<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 3
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
Royal Acceptance Corporation (the "Company") was incorporated on
November 15, 1996. On January 2, 1997, in a corporate restructuring, it merged
with Royal Finance Company, a New Jersey corporation ("RFC") as a result of
which RFC ceased to exist. 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 is now the Company's only
subsidiary, and the Company conducts all of its operations through RIT.
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 relies upon commercial financial institutions from which it
obtains financing to purchase the vehicles it leases, 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. Gross
lease revenues represent aggregate amounts which the Company receives from its
customers on its leases, most of which the Company pays over to its lenders.
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., 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 or can lease
directly from these dealers 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 general business objective 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) increasing its
name recognition, (b) acquiring similar companies or their assets,
(c) development, expansion and retention of existing clients, and (d) 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 range 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 anticipated 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 nine months ended September 30, 2000, the Company again
generated no revenues from vehicle rentals and experienced a gain of $233,499
(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.
The Company 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 its
automobiles for lease are predominantly automobile dealers in the eastern region
of the United States. The Company also leases and finances commercial industrial
equipment such as computers, airplanes, boats and construction equipment.
However, through September 30, 2000, commercial industrial equipment accounts
for an insignificant portion of the Company's leases.
Forward Looking Statements and Certain Risk Factors:
The Company cautions readers that certain important factors may affect the
Company's actual
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results and could cause such results to differ materially from any
forward-looking statements that may be deemed to have been made in this Form
10-SB or that are otherwise made by or on behalf of the Company. For this
purpose, any statements contained in the Form 10-SB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may", "expect", "believe",
anticipate", "intend", "could", estimate", or "continue", or the negative
variations thereof or comparable terminology are intended to identify
forward-looking statements. Factors that may affect the Company's results
include, but are not limited to, the lack of substantial profits, its dependence
on key personnel, its ongoing need for additional financing and its dependence
on the automobile industry. The Company is also subject to other risks detailed
herein or which will be detailed from time to time in the Company's future
filings with the Securities and Exchange Commission.
Results of Operations:
Nine months ended September 30, 2000 and 1999
Revenues are summarized as follows:
<TABLE>
<CAPTION>
For the nine months ended September 30, Increase % Increase
2000 1999 (Decrease) (Decrease)
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
a) Amortization of unearned lease income $3,066,307 $2,801,032 $265,275 9.47%
b) Gain on sale of vehicles 233,499 118,917 114,582 96.35%
----------- ---------- ---------- -------
$3,299,806 $2,919,949 $379,857 13.01%
=========== ========== ========== =======
</TABLE>
a) Revenues for the nine months ended September 30, 2000 increased by
approximately 13% when compared with the same period in 1999. The 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. Management has also expanded its financial
relationships to include several new financing sources, enabling it to
consummate additional lease agreements. 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
aggregated $433,483 and $495,839 during the nine months ended September 30,
2000 and 1999, respectively. 50% of such payments consist of application fees
and approximately 50% of nonrefundable payment of the first month's 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 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 nine
months ended September 30, 2000 and 1999, the Company realized a gain
from the sale of vehicles of $233,499 and $118,917, respectively. The
increase in profit from 1999 to 2000 was the result of a loss on the sale of
vehicles during the three months ended September 30, 1999.
Interest expense:
4
<PAGE>
The profitability of the Company's leases is primarily based upon the
difference between the interest rate implicit in its leases and its cost of
funds (the "Spread"). As summarized below, during the nine months ended
September 30, 2000 the Spread was 8.32% compared with 13.83% a year earlier.
During the nine months ended September 30, 2000 the Company's cost of
financing increased, however, the Company could not pass along the increase
to its lessees. In addition, due to increased competition the Company had to
decrease the interest rate inherent in its leases which sharply decreased the
rate of return on its income earning assets.
Average yield implicit in leases versus average cost of financing:
<TABLE>
<CAPTION>
For the Nine
Months Ended
September 30,
2000 1999
----------- -----------
<S> <C> <C>
Average yield implicit in income
earning assets:
Amortization of unearned lease income $ 3,066,307 $ 2,801,032
Average investment in leases 27,183,344 19,803,822
----------- -----------
Annualized rate of return on income earning assets 15.04% 18.86%
===== =====
Average cost of financing:
Interest expense $ 1,930,758 $ 1,315,308
Average loans payable balance 27,111,067 18,182,888
----------- -----------
Annualized average cost of financing 9.50% 9.65%
===== =====
Spread 5.54% 9.21%
===== =====
</TABLE>
Initial direct costs:
<TABLE>
<CAPTION>
For the nine months ended September 30, Increase % Increase
2000 1999 (Decrease) (Decrease)
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total lease revenue $3,066,307 $2,801,032 $265,275 9.47%
Amortization of initial direct costs 258,765 181,155 77,610 42.84%
----------- ---------- ---------- -------
Percentage 8.44% 6.47% 1.97%
=========== ========== ==========
</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 increased by
1.97% for the nine months ended September 30, 2000 as compared to the same
period in 1999. Such increase was due to a large increase in leases entered into
during the nine months ended September 30, 2000 as compared to a year earlier.
