, the Company again generated
no revenues from vehicle rentals and experienced a loss of $35,436 (2.6% of
revenues) from sales of vehicles.
Although the Company has customers which lease large numbers of autos
through it, it has no major customer which accounts for more than 10% of its
revenues. The Company does rely on a small number of car dealers from whom it
receives referrals for leases.
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 November 15, 1996. 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
3
<PAGE>
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:
Three months ended March 31, 2000 and 1999
Revenues are summarized as follows:
For the three months ended March 31,
<TABLE>
<CAPTION>
Increase % Increase
2000 1999 (Decrease) (Decrease)
----------- -------- ---------- ----------
<S> <C> <C> <C> <C>
a) Amortization of unearned lease income $1,423,936 $775,722 $648,214 83.56%
b) Gain (loss) on sale of vehicles ( 35,436) 29,885 ( 65,321) -218.57%
c) Rental income 0 0 0 0.00%
----------- -------- ---------- -------
$1,388,500 $805,607 $582,893 72.35%
=========== ======== ========== =======
</TABLE>
a) The total amount of unearned lease income on leases in force at the
beginning of the periods and on leases entered into during the three month
periods was $10,352,481 during the March '00 quarter and $4,805,373 during
the March '99 quarter. Amortization of unearned lease income represented 14%
of total unearned income during the March '00 quarter and 16% during the
March '99 quarter. The dollar value increase of $648,214 (an 84% increase)
was a result of management's efforts to increase its dealer networks, which
has been expanded to include locations in Florida, North Carolina,
California, Georgia and Illinois. Increase in customer referrals has also had
an impact on the Company's revenues.
b) In the event that the purchase option is not exercised by the lessee or
the vehicle is repossessed, the Company either re-leases or sells the
vehicle. In the event of a sale, the variant between the selling price and
the carrying amount of the lease is picked up in income. During the March '00
quarter, the Company collected $143,809 on the sale of vehicles and incurred
a loss of $29,885. The gain or loss on such vehicle sales is a function of
the type or vehicle sold, the lease terms and whether the vehicle was
repossessed or came off lease at the termination date.
Interest expense as it relates to the amortization of unearned income is
summarized as follows:
For the three months ended March 31,
<TABLE>
<CAPTION>
Increase % Increase
2000 1999 (Decrease) (Decrease)
----------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Total lease revenue $1,423,936 $775,722 $648,214 83.56%
Interest expense 430,865 360,272 70,593 19.58%
----------- -------- ---------- -------
Percentage 30.26% 46.44% - 16.18%
=========== ======== ========== =======
</TABLE>
4
<PAGE>
The profitability of the Company's leases is primarily based upon the
difference between the interest rate imputed in its leases and its cost of
funds. As summarized above, interest expense during the March '00 quarter as
a percentage of total lease revenue decreased by 16% when compared with the
March '99 quarter. This decrease is primarily the result of entering into
more profitable closed-end leases for luxury automobiles during the current
quarter. The Company can normally obtain higher interest rates on such
leases.
Amortization of initial direct costs as it relates to the amortization of
unearned income:
For the three months ended March 31,
<TABLE>
<CAPTION>
Increase % Increase
2000 1999 (Decrease) (Decrease)
----------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Total lease revenue $1,423,936 $775,722 $648,214 83.56%
Amortization of initial direct costs 62,220 26,088 36,132 138.50%
----------- -------- ---------- -------
Percentage 4.37% 3.36% 1.01%
=========== ======== ==========
</TABLE>
Initial direct costs consists primarily of commissions, auto repairs and repo
costs. Such costs are amortized over the life of the lease on a straight-line
basis. As a percentage of revenue, such amortization increased by 1% from the
March '00 quarter as compared to the March '99 quarter. Such increase was due to
a large increase in leases entered into during the March '00 quarter as compared
to the March '99 quarter. Since initial direct costs are amortized on a
straight-line basis over the life of the lease, a decrease in the percentage is
understandable.
