<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------
FORM 10-QSB-A
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______________ to ______________
Commission file number 0-29797
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
(Exact name of registrant as specified in its charter)
Delaware 22-368051
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
90 Jericho Turnpike
Floral Park, New York 11001
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code: 516-488-8600
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
7,697,709 shares, $.001 par value, as of March 31, 2000
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date)
<PAGE>
I N D E X
---------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information:
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
As at March 31, 2000 and December 31, 1999 ........ F-1 - F-2
Consolidated Statements of Operations
For the Three Months Ended
March 31, 2000 and 1999 ........................... F-3
Consolidated Stockholders' Equity
For the Three Months Ended
March 31, 2000 and 1999 ........................... F-4
Statements of Cash Flows
For the Three Months
Ended March 31, 2000 and 1999 ..................... F-5
Notes to Consolidated Financial Statements ........ F-6 - F-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..... 3-7
Part II - Other Information:
Item 3 Through Item 9 - Not Applicable ............
Signatures ........................................ 8
</TABLE>
2
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - RESTATED - SEE NOTE 2
(Unaudited)
A S S E T S
-----------
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 94,441 $ 33,106
Net investment in direct financing leases 7,271,434 7,712,004
Prepaid expenses -- 13,375
----------- -----------
Total current assets 7,365,875 7,758,485
Assets held for sale or re-lease 1,674,701 1,300,843
Net investment in direct financing leases 20,907,417 19,349,913
Furniture and equipment - net of
depreciation and amortization 106,831 112,453
Other assets 107,469 78,573
----------- -----------
$30,162,293 $28,600,267
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-1
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - RESTATED - SEE NOTE 2 (Continued)
(Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Current liabilities:
Current maturities of loans payable $ 6,677,848 $ 7,613,318
Accounts payable and accrued expenses 336,424 512,091
Loans payable - stockholder 115,486 107,894
----------- -----------
Total current liabilities 7,129,758 8,233,303
Loans payable - net of current liabilities 21,051,405 18,996,847
Deferred income taxes 872,000 706,000
----------- -----------
Total liabilities 29,053,163 27,936,150
----------- -----------
Stockholder's equity:
Common stock, no par value
Authorized 35,000,000 shares
Issued and outstanding - 7,697,709 and
7,532,709 shares, respectively 7,698 7,533
Additional paid-in capital 328,472 163,637
Retained earnings (accumulated deficit) 1,253,960 973,947
----------- -----------
1,590,130 1,145,117
Less: Due from related party 481,000 481,000
----------- -----------
Total stockholder's equity 1,109,130 664,117
----------- -----------
$30,162,293 $28,600,267
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS - RESTATED - SEE NOTE 2
(Unaudited)
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31,
--------------------------
2000 1999
----------- -----------
(Consolidated)
<S> <C> <C>
Revenues:
Amortization of unearned lease income $ 1,423,936 $ 775,722
Gain (loss) on sale of vehicles (35,436) 29,885
----------- -----------
Total revenues 1,388,500 805,607
----------- -----------
Costs and expenses:
Interest 430,865 360,272
Amortization of initial direct costs 62,220 26,088
Provision for bad debts 101,306 --
Salaries and wages 123,665 54,544
Other selling and administrative costs 212,431 178,408
----------- -----------
Total costs and expenses 930,487 619,312
----------- -----------
Income before provision for income taxes 458,013 186,295
Provision for income taxes 178,000 69,000
----------- -----------
Net income $ 280,013 $ 117,295
=========== ===========
Earnings per share:
Net income per share $0.04 $0.02
===== =====
Weighted average shares outstanding 7,586,979 (A) 6,980,562
========= =============
</TABLE>
(A) Proforma - See Note 1(h)
See accompanying notes to financial statements.