The percentage increase is due to costs being amortized on a straight-line basis
over the life of the lease.
Selling, general and administrative expenses:
<TABLE>
<CAPTION>
For the nine months ended September 30, Increase % Increase
2000 1999 (Decrease) (Decrease)
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total revenues $3,299,806 $2,919,949 $379,857 13.01%
Selling, general and administrative
expenses 973,667 842,295 131,372 15.60%
----------- ---------- ---------- -------
Percentage 29.51% 28.85% 0.66%
=========== ========== ==========
</TABLE>
Selling, general and administrative expenses increased from $842,295 during the
nine months ended September 30, 2000 to $973,667 during the nine months ended
September 30, 2000 (an increase of $131,372). This increase was attributed to
the increases in bad debts and salaries, wages and professional fees which were
caused by the large increase in revenues. However, as a percentage of revenues,
SG&A expenses decreased by only .66% due to revenues increasing at approximately
the same rate as SG&A expenses.
Such increases are summarized as follows:
<TABLE>
<CAPTION>
For the nine months ended September 30, Increase
2000 1999 (Decrease)
----------- -------- ----------
<S> <C> <C> <C>
a) Salaries and wages $352,861 $242,588 $110,273
b) Provision for bad debts 156,000 132,000 24,000
Other 464,806 467,707 (2,901)
-------- -------- --------
$973,667 $842,295 $131,372
======== ======== ========
</TABLE>
a) The expansion of leasing operations during the latter part of 1999 and during
the nine months ended September 30, 2000 necessitated the hiring of additional
office personnel.
b) Due to the increase in leasing operations, a provision for bad debts was
required during both the nine months ended September 30, 2000, and the nine
months ended September 30, 1999.
Financial Condition
The Company's cash position at September 30, 2000 was $4,773, a decrease of
$28,333 from December 31, 1999. The net investment in direct finance leases
represents the aggregate future lease payments due to the Company from its
lessees. Such amount was $27,304,770 at September 30, 2000 and $27,061,917 at
December 31, 1999. Management feels that it has adequately reserved for any
possible bad debt. Purchases of leased vehicles are financed under several
separate credit facilities. Such indebtedness aggregated $27,611,968 at
September 30, 2000 and $26,610 at December 31, 1999.
Vehicles held for sale or re-lease increased from $1,300,843 at December 31,
2000 to $2,225,414. Such increase was the result of an increase in vehicles
coming off lease during the first nine months of 2000 compared with the same
period in 1999.
Accounts payable and accrued expenses decreased from $512,091 at December 31,
1999 to $222,110 at September 30, 2000. The balance at December 1, 1999 was
very high due to the accrual of year ended expenses. Such nonrecurring
amounts were paid during the nine months ended September 30, 2000.
Approximately $197,000 was loaned to the Company by its president during the
nine months ended September 30, 2000, thus increasing the loan balance to
approximately $305,000.
Due to the timing difference between book and tax treatment of leasing
operations, the Company has a deferred tax liability as of September 30, 2000 of
$761,000. Such amount increased by $55,000 during the nine months ended
September 30, 2000.
Stockholders' equity increased by $144,779 during the nine months ended
September 30, 2000. Such increase was the result of income of $76,616 and the
sale of 165,000 common shares for $165,000. These increases in stockholders'
equity were partially offset by additional amounts loaned to an affiliate of
$96,837.
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<PAGE>
Liquidity and Capital Resources
During the nine months ended September 30, 2000 cash of $298,361 was used in
operations which is summarized as follows: (i) net income of $182,132, which is
adjusted for non cash items of $105,516, (ii) an increase in loans payable of
$1,001,803 and (iii) a decrease in prepaid expenses and other assets of $5,375.
Offsetting these increases in cash flows was: (i) a decrease in the net
investment in direct finance leases in the amount of $501,616, (ii) an increase
in vehicles held for sale or re-lease of $691,072 and (iii) a decrease in
accounts payable and accrued expenses of $294,983.
During the nine months ended September 30, 2000, the Company raised $165,000
through the sale of 165,000 shares of its common stock pursuant to Rule 504
offerings at a price of $1.00 per share.