Selling, general and administrative expenses as a percentage of total revenue:
For the three months ended March 31,
<TABLE>
<CAPTION>
Increase % Increase
2000 1999 (Decrease) (Decrease)
----------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Total revenues $1,423,936 $775,722 $648,214 83.56%
Selling, general and administrative
expenses 437,402 326,314 111,088 34.04%
----------- -------- ---------- -------
Percentage 30.72% 42.07% -11.35%
=========== ======== ==========
</TABLE>
Selling, general and administrative expenses increased from $326,314 during the
March '99 quarter to $430,865 during the March '00 quarter (an 11.35% increase
on total revenues). This decrease was due to the presence of fixed costs
relating to increased revenues.
5
<PAGE>
Such increases are summarized as follows:
For the three months ended March 31,
<TABLE>
<CAPTION>
Increase
2000 1999 (Decrease)
----------- -------- ----------
<S> <C> <C> <C>
a) Salaries and wages $123,665 $ 0 $123,665
b) Provision for bad debts 101,306 54,544 46,762
c) Compensation element of
stock issuances 0 75,000 ( 75,000)
Other 212,431 196,770 15,661
-------- -------- ---------
$437,402 $326,314 $111,088
======== ======== =========
</TABLE>
a) The expansion of the leasing business during the latter part of 1999 and
during the March '00 quarter necessitated the hiring of additional office
personnel.
b) Due to the increase in leasing operations, a provision for bad debts was
required during the March '00 quarter whereas no provision was necessary during
the March '99 quarter.
c) During the March '99 quarter, stock issued for consulting services was
written up to its then market value resulting in a change to operations of
$75,000.
Years Ended December 31, 1999 and 1998
--------------------------------------
Revenues are summarized as follows:
<TABLE>
<CAPTION>
For the year ended December 31, Increase % Increase
1999 1998 (Decrease) (Decrease)
------------------------------ ---------- ---------
<S> <C> <C> <C> <C>
a) Amortization of unearned lease income $3,559,555 $1,533,060 $2,026,495 132.19%
b) Gain on sale of vehicles 393,586 504,775 (111,189) - 22.03%
c) Rental income 0 219,622 (219,822) -100.00%
---------- ---------- ---------- -------
$3,953,141 $2,257,457 $1,655,684 75.11%
</TABLE>
a) The Company classifies the majority of its leases as direct finance leases in
accordance with FASB Statement No. 13 - Accounting for leases:
Under FASB Opinion No. 13, revenue under the direct financing leases is
accounted for using the interest method. This method recognizes the excess of
aggregate rentals receivable and lease purchase options over the cost of the
leased vehicles over the term of the lease so as to produce a constant periodic
rate of return on the net investment in the lease. The total amount of unearned
lease income on leases in force at the beginning of the periods and entered into
during the year was $12,219,108 during 1999 and $5,455,775 during 1998.
Amortization of unearned lease income represented 29% of total unearned income
during 1999 and 28% in 1998. The dollar value increase of $2,206,495 (a 132%
increase) was a result of management's efforts to increase its dealer networks,
which has been expanded to include locations in Florida, North Carolina,
California, Georgia and Illinois. Increase in customer referrals has also had an
impact on the Company's revenues.
b) In the event that the purchase option is not exercised by the lessee or the
vehicle is repossessed, the Company either re-leases or sells the vehicle. In
the event of a sale, the variant between the selling price and the carrying
amount of the lease is picked up in income. During 1999, the Company collected
$1,779,953 on the sale of vehicles and realized a gain of $393,586 or (22% gross
on such sales). The gross profit variant is a function of the type of vehicle
sold, the lease terms and whether the vehicle was repossessed or came off lease
at the termination date.
c) Prior to 1999, a small portion of Company lease were classified as operating
leases insofar as they did not satisfy the capital lease criteria of FASB
Opinion No. 13. Lease payments are recognized as rental income on such leases.
Rental income during 1998 aggregated $219,622 as compared to $0 during 1999.
