-----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, Wt6TB4myc2Cb/tGltP1/UXBBmiQs2rCRjtbUnZiKxSvTDfX2SiD143h3gwCNau6g wOTz3clFA72qsGV+3qI19Q== 0000899078-02-000480.txt : 20020819 0000899078-02-000480.hdr.sgml : 20020819 20020819172426 ACCESSION NUMBER: 0000899078-02-000480 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020819 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RENAISSANCE ACCEPTANCE GROUP INC CENTRAL INDEX KEY: 0000706507 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE AGENTS & MANAGERS (FOR OTHERS) [6531] IRS NUMBER: 742119162 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-14653 FILM NUMBER: 02743118 BUSINESS ADDRESS: STREET 1: 1750 REGAL ROW STREET 2: SUITE 1010 CITY: DALLAS STATE: TX ZIP: 75235 BUSINESS PHONE: 9044455450 MAIL ADDRESS: STREET 1: 1750 REGAL ROW STREET 2: SUITE 1010 CITY: DALLAS STATE: TX ZIP: 75235 FORMER COMPANY: FORMER CONFORMED NAME: CARDIAC CONTROL SYSTEMS INC DATE OF NAME CHANGE: 19920703 10QSB 1 june2002-10qsb.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: June 30, 2002 [ ] Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from ____________ to ____________ Commission File Number: 0-14653 Renaissance Acceptance Group, Inc. (Exact name of small business issuer as specified in its charter) Delaware 74-2119162 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1349 Empire Central, 13th Floor Dallas, Texas, 75247 (Address of principal executive offices) (214) 231-7624 (Issuer's telephone number) Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by court. Yes [X] No [ ] Number of shares outstanding as of: August 15, 2002: Common Stock: 4,966,490 Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
RENAISSANCE ACCEPTANCE GROUP, INC. INDEX Page ----- Part I - Financial Information Item 1. Financial Statements 2 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II - Other Information Item 1. Legal Proceedings 15 Item 6. Exhibits and Reports on Form 8-K 15
ITEM 1. FINANCIAL STATEMENTS RENAISSANCE ACCEPTANCE GROUP, INC. CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 DECEMBER 31, 2001 (Unaudited) ASSETS Cash and cash equivalents-unrestricted $ 227,393 $ 404,496 Cash and cash equivalents-restricted 214,133 192,145 Accounts receivable and prepaid expenses 271,972 671,090 Loans held for sale 5,624,019 12,743,053 Loans held for investment, net of reserves of $12,851 and $104,367 249,318 466,667 Real estate held for sale 252,891 338,057 Property and equipment, net of accumulated depreciation of $433,097 and $293,726 338,477 478,309 Other assets 31,386 61,602 ----------- ----------- Total assets $ 7,209,589 $15,355,419 =========== =========== LIABILITIES AND SHAREHOLDERS' DEFICIT Warehouse lines of credit $ 5,361,580 $12,614,968 Accounts payable, accrued liabilities and short term debt 1,389,142 1,170,482 Subordinate debt, net of discount 3,482,405 3,476,852 ----------- ------------ Total liabilities 10,233,127 17,262,302 ----------- ----------- Preferred stock, 5,000,000 shares authorized, par value of $0.001: Series A: 5,000 shares authorized; redeemable, 8% cumulative, convertible; 2,157.50 shares issued and outstanding 2,157,500 2,157,500 Common stock, 95,000,000 shares authorized, par value of $0.001, 4,966,490 and 5,000,000 shares issued and outstanding 4,966 5,000 Treasury Stock, 50,000 shares (13,000) - Additional paid-in capital 417,119 417,085 Accumulated deficit (5,590,123) (4,486,468) ----------- ------------ Total shareholders' deficit (3,023,538) (1,906,883) ----------- ------------ Total liabilities and shareholders' deficit $7,209,589 $15,355,419 =========== ============
See accompanying notes to these consolidated financial statements 2
RENAISSANCE ACCEPTANCE GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------------------------- --------------------------------------- 2002 2001 2002 2001 ----------------- ----------------- ---------------- ---------------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) NET REVENUES: Sales of residential real estate $ - $ 1,776,391 $ 64,350 $ 4,564,813 Cost of residential real estate - (1,750,755) (76,655) (3,874,756) sold Gain on sales of loans 690,263 411,446 1,443,793 1,027,693 AFA education and services fees 500,800 88,428 1,174,006 88,428 Real estate commission 280,838 8,465 536,281 8,465 Title company fees and net 69,691 13,467 156,217 13,467 premiums Other income 85,590 177,980 234,547 311,356 ----------------- ----------------- ---------------- ---------------- Total net revenues $ 1,627,182 $ 725,422 $ 3,532,539 $ 2,139,466 OPERATING EXPENSES: Personnel and related expense 1,176,204 958,159 2,609,634 1,757,937 General and administrative 480,288 345,344 1,093,536 810,129 Advertising expense 221,980 81,424 557,500 118,172 Depreciation and amortization 78,287 55,948 143,430 93,921 Acquisition expense - 145,000 - 145,000 ----------------- ----------------- ---------------- ---------------- Total operating expenses 1,956,759 1,585,875 4,404,100 2,925,159 ----------------- ----------------- ---------------- ---------------- Loss from operations (329,577) (860,453) (871,561) (785,693) ----------------- ----------------- ---------------- ---------------- OTHER EXPENSE - Interest expense, net of interest (116,850) (144,987) (232,094) (342,457) income Net loss $ (446,427) $ (1,005,440) $ (1,103,655) $(1,128,150) ================= ================= ================ ================ Basic and diluted loss per share $ (0.09) $ (0.22) $ (0.22) $ (0.25) Basic and diluted weighted average shares outstanding 4,966,490 4,618,333 4,983,245 4,596,667
See accompanying notes to these consolidated financial statements 3
RENAISSANCE ACCEPTANCE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, -------------------------------------- 2002 2001 ----------------- ---------------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,103,655) $(1,128,150) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 143,430 92,069 Amortization of subordinated debt discount 5,553 1,851 Common stock issued for compensation - 9,472 Net changes in assets and liabilities: Accounts receivable, prepaid expenses and other assets 429,333 (76,640) Loans held for sale and warehouse lines payable, net (134,354) (919,763) Real estate held for sale 516,843 Residences contracted for sale 85,166 1,257,156 Deferred gain - (150,498) Accounts payable and accrued liabilities 17,410 (100,029) ----------------- ---------------- Net cash used in operating activities (557,117) (497,689) CASH FLOWS FROM INVESTING ACTIVITIES: Increase in restricted cash (21,988) - Purchase of property and equipment (3,598) (238,096) Collection of loans held for investment 129,371 36,990 ----------------- ---------------- Net cash provided (used) in investing activities 103,785 (201,106) CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury Stock (13,000) - Issuance of Preferred Stock Series A - 1,636,500 Net proceeds from short term borrowings 201,251 - Sales of loans held for investment 87,978 - ----------------- ---------------- Net cash provided (used) in financing activities 276,229 1,636,500 NET CHANGE IN CASH AND CASH EQUIVALENTS (177,103) 937,705 CASH AND CASH EQUIVALENTS, beginning of period 404,496 500,034 ----------------- ---------------- CASH AND CASH EQUIVALENTS, end of period $ 227,393 $ 1,437,739 ================= ================ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Conversion of subordinated debt to preferred stock $ 500,000 Warehouse line settled for contracts for deed and mortgage loans $ 1,100,000 Interest paid, including warehouse lines of credit $ 233,054 $ 390,430
See accompanying notes to these consolidated financial statements 4 RENAISSANCE ACCEPTANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS, ORGANIZATION AND BASIS OF PREPARATION AND PRESENTATION --------------------------------------------------------------------------- Renaissance Acceptance Group, Inc. (the "Company") operates in the real estate and mortgage banking industries through its subsidiaries, Remodelers Holdings, Inc. ("RHI"), Remodelers Acceptance Corporation ("RAC"), United Lending Partners, LP ("ULP"), Texas Real Estate Systems, LLC ("TRES") and Renaissance Title LLC ("RT"). RAC incorporated in Nevada in October 1998 and began operations in the real estate business in the first quarter of 2000. RAC acquired a 99% limited partnership ownership interest in ULP; a Texas limited partnership engaged in the mortgage business, in December 2000. In April 2001 the shareholders of RAC (in a stock exchange transaction) exchanged their 100% ownership interest in RAC for 100% of the ownership interest in the newly formed RHI (a wholly-owned subsidiary of the Company). As a result of this stock exchange, RHI became the 100% owner of RAC. On April 30, 2001, RHI became the 99% limited partner of ULP as a result of an upstream dividend from RAC of the 99% limited partnership interest owned by RAC. The accompanying financial statements are presented as if RHI had existed as the holding company of RAC for all periods presented. Pursuant to an