F-3
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - RESTATED - SEE NOTE 2
(Unaudited)
<TABLE>
<CAPTION>
Retained
Additional Earnings Total
Paid-In (Accumulated Due from Stockholder
Shares Amount Capital Deficit) Related Party Equity
---------- ---------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
For the Three Months Ended March 31, 1999:
Balance at December 31, 1998 100 $ 150,000 $ -- $ 689,876 $ -- $ 839,876
Net income for the three months
ended March 31, 1999 -- -- -- 117,295 -- 117,295
---------- ---------- ----------- ------------ ------------- -----------
Balance at March 31, 1999 100 $ 150,000 $ -- $ 807,171 $ -- $ 957,171
========== ========== =========== ============ ============= ===========
For the Three Months Ended March 31, 2000:
Balance at December 31, 1999 7,532,709 $ 7,533 $ 163,637 $ 973,947 ($ 481,000) $ 664,117
Sale of shares of common stock 165,000 165 164,835 -- -- 165,000
Net income for the three months
ended March 31, 2000 -- -- -- 280,013 -- 280,013
---------- ---------- ----------- ------------ ------------- -----------
Balance at March 31, 2000 7,697,709 $ 7,698 $ 328,472 $ 1,253,960 ($ 481,000) $ 1,109,130
========== ========== =========== ============ ============= ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - RESTATED - SEE NOTE 2
(Unaudited)
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31,
--------------------------
2000 1999
----------- -----------
(Consolidated)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 280,013 $ 117,295
----------- -----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 67,842 30,088
(Gain) loss on sale of vehicles (29,885) 35,436
Deferred income taxes 171,000 68,000
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Net investment in direct finance leases (1,262,856) (6,420,556)
Vehicles held for sale or re-lease (373,858) 14,183
Prepaid expenses 13,375 (14,514)
Other assets (28,898) --
Loans payable 1,119,088 510,914
Accounts payable and accrued expenses (180,667) 5,539,466
Proceeds f vehicles sold 113,589 129,950
----------- -----------
Total adjustments (391,270) (107,033)
----------- -----------
Net cash provided by (used in) operating activities (111,257) 10,262
----------- -----------
Cash flows from investing activities:
Due to related party -- (150,000)
----------- -----------
Cash flows from financing activities:
Sale of capital stock 165,000 --
Loans payable - officer 7,592 --
----------- -----------
Net cash provided by investing activities 172,592 --
----------- -----------
Net increase (decrease) in cash 61,335 (139,738)
Cash at beginning of period 33,106 237,957
----------- -----------
Cash at end of period $ 94,441 $ 98,219
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period:
Interest $ 430,865 $ 360,272
=========== ===========
Income taxes $ 7,000 $ --
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - REVISED
MARCH 31, 2000
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(a) Organization:
Royal Acceptance Corporation ("Royal") was
incorporated in the state of Delaware on June 23, 1994. On July
15, 1999, pursuant to a reorganization under section
368(a)(1)(B) of the Internal Revenue Code, Royal acquired all
of the issued and outstanding capital stock of RIT Auto Leasing
Group, Inc. ("RIT") in exchange for 5,650,000 shares of Royal's
common stock. After the acquisition, the former RIT stockholder
owned approximately 72% of Royal's outstanding common stock.
The transaction is being accounted for as a reverse acquisition
of Royal by RIT. The results of operations of Royal are
included in the accompanying financial statements since the
date of acquisition. Royal, prior to RIT acquisition, had been
virtually inactive since 1995.
The following summarized unaudited proforma
information assumes the acquisition had occurred on January 1,
1998.
For the Three
Months Ended
March 31, 1999
--------------
Revenues $805,607
========
Net income $ 54,933
========
Earnings per share:
Basic and diluted $0.01
=====
(b) Principles of Consolidation:
The accompanying balance sheet as of December 31,
1999 includes the accounts of Royal and its wholly owned
subsidiary, RIT. The statement of income for the year ended
December 31, 1999 includes the results of operations of RIT for
the full year and Royal from July 15, 1999 (Date of
acquisition) to December 31, 1999. The accompanying balance
sheet as of March 31, 2000 and for the three months then ended
include the accounts of Royal and RIT. All other periods
presented include only the accounts of RIT.