The Company had negative working capital at September 30, 2000 of $35,104, which
showed an improvement over the negative working capital balance at December 31,
1999 which was $479,818. When the current portion of unearned income is added
back to the September 30, 2000 working capital deficiency, the result is a
positive working capital balance of $539,486.
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)
development, expansion and retention of existing clients, and (d) 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 rate.
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.
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 $3,599,555 $1,533,060 $2,066,495 134.80%
b) Gain on sale of vehicles 393,586 504,775 (111,189) (22.03)%
c) Rental income 0 219,622 (219,622) (100.00)%
---------- ---------- ---------- -------
$3,993,141 $2,257,457 $1,735,684 76.89%
</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 $2,066,066 (a 135% increase) was a result of
management's efforts to increase its dealer networks, which have been expanded
to include locations in Florida, North Carolina, California, Georgia and
Illinois. An increase in customer referrals has also had an impact on the
Company's revenues.
<PAGE>
Included in unearned income are initial payments received from leases which
aggregated $332,705 and $354,480 during 1999 and 1998, respectively.
Approximately 50% of this represents nonrefundable bank application fees, and
approximately 50% represents the nonrefundable payment of the first month's
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 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
profit) on such sales. During 1998, the Company collected $1,015,936 on the sale
of vehicles and realized a $504,755 gain (49% gross profit) 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 the Company's leases 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.
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<PAGE>
Interest expense:
<TABLE>
<CAPTION>
For the Year Ended December 31, % Increase
1999 1998 (Decrease)
------------------------------- ----------
<S> <C> <C> <C>
Average yield implicit in income
earning assets:
Amortization of unearned lease income $3,559,555 $1,533,060
Average investment in leases 20,176,000 10,708,000
---------- ----------
Rate of return on income earning
asset 17.84% 14.32% 3.52%
---------- ---------- ----------
Average cost of financing:
Interest expense 1,937,172 1,154,214
Average loans payable balance 19,663,000 10,087,000
---------- ---------- ----------
Percentage 9.85% 11.44% (1.59)%
Spread 7.99% 2.8% 5.11%
==== === ====
</TABLE>
The profitability of the Company's leases is primarily based upon the
difference, or "Spread," between the interest rate implicit in its leases and
its cost of funds. As summarized above, the Spread during 1999 was 7.99%
as compared to 2.88% during 1998. In order for the Company to increase its
leasing business, it was necessary to accept less credit worthy leases. To
compensate for this increased risk, the interest rate implicit in the Company's
leases was increased. In addition, the Company leased more expensive cars during
1999 which generally carry higher implicit interest rates.
The Company's cost of borrowing is tied to the prime interest rate. Its average
yield is 16% on leased vehicles and average markup is 85%. Increases and
decreases in the prime rate affect the Company's yield and rates paid on
interest earning assets and interest bearing liabilities.
7
<PAGE>
Amortization of initial direct costs as it relates to the amortization of
unearned income:
<TABLE>
<CAPTION>
For the Year Ended December 31, Increase
1999 1998 (Decrease)
------------------------------- ----------
<S> <C> <C> <C>
Amortization of unearned lease income $3,599,555 $1,533,060
Rental income 0 219,622
---------- ----------
Total lease revenue 3,599,555 1,752,682 $1,806,873
Amortization of initial direct costs 268,491 53,980 214,411
---------- ---------- ----------
Percentage 7.54% 3.08% 4.46%
</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
4.46% 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 Years Ended December 31, Increase
1999 1998 (Decrease)
------------------------------- ----------
<S> <C> <C> <C>
Total revenues $3,993,141 $2,257,457 $1,735,684
Selling, general and administrative
expenses 1,360,406 904,451 526,628
---------- ---------- ----------
Increase (decrease) as a percentage
of revenues 37.96% 43.14% (5.18%)
===== ===== =====
a) Salaries and wages 351,363 204,209 147,154
b) Provision for bad debts 328,198 296,640 31,558
c) Rent and real estate taxes 175,570 117,598 57,972
d) Payroll taxes 114,795 62,104 52,691
e) Travel and entertainment 102,478 75,127 27,351
f) Other 288,002 148,773 139,229
---------- ---------- ----------
$1,360,406 $ 904,451 $ 455,955
========== ========== ==========
</TABLE>
The expansion of leasing operations required the hiring of additional personnel
which accounted for the increase in salaries and wages and payroll taxes. The
provision for bad debts increased due to the additional exposure resulting from
the large increase in lease receivables. Efforts to increase revenues resulted
in an increase in travel and entertainment. All other expenses which consisted
of consulting, professional fees, office expense, etc. also increased due to
need to support the expansion of leasing activities.
8
<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 $1,533,060 $ 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.