6
<PAGE>
Interest expense relates to the amortization of unearned income and total
revenues as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, Increase
1999 1998 (Decrease)
------------------------------- --------
<S> <C> <C> <C>
Amortization of unearned lease income $3,559,555 $1,533,060
Rental income 0 219,622
---------- ----------
Total revenues 3,559,555 1,752,682 $1,806,873
Interest expense 1,937,172 1,154,214 782,958
---------- ---------- ----------
Percentage 54.42% 65.85% -11.43%
</TABLE>
The profitability of the Company's leases is primarily based upon the
difference, or "spread," between the interest rate imputed in its leases and its
cost of funds. As summarized above, interest expense during 1999 as a percentage
of total lease revenue decreased by 11.43% when compared with 1998. This
decrease is primarily the result of entering into more profitable closed-end
leases for luxury automobiles during 1999. The Company can normally obtain
higher interest rates on such leases.
Amortization of initial direct costs relates to the amortization of unearned
income as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, Increase
1999 1998 (Decrease)
------------------------------- ----------
<S> <C> <C> <C>
Amortization of unearned lease income $3,559,555 $1,533,070
Rental income 0 219,622
---------- ----------
Total revenue 3,559,555 1,752,682 $1,806,873
Amortization of initial direct costs 268,491 38,080 230,411
---------- ---------- ----------
Percentage 7.54% 2.17% 5.37%
</TABLE>
Initial direct costs consist primarily of commissions, auto repairs and
repossession costs. Such costs are amortized over the life of the lease on a
straight line basis. As a percentage of revenue, such amortization increased by
5.37% from 1998 to 1999. Such increase was due to a large increase in leases
entered into during 1999 as compared to 1998. Consequently, these costs were
only amortized for part of 1998, whereas 1999 included a full year's
amortization on 1998 and prior leases and partial amortization for 1999 leases.
Selling, general and administrative expenses as a percentage of total revenues:
<TABLE>
<CAPTION>
For the Year Ended December 31, Increase % Increase
1999 1998 (Decrease) (Decrease)
------------------------------- ---------- ----------
<S> <C> <C> <C> <C>
Total revenues $3,953,141 $2,257,457 $1,695,684 75.11%
Selling, general and administrative
expenses 1,408,999 870,782 538,217 61.81%
---------- ---------- ---------- -----
35.64% 38.57% - 2.93% 75.11%
</TABLE>
Selling, general and administrative expenses increased from $898,051 in 1998 to
$1,481,851 in 1999 (a 2.3% increase on total revenues). Such increases were
attributed to increases in office salaries, occupancy costs and travel and
entertainment. However, such increases were proportionate to the increase in
revenues.
7
<PAGE>
Years Ended December 31, 1998 and 1997
--------------------------------------
Revenues are summarized as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, Increase % Increase
1998 1997 (Decrease) (Decrease)
------------------------------- ---------- ----------
<S> <C> <C> <C> <C>
a) Amortization of unearned lease income $1,533,070 $ 604,198 $928,862 153.73%
b) Gain on sale of vehicles 504,775 262,229 242,546 92.49%
c) Rental income 219,622 680,832 (461,210) -67.74%
---------- ---------- -------- ------
$2,257,457 $1,547,259 $710,198 45.90%
</TABLE>
a) The total amount of unearned lease income on leases in force at the beginning
of the periods and entered into during the year was $5,455,775 during 1998 and
$2,312,557 during 1997. Amortization of unearned lease income represented 28% of
total unearned income during 1998 and 26% in 1997. The dollar value increase of
$928,962 (a 153% increase) was a result of entering into many more capital
leases during 1998 than 1997. Rental income as a percentage of amortization of
unearned income decreased from 43% in 1997 to 14% in 1998.
b) In the event that the purchase option is not exercised by the lessee or the
vehicle is repossessed, the Company either re-leases or sells the vehicle. In
the event of a sale, the variant between the selling price and the carrying
amount of the lease is picked up in income. During 1998, the Company collected
$1,015,936 on the sale of vehicles and realized a gain of $504,775 or (49% gross
profit) on such sales. During 1997, the Company collected $860,382 on the sale
of vehicles and realized a $680,832 gain (79% gross profit) on such sales. The
variant was due to the sale of more vehicles on operating leases which were near
or fully depreciated at the time of sale. Such low book values generated higher
margins than during 1998.
c) During 1997, a larger portion of Company leases were classified as operating
leases than in 1998 because they did not satisfy the capital lease criteria of
FASB #13. Lease payments are recognized as rental income on such leases. Rental
income during 1997 aggregated $262,229 as compared to $219,622 during 1998.