Agreement and Plan of Merger, dated as of July 2, 2001, by and among Cardiac Control Systems, Inc., RHI, Nineteenth Acquisition Sub, Inc. and Kersey, Scillia, Forster and Brooks, Inc. (the "Agreement"), approximately 94.6 percent of the Company's common stock shares were issued to the stockholders of RHI in connection with the reverse merger of Nineteenth Acquisition Sub, Inc. ("Nineteenth"), a wholly-owned subsidiary of the registrant created to effect the merger, with and into RHI (the "Merger"). In accordance with the terms of the Merger, $170,000 in cash was paid by RHI and 250,000 shares of the registrant's common stock were issued to the liquidating trust and to certain of its creditors and stockholders. In addition, 20,000 shares of the registrant's common stock were issued to the liquidating trust to be sold and applied to RHI's administrative costs and fees related to the Merger. The remaining 4,730,000 initial shares of the Company's common stock were issued to the holders of common stock of RHI on a pro rata basis according to their ownership of the common stock of RHI. All share and per share information has been revised to reflect the exchange ratio in the reverse merger on a retroactive basis. Following the Plan confirmation and Merger, the Company became a holding company and RHI became its wholly owned subsidiary. The Company is authorized to issue 95,000,000 shares of its common stock, par value $0.001 per share, of which 4,966,490 shares are outstanding. Additionally, the Company is authorized to issue 5,000,000 shares of its preferred stock, par value $0.001 per share, of which 2,157.5 shares of Series A Convertible Preferred Stock are outstanding. The former stockholders of RHI currently own 4,696,490 shares of the Company's outstanding common stock (approximately 94.6 percent) and all of the Company's outstanding preferred stock. Beginning in May 2001, the Company, through RAC, operates in the real estate business as Assistance for America ("AFA"). AFA is designed primarily to help renters become homeowners by facilitating financing and down payment assistance. AFA earns fees associated with their customer's purchase of a home. Prior to the AFA program, the Company purchased and sold single-family real estate. AFA was created, as a solution to the increasing capital needs associated with the purchase of real estate. The Company operates in the mortgage banking business through its subsidiary ULP. ULP originates loans from various sources and then sells these loans to third party institutional investors utilizing conforming, non-conforming, and U.S. government agency lending programs. 5 RENAISSANCE ACCEPTANCE GROUP, INC. Reclassifications Certain amounts have been reclassified to conform to the current period presentation. 2. UNAUDITED INFORMATION --------------------- The June 30, 2001 and 2002 financial statements have been prepared by the Company without audit. According to the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. However, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the Company's financial position and results of operations for the periods presented have been made. The results of operations for the three month and six month periods ended June 30, 2001, and 2002 are not necessarily indicative of those that will be obtained for the entire fiscal year. These financial statements should be read in conjunction with the December 31, 2001 financial statements of the Company contained in Form 10-KSB filed with the Securities and Exchange Commission. 3. BUSINESS SEGMENT INFORMATION ---------------------------- The Company operates in two segments: real estate (including Title Agent operations) and mortgage banking. Segment operations are measured consistent with the accounting policies used in these consolidated financial statements. The following provides information on the Company's segments for the six months ended June 30, 2002 and 2001. Quarter Ended June 30, 2002
Real Mortgage Estate Banking Total ----------------------- ----------------- ------------------- Net revenues from external customers $ 936,920 $ 690,262 $ 1,627,182 Net loss $ (420,278) $ (26,149) $ (446,427) Identifiable assets $ 559,186 $ 6,650,403 $ 7,209,589 Quarter Ended June 30, 2001 Real Mortgage Estate Banking Total ----------------------- ----------------- ------------------- Net revenues from external customers $ 180,998 $ 544,424 $ 725,422 Net income (loss) $(1,066,624) $ 61,184 $(1,005,440) Identifiable assets $ 1,128,541 $ 16,696,789 $17,825,330