Included in unearned income are initial payments received from leasees which
aggregated $354,480 and $23,798 during 1998 and 1997, respectively.
Approximately 50% of this represents nonrefundable bank application fees, and
approximately 50% represents the nonrefundable payment of the first
month's 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 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 $262,229 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 $680,832 as compared to $219,622 during 1998.
Interest expense
Average yield implicit on income earning assets versus average cost of
financing.
<TABLE>
<CAPTION>
For the Year Ended December 31, % Increase
1998 1997 (Decrease)
------------------------------- ----------
<S> <C> <C> <C>
Average yield implicit on income
earning assets:
Amortization of unearned leases income $1,533,060 $1,285,030*
---------- ----------
Average investment in leases 10,708,000 7,484,566
Average automobiles under operating leases -- 643,190
---------- ----------
10,708,000 8,127,756
---------- ----------
Rate of return on income earning assets 14.32% 15.81% (1.49%)
Average cost of financing:
Interest expense 1,154,214 811,760
Average loans payable balance 10,087,000 7,836,015 1.08%
Spread 2.88% 5.45% (2.57%)
==== ==== =====
</TABLE>
*Includes rental income on operating leases $680,832.
The profitability of the Company's leases is primarily based upon the difference
between the interest rate implicit in its leases and its cost of funds (the
"Spread"). 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.
9
<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 219,622 680,832
---------- ----------
Total lease revenue before gain on sale of
vehicles 1,752,682 1,285,030
Amortization of initial direct costs 53,980 23,798
---------- ---------- --------
Percentage 3.08% 1.86% 1.22%
</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 increased by
1.22% from 1997 to 1998 due to the writing of more capital leases.
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 904,451 367,568 536,883
---------- ---------- --------
40.07% 23.76% 16.31%
</TABLE>
Selling, general and administrative expenses increased from $367,568 in 1997 to
$904,451 in 1997 (a 16.31% increase on 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) 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.
10
<PAGE>
FINANCIAL CONDITION:
December 31, 1999 Compared to December 31, 1998
The Company's cash position at December 31, 1999 showed a decrease of $226,763.
The net investment in direct financing leases represents the aggregate future
lease payments due to the Company from its leases. Such amount was $27,061,917
at December 30, 1999 and $13,291,894 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 decreased by $175,759 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.
11
<PAGE>
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 7,698,707 shares were issued and outstanding as of
December 14, 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 7,697,709 shares of common stock outstanding, but, of
these shares, only 1,330,509 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 -- --
3rd Quarter -- --
Holders
As of December 14, 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 97.
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. These shares were issued in compliance with Rule 504
of Regulation D.
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. These shares were issued in compliance with
Rule 504 of Regulation D.
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 2,000
Monica Lloyd 2,000
Jacquelyn Rado 1,000
Rosella Valente 2,000
Anthony Amitrano 1,200
Paul Roth 4,000
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
Salomon Shapiro 25,000
Henrietta Meltzer 20,000
Jerome Breslaw, M.D. 20,000
Saber Inc. 10,000
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>
ROYAL ACCEPTANCE CORPORATION
AND SUBSIDIARY
FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
SEPTEMBER 30, 2000
INDEX TO FINANCIAL STATEMENTS
Page No.
FINANCIAL STATEMENTS:
Independent Accountants' Report ................................ F-2
Balance Sheets
As of December 31, 1999 (Consolidated) and December 31, 1998
As of September 30, 2000 (Consolidated) (Unaudited) ......... F-3
Statements of Operations
For the Years Ended December 31, 1999 (Consolidated) and 1998
For the Nine Months Ended September 30, 2000 (Consolidated)
(Unaudited) For the Nine Months Ended September 30, 1999
(Consolidated) (Unaudited) .................................. F-4
Statements of Stockholders' Equity
For the Years Ended December 31, 1999 (Consolidated) and 1998
For the Nine Months Ended September 30, 2000
(Consolidated) (Unaudited) .................................. F-5
Statements of Cash Flows
For the Years Ended December 31, 1999 (Consolidated) and 1998
For the Nine Months Ended September 30, 2000 (Consolidated)
(Unaudited) For the Nine Months Ended September 30, 1999
(Consolidated) (Unaudited) .................................. F-6
Notes to Financial Statements .................................. F-7 - F-15