Interest expense as it relates to the amortization of unearned income is
summarized as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, Increase
1998 1997 (Decrease)
------------------------------- ----------
<S> <C> <C> <C>
Amortization of unearned lease income $1,533,060 $ 694,198
Rental income 219,622 282,229
Gain on sale of vehicles 504,775 680,832
---------- ----------
Total revenue 2,257,457 1,547,259 $710,198
Interest expense 1,154,214 811,760 342,454
---------- ---------- --------
Percentage 51.13% 52.46% -1.34%
</TABLE>
As summarized above, interest expense during 1998 as a percentage of total
revenues decreased by 1.34% when compared with 1997. This decrease is primarily
the result of entering into more profitable closed-end leases for luxury
automobiles during 1998. The Company can normally obtain higher interest rates
on such leases.
8
<PAGE>
Amortization of initial direct costs as it relates to the amortization of
unearned income:
<TABLE>
<CAPTION>
For the Year Ended December 31, Increase
1998 1997 (Decrease)
------------------------------- ----------
<S> <C> <C> <C>
Amortization of unearned lease income $1,533,060 $ 604,198
Rental income 219,622 262,229
---------- ----------
Total lease revenue before gain on sale of
vehicles 1,752,682 866,427 $886,255
Amortization of initial direct costs 38,080 23,798 14,282
---------- ---------- --------
Percentage 2.17% 2.75% -0.57%
</TABLE>
Initial direct costs consists primarily of commissions, auto repairs and
repossession costs. Such costs are amortized over the life of the lease on a
straight line basis. As a percentage of revenue, such amortization remained
relatively unchanged from 1997 to 1998.
Selling, general and administrative expenses as a percentage of total revenues:
<TABLE>
<CAPTION>
For the Year Ended December 31, Increase
1998 1997 (Decrease)
------------------------------- ----------
<S> <C> <C> <C>
Total revenues $2,257,457 $1,547,259 $710,198
Selling, general and administrative expenses 973,951 267,568 606,383
---------- ---------- --------
43.14% 23.76% 19.39%
</TABLE>
Selling, general and administrative expenses increased from $367,568 in 1997 to
$973,951 in 1997 (a 19.4% increase in total revenues). Such increases are
summarized as follows:
<TABLE>
<CAPTION>
% Increase
For the Year Ended December 31, Increase (Decrease)
1998 1997 (Decrease) in Sales
------------------------------- -------- ----------
<S> <C> <C> <C> <C>
a) Office salaries $204,000 $104,000 $100,000 2.32%
b) Provision for bad debts 296,640 0 296,640 13.14%
c) Compensation element of stock issuance 75,000 0 75,000 3.32%
Other 398,311 26,568 134,743 0.61%
-------- -------- -------- -----
$973,951 $367,568 $606,383 19.39%
</TABLE>
a) The expansion of the leasing business during 1998 necessitated the hiring of
additional office personnel.
b) Due to the increase in leasing operations, a provision for bad debts was
required in 1998, whereas during 1997 no provision was necessary.
c) During 1998, stock issued for consulting services was written up to its then
market value resulting in a charge to operations of $75,000.
9
<PAGE>
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.
10
<PAGE>
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.
Commencing September 1998 through October 1, 1999, the Company raised
approximately $115,576 through the offer and 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 was 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
11
<PAGE>
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.
12
<PAGE>
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.
13
<PAGE>
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.
14
<PAGE>
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.
15
<PAGE>
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.
16
<PAGE>
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
2000: 1st Quarter -- --
2nd Quarter -- --
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.