6 RENAISSANCE ACCEPTANCE GROUP, INC.
Six Months Ended June 30, 2002 Real Mortgage Estate Banking Total ----------------------- ----------------- ------------------- Net revenues from external customers $ 2,088,746 $ 1,443,793 $ 3,532,539 Net loss $ (913,165) $ (190,490) $ (1,103,655) Identifiable assets $ 559,186 $ 6,650,403 $ 7,209,589 Six Months Ended June 30, 2001 Real Mortgage Estate Banking Total ----------------------- ----------------- ------------------- Net revenues from external customers $ 1,111,773 $ 1,027,693 $ 2,139,466 Net income (loss) $ (1,277,639) $ 149,489 $(1,128,150) Identifiable assets $ 1,128,541 $16,696,789 $17,825,330
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION You should read the following discussion and analysis of financial condition and results of operations in conjunction with the Company's consolidated financial statements presented in Part I - Item 1 of this report. This discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. Broadly speaking, forward-looking statements include: o projections of the Company's revenues, income, earnings per share, capital expenditures, capital structure or other financial items; o descriptions of strategic initiatives, plans or objectives of the Company's management for future operations, including pending acquisitions; o descriptions of products, services and industry sectors; o forecasts of future economic performance; and o descriptions of assumptions underlying or relating to any of the foregoing You can identify these and other forward-looking statements by the use of words such as "becoming," "may," "will," "should," "predicts," "potential," "continue," "anticipates," "believes," "estimates," "seeks," "expects," "plans," "intends," or the negative of such terms, or comparable terminology. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, and the Company based 7 RENAISSANCE ACCEPTANCE GROUP, INC. these expectations on its beliefs, as well as its assumptions, that such expectations may prove to be incorrect. The Company's actual results of operations and financial performance could differ significantly from those expressed in or implied by its management's forward-looking statements. For information with respect to factors that could cause actual results to differ from the expectations stated in the forward-looking statements, see the text under the caption "Risk Factors" included in the Form 8-K filed with the Securities and Exchange Commission on July 9, 2001. The Company urges investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this discussion and analysis. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on the Company's behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this filing are made only as of the date of this filing. The Company does not intend, and undertakes no obligation, to update these forward-looking statements. Overview Renaissance Acceptance Group, Inc. ("the Company") operates in the real estate and mortgage banking industries through its subsidiaries, Remodelers Holdings, Inc. ("RHI"), Remodelers Acceptance Corporation ("RAC"), Texas Real Estate Systems LLC ("TRES"), United Lending Partners, LP ("ULP") and Renaissance Title LLC ("RT"). On May 24, 2001, Cardiac Control Systems, Inc ("Cardiac"), predecessor to the Company, obtained the approval of the United States Bankruptcy Court, Middle District of Florida, Jacksonville Division for its confirmed Second Amended Chapter 11 Plan of Reorganization (the "Plan"). Pursuant to the Plan and to an Agreement and Plan of Merger, dated as of July 2, 2001, by and among Cardiac, RHI, Nineteenth Acquisition Sub, Inc. and Kersey, Scillia, Forster and Brooks, Inc. (the "Agreement"), approximately 94.6 percent of the Company's common stock shares were issued to the stockholders of RHI in connection with the reverse merger of Nineteenth Acquisition Sub, Inc. ("Nineteenth"), a wholly-owned subsidiary of Cardiac created to effect the merger, with and into RHI (the "Merger"). Upon execution of the Merger, Cardiac's name was changed to Renaissance Acceptance Group, Inc. (the "Company"). Cardiac had virtually no operations during the period January 1, 2000, through the effective date of the merger, July 2, 2001, and accordingly the following business description relates to that of RHI and its subsidiaries. The Company was incorporated in Delaware in 1980. The Company's headquarters are located in Dallas, Texas. Through subsidiaries, the Company operates in two primary segments- real estate and mortgage banking. Through RAC, the Company began real estate operations in the first quarter of 2000 and through its acquisition in December 2000 of ULP, an existing mortgage company, entered the mortgage banking business. Real Estate Business- The "AFA Business" The Company's primary strategy is to enable and encourage home ownership. Today, many families and individuals encounter difficulties purchasing homes due a variety of reasons including: a lack of initial cash reserves for down payments and closing costs, poor historical credit due to situational circumstances and an overall lack of customer service by the realty and financial service industries. Funds that are typically required to purchase a $100,000 home, assuming financing through a government sponsor program, are approximately $6,000 to $8,000. Although many people can afford the current $850 to $1,000 monthly payment required on a home this size, they do not have, nor will have, the amount of money required to purchase and finance this home. Additionally, limited credit and self-perceived poor credit are also significant factors that deter home ownership. Many people are not sure if they can be approved for a home and mortgage, and many have false beliefs as to the quality of their own credit. Finally, poor service to these customers needing additional support, education and guidance to purchase and finance a home, priced less than the median home price in most areas, contributes greatly to an underserved market. The Company believes its high customer service level combined with its knowledge of financing programs and down payment assistance fills an existing void in the conventional home ownership arena. The Company currently services the Dallas-Ft. Worth, Houston and San Antonio markets in Texas. 