[LETTERHEAD OF WEINICK SANDERS LEVENTHAL & CO., LLP]
F-1
<PAGE>
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 its Subsidiary - RIT Auto Leasing Group, Inc., as at December
31, 1999, and the related statements of operations, cash flows, and
stockholders' equity for the year then ended and the accompanying balance sheet
of RIT Auto Leasing Group, Inc. as at December 31, 1998 and the related
statements of operations, changes in stockholder's equity, and cash flows, for
the year then ended. These 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 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 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 the results of their operations and
their cash flows for the year then ended, and RIT Auto Leasing Group, Inc. as at
December 31, 1998 and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
New York, New York
March 29, 2000
F-2
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
September 30, December 31,
------------ -------------------------
2000 1999 1998
----------- ----------- -----------
(Consolidated) (Consolidated) (Note 1)
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash $ 4,773 $ 33,106 $ 237,957
Net investment in direct financing leases 6,247,722 7,712,004 5,162,719
Prepaid expenses 10,000 13,375 --
----------- ----------- -----------
Total current assets 6,262,495 7,758,485 5,400,676
Vehicles held for sale or re-lease 2,225,414 1,300,843 504,701
Net investment in direct financing leases 21,057,048 19,349,913 8,129,175
Furniture and equipment - net of depreciation
and amortization 92,203 112,453 97,146
Due from related parties 67,796 -- --
Other assets 4,025 78,573 7,775
----------- ----------- -----------
$29,708,981 $28,600,267 $14,139,473
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
<S> <C> <C> <C>
Current liabilities:
Current maturities of loans payable $ 5,770,302 $ 7,613,318 $ 6,358,762
Accounts payable and accrued expenses 222,110 512,091 21,073
Loan payable stockholder 305,187 107,894 --
----------- ----------- -----------
Total current liabilities 6,297,599 8,233,303 6,379,835
Loans payable - net of current maturities 21,841,666 18,996,847 6,358,762
Deferred income taxes 761,000 706,000 561,000
----------- ----------- -----------
Total liabilities 28,900,265 27,936,150 13,299,597
----------- ----------- -----------
Stockholders' equity:
Preferred stock:
At December 31, 1999 and June 30, 2000:
Par value - $.001 authorized -
1,000,000 shares, issued and outstanding - none
At December 31, 1998 - none authorized,
issued and outstanding
Common stock:
At December 31, 1999 and June 30, 2000:
Par value - $.001, authorized -
25,000,000 shares, issued and outstanding - 7,532,709
shares at December 31, 1999 - 1,732,709 shares at
September 30, 2000
At December 31, 1998 - no par value, authorized -
200 shares, issued and outstanding - 100 shares 7,733 7,533 150,000
Additional paid-in capital 328,257 163,637 --
Retained earnings 1,050,563 973,947 689,876
----------- ----------- -----------
1,386,553 1,145,117 839,876
Less: Due from related party 577,837 481,000 --
----------- ----------- -----------
Total stockholders' equity 808,716 664,117 839,876
----------- ----------- -----------
$29,708,981 $28,600,267 $14,139,473
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ROYAL ACCEPTANCE CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Nine Months Ended For the Years Ended
September 30, December 31,
------------------------------ ------------------------------
2000 1999 1999 1998
---------- ---------- ---------- ----------
(Consolidated)
(Consolidated) (Unaudited)
(Unaudited) (See Note 1) (Consolidated) (Note 1)
<S> <C> <C> <C> <C>
Revenues:
Amortization of unearned
lease income $3,066,373 $2,801,032 $3,599,555 $1,533,060
Rental income -- -- -- 219,622
Gain on sale of vehicles 233,499 118,917 393,586 504,775
---------- ---------- ---------- ----------
Total revenues 3,299,872 2,919,949 3,993,141 2,257,457
---------- ---------- ---------- ----------
Costs and expenses:
Interest 1,930,758 1,315,308 1,937,172 1,154,214
Amortization of initial direct
costs 258,765 181,155 268,491 53,980
Provision for bad debts 156,000 132,000 328,198 296,640
Salaries and wages 352,861 242,588 351,363 204,209
Other selling and administrative
costs 464,872 467,707 680,845 403,602
---------- ---------- ---------- ----------
Total costs and expenses 3,163,256 2,338,758 3,566,069 2,112,645
---------- ---------- ---------- ----------
Income before provision for
income taxes 136,616 581,191 427,071 144,812
Provision for income taxes 60,000 236,000 143,000 54,000
---------- ---------- ---------- ----------
Net income $ 76,616 $ 345,191 $ 284,071 $ 90,812
========== ========== ========== ==========
Earnings per share:
Basic and diluted:
Net income per share $0.01 $0.05 $0.03 $0.02
===== ===== ===== =====
Weighted average shares
outstanding 7,687,984 (A)7,301,996 (A)7,357,891 (A)6,759,875
========== =========== =========== ===========
</TABLE>
(A) See Note 1(e)
See notes to financial statements.