17
<PAGE>
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 valued at $2,500. 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 to the
Company valued at $2,500. 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 valued at
$2,000 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 valued at $62,500. 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 through October 1, 1999, the Company sold
408,300 shares of common stock pursuant to Rule 504 at a price of $0.25 per
share to the following persons, each in the amount set forth opposite his, her
or its name:
18
<PAGE>
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
19
<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
In March 1999, the Company issued 150,000 shares to Gerald Ponsiglione
and 150,000 shares to Loren Investment Group, in exchange for prior services
rendered valued at $75,000 in the aggregate.
Commencing October 5, 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:
Henry L. Arkin 10,000
Patricia Freda 20,000
Norman F. Levy 50,000
Kenneth Miller 5,000
John P. Philis 5,000
20
<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
21
<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.
22
<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.
23
<PAGE>
ROYAL ACCEPTANCE CORPORATION
AND SUBSIDIARY
CONSOLDIATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Audited)
and
March 31, 2000
(Unaudited)
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
DECEMBER 31, 1999
(Audited)
and
March 31, 2000
(Unaudited)
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 (Audited)
and March 31, 2000 (Unaudited)............................ F-3
Consolidated Statements of Income
For the Years Ended December 31, 1999 and 1998 (Audited)
and the Three Months Ended March 31, 2000 (Unaudited)..... F-4
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1999 and 1998 (Audited)
and the Three Months Ended March 31, 2000 (Unaudited)..... F-5
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998 (Audited)
and the Three Months Ended March 31, 2000 (Unaudited)..... F-6
Notes to Consolidated Financial Statements .................. F-7 - F-14
<PAGE>
WEINICK
----------------------------------------------------------- 1515 BROADWAY
[GRAPHIC OMITTED] SANDERS NEW YORK, N.Y.
LEVENTHAL & CO., LLP
CERTIFIED PUBLIC ACCOUNTANTS 10036-5788
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 overall
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.
New York, New York
March 29, 2000
F-2
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
A S S E T S
March 31, December 31,
----------------- ----------------------------
2000 1999 1998
----------------- ------------ ------------
(Unaudited)
Current assets:
<S> <C> <C> <C>
Cash $ 74,441 $ 33,106 $ 237,957
Net investment in direct financing leases 7,271,434 7,712,004 3,868,228
Prepaid expenses -- 13,375 --
----------- ------------ ------------
Total current assets 7,345,875 7,758,485 4,106,185
Vehicles held for sale or re-lease 1,674,701 1,300,843 504,701
Net investment in direct financing leases 20,907,417 19,349,913 9,423,666
Furniture and equipment - net of depreciation
and amortization 106,831 112,453 97,146
Other assets 107,471 78,573 7,775
----------- ------------ ------------
$30,142,295 $ 28,600,267 $ 14,139,473
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of loans payable $ 6,677,848 $ 7,613,318 $ 3,711,930
Accounts payable and accrued expenses 336,426 517,091 45,307
Loan payable stockholder 115,486 107,894 --
----------- ------------ ------------
Total current liabilities 7,129,760 8,238,303 3,757,237
Loans payable - net of current maturities 21,051,405 18,996,847 9,005,594
Deferred income taxes 872,000 701,000 561,000
----------- ------------ ------------
Total liabilities 29,053,265 27,936,150 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
7,712,709 shares at March 31, 2000 7,713 7,533 6,817
Additional paid-in capital 1,427,513 1,282,693 1,097,833
Retained earnings (Accumulated deficit) 134,904 (145,109) (289,008)
----------- ------------ ------------
1,570,130 1,145,117 815,642
Less: Due from related party 481,000 481,000 --
----------- ------------ ------------
1,089,130 664,117 815,642
----------- ------------ ------------
$30,142,295 $ 28,600,267 $ 14,139,473
=========== ============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended For the Years Ended
March 31, December 31,
------------------------------- ----------------------------
2000 1999 1999 1998
----------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Amortization of unearned
lease income $1,423,936 $ 775,722 $3,599,555 $1,533,060
Rental income -- -- -- 219,622
Gain (loss) on sale of vehicles (35,436) 29,885 393,586 504,775