8 RENAISSANCE ACCEPTANCE GROUP, INC. Through May 2001, prior to the AFA Business, the Company was primarily in the business of purchasing homes, which the Company believed to be an attractive market, refurbishing the homes and then marketing the homes and selling them. This business was extremely capital intensive as homes purchased had to be carried for both the time needed to refurbish the house, as well as the time needed to market the house. In addition, the mortgage loans resulting from the sale of these refurbished houses were becoming less marketable, as many investors increased their scrutiny and requirements of how many times a property could change legal ownership during the previous year. As the combination of these obstacles mounted, the Company changed its focus in the real estate business to the AFA business. The AFA business is a real estate marketing education and consulting business. Under the AFA business, the Company earns a fee paid at the closing of the home sale, and the Company rarely takes property ownership or expends money to purchase real estate. Mortgage Banking Business Although the Company began in the mortgage banking business in December 2000 through its acquisition of United Lending Partners, LP (ULP), ULP had been in existence for two years. During 2001, ULP was transformed from a predominately wholesale lender to a mortgage company with an increasing mix of retail business and in 2002, becoming a predominantly retail lender. Ancillary Businesses Texas Real Estate Systems, LLC (TRES) is a licensed real estate broker, providing services to AFA. TRES earns its revenues, which are typically 3% of a home's sales price, as an intermediary between AFA and its customer in each transaction. Renaissance Title (RT) is a licensed title agency. The majority of AFA customers' transactions are closed using RT's services. RT earns its revenues through its share of title premiums and escrow fees. Title premiums are prescribed statutory rates; however, escrow fees are based upon general market conditions. RT is not a title insurance company and relies on other title insurance companies to underwrite its title policies. Strategic Alternatives After reviewing the Company's financial condition and operating results and current economic and market conditions, the board of directors of the Company decided to consider various financial and strategic alternatives to minimize current expenditures and maximize shareholder value. To enhance and maximize shareholder value, the board of directors decided to analyze a number of options, including (i) attempting to list the Company's common stock with an exchange; (ii) acquiring or merging with another real estate and mortgage banking company; (iii) selling all or a portion of the Company; (iv) selling additional equity; and (v) taking the Company private. The Board of Directors' preliminary conclusions are that taking the Company private is likely the most feasible and effective way to maximize shareholder value. The Company is not obligated to complete any of these transactions and cannot offer any assurances that any of these transactions will be implemented. Results of Operations Quarter ended June 30, 2002 compared to quarter ended June 30, 2001 The Company's net loss decreased to $446,000 during the quarter ended June 30, 2002 from $1,005,000 for the quarter ended June 30, 2001. 9 RENAISSANCE ACCEPTANCE GROUP, INC. Net Revenues Net revenues for the quarter ended June 30, 2002 were approximately $1,627,000 as compared with $725,000 for the quarter ended June 30, 2001, an increase of $902,000. AFA transactions and the various revenues these transactions generate contributed to the majority of this growth. The following highlights the significance of the AFA Program to the results of operations during the quarter ended June 30, 2002. The table below reflects gross revenues related to the AFA transactions completed during the quarter ended June 30, 2002. Only eight AFA transactions were completed during the three months ended June 30, 2001. For the Three Months Ended June 30, 2002 - ---------------------------------------- --------------------------------- AFA Transactions 89 homes - ---------------------------------------- --------------------------------- Average sales price per home $113,425 - ---------------------------------------- --------------------------------- Education and service fee income $500,800 - ---------------------------------------- --------------------------------- Per transaction $5,627 - ---------------------------------------- --------------------------------- Real estate commission $280,838 - ---------------------------------------- --------------------------------- Per transaction $3,155 - ---------------------------------------- --------------------------------- Title and escrow fees $69,691 - ---------------------------------------- --------------------------------- Per transaction $783 - ---------------------------------------- --------------------------------- The education and service fee attributable to the AFA program is variable and is paid at closing. This fee is determined by the ultimate difference between the fair value or appraised value a customer pays for a home and the transaction costs that are paid for by the seller of the home as well as the net proceeds that the seller has agreed to receive. These seller paid costs and net proceeds are heavily negotiated on each transaction. Real estate commission is usually 3% of the seller's agreed upon sales price, title premiums are prescribed statutory rates and escrow fees are