F-4
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999 (CONSOLIDATED) AND 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (CONSOLIDATED)
(Unaudited)
<TABLE>
<CAPTION>
Additional Due from Total
Common Shares Paid-In Retained Related Stockholders'
Shares Amount Capital Earnings Party Equity
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 100 $ 150,000 $ -- $ 599,064 $ -- $ 749,064
Net income for the year ended December 31, 1998 -- -- -- 90,812 -- 90,812
--------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 100 150,000 -- 689,876 -- 839,876
Issuance of shares of common stock for cash,
net of offering costs 67,200 67 16,716 -- -- 16,783
Reverse acquisition of Royal Acceptance Corp. 7,465,509 7,466 1,116,459 (1,119,538) 4,387
Recapitalization upon reverse acquisition (100) (150,000) (969,538) 1,119,538 -- --
Due from related party -- -- -- -- (481,000) (481,000)
Net income for the year ended
December 31, 1999 -- -- -- 284,071 -- 284,071
--------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 7,532,709 7,533 163,637 973,947 (481,000) 664,117
Due from related party -- -- -- -- (96,837) (96,837)
Issuance of shares of common stock for cash 165,000 165 164,835 -- -- 165,000
Net income for the nine months ended
September 30, 2000 (Unaudited) -- -- -- 76,616 -- 76,616
--------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 2000 7,697,709 $ 7,698 $ 328,472 $ 1,050,563 ($ 577,837) $ 808,896
========= =========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended For the Years Ended
September 30, December 31,
-------------------------- --------------------------
2000 1999 1999 1998
----------- ------------ ------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 76,616 $ 345,191 $ 284,071 $ 90,812
----------- ------------ ------------ -----------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 279,015 193,080 287,219 53,980
Gain on sale of vehicles (233,499) (118,917) (393,586) (504,775)
Deferred income taxes 60,000 232,000 140,000 52,000
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Net investment in direct financing leases (501,616) (11,216,495) (15,424,880) (5,695,687)
Vehicles held for sale or re-lease (691,072) (534,443) (796,142) 64,857
Prepaid expenses 3,375 -- (13,375) --
Other assets 2,000 -- (70,798)
Loans payable 1,001,803 10,930,728 13,892,641 5,259,038
Accounts payable and accrued expenses (294,983) 308,823 496,037 (145,917)
Proceeds of vehicles sold -- -- 1,779,953 1,015,936
----------- ------------ ------------ -----------
Total adjustments (374,977) (205,224) (102,931) 99,432
----------- ------------ ------------ -----------
Net cash provided by (used in)
operating activities (298,361) 139,967 181,140 190,244
----------- ------------ ------------ -----------
Cash flows from investing activities:
Acquisition of Royal Acceptance Corporation -- -- (17,045) --
Due to related party -- -- (481,000) --
Purchases of furniture and equipment -- 34,035 (34,035) (38,080)
----------- ------------ ------------ -----------
Net cash used in investing activities -- 34,035 (532,080) (38,080)
----------- ------------ ------------ -----------
Cash flows from financing activities:
Sale of capital stock 164,820 -- 16,783 --
Loans payable officer 197,293 103,394 107,894 --
Increase in loan to related party (92,085) (435,150) -- --
----------- ------------ ------------ -----------
Net cash provided by financing activities 270,028 (331,756) 124,677 --
----------- ------------ ------------ -----------
Net increase (decrease) in cash (28,333) (157,754) (226,263) 152,164
Cash acquired at acquisition
of Royal Acceptance -- 21,412 21,412 --
Cash at beginning of period 33,106 237,957 237,957 85,793
----------- ------------ ------------ -----------
Cash at end of period $ 4,773 $ 101,615 $ 33,106 $ 237,957
=========== ============ ============ ===========
Supplemental Disclosures of Cash Flow Information:
Interest $ 1,930,758 740,249 $ 1,937,172 $ 1,154,214
=========== ============ ============ ===========
Income taxes $ -- -- $ -- $ --
=========== ============ ============ ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
ROYAL ACCEPTANCE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
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
of Royal by RIT. The results of operations of Royal is included in the
accompanying financial statements since the date of acquisition. Royal,
prior to the RIT acquisition, had been virtually inactive since 1995.
The following summarized unaudited proforma information
assumes the acquisition had occurred on January 1, 1998.
<TABLE>
<CAPTION>
For the Year Ended
December 31, For the Nine
------------------------- Months Ended
1999 1998 September 30, 1999
---------- ---------- ------------------
<S> <C> <C> <C>
Revenues $3,993,141 $2,257,457 $2,919,949
========== ========== ==========
Net income $ 203,417 $ 21,312 $ 230,964
========== ========== ==========
Earnings per share:
Basic and diluted $ 0.02 $ 0.01 $ 0.03
========== ========== ==========
</TABLE>
(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.