---------- ---------- ---------- ----------
Total revenues 1,388,500 805,607 3,993,141 2,257,457
---------- ---------- ---------- ----------
Costs and expenses:
Interest 430,865 360,272 1,937,172 1,154,214
Amortization of initial direct costs 62,220 26,088 268,491 53,980
Provision for bad debts 101,306 -- 328,198 296,640
Salaries and wages 123,665 54,544 351,363 204,209
Other selling and administrative costs 212,431 273,770 821,018 473,102
----------- ---------- ---------- ----------
Total costs and expenses 930,407 714,674 3,706,242 2,182,145
----------- ---------- ---------- ----------
Income before provision for income taxes 458,013 90,933 286,899 75,312
Provision for income taxes 178,000 36,000 143,000 54,000
----------- ---------- ---------- ----------
Net income $ 280,013 $ 54,933 $ 143,899 $ 21,312
=========== ========== ========== ==========
Earnings per share:
Basic and diluted:
Net income per share $ 0.04 $ 0.01 $ 0.02 $ --
=========== ========== ========== ==========
Weighted average shares outstanding 7,578,861 6,971,755 7,357,798 7,367,798
=========== ========== ========== ==========
</TABLE>
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
AND THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Retained
Common Shares Additional Earnings 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, 1997 6,567,409 $6,567 $1,035,583 ($310,320) $ -- $731,830
Issuance of shares of common stock
for services rendered 250,000 250 62,250 -- -- 62,500
Net income for the year ended December 31, 1998 -- -- -- 21,312 -- 21,312
--------- ------ ---------- --------- --------- --------
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
--------- ------ ---------- --------- --------- --------
Issuance of shares of common stock for 180,000 180 144,820 --
Net income for the three months ended
March 31, 2000 -- -- -- 280,010
--------- ------ ---------- --------- --------- --------
7,712,709 $7,713 $1,427,513 $ 134,099
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months Ended For the Years Ended
March 31, December 31,
----------------------------- ----------------------------
2000 1999 1999 1998
----------- ----------- ------------ ------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income $ 280,013 $ 54,933 $ 143,899 $ 21,312
Adjustments to reconcile net income to net
cash provided by operating activities:
Common stock issued for services -- -- 75,000 62,500
Depreciation and amortization 67,842 30,088 287,219 53,980
Gain on sale of vehicles (29,885) 35,436 (393,586) (504,775)
Deferred income taxes 171,000 36,000 140,000 52,000
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Net investment in direct financing leases (1,262,856) (6,492,219) (15,424,880) (5,695,687)
Vehicles held for sale or re-lease (373,858) 14,183 (796,142) 64,857
Prepaid expenses 13,375 (14,514) (13,375) --
Other assets (28,898) -- (70,798)
Loans payable 1,119,008 510,914 13,892,641 5,259,038
Accounts payable and accrued expenses (180,667) 5,539,466 471,784 (138,917)
Proceeds of vehicles sold 113,589 129,950 1,779,953 1,015,936
----------- ----------- ------------ ------------
Total adjustments 391,270 (210,696) (52,184) 168,932
----------- ----------- ------------ ------------
Net cash provided by (used in) operating activities (111,257) (158,763) 91,715 190,244
----------- ----------- ------------ ------------
Cash flows from investing activities:
Due to related party -- (150,000) (481,000) --
Purchases of furniture and equipment -- -- (34,035) (38,080)
----------- ----------- ------------ ------------
Net cash used in investing activities -- (150,000) (515,035) (38,080)
----------- ----------- ------------ ------------
Cash flows from financing activities:
Sale of capital stock 145,000 166,025 110,575 --
Loans payable officer 7,592 -- 107,894 --
----------- ----------- ------------ ------------
Net cash provided by financing activities 152,592 166,025 218,469 --
------------ ------------
Net increase (decrease) in cash 41,335 (139,738) (204,851) 152,164
Cash at beginning of period 33,106 237,957 237,957 85,793
----------- ----------- ------------ ------------
Cash at end of period $ 74,441 $ 98,219 $ 33,106 $ 237,957
=========== =========== ============ ============
Supplemental Disclosures of Cash Flow Information:
Interest $ 430,865 $ 360,272 $ 1,937,172 $ 1,154,214
=========== =========== ============ ============
Income taxes $ 7,000 $ -- $ -- $ --
=========== =========== ============ ============
Supplemental Disclosures of Noncash
Investing and Financing Activities:
Common stock issued for services rendered $ -- $ -- $ 75,000 $ 62,500
=========== =========== ============ ============
</TABLE>
See notes to financial statements.