F-6
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLCIES. (Continued)
(c) Basis of Presentation:
The accompanying unaudited financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulations S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of
management, the statements contain all adjustments (consisting
only of normal recurring accruals) necessary to present fairly
the financial position as of March 31, 2000 and the results of
operations and cash flows for the three months ended March 31,
2000 and 1999. The results of operations for the three months
ended March 31, 2000 and 1999 are not necessarily indicative of
the results to be expected for the full year.
The December 31, 1999 balance sheet has been derived
from the audited financial statements at the date included in
the Company's annual report contained in Form 10SB. These
unaudited financial statements should be read in conjunction
with the financial statements and notes thereto included in the
Company's annual report contained in Form 10SB.
(d) Financial Statement Presentation:
The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts and disclosures accordingly, actual
results could differ from those estimates.
(e) Per Share Data:
Net income per share was computed by the weighted
average number of shares outstanding during each period. The
weighted average number of shares outstanding for the year
ended December 31, 1999 and for the three months ended March
31, 1999 reflect the proforma acquisition of Royal at December
31, 1998.
F-7
<PAGE>
NOTE 2 - RESTATEMENT.
The accompanying financial statements included in
the March 31, 2000, Form 10-QSB have been restated to give
effect o certain comments by the Securities and Exchange
Commission regarding the Company's filing of Amendment 2 to
Form 10-SB as follows:
<TABLE>
<CAPTION>
As at As at
March 31, 2000 December 31, 1999
------------------------------- -------------------------------
As As
As Originally As Originally
Restated Filed Restated Filed
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance sheet:
Cash (1) 94,441 74,441
=========== ===========
Inventory - classified as current asset $ -- $ 1,674,701 $ -- $ 1,300,843
Assets held for sale or release -
classified as a non-current asset 1,674,701 -- 1,300,843 --
----------- ----------- ----------- -----------
(2) $ 1,674,701 $ 1,674,701 (2) $ 1,300,843 $ 1,300,843
=========== =========== =========== ===========
Due from related party -
stated as a non-current asset $ -- $ 579,696 $ -- $ 481,000
Other assets 107,471 8,775 78,573 78,573
Due from related party - stated as
a reduction of stockholders' equity 481,000 -- 481,000 --
----------- ----------- ----------- -----------
(2) $ 588,471 $ 588,471 (2) $ 559,573 $ 559,573
=========== =========== =========== ===========
Common stock $ 7,698 $ 7,713 $ 7,533 $ 7,533
Additional paid-in capital 328,472 1,367,513 163,637 1,222,693
Retained earnings (deficit) 1,253,960 194,906 973,947 (85,109)
Due from related party (481,000) -- (481,000) --
----------- ----------- ----------- -----------
(1) $ 1,109,130 $ 1,570,132 (3) $ 664,117 $ 1,145,117
=========== =========== =========== ===========
Accounts payable and accrued expenses $ 512,091 $ 517,091
Deferred income taxes 706,000 701,000
----------- -----------
(1) $ 1,218,091 $ 1,218,091
=========== ===========
</TABLE>
Redeposit of stockholder's payment for 20,000 shares at $1.00 per share.
Reclassification.
Royal acquisition from a pooling of interests to a reverse purchase change in
accounting treatment.
