-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KuQFOycBVCvgtcKrpIa2S3zahJEWf9XEkAlsqQMhCBhu4kcx09zOlXwh8c+nDrjP Ca3vvjnoGXEJjR3CCLNiPg== 0000950134-03-011663.txt : 20030814 0000950134-03-011663.hdr.sgml : 20030814 20030813174556 ACCESSION NUMBER: 0000950134-03-011663 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSITION AUTO FINANCE II INC CENTRAL INDEX KEY: 0001058855 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 752753067 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 333-49261 FILM NUMBER: 03842707 BUSINESS ADDRESS: STREET 1: 5422 ALPHA RD STREET 2: STE 100 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 9724040042 MAIL ADDRESS: STREET 1: 5422 ALPHA RD STREET 2: STE 100 CITY: DALLAS STATE: TX ZIP: 75240 10QSB 1 d08367e10qsb.txt FORM 10-QSB ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003 ----------------- Commission file number: 33-49261-D TRANSITION AUTO FINANCE II, INC. (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) TEXAS 75-2753067 (State of incorporation) (I.R.S. employer identification number) 8144 Walnut Hill Lane, SUITE 680, DALLAS, TEXAS 75231 (Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (214)360-9966 Check 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 past 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 [ ] State the number of shares outstanding of each of the issuer's classes of Common equity, as of the latest practicable date: As June 30, 2003, the issuer' had 1,000 shares of common stock TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMS (CHECK ONE): YES [ ] NO [X] ================================================================================ TRANSITION AUTO FINANCE II, INC. FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 2003
Page No. -------- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Balance Sheets.....................................................................................3 June 30, 2003 (Unaudited) and December 31, 2002 Statements of Income (Unaudited)...................................................................5 Quarter and six months ended June 30, 2003 and June 30, 2002 Statements of Cash Flows (Unaudited)...............................................................6 Six Months ended June 30, 2003 and June 30, 2002 Notes to Financial Statements (Unaudited)..........................................................7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........12 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings..............................................................................14 ITEM 2. Changes in Securities and Use of Proceeds......................................................14 ITEM 3. Defaults Upon Senior Securities................................................................14 ITEM 4. Submission of Matters to a Vote of Security Holders............................................14 ITEM 5. Other Information..............................................................................14 ITEM 6. Exhibits and Reports on Form 8-K...............................................................15 Signatures .............................................................................................16
In the opinion of management, all adjustments necessary to fair statement of the results for interim periods presented have been reflected in these financial statements. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TRANSITION AUTO FINANCE II, INC. BALANCE SHEETS ASSETS
6 months ended FYE 6/30/2003 12/31/2002 (unaudited) (See Note 1) -------------- ------------ CURRENT ASSETS Cash and cash equivalents $ 390,749 $ 573,137 Accounts receivable, net of allowance for doubtful accounts of $354,803 and $354,803 respectively 345,652 345,134 Vehicles held for sale 70,275 47,285 Other Assets 30,740 31,250 ------------ ------------ Total Current Assets 837,416 996,806 ------------ ------------ PROPERTY, at cost Vehicles leased 854,448 1,542,247 Less accumulated depreciation (552,656) (824,131) ------------ ------------ Net Property 301,792 718,116 ------------ ------------ OTHER ASSETS Due from an affiliate -0- 9,286 ------------ ------------ Total other assets -0- 9,286 ------------ ------------ TOTAL ASSETS $ 1,139,208 $ 1,724,208 ============ ============
3 TRANSITION AUTO FINANCE II, INC. BALANCE SHEETS (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
6 Months Ended FYE 6/30/2003 12/31/2002 (Unaudited) (See Note 1) -------------- ------------ CURRENT LIABILITIES Accrued liabilities $ 24,449 $ 24,576 Investor notes payable 5,463,600 5,966,000 Deferred revenue 24,017 85,954 ------------ ------------ Total Current Liabilities 5,512,066 6,076,530 ------------ ------------ OTHER LIABILITIES Due to affiliate 59,160 47,301 ------------ ------------ Total Other Liabilities 59,160 47,301 ------------ ------------ TOTAL LIABILITIES 5,571,226 6,123,831 ------------ ------------ SUBORDINATED DEBT TO AFFILIATE 371,330 371,330 ------------ ------------ STOCKHOLDERS' EQUITY (DEFICIT) Common stock, $.10 par value, 1,000 shares authorized, issued and outstanding 100 100 Additional paid-in capital 900 900 Retained earnings (deficit) (4,804,348) (4,771,953) ------------ ------------ Total Stockholders' Equity (Deficit) (4,803,348) (4,770,953) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,139,208 $ 1,724,208 ============ ============