F-6
<PAGE>
ROYAL ACCEPTANCE CORORATION 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 November 15, 1996. On July 15, 1999, pursuant to a
reorganization under section 368(a)(1)(B) of the Internal Revenue Code,
Royal acquired from Alliance Holdings Limited Partnership ("Alliance")
all of the issued and outstanding capital stock of RIT Auto Leasing
Group, Inc. ("RIT") in exchange for 5,650,000 shares of Royal's common
stock. After the acquisition, the former RIT stockholder, who is
Alliance's general partner, and who became President, Secretary and
Director of Royal owned approximately 72% of Royal's outstanding common
stock. The transaction is being accounted for as a reverse acquisition
at historical costs 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 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 March 31, 2000 and for the years ended
December 31, 1998 and 1999 and the three months ended March 31, 2000
include the accounts of Royal and its wholly owned subsidiary, RIT. All
material inter-company transactions have been eliminated in
consolidation.
F-7
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(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".
(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
require-ment) 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 lessee 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 using the interest
method which produces a constant periodic rate of return on the net
investment in the lease.
(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. Vehicles leased
under 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 subsequent to 1998.
F-8
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(e) Vehicles Held for Sale or Re-lease:
Vehicles which are not purchased by the leases at the end of
the lease and those, which have been repossessed due to leasee default,
are held at either a used car facility owned by a related entity or at
dealers throughout the Country.
The Company has valued the vehicles based on the lower of cost
or 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 came
off lease. Such amount totaled $1,300,843 and $504,701 as at December
31, 1999 and 1998, respectively. The Company has recorded losses 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.
(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.
(i) Concentration of Credit Risk:
The Company places its cash at various banking institutions.
At times such amounts may be in excess of the FDIC insurance limit.
Concentrations of credit risk with respect to investment in direct
finance leases during 1999 and 1998 are limited due to the large number
of leasees comprising the Company's leasee base. Management continually
reviews its lease credit risk and has adequately allowed for potential
losses.
(j) Interim Financial Data (Unaudited)
The unaudited financial information as of March 31, 2000 and
for the three months ended March 31, 2000 and 1999 has been prepared on
the same basis as the audited consolidated financial statements and, in
the opinion of the Company's management, reflects all adjustments
necessary for a fair presentation of the financial position and the
results of operations for such interim periods in accordance with
generally accepted accounting principles.
F-9
<PAGE>
NOTE 2 - NET INVESTMENT IN DIRECT FINANCING LEASES.
The net investment in direct financing leases consists of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
------------ ------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Total minimum lease payments to be received $29,841,605 $ 28,943,337 $ 12,981,102
Estimated residual value of leased property 6,835,576 6,354,828 4,031,623
Deferred initial direct lease costs
(less accumulated amortization) 859,718 751,503 290,818
Allowance for uncollectable payments (429,503) (328,198) (229,312)
----------- ------------ ------------
37,107,396 35,721,470 17,074,231
Less: Unearned income 8,928,545 8,659,553 3,782,337
----------- ------------ ------------
Net investment in direct financing leases 28,178,851 27,061,917 13,291,894
Less: current portion 7,271,434 7,712,004 3,868,228
----------- ------------ ------------
Non current portion $20,907,417 $ 19,349,913 $ 9,423,666
=========== ============ ============
</TABLE>
The minimum lease payments to be received as of March 31,
2000 for each of the next five (5) years are:
2000 $ 9,040,429
2001 7,918,700
2002 6,407,187
2003 4,835,031
2004 1,640,258
-----------
$29,841,605
===========
The allowance for uncollectable payments is summarized as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
---------- ----------------------
2000 1999 1998
-------- --------- ---------
<S> <C> <C> <C>
Balance at the beginning of year $328,198 $ 229,312 $ --
Provision for uncollectable payments 101,306 181,356 286,640
Write-off of uncollectable payments -- (82,470) (57,328)
-------- --------- ---------
Balance at the end of year $429,504 $ 328,198 $ 229,312
======== ========= =========
</TABLE>
F-10
<PAGE>
NOTE 3 - FURNITURE AND EQUIPMENT.