F-8
<PAGE>
NOTE 2 - RESTATEMENT. (Continued)
<TABLE>
<CAPTION>
For the For the
Quarter Ended Quarter Ended
March 31, 2000 March 31, 1999
------------------------------- -------------------------------
As As
As Originally As Originally
Restated Filed Restated Filed
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Statement of operations:
Interest $ 430,865 $ 430,865 $ 360,272 $ 360,272
Amortization of direct costs 62,220 67,842 26,088 30,088
Provision for bad debts 101,306 -- -- --
Salaries and wages 123,665 -- 54,544 --
Other selling and administration costs 212,431 431,780 178,408 324,314
----------- ----------- ----------- -----------
Total other expenses $ 930,487 $ 930,487 (2) $ 619,312 $ 714,674
=========== =========== =========== ===========
Income before provision for income taxes $ 458,013 $ 458,013 $ 186,295 $ 90,933
Provision for income taxes 178,000 178,000 69,000 36,000
----------- ----------- ----------- -----------
Net income $ 280,013 $ 280,013 (2) $ 117,295 $ 54,933
=========== =========== =========== ===========
Earnings per share:
Basic and diluted net income per share $0.04 $0.04 $0.02 $0.01
===== ===== ===== =====
Weighted average number
of shares outstanding (1) 7,697,709 7,578,861 (3) 6,980,562 6,971,755
=========== =========== =========== ===========
</TABLE>
(1) Redeposit of stockholder's payment for 20,000 shares at $1.00 per share.
(2) Effect of change in accounting treatment of Royal acquisition from a
pooling of interests to a reverse purchase.
(3) Recalculation.
F-9
<PAGE>
NOTE 2 - RESTATEMENT. (Continued)
<TABLE>
<CAPTION>
For the For the
Quarter Ended Quarter Ended
March 31, 2000 March 31, 1999
------------------------------- -------------------------------
As As
As Originally As Originally
Restated Filed Restated Filed
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Statement of Cash Flows:
Cash flows from operating activities:
Net income $ 280,013 $ 280,013 (3) $ 117,295 $ 54,933
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Deferred income taxes 171,000 171,000 (3) 68,000 36,000
Increase (decrease) in cash flows as
a result of changes in assets and
liability account balances:
Net investment in direct finance leases (2) ( 1,262,856) (1,087,049) (2) ( 6,420,556) (6,336,678)
Other assets (2) (28,898) 69,798 (2) -- --
Proceeds from vehicle sold (2) 113,589 -- 129,950 --
Other reconciling items 615,895 615,895 6,115,573 6,115,573
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities (111,257) 49,657 10,262 (130,172)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of furniture and equipment -- (62,218) -- (25,591)
Due from related party -- (98,696) (150,000) (150,000)
----------- ----------- ----------- -----------
-- (160,914) (2) (150,000) (175,591)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Sale of common stock (1) 165,000 145,000 -- 166,025
Loans payable - officer 7,592 7,592 -- --
----------- ----------- ----------- -----------
172,592 152,592 (3) -- 166,025
----------- ----------- ----------- -----------
Net increase (decrease) in cash 61,335 41,335 (139,738) (139,738)
Cash at beginning of period 33,106 33,106 237,957 237,957
----------- ----------- ----------- -----------
Cash at end of period (1) $ 94,441 $ 74,441 $ 98,219 $ 98,219
=========== =========== =========== ===========
</TABLE>
(1) Redeposit of stockholder's payment for 20,000 shares at $1.00 per share.
(2) Accounting adjustments.
(3) Effect of change in accounting treatment of Royal acquisition from a
pooling of interests to a reverse puchase.
F-10
<PAGE>
NOTE 2 - RESTATEMENT. (Continued)
<TABLE>
<CAPTION>
Shares of Common Stock Amount of Common Stock Additional Paid-In Capital
-------------------------- ------------------------- --------------------------
As As As
As Originally As Originally As Originally
Restated Filed Restated Filed Restated Filed
---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Statement of stockholders' equity:
For the three months ended
March 31, 1999:
Balance at December 31, 1998 $ 100 $6,817,409 $ 150,000 $ 6,817 $ -- $1,037,833
Issuances of common stock for cash -- 664,100 -- 664 -- 165,361
Net income for the three months
ended March 31, 1999 -- -- -- -- -- --
---------- ---------- --------- ---------- --------- ----------
Balance at March 31, 1999 $ 100 $7,481,509 $ 150,000 $ 7,481 $ -- $1,203,194
========== ========== ========= ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Retained Earnings Due from Related Party Total Stockholders' Equity
-------------------------- ------------------------- --------------------------
As As As
As Originally As Originally As Originally
Restated Filed Restated Filed Restated Filed
---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Statement of stockholders' equity:
For the three months ended
March 31, 1999 (Condinued):
Balance at December 31, 1998 $ 689,876 ($ 229,008) $ -- $ -- $ 839,876 $ 815,642
Issuances of common stock for cash -- -- -- -- -- 166,025
Net income for the three months
ended March 31, 1999 117,295 54,933 -- -- 117,295 54,933
---------- ---------- --------- ---------- --------- ----------
Balance at March 31, 1999 $ 807,171 ($ 174,075) $ -- $ -- $ 957,171 $1,036,600
========== ========== ========= ========== ========= ==========
</TABLE>
The restatements above were due to the effects of changing the accounting
treatment of the Royal acquisition from a pooling of interests to a reverse
purchase.