Note 1: The balance sheet at December 31, 2002, as presented, is derived from the audited financial statements at that date. See accompanying notes to financial statements. 4 TRANSITION AUTO FINANCE II, INC. STATEMENTS OF INCOME (Unaudited)
Quarter Ended Six Months Ended Quarter Ended Six Months Ended June 30, 2003 June 30, 2003 June 30, 2002 June 30, 2002 ------------- ---------------- ------------- ---------------- REVENUES Vehicle monthly lease payments $ 66,724 $ 153,928 $ 197,856 $ 447,596 Amortization of down payments 9,946 30,668 68,416 150,263 ---------- ---------- ---------- ---------- Total Revenues 76,670 184,596 266,272 597,859 ---------- ---------- ---------- ---------- OPERATING EXPENSES Operating costs 4,150 11,345 12,022 33,484 General and administrative 26,400 48,534 24,709 53,612 Depreciation and amortization 41,332 95,315 203,765 434,129 Impairment loss -0- -0- -0- -0- ---------- ---------- ---------- ---------- Total Operating Expenses 71,882 155,194 240,496 521,225 ---------- ---------- ---------- ---------- Operating Income (Loss) 4,788 29,402 25,776 76,634 ---------- ---------- ---------- ---------- OTHER INCOME (EXPENSE) Investment income 514 1,286 75 228 Other income (expense) 4 17 26 65 Interest expense -0- -0- (117,609) (301,602) Loss on sale of inventory (24,668) (63,100) (44,917) (158,937) ---------- ---------- ---------- ---------- Total Other Income (Expense) (24,150) (61,797) (162,425) (460,246) ---------- ---------- ---------- ---------- Provision for Federal Income Taxes -0- -0- -0- -0- ---------- ---------- ---------- ---------- Net Loss $ (19,362) $ (32,395) $ (136,649) $ (383,612) ========== ========== ========== ========== Profit (Loss) per share (basic and diluted) $ (19.36) $ (32.40) $ (136.65) $ (383.61)
See accompanying notes to financial statements. 5 TRANSITION AUTO FINANCE II, INC. STATEMENTS OF CASH FLOWS (Unaudited)
6 Months Ended 6 Months Ended June 30, 2003 June 30, 2002 -------------- -------------- Cash flows from operating activities Net loss $ (32,395) $ (383,612) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 95,315 434,129 Amortization of down payments (30,668) (150,263) Impairment loss -0- -0- Provision for allowance for doubtful accounts 2,579 -0- (Gain) loss on sale of property 63,100 158,937 Net changes in operating assets and liabilities: Accounts receivable (518) (24,399) Other Assets 510 2,082 Accrued liabilities (127) (65,752) Deferred revenue (31,269) 14,777 ---------- ---------- Net cash provided (USED) by operating activities 66,527 (14,101) Cash flows from investing activities Purchase of fixed assets -0- (800) Cash proceeds from sale of property 232,340 476,760 ---------- ---------- Net cash Provided (used) by investing activities 232,340 475,960 Cash flows from financing activities Proceeds from issuance of common stock -0- -0- Net advances (payments) to affiliates 21,145 (75,680) Debt issuance costs -0- -0- Proceeds from notes payable -0- -0- Payments of Notes Payable (502,400) (456,000) ---------- ---------- Net cash provided by financing activities (481,255) (531,680) ---------- ---------- Net INcrease (DECREASE) In cash (182,388) (69,821) CASH AND CASH EQUIVALENTS, beginning of period 573,137 263,633 ---------- ---------- CASH AND CASH EQUIVALENTS, end of period $ 390,749 $ 193,812 ========== ========== Cash paid during the YEAR for Interest $ -0- $ 363,348 Income taxes $ -0- $ -0-
NON-CASH INVESTING ACTIVITIES Vehicle with a net book value of $15,050 were reclassified from vehicles held for sale to vehicles leased as of June 30, 2003. Vehicles purchased during the six months ended June 30, 2002 with a net book value of $216,484 were reclassified from vehicles leased to vehicles held for sale. See accompanying notes to financial statements. 6 TRANSITION AUTO FINANCE II, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1: BUSINESS ACTIVITY The Company was established to purchase motor vehicles and automobile lease contracts, collect and service automobile lease contracts and remarket motor vehicles upon termination of their leases. A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows. Transition Leasing Management, Inc. (TLMI) owns 100% of the Company's common stock. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains cash balances at financial institutions in Dallas, Texas. Accounts at the institutions are insured by the Federal Deposit Insurance Corporation up to $100,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. As of June 30, 2003, all cash balances are restricted in nature and managed by Trust Management due to Company in default of their Indenture Agreement. All cash distributions from these accounts must be authorized by the Trust Management and are for the sole purpose of repaying investor notes payable after any authorized expenses have been paid. REVENUE The vehicles are leased to individuals under leases with terms ranging from thirty-six to forty-two months. The leases are considered to be operating leases. At the end of the lease period, the lessee may purchase the equipment at the contractual residual value plus any other outstanding items due. Monthly lease payments are recognized as revenue in the month that the payments are due. The vehicle leases require a down payment from the lessee at the inception of the lease. The down payments are initially recorded as deferred revenue and then recognized as income over the term of the leases on a straight-line basis. 