based upon general market conditions. Sales and costs of sales on sales of real estate As previously indicated, the Company's business strategy related to real estate shifted in May 2001 away from purchasing, refurbishing and reselling real estate, to the AFA business, therefore there are no substantive sales and cost of sales activity for 2002. Gain on sales of loans Gain on sales of loans were approximately $690,000 for the quarter ended June 30, 2002 compared with $411,000 for the quarter ending June 30, 2001. The following table reflects loan originations during quarter ended June 30, 2002 as compared to quarter ended June 30, 2001. Loans are typically sold to investors by ULP within 30 days of origination. Gains are recorded in operations upon the sale of the loan. The table below shows production levels for each quarter. (Production $'s in millions) --------------------- ----------------------- ------------------------ Production Channel June 30, 2002 June 30, 2001 ------- ------------- ------------- Wholesale $ 6.2 $ 50.1 --------------------- ----------------------- ------------------------ Retail 7.1 4.2 --------------------- ----------------------- ------------------------ Retail-AFA 10.2 0.7 ---- --- --------------------- ----------------------- ------------------------ Total $23.5 $ 55.0 --------------------- ----------------------- ------------------------ 10 RENAISSANCE ACCEPTANCE GROUP, INC. Gross profit on sales of loans, which includes net interest income earned on loans, as well as that paid to warehouse lenders on these loan categories generally ranged from (as a percent of the loan amount) o Wholesale 0.50%- 1.25% o Retail 1.75%- 4.00% o Retail AFA 2.50%- 5.50%. As such, due to the increase in volume of retail loans versus wholesale, (specifically Retail-AFA), net gains increased even though gross production decreased. Operating Expenses Operating expenses increased to approximately $1,957,000 in the quarter ended June 30, 2002 as compared with $1,586,000 for the quarter ended June 30, 2001 or an increase of $371,000. Personnel and related expense Personnel expense increased to $1,176,000 during the quarter ending June 30, 2002 from $958,000 for the same period in 2001, or an increase of $218,000. The transition to the AFA business required significant additions in personnel. Commission, on AFA sales transactions, accounts for approximately $50,000. TRES personnel contributed to $107,000 of the increase. RT began minor operations in May of 2001 and contributed to $51,000 of the increased personnel costs. ULP personnel expense also increased with the shift from wholesale business to a more labor intense retail business. At the end of January 2002, AFA implemented a workforce reduction to reduce the company's losses. Due to the reduction of employees in the first quarter of 2002, AFA personnel expense decreased in the second quarter of 2002 as compared to the first quarter of 2002 by $257,000 or 18%. General and administrative expense General and administrative expense increased to $480,000 during the quarter ended June 30, 2002 from $345,000 for the quarter ended June 30, 2001, an increase of $135,000. The majority of this increase resulted from growth in the Company overall including the addition of RT and the AFA business. Insurance expense increased to $81,000 during the quarter ended June 30, 2002 from $60,000 for the quarter ended June 30, 2001, an increase of $21,000. Director and Officer insurance was purchased in the 3rd quarter of 2001 contributing to an increase of $16,000. In addition, monthly health insurance premiums for employees, which are paid for by the company, increased 25% when the policy was renewed in May 2002. Occupancy costs increased to $137,000 during the quarter ended June 30, 2002 from $43,000 for the quarter ended June 30, 2001, an increase of $94,000. During September 2001, as a result of operational growth, the Company relocated its entire Dallas operations increasing monthly rent by $25,000. Additionally, AFA began and continues to lease office space in Houston and San Antonio during the 4th quarter of 2001. Telephone and fax expense increased to $56,000 during the quarter ended June 30, 2002 from $25,000 for the quarter ended June 30, 2001, an increase of $31,000. Due to the expansion of operations in Dallas, Houston and San Antonio, Nextel "direct connect" phones were purchased to easily access employees in all areas of operations. Additionally, the company added toll-free numbers for incoming customer calls associated with the AFA direct mail marketing campaigns. Travel and entertainment expense decreased to $39,000 during the quarter ended June 30, 2002 from $66,000 for the quarter ended June 30, 2001, a decrease of $27,000. Due to the growth of the Company in 2001, management interviewed and recruited potential employees in other markets. Postage and courier expense decreased to $15,000 during the quarter ended June 30, 2002 from $30,000 for the quarter ended June 30, 2001, a decrease of $15,000. There were significant postage and courier costs associated with the wholesale mortgage business which has been virtually eliminated at ULP. 11 RENAISSANCE ACCEPTANCE GROUP, INC. Advertising Advertising expense increased to $222,000 during the quarter ended June 30, 2002 from $81,000 for the quarter ended in June 30, 2001, or an increase of $141,000. The AFA Program, which began May 2001, is based upon obtaining customers using direct marketing methods, primarily outbound direct mail. The number of mailings sent out on a monthly basis was approximately 170,000 to 220,000 pieces of 1st and 3rd class mail during the second quarter of 2002. During 2001, prior to the AFA Program, advertising was limited to a few newspaper and press advertisements. Depreciation Depreciation and amortization expense increased to $78,000 during the quarter ended June 30, 2002 from $56,000 for the quartered ended June 30, 2001, or an