F-11
<PAGE>
NOTE 2 - RESTATEMENT. (Continued)
<TABLE>
<CAPTION>
Shares of Common Stock Amount of Common Stock Additional Paid-In Capital
-------------------------- ------------------------- --------------------------
As As As
As Originally As Originally As Originally
Restated Filed Restated Filed Restated Filed
---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Statement of stockholders' equity:
For the three months ended
March 31, 2000: $7,532,709 $7,532,709 $ 7,533 $ 7,713 $ 163,637 $1,367,513
Balance at December 31, 1999 165,000 180,000 165 180 164,835 144,820
Issuances of common stock for cash
Net income for the three months
ended March 31, 2000 -- -- -- -- -- --
---------- ---------- --------- ---------- --------- ----------
Balance at March 31, 2000 $7,697,709 $7,712,709 $ 7,698 $ 7,893 $ 328,472 $1,512,333
========== ========== ========= ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Retained Earnings Due from Related Party Total Stockholders' Equity
-------------------------- ------------------------- --------------------------
As As As
As Originally As Originally As Originally
Restated Filed Restated Filed Restated Filed
---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Statement of stockholders' equity:
For the three months ended
March 31, 2000 (Continued):
Balance at December 31, 1999 $ 973,947 ($ 85,109) ($ 481,000) $ -- $ 664,117 $1,290,117
Issuances of common stock for cash -- -- -- -- 145,000 145,000
Net income for the three months
ended March 31, 2000 280,013 280,013 -- -- 280,013 280,013
---------- ---------- --------- ---------- ---------- ----------
Balance at March 31, 2000 $1,253,960 $ 194,904 ($ 481,000) $ -- $1,089,130 $1,715,130
========== ========== ========= ========== ========== ==========
</TABLE>
F-12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
General
The Company is in the business of leasing predominately new and pre-owned
automobiles with terms generally ranging from twelve to sixty months. It markets
its leasing services through its dealer network and advertising. The sources of
its automobiles for lease are generally automobile dealers in the Eastern region
of the United States. The Company also leases and finances commercial industrial
equipment such as computers, airplanes, boats and construction equipment.
However, through March 31, 2000 commercial industrial equipment accounts for an
insignificant portion of company leases.
Forward Looking Statements and Certain Risk Factors
The Company cautions readers that certain important factors may affect the
Company's actual results and could cause such results to differ materially from
any forward-looking statements that may be deemed to have been made in this Form
10SB or that are otherwise made by or on behalf of the Company. For this
purpose, any statements contained in the Form 10-QSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may", "expect", "believe",
"anticipate", "intend", "could", "estimate", "continue", or the negative
variations thereof or comparable terminology are intended to identify
forward-looking statements. Factors that may affect the Company's results
include, but are not limited to, the lack of substantial profits, its dependence
on key personnel, its ongoing need for additional financing and its dependence
on the automobile industry. The Company is also subject to other risks detailed
herein or which will be detailed from time to time in the Company's future
filings with the Securities and Exchange Commission.