7 TRANSITION AUTO FINANCE II, INC. NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ACCOUNTS RECEIVABLE The Company provides for uncollectible accounts receivable using the allowance method of accounting for bad debts. Under this method of accounting, a provision for uncollectible accounts is charged to earnings. The allowance account is increased or decreased based on past collection history and management's evaluation of accounts receivable. All amounts considered uncollectible are charged against the allowance account and recoveries of previously charged-off accounts are added to the allowance. VEHICLES HELD FOR SALE Vehicles held for sale are leased vehicles in which the lease term has expired or that have been repossessed. Vehicles held for sale are valued at the lower of cost or fair value. Cost of these vehicles is the net book value of the vehicle after it has been returned to the Company either through repossession or early termination of the lease. Generally the Company will sell these vehicles at auction. PROPERTY Property consists of leased vehicles, which are stated at cost less accumulated depreciation. Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives using the straight-line-method. Leased vehicle depreciation is calculated over the term of the vehicle lease, using the cost of the vehicle less the estimated residual value of the vehicle at the end of the lease. Present leases have terms ranging from thirty-six to forty-two months. OTHER ASSETS Other assets include debt issuance costs incurred in connection with the Company's offering of securities filed with the Securities and Exchange Commission. These costs are being amortized, on a straight-line basis, over the term of the debt securities which matured on June 30, 2002. These were fully amortized as of June 30, 2003. DEFERRED REVENUE Deferred revenue consists of down payments made by lessees at the inception of the lease. The down payments are amortized over the lease term. Lease terms range from thirty-six to forty-two months. 8 TRANSITION AUTO FINANCE II, INC. NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS Fair values of financial instruments are estimated to approximate the related book value, unless otherwise indicated, based on market information available to the Company. USE OF ESTIMATES In preparing the Company's financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. CONCENTRATION OF CREDIT RISK A majority of the lessees are residents of the Dallas/Fort Worth Metroplex. Vehicles are used as collateral for leases. NOTE 3: INVESTOR NOTES PAYABLE The Company has issued fixed rate redeemable asset-backed notes (Investor Notes). During the second Quarter ended June 30, 2003, approximately $188,400 was repaid to investors. The remaining balance as of June 30, 2003 was $5,463,600. These Investor Notes were issued pursuant to a public offering on Form SB-2 under the Securities Act of 1933. The Investor Notes bear interest at the rate of 11%. Interest is payable monthly on the 15th day of each month. The Investor Notes were issued at various times during 1999 and 1998, however the maturity date for all of the Investor Notes is June 30, 2002. The Investor Notes are collateralized by the following: 1. Automobile contracts for the leasing of new or late model automobiles. 2. The leased vehicles. The Investors Notes matured on June 30, 2002 and the Company was unable to pay the remaining debt. The Company is in default on the investor notes payable as of June 30, 2003. As of that date all income from leasing activities is used to repay Investor Notes. All Company disbursements require approval of Trust Management. 9 TRANSITION AUTO FINANCE II, INC. NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 4: INCOME TAX The Company is a corporation subject to federal and state income taxes. The Company and its parent intend to file a consolidated tax return. Each company in the consolidated group determines its taxable income or loss, on a separate company basis, and the consolidated tax liability is allocated to each company with taxable income in proportion to the total of the taxable income amounts. The Company has a deferred tax asset as of $413,000 and $1,472,000 as of December 31, 2002 and 2001 (primarily from net operating loss carry-forward), which has been completely offset by recognition of a valuation allowance. The Company has a net operating loss (NOL) carry-forward of approximately $2,000,000 and $1,264,000 for the year ended December 31, 2002 and the year ended December 31, 2001, respectively. The Company's NOL carry-forward expires between December 31, 2012 and December 31, 2022. NOTE 5: SUBORDINATED DEBT TO AFFILIATE The Company assumed a liability of $371,330 due to TLMI. This debt is subordinated to all other Company liabilities and cannot be repaid before any other creditors or investors. 