increase of $22,000. The increase is based upon the addition of property and equipment associated with the September 2001 relocation of the Company. Interest Net interest expense of $117,000 during the quarter ended June 30, 2002, decreased by $28,000 from the net interest expense of $145,000 for the quarter ended June 30, 2001. The Company had a revolving line of credit in 2001 bearing an interest rate of 15% per annum. This line of credit was paid off in June 2001 accounting for the majority of the decrease. Six months ended June 30, 2002 compared to six months ended June 30, 2001 The Company's net loss decreased to $1,104,000 for the six months ended June 30, 2002 from a net loss of $1,128,000 for the six months ended June 30, 2001. Net Revenues Net revenues for the six months ended June 30, 2002 were approximately $3,533,000 as compared with $2,139,000 for the six months ended June 30, 2001, an increase of $1,393,000. AFA transactions and the various revenues these transactions generate contributed to the majority of this growth. The following highlights the significance of the AFA Program to the results of operations during the six months ended June 30, 2002. The table below reflects gross revenues related to the AFA transactions completed during the six months ended June 30, 2002. Only eight AFA transactions were completed during the six months ended June 30, 2001. For the Six Months Ended June 30, 2002 - ----------------------------------------- ---------------------------------- AFA Transactions 174 homes - ----------------------------------------- ---------------------------------- Average sales price per home $113,120 - ----------------------------------------- ---------------------------------- - ----------------------------------------- ---------------------------------- Education and service fee income $1,174,006 - ----------------------------------------- ---------------------------------- Per transaction $6,747 - ----------------------------------------- ---------------------------------- - ----------------------------------------- ---------------------------------- Real estate commission $536,281 - ----------------------------------------- ---------------------------------- Per transaction $3,082 - ----------------------------------------- ---------------------------------- - ----------------------------------------- ---------------------------------- Title and escrow fees $156,217 - ----------------------------------------- ---------------------------------- Per transaction $898 - ----------------------------------------- ---------------------------------- 12 RENAISSANCE ACCEPTANCE GROUP, INC. Gains on sale of loans Gains on sale of loans were approximately $1,444,000 for the six months ended June 30, 2002 compared with $1,028,000 for the six months ending June 30, 2001. The following table reflects loan originations during the six months ended June 30, 2002 as compared to the six months ended June 30, 2001. Loans are typically sold to investors by ULP within 30 days of origination. Gains are recorded in operations upon the sale of the loan. The table below shows production levels for each six-month period ended. (Production $'s in millions) --------------------- ----------------------- ------------------------ Production Channel June 30, 2002 June 30, 2001 ------- ------------- ------------- Wholesale $ 16.2 $ 85.8 --------------------- ----------------------- ------------------------ Retail 15.6 7.8 --------------------- ----------------------- ------------------------ Retail-AFA 20.0 0.7 ---- --- --------------------- ----------------------- ------------------------ Total $ 51.8 $ 94.3 --------------------- ----------------------- ------------------------ Gross profit on sales of loans, which includes net interest income earned on loans, as well as that paid to warehouse lenders on these loan categories generally ranged from (as a percent of the loan amount) o Wholesale 0.50%- 1.25% o Retail 1.75%- 4.00% o Retail AFA 2.50%- 5.50%. As such, due to the increase in volume of retail loans versus wholesale, (specifically Retail-AFA), net gains increased even though gross production decreased. Operating Expenses Operating expenses increased to approximately $4,404,000 in the six months ended June 30, 2002 as compared with $2,925,000 for the six months ended June 30, 2001 or an increase of $1,479,000. Personnel and related expense Personnel expense increased to $2,610,000 during the six months ending June 30, 2002 from $1,758,000 for the same period in 2001, or an increase of $852,000. As previously mentioned, the transition to the AFA business required significant additions in personnel. TRES and RT, which began operations in April 2001 and May 2001, respectively, contributed to the personnel expense increase by $396,000. RAC and ULP, combined, contributed to an increase in personnel expense of $456,000. Of this $456,000, sales personnel added for the AFA business contributed to $228,000 increase in the Dallas area and $56,000 increase in other markets. ULP personnel expense increased with the shift from the wholesale business to retail business. Additional senior management was also added as the Company grew during the second half of 2001. General and administrative expense General and administrative expense increased to $1,094,000 during the six months ended June 30, 2002 from $810,000 for the six months ended June 30, 2001, or an increase of $284,000. The majority of this increase resulted from operational growth. Occupancy costs increased to $292,000 during the six months ended June 30, 2002 from $100,000 for the six months ended June 30, 2001, an increase of $192,000. During September 2001, as a result of operational growth, the 13 RENAISSANCE ACCEPTANCE GROUP, INC. Company relocated its entire Dallas operations increasing monthly rent by $25,000. Additionally, AFA began and continues to lease office space in Houston and San Antonio during the 