Results of Operations
Three months ended March 31, 2000 and 1999:
Revenues are summarized as follows:
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31,
------------------------- 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%)
----------- ----------- ----------- -----------
$ 1,388,500 $ 805,607 $ 582,893 72.36%
============ =========== =========== ==========
</TABLE>
3
<PAGE>
Results of Operations (Continued)
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
months periods was $10,352,481 during the March 2000 quarter and
$4,805,373 during the March 1999 quarter. Amortization of unearned
lease income represented 14% of total unearned income during the March
2000 quarter and 16% during the March 1999 quarter. The dollar value
increase of $648,214 (a 84% increase)) was 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. Increase in customer referrals has also had an impact on the
Company's revenues.
Included in unearned income are initial payments received from leasees
which during the March 2000 quarter aggregated $179,320 and $201,207
for the March 1999 quarter. Approximately 50% of which represents
nonrefundable bank application fees and approximately 50% which
represent the nonrefundable payment of the first months lease payment.
It is the Company's policy to charge these amounts to operations when
received since they are nonrefundable and there is no risk of
forfeiture.
b) In the event that the purchase option is not exercised by the lessee or
the vehicle is repossessed, the Company either releases or sells the
vehicle. In the event of a sale, the variant between the selling price
and the carrying amount of the leas is picked up in income. During the
March 2000 quarter the Company collected $143,809 on the sale of
vehicles and incurred a loss of $35,436 during March 1999 quarter the
Company collected $129,950 on the sale of vehicles and realized a
$35,436. The loss during the March 2000 quarter was the result of the
mix of vehicles which came off lease. During the March 2000 quarter,
the leases on many of the vehicles which were sold did not go to full
term as many of the vehicles were repossessed making it very difficult
to recoup the lease value. During the March 1999 quarter most of the
vehicles which were sold went to full term and the Company was able to
recoup the residual values and in many cases make a profit on the sale
of the vehicle.
Interest expense:
Average yield of implicit on income earnings assets versus average cost of
financing.
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31,
---------------------------- % Increase
2000 1999 (Decrease)
------------ ------------ ----------
<S> <C> <C> <C>
Average yield implicit on income earning assets:
Amortization of unearned lease income $ 1,423,936 $ 775,722
Average investment in leases 27,675,000 17,200,000
------------ ------------ ----------
Rate of return on income earning assets 20.57% 18.04% 2.53%
====== ======
Average cost of financing:
Interest expense $ 430,865 $ 360,272
Average loans payable balance 20,752,000 15,626,000
------------ ------------ ----------
8.30% 8.82% (0.52%)
===== ===== -------
Spread 12.27% 9.22% 3.05%
====== ===== =====
</TABLE>
4
<PAGE>
Results of Operations (Continued)
Interest expense: (Continued)
The profitability of the Company's leases is primarily based upon the difference
between the interest rate implicit in it's leases and it's cost of funds (the
"Spread"). As summarized above the Spread during the 2000 quarter was 12.27% as
compared to 9.22% during the 1999 quarter. In order for the Company to increase
its leasing business, its was necessary to accept less credit worthy leasees. In
order for the Company to compensate for its increased risk, the interest rate
implicit in its leases were increased. In addition, the Company leased more
expensive cars during the 2000 quarter which generally carries higher implicit
interest rate.
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31,
------------------------- Increase % Increase
2000 1999 (Decrease) (Decrease)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Amortization of unearned
lease income $ 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% 3.37% 1.00%
===== ===== =====
</TABLE>
Initial direct costs consists primarily of commissions, auto repairs and report
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 2000 quarter as compared to the March 2000 quarter. Such increase was due
to a large increase in leases entered into during the March 2000 quarter as
compared to March 1999 quarter. Since initial direct costs are amortized on a
straight-line basis over the life of the lease, such amortized costs do not vary
equally with lease revenue recognition.
Selling, general and administration expenses as a percentage of total revenues:
For the Three
Months Ended
March 31,
------------------------- Increase
2000 1999 (Decrease)
----------- ----------- -----------
Total revenues $ 1,388,500 $ 805,607 $ 582,893
Selling, general and
administrative expenses 437,402 232,952 204,450
----------- ----------- -----------
31.50% 28.92% 2.59%
====== ====== =====
Selling, general and administrative expenses increased from $232,952 during the
March 1999 quarter to $437,402 during the March 2000 quarter (a 2.59% increase
on total revenues). This increase was attributed to increases in bad debts and
salaries and wages caused by the large increase in revenues.