10 TRANSITION AUTO FINANCE II, INC. NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 7: GOING CONCERN The accompanying financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which contemplates continuation of the Company as a going concern. The Company has sustained recurring losses from operations, negative working capital, a negative equity position and has defaulted on investor notes payable that were due in 2002. Management intends to service existing leases and attempt to raise additional capital and or secure additional financing in order to continue repayment of the investor notes payable. Management recognizes that full payment may take several years to complete and that full repayment may not occur. This situation raises substantial doubt about the Company's ability to continue as a going concern. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussions and analysis relates to factors that have affected the operating results of the Company for the quarter ended and six-month period ended June 30, 2003. The balance sheet at December 31, 2002, as presented, is derived from the audited financial statements at that date. General. As of December 31, 1999, the Company had sold $10,000,000 of its 11% Redeemable Secured Notes. In February of 1999 the Company also purchased 116 lease contracts from Transition Auto Finance, Inc. for $2,883,000. Results of Operations: Three months ended June 30, 2003, compared to three months ended June 30,2002 For the three months ended June 30, 2003 the company had received monthly contract lease payments of $66,724 and amortization of down payments of $9,946. For the same period in 2002, the Company had contract lease income of $197,856 and amortization of down payments of $68,416. The drop in monthly contract lease payments for the three month period ended June, 30, 2003, compared to the same period in 2002, was the result of a decline in the number of active leases due to increased repossessions, early terminations and matured leases. Operating costs including general and administrative expenses were $30,550 for the second quarter of 2003 compared to $36,731 for the same period in 2002. Depreciation and amortization was $41,332 for the three months ended June 30, 2003, compared to $203,765 for the same period in 2002. The decline of $162,433, for the second quarter of 2003 was due to fewer active leases, the result of repossessions, early terminations and matured leases. Interest expense for the three months ended June 30, 2003, was $-0- compared to $117,609 for the same period in 2002. As a result of the Company's default on June 30, 2002 , all funds received after allowed expenses are paid to the Trustee and interest is no longer accrued or paid. Loss on sale of inventory for the second quarter of 2003 was $24,668 compared to a loss of $44,917 for the same period in 2002. Loss on sale of inventory occurs when the book value of the asset exceeds the market value of the repossessed vehicle. This change is primarily the result of fewer units being sold during 2003. The net loss for the second quarter ended June 30, 2003 was $19,362 compared to a loss of $136,649 for the same period in 2002. The change in the loss is primarily the results of a decrease in operating costs and depreciation. Results of Operations: Six- month period ended June 30, 2003 compared to six months ended June 30, 2002 Total revenue for the six months ended June 30, 2003 was $184,596 compared to $597,859 for the same period in 2002. The decrease in revenue for the 2003 period was the result of fewer leases on the books resulting in lower monthly payments and amortization of down payments. Operating costs and expenses were $59,879 for the six-month period ended June 30, 2003 compared to $87,096 for the same period in 2002. The decrease in operating costs in 2003 was primarily the result of fewer active leases in the 2003 period and the lower costs of servicing those leases. Depreciation and amortization for the six months ended June 30, 2003 was $95,315 compared to $434,129 for the same period in 2002. The decrease in depreciation for the 2003 period was due to a smaller portfolio of leases. Interest expense for the six months ended June 30, 2003 was $-0- compared to $301,602 for the same period in 2002. As a result of the Company's default on June 30, 2003 interest is no longer paid or accrued. 