4th quarter of 2001. Professional and legal expenses were approximately $227,000 for the six months ended June 30, 2002 as compared to $300,000 for the same period in 2001, or a decrease of $73,000. As a result of The Company's merger with Cardiac Control Systems, Inc during the first half of 2001, the Company incurred a considerable increase in legal expenses during the first six months of 2001. Currently, legal expenses have remained minimal for the first half of 2002. The decrease in legal fees is offset by the $32,000 increase in accounting and auditing costs as a result of the merger costs involved in operating as a public reporting company. Advertising Advertising expense increased to $558,000 during the six months ended June 30, 2002 from $118,000 for the six months ended in June 30, 2001, or an increase of $440,000. The AFA program, which began May 2001, is based upon obtaining customers using direct marketing methods, primarily outbound direct mail. Prior to the AFA program, advertising was limited to a few newspaper ads and press advertisements. Depreciation Depreciation and amortization expense increased to $143,000 during the six months ended June 30, 2002 from $94,000 for the six months ended June 30, 2001, or an increase of $49,000. The increase is based upon the addition of fixed assets associated with the move of the Company. Interest Net interest expense of $232,000 during the six months ended June 30, 2002, decreased by $92,000 from the net interest expense of $342,000 for the six months ended June 30, 2001. The Company had a revolving line of credit in 2001 bearing an interest rate of 15% per annum which was paid off in June 2001 accounting for the majority of the decrease. The conversion of subordinated debt to preferred stock during the first quarter of 2001, also decreased interest expense overall for the six months ending June 30, 2002. Liquidity and Capital Resources During the six months ended June 30, 2002, the Company's unrestricted cash declined to $227,000 from $405,000. The Company's operating loss of $1,104,000 offset by the collection of $429,000 in receivables, sales of $85,000 in real estate held for sale and $217,400 in loans held for investment led to this decrease. In addition trade payables have aged and the Company has relied upon timely borrowings from significant shareholders to provide cash flow to the business. ULP has an $18,000,000 revolving warehouse facility with Regions Bank ("Regions"), whereby loans are financed for a maximum of 60 days with pre-approved investor take-out commitments. Amounts are advanced under the facility at 100% of the "net loan value" (as defined) which approximates the related loan amount. borrowings bear interest at LIBOR plus 2.75%, (4.53% at August 19, 2002) and are collateralized by the related loans. Certain members of management guarantee the facility. The Regions facility contains debt covenants that require ULP to maintain a ratio of current assets to current liabilities of not less than 1.05 to 1, a ratio of total liabilities to tangible net worth of no greater than 10 to 1 and tangible net worth of at least $250,000. At June 30, 2002, ULP was in compliance with these covenants. ULP also has a revolving warehouse facility with Monitex Financial Service ("Monitex") whereby loans are financed for a maximum of 60 days with pre-approved investor take-out commitments. Financing is at 99% of the note amount and is collateralized by the related notes. Monitex is guaranteed a rate of 12.0% per annum. The Company underwent a restructuring in January 2002 and eliminated approximately 25% of its employees. During the quarter ended June 30, 2002, it has continued to eliminate expenses, downsize and has also revised its marketing strategy resulting in a reduction of over 40% of the average amounts spent for advertising in the fourth quarter of 2001while not materially impacting AFA revenue. Subsequent to June 30, 2002 compensation of key management of the Company has been revised to only allow compensation to be paid from current Company profits. Although these saving have been made, the Company's ability to continue to meet its cash needs depends on it meeting its current and long-term revenue projections and continued favorable treatment from it trade vendors. There are no current financing plans in place which will provide needed operating cash flow if business plans are not met. 14 RENAISSANCE ACCEPTANCE GROUP, INC. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On August 10, 2002 Remodelers Acceptance Corporation d/b/a Assistance For America ("AFA") was served notice of suit by North American Communications, Inc., ("North American") in the amount of $83,083.69 plus costs. This suit was filed in the Court of Common Pleas, Blair County, Pennsylvania. This suit arises from monies owed to Texas Direct, Inc., a direct mail service, that filed bankruptcy. North American purchased these accounts receivable and are attempting to collect. The parties have entered into negotiations to settle this suit; however, the Company cannot provide any assurance that the parties will settle this dispute on terms favorable to the Company or at all. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K None SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: August 19, 2002 RENAISSANCE ACCEPTANCE GROUP, INC. By: /s/ Paul Fagan ------------------------------------- Paul Fagan President and Chief Executive Officer 15 EX-99.1 3 certification.txt Exhibit 99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the filing of the Quarterly Report on Form 10-QSB for the Quarter Ended June 30, 2002 (the "Report") by Renaissance Acceptance Group, Inc. ("Registrant"), the undersigned hereby certifies that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant. /s/ Paul W. Fagan ------------------------------------- Paul W. Fagan President, Chief Executive and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----