F-7
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(c) 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 September 30, 2000 and for the nine months then
ended include the accounts of Royal and RIT. The statement of income
for the nine months ended September 30, 1999 includes the accounts of
RIT for the nine month period and Royal from July 15, 1999. All other
periods presented include only the accounts of RIT.
(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 leasee does not exercise the purchase
option at the end of the lease, or in the case of default, the Company
takes possession of the underlying leased asset and either sells or
releases it and remits to the financial institution the outstanding
loan balance.
The net investment in direct financing leases includes all future lease
payments, the purchase options and the unamortized portion of initial
direct lease costs, net of unearned income. Revenue under the direct
financing leases is accounted for by recognizing the excess of
aggregate rentals receivable and lessee purchase options over the cost
of the leased vehicles during the term of the lease using the interest
method which produces a constant periodic rate of return on the net
investment in the lease.
F-8
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(ii) Operating Leases:
Operating leases consist of vehicles, which do not meet the direct
financing lease criteria. The majority of which are closed-end leases,
which may or may not contain lessee purchase options. 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, therefore the Company had no operating leases subsequent
to 1998.
(e) Vehicles Held for Sale or Re-lease:
Vehicles which are not purchased by the leasees 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 remaining lease value at the date such vehicles came off
lease.
The aforementioned related entity is affiliated to the Company
through common ownership and control. Fees or commissions are not paid
to this affiliate for the sale of vehicles, however, the Company does
pay the affiliate's operating costs. Such cost were immaterial for all
periods presented.
Below is a summary of Company owned vehicles sold by the
affiliate:
<TABLE>
<CAPTION>
Remaining
Number Lease Value
of at Time
Vehicles Selling Vehicle Came
Period Sold Price of Lease Gain (Loss)
------------------ -------- -------- ------------ ----------
<S> <C> <C> <C> <C>
1998 13 $181,907 $191,280 ($9,373)
== ======== ======== ======
1999 4 $ 39,271 $ 37,639 $1,632
== ======== ======== ======
Nine months Ended
September 30, 1999 3 $ 32,271 $ 32,526 $ 255
== ======== ======== ======
Nine months ended
September 30, 2000 3 $ 44,535 $ 43,250 $1,285
== ======== ======== ======
</TABLE>
F-9
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(f) Furniture and Equipment:
Depreciation of furniture and equipment are recorded at cost
and 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.
(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. No leasee accounted for more than 10% of revenues in all
periods presented.
(j) Interim Financial Data (Unaudited)
The unaudited financial information as of September 30, 2000
and for the nine months ended September 30, 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-10
<PAGE>
NOTE 2 - NET INVESTMENT IN DIRECT FINANCING LEASES.
The net investment in direct financing leases consists of the
following:
<TABLE>
<CAPTION>
September 30 December 31,
------------ ---------------------------
2000 1999 1998
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Total minimum lease payments to be received $ 28,434,078 $ 28,943,337 $ 12,981,102
Estimated residual value of leased property 6,648,136 6,354,828 4,031,623
Deferred initial direct lease costs
(less accumulated amortization) 949,081 751,503 290,818
Allowance for uncollectable payments (484,198) (328,198) (229,312)
------------ ------------ ------------
35,547,097 35,721,470 17,074,231
Less: Unearned income 8,242,327 8,659,553 3,782,337
------------ ------------ ------------
Net investment in direct financing leases 27,304,770 27,061,917 13,291,894
Less: current portion 6,247,722 7,712,004 5,162,719
------------ ------------ ------------
Non current portion $ 21,057,048 $ 19,349,913 $ 8,129,175
============ ============ ============
</TABLE>
The minimum lease payments including the estimated residual
value to be received as of September 30, 2000 for each of the next five
(5) years are:
Years Ending
September 30,
-------------
2001 $ 7,887,000
2002 9,531,000
2003 7,189,000
2004 4,666,000
2005 1,812,000
Thereafter 3,997,000
-----------
$35,082,000
===========
The allowance for uncollectable payments is summarized as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------ ----------------------
2000 1999 1998
-------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
Balance at the beginning of year $328,198 $ 229,312 $ --
Provision for uncollectable payments 156,000 181,356 286,640
Write-off of uncollectable payments -- (82,470) (57,328)
-------- --------- ---------
Balance at the end of year $484,198 $ 328,198 $ 229,312
======== ========= =========
</TABLE>
F-11
<PAGE>
NOTE 3 - FURNITURE AND EQUIPMENT.