12 Loss on sale of inventory for the six month ended June 30, 2003 was $63,100 compared to $158,937 loss for the same period in 2002. The decrease of $95,837 for the 2003 period was the result of a smaller portfolio of leases and consequently a fewer number of repossessions. The Company had a loss of $32,395 for the six months ended June 30, 2003 compared to a loss of $383,612 for the same period in 2002. The decreased loss for the 2003 period was primarily the reduction in expenses and depreciation for 2003 which was brought about by the smaller portfolio in the 2003 period. On June 30, 2002, TAF II, Inc. defaulted on its $10,000,000 11% Redeemable Secured Notes. At the time of the default the company had paid to investors a total of $7,058,413. This figure is comprised of $3,338,413 in interest and $3,720,000 of principal. As of June 30, 2003 the total amount paid to note-holders was $8,226,813. The Company estimates that its remaining lease portfolio will generate approximately $400,000 in additional funds. The exact amount of additional funds is indeterminable since the number of leases that will go to term is unknown at this time. The trustee currently holds $323,970 in note-holder funds. The adverse economic effects of the current recession and events of September 11, resulted in an unusually high number of early lease payoffs and automobile repossessions. The major reasons for the excessive early payoffs and repossessions appear to have been (1) the weak economy, and (2) low-cost incentive financing (such as "zero financing") offered by new car manufacturers. The weak economy hurt the personal finances of many customers causing an increased number of repossessions, while low-cost incentive financing enticed many other customers to purchase new cars, which resulted in these customers paying off their leases early. Additionally, low-cost financing negatively impacted used car prices by flooding the market with late model cars. The early payoffs and repossessions were not, by themselves, extraordinary. What was extraordinary - and unprecedented - was the pace and rate at which these early payoffs and repossessions occurred. Most damaging, however, was the timing of the excessive early payoffs and repossessions, which began to accelerate in September 2000. Under the terms of the indenture that governs the notes, all payments after August 2000, from early payoffs and repossessions had to be returned to the note-holders rather than retained by the company for further investment. This "sinking fund" provision in the indenture had a devastating effect on the company's capital, and stripped the company of its ability to generate sufficient cash flow to repay the notes. The company worked on a plan that would have extended the maturity of the notes and the reinvestment period, and lowered the interest rate. The effect of these changes should have increased the ultimate amount of funds available for note repayment but since these modifications would require 100% approval of the note-holders, the plan was never submitted to the note-holders. Management does not expect inflation to have a material impact on revenue. Liquidity and Capital Resources During the six months ended June 30, 2003 the Company provided cash of $232,340 in its investing activities from the sale of property and used $481,525 in its financing activities. For the same period in 2002, the Company utilized cash of $475,960 in its investing activities and used $531,680 in its financing activities. The Company's portfolio, which consisted of 426 leases, included 377 leases which resulted in early terminations. The information on the Company's experience with respect to early terminations is set forth below:
Vehicle # of Gross Cost Misc. Total Down Sale Contracts Of Vehicle Expenses Payments Payment Amount Repossession 229 $5,491,818 $146,337 $2,677,184 $1,085,620 $2,437,536 Early Payoff 148 $3,232,006 $ 6,106 $1,739,239 $ 685,290 $2,068,299 --- ---------- -------- ---------- ---------- ---------- Total 377 $8,723,824 $152,443 $4,416,423 $1,770,910 $4,505,835 Total Sales Tax Warranty Marketing Amount Profit Credit Rebate Fee Paid Received (Loss) Repossession $109,415 $59,348 $604,292 $5,764,812 $ 126,658 Early Payoff $ 99,183 $15,805 $377,109 $4,230,707 $ 992,596 -------- ------- -------- ---------- ---------- Total $208,598 $75,153 $981,401 $9,995,519 $1,119,254
Note: The above results on early termination does not include any allowance for interest expense 13 At June 30, 2003 the company had 31 active leases remaining on its books. If all of the 31 leases go to term, they would generate approximately $400,000. It is impossible to determine how many, if any, will go to term. This report contains various forward looking statements and information that are based on management's belief as well as assumptions made by and information currently available to management. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected. Among the key factors that may have a direct bearing on the Company's operating results are fluctuations in the economy and in the level of activity in the automobile and consumer finance industry, demand for the Company's products, the impact of competition and interest rate fluctuations. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Although the Company is not a party to any material legal proceedings, it is possible that one or more note-holders may institute legal action against the company in light of the default of the company's notes. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) Not Applicable (b) Not Applicable (c) Not Applicable (d) The company applied 90% of the gross proceeds from the sale of the Notes to the purchase or acquisition of the Leased Vehicles and the contracts. The Company paid to the Underwriter sales commissions of 6% of the principal amount of the Notes sold by the Underwriter. Additionally, the Company reimbursed the Underwriter for certain expenses incurred in connection with its due diligence activities with regard to the Offering of 2.5% of the aggregate principal amount of the Notes sold. The Company also used 1.5% of the gross proceeds from the sale of the Notes to pay offering and organizational expenses, including filing and registration fees, legal fees of the Company's counsel, accounting fees, trustee's fees, escrow agent's fees, "blue sky" expenses and printing expenses. ITEM 3. DEFAULTS UPON SENIOR SECURITIES On June 30, 2002, the Company defaulted on its $10,000,000 11% Redeemable Secured Notes. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's sole stockholder during the Second quarter of 2003. ITEM 5. OTHER INFORMATION None 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Financial Statements The following financial statements are filed as a part of this Form 10-KSB: The Index to Financial Statements is set out in Item 7 herein. Exhibits The following exhibits are filed as exhibits to this report on Form 10-KSB: The information required is set forth in the Index to Exhibits accompanying this Form 10-QSB. (b) Reports on Form 8-K No reports on Form 8-K were filed during the six months ended June 30, 2003. 15 SIGNATURES In accordance with section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRANSITION AUTO FINANCE II, INC. --------------------------------------- (Registrant) Date: August 12, 2003 /s/ KENNETH C. LOWE --------------------------------------- Kenneth C. Lowe, President/ Chief Executive Officer Date: August 12, 2003 /s/ KENNETH C. LOWE --------------------------------------- Kenneth C. Lowe, President/ Chief Operating Officer Date: August 12, 2003 /s/ KENNETH C. LOWE --------------------------------------- Kenneth C. Lowe, President/ Chief Financial Officer 16 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION 3.1 Articles of Incorporation of Transition Auto Finance II, Inc. * 3.2 Bylaws of Transition Auto Finance II, Inc. * 4.1 Form of Indenture between Transition Auto Finance II, Inc. and Trust Management, Inc., as Trustee *** 4.2 Form of Secured Note Due June 30, 2002 (included in Article Two of Indenture filed as Exhibit 4.1) 10.1 Form of Master Contract Purchase Agreement between Transition Auto Finance II, Inc. and Transition Leasing Management, Inc.** 10.2 Form of Servicing Agreement between Transition Leasing Management, Inc. and Transition Auto Finance II, Inc.** 31 Certification of Reporting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Reporting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Incorporated by reference from Registration Statement on Form SB-2 of Transition Auto Finance II, Inc. Registration No. 33-49261-D, filed April 2, 1998. ** Incorporated by reference from Amendment No. 1 to Registration Statement on Form SB-2 of Transition Auto Finance II, Inc., Registration No. 33-49261-D, filed June 19, 1998. *** Incorporated by reference from Amendment No. 2 to Registration Statement on Form SB-2 of Transition Auto Finance II, Inc., Registration No. 33-49261-D, filed July 9, 1998. EX-31 3 d08367exv31.txt CERTIFICATION PURSUANT TO SECTION 302 EXHIBIT 31 CERTIFICATE OF THE CHIEF EXECUTIVE AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Kenneth C. Lowe, certify that: 1. I have reviewed this quarterly report on Form 10-QSB for the quarter ended June 30, 2003 of Transition Auto Finance II ("TAF II"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present, in all material respects, the financial condition, results of operations and cash flows of TAF II as of, and for, the periods presented in this report. 4. TAF II's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) for TAF II and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to TAF II, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of TAF II's disclosure control's and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in TAF II's internal control over financial reporting that occurred during TAF II's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, TAF II's internal control over financial reporting; and 5. TAF II's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to TAF II's auditors and the audit committee of TAF II's board of directors: a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect TAF II's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in TAF II's internal control over financial reporting. Date: August 12, 2003 /s/ KENNETH LOWE - -------------------------------------- Kenneth Lowe Chief Executive and Chief Financial Officer EX-32 4 d08367exv32.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 32 CERTIFICATE OF THE CHIEF EXECUTIVE AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Transition Auto Finance II (the "Company") on Form 10-QSB for the quarter ended June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kenneth C. Lowe, the Chief Executive and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and 2. The information contained in this Report fairly presents, in all material respects, the financial conditions and results of operations of the Company. Date: August 12, 2003 /s/ KENNETH C. LOWE ------------------------------------------- Kenneth C. Lowe Chief Executive and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----