Furniture and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
---------- ------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Furniture and equipment $193,035 $193,035 $159,000
Less: Accumulated depreciation 86,204 80,582 61,854
-------- -------- --------
Net furniture and equipment $106,831 $112,453 $ 97,146
-------- -------- --------
Depreciation charged to operations $ 5,622 $ 18,728 $ 15,900
======== ======== ========
</TABLE>
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
approximately $7,500,000 at March 31, 2000. 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.
Borrowings under the lines of credit are personally guaranteed by the
Company's president.
Following are maturities of loans payable as of March 31,
2000 for each of the next five (5) years:
2000 $ 6,677,848
2001 7,565,068
2002 6,431,165
2003 4,762,484
2004 2,292,688
-----------
$27,729,253
===========
F-11
<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:
<TABLE>
<CAPTION>
For Three Months Ended For the Years Ended
March 31, December 31,
---------------------- --------------------------
2000 1999 1999 1998
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Currently payable:
Federal $ -- $ -- $ -- $ --
State and local 6,000 1,000 3,000 2,000
-------- ------- -------- -------
6,000 1,000 3,000 2,000
-------- ------- -------- -------
Deferred:
Federal 120,000 25,000 100,000 42,000
State and local 52,000 10,000 40,000 10,000
-------- ------- -------- -------
172,000 35,000 140,000 52,000
-------- ------- -------- -------
Total provision $178,000 $36,000 $143,000 $54,000
======== ======= ======== =======
</TABLE>
The net deferred tax liability consists of the following
temporary differences:
<TABLE>
<CAPTION>
March December 31,
----------- ------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net investment in finance leases ($1,865,000) ($1,499,000) ($ 853,000)
Net operating loss carryforward 950,000 766,000 275,000
Other 43,000 32,000 17,000
----------- ----------- -----------
Total ($ 872,000) ($ 701,000) ($ 561,000)
=========== =========== ===========
</TABLE>
F-12
<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 Three Months Ended
March 31, For the Years Ended December 31,
------------------------- ----------------------------------------
2000 % 1999 % 1999 % 1998 %
-------- --- -------- --- --------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income before provision for taxes $458,013 $ 90,933 $286,899 $75,312
-------- -------- -------- -------
Computed tax provision at statutory rates 156,000 34.0 31,000 34.0 97,000 34.0 26,000 34.0
Nondeductible portion of common
stock issuances -- -- 26,000 28.6 24,000 8.6 20,000 2.7
State tax provision, net of
federal tax effect 18,000 3.9 4,000 4.4 15,000 5.4 7,000 5.2
Other, net 4,000 1.0 (25,000) (27.4) 7,000 2.6 1,000 0.7
-------- ---- -------- ----- -------- ---- ------- ----
$178,000 38.9 $ 36,000 39.6 $143,000 50.6 $54,000 42.6
======== ==== ======== ===== ======== ==== ======= ====
</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 market value of $62,500 as a
nonrefundable retainer for prior services. 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
prior services rendered.
References made to note 1(a) regarding 5,650,000 issued
pursuant to the RIT acquisition.
F-13
<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, m 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. Rent expense for the
three months ended March 31, 2000 and 1999 was $30,000.
(b) Due from related party:
At March 31, 2000, 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 corporation's 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. Accordingly, such
amount has been reflected as a reduction of stockholders' equity in the
accompanying consolidated balance sheets.
(c) Loan payable - Stockholder:
At March 31, 2000, the Company is indebted to its President
in the amount of $115,486. The obligation is due on demand and bears
interest at 9%.
F-14
<PAGE>
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: July 24, 2000
Royal Acceptance Corporation.
By: /s/ Richard Toporek
--------------------------------
Name: Richard Toporek
Title: President