Furniture and equipment consist of the following:
September 30, December 31,
------------ ---------------------
2000 1999 1998
-------- -------- --------
Unaudited)
Furniture and equipment $193,035 $193,035 $159,000
Less: Accumulated depreciation 100,832 80,582 61,854
-------- -------- --------
Net furniture and equipment $ 92,203 $112,453 $ 97,146
======== ======== ========
Depreciation charged to operations $ 20,250 $ 18,728 $ 15,900
======== ======== ========
NOTE 4 - LOANS PAYABLE.
The Company has lines of credit with several financial
institutions exclusively for the financing of leased vehicles. One of
the financial institutions limits the Company's borrowings to
$10,000,000. Borrowings from this financial institution aggregated
approximately $ at September 30, 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 September 30,
2000 for each of the next five (5) years:
Years Ending
September 30,
-------------
2001 $ 5,770,000
2002 7,125,000
2003 6,097,000
2004 4,060,000
2005 1,538,000
Thereafter 3,020,000
-----------
$27,610,000
===========
F-12
<PAGE>
NOTE 5 - DEFERRED TAXES.
During the initial years of the leases, the Company receives
the benefit for income tax purposes of deductions for depreciation on
the vehicles, and interest on the debt that in the aggregate exceed the
rental income from the related leases. During the later years rental
income will exceed related deductions. Provision has been made for the
deferred income taxes that arise from these timing differences using
the deferred method.
The components of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
For the Nine Months Ended For the Years Ended
September 30, December 31,
------------------------- --------------------
2000 1999 1999 1998
-------- -------- -------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Currently payable:
Federal $ -- $ -- $ -- $ --
State and local 5,000 4,000 3,000 2,000
-------- -------- -------- -------
5,000 4,000 3,000 2,000
-------- -------- -------- -------
Deferred:
Federal 40,000 167,000 100,000 42,000
State and local 15,000 65,000 40,000 10,000
-------- -------- -------- -------
55,000 232,000 140,000 52,000
-------- -------- -------- -------
Total provision
for income taxes $ 60,000 $236,000 $143,000 $54,000
======== ======== ======== =======
</TABLE>
The net deferred tax liability consists of the following
temporary differences:
<TABLE>
<CAPTION>
September 30, December 31,
----------- -----------------------
2000 1999 1998
----------- ----------- ---------
(Unaudited)
<S> <C> <C> <C>
Net investment in financing leases ($1,554,000) ($1,433,000) ($853,000)
Net operating loss carryforward 790,000 700,000 275,000
Other 3,000 27,000 17,000
----------- ----------- ---------
Total ($ 761,000) ($ 706,000) ($561,000)
=========== =========== =========
</TABLE>
F-13
<PAGE>
NOTE 5 - DEFERRED TAXES. (Continued)
The difference between income taxes computed using the
statutory federal income tax rate and the rate shown in the financial
statements is summarized as follows:
<TABLE>
<CAPTION>
For the Nine Months Ended For the Years Ended
September 30, December 31,
------------------------------------------- -------------------------------------------
2000 % 1999 % 1999 % 1998 %
------------------- --------------------- --------------------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income before provision for taxes $ 136,616 $ 581,000 $ 367,533 $ 144,812
--------- --------- --------- ---------
Computed tax provision at statutory rate 46,000 34.0 198,000 34.0 125,000 34.0 49,000 34.0
State tax provision, net of
federal tax effect 7,000 5.1 24,000 4.1 15,000 4.1 7,000 4.8
Other, net 7,000 5.1 14,000 2.4 3,000 0.8 (2,000) (1.5)
--------- ---- --------- ---- --------- ---- --------- ----
$ 60,000 44.2 $ 236,000 40.5 $ 143,000 38.9 $ 54,000 37.3
========= ==== ========= ==== ========= ==== ========= ====
</TABLE>
The net operating loss carryforwards at December 31,
1999 expire as follows:
Year Ending
December 31,
------------
2009 $ 10,000
2011 180,000
2013 497,000
2014 1,062,000
---- ---------
$1,749,000
==========
NOTE 6 - CAPITAL STOCK.
Stock Issued for Cash:
During the year ended December 31, 1999, the Company sold
67,200 shares of its common stock for $16,783.
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 June 30, 2000 the Company sold 200,000 shares for $164,820, net
of offering costs.
F-14
<PAGE>
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 currently $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
including real estate taxes for the nine months ended September 30,
2000 and 1999 was $103,875 and $89,850, respectively.
(b) Due from related party:
At September 30, 2000, a corporation owned by the Company's
President was indebted to the Company in the amount of $577,837. 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.
F-15
<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: January 12, 2001
Royal Acceptance Corporation.
By: /s/ Richard Toporek
--------------------------------
Name: Richard Toporek
Title: President