5
<PAGE>
Results of Operations (Continued)
Selling, general and administration expenses as a percentage of total revenues:
(Continued)
Such increases are summarized as follows:
For the Three
Months Ended
March 31,
------------------------- % Increase
2000 1999 (Decrease)
----------- ----------- -----------
a) Salaries and wages $ 123,665 $ 54,544 $ 69,121
b) Provision for bad debts 101,306 -- 101,306
d) Other 212,431 178,408 34,023
----------- ----------- -----------
$ 437,402 $ 232,952 $ 204,450
=========== =========== ===========
The expansion of leasing operations during the latter part of 1999 and during
the March 2000 quarter necessitated the hiring of additional office personnel.
Due to the increase in leasing operations a provision for bad debts was required
during the March 2000 quarter whereas no provision was necessary during the
March 1999 quarter.
Financial Condition
March 31, 2000 Compared to December 31, 1999
The Company's cash position at March 31, 2000 showed an increase of $61,335 from
the $33,106 balance which existed on December 31, 1999.
The net investment in direct financing leases represents the aggregate future
lease payments due to the Company from its leasees; such amount was $28,178,851
at March 31, 2000 and $27,061,917 at December 31, 1999. The Company feels that
it has adequately reserved for any possible bad debts. The Company finances the
purchase of its lease vehicles under several separate credit facilities. Such
indebtedness aggregated $27,729,253 and $26,610,165 at March 31, 2000 and
December 31, 1999, respectively.
Vehicles held for re-sale increased from $1,300,843 at December 31, 1999 to
$1,674,701 at March 31, 2000. Such increases was due to the higher volume of
automobiles coming off lease at March 31, 2000 compared with the year ended
December 31, 1999.
Through March 31, 2000, the Company had loaned $481,000 to an entity owned by
its President. Such amount is due on demand and bears interest at 9%. This loan
is accounted for as a reduction of stockholders' equity because the President
has collateralized the loan with his stock of the Company.
Accounts payable at March 31, 2000 was $336,424 compared with $512,091 at
December 31, 1999, a decrease of $175,667.
At March 31, 2000, the Company is indebted to its President in the amount of
$115,436. Such debt outstanding is at December 31, 1999 and was $107,894.
Stockholders' equity increased by $445,013 during the period from December 31,
1999 to March 31, 2000. Such increase was the result of the sale of 165,000
common shares for $165,000 and net income of $280,013.
6
<PAGE>
Liquidity and Capital Resources:
During the March 2000 quarter the Company used $111,257 in its operation which
resulted from (i) net income of $488,970 which is adjusted for noncash items of
$208,957, (ii) proceeds from the sale of vehicles of $113,589 and (iii) a
decrease in prepaid expenses of $13,375. Offsetting the aforementioned increases
in cash flows was (i) a net decrease in the investment of direct finance leases
and the loans thereon in the amount of $143,768, (ii) an increase in vehicles
held for sale or re-lease of $373,858 and (iii) other items aggregating
$209,565.
During the March 2000 quarter, the Company raised $165,000 through the sale of
165,000 shares of its common stock pursuant to Rule 504 offerings.
The Company's working capital at March 31, 2000 was $236,117, an increase of
$710,933 over the negative working capital balance at December 31, 1999. When
the March 31, 2000 working capital balance is adjusted for the current portion
of unearned income of $1,768,995, the resulting working capital is $2,005,110.
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 profolio 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 expected cash flows is speculative
in nature and inherently subject to risks and uncertainties, some of which
cannot be predicted or quantified.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: December 20, 2000 Royal Acceptance Corporation
(Registrant)
By: /s/ Richard Toporek
--------------------------
Richard Toporek,
President
8
