-----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, NN8lWoSli38eWtLDh/QcjT4+PMcKiJudUq/ciP83L4EyzLLmJyGQLfSLwYxfbxqV JlLcAzBUc1bRawmeazVN6Q== 0000899078-02-000703.txt : 20021118 0000899078-02-000703.hdr.sgml : 20021118 20021114183136 ACCESSION NUMBER: 0000899078-02-000703 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 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: 02827470 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 sept302002-10qsb.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: September 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 incorporation or organization) Identification No.) 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: November 13, 2002: Common Stock: 4,956,436 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 Item 3. Controls and Procedures 15 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 15 1 ITEM 1. FINANCIAL STATEMENTS
RENAISSANCE ACCEPTANCE GROUP, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2002 DECEMBER 31, 2001 (Unaudited) ASSETS Cash and cash equivalents-unrestricted $ 71,349 $ 404,496 Cash and cash equivalents-restricted 201,088 192,145 Accounts receivable and prepaid expenses 273,515 671,090 Loans held for sale 5,641,821 12,743,053 Loans held for investment, net of reserves of $13,036 and $104,367 267,932 466,667 Real estate held for sale 192,894 338,057 Property and equipment, net of accumulated depreciation of $499,904 and $293,726 271,720 478,309 Other assets 25,029 61,602 ---------------- --------------- Total assets $ 6,945,348 $15,355,419 ================ =============== LIABILITIES AND SHAREHOLDERS' DEFICIT Warehouse lines of credit $ 5,514,548 $12,614,968 Accounts payable, accrued liabilities and short term debt 1,349,488 1,170,482 Subordinate debt, net of discount 3,485,181 3,476,852 ---------------- --------------- Total liabilities 10,349,217 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, 4,956,436 and 5,000,000 shares issued and outstanding 4,956 5,000 Treasury Stock, 50,000 shares (13,000) - Additional paid-in capital 417,129 417,085 Accumulated deficit (5,970,454) (4,486,468) ---------------- ---------------- Total shareholders' deficit (3,403,869) (1,906,883) ---------------- ---------------- Total liabilities and shareholders' deficit $ 6,945,348 $ 15,355,419 ================ ================
2 See accompanying notes to these consolidated financial statements
RENAISSANCE ACCEPTANCE GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------------------- ----------------------------------------- 2002 2001 2002 2001 --------------- ----------------- ---------------- ----------------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) NET REVENUES: Sales of residential real estate $ 52,490 $ 25,870 $ 116,840 $ 4,590,683 Cost of residential real estate (56,915) (47,744) (133,570) (3,922,500) sold Gain on sales of loans 623,671 998,483 2,067,464 2,026,176 AFA education and services fees 345,911 400,702 1,519,917 489,130 Real estate commission 193,317 181,979 729,598 190,444 Title company fees and net 91,570 80,245 247,787 93,712 premiums Other income 76,699 51,893 311,246 363,249 --------------- ----------------- ---------------- ---------------- Total net revenues $1,326,743 $1,691,428 $ 4,859,282 $ 3,830,894 OPERATING EXPENSES: Personnel and related expense 839,313 1,570,954 3,448,947 3,328,891 General and administrative 446,155 563,927 1,539,691 1,374,057 Advertising expense 239,170 231,170 796,670 349,342 Depreciation and amortization 68,618 56,463 212,048 150,383 Acquisition expense - - - 145,000 --------------- ----------------- ---------------- ---------------- Total operating expenses 1,593,256 2,422,514 5,997,356 5,347,673 --------------- ----------------- ---------------- ---------------- Loss from operations (266,513) (731,086) (1,138,074) (1,516,779) --------------- ----------------- ---------------- ---------------- OTHER EXPENSE - Interest expense, net of interest income (113,818) (112,153) (345,912) (454,610) --------------- ----------------- ---------------- ---------------- Net loss $(380,331) $(843,239) $(1,483,986) $ (1,971,389) =============== ================= ================ ================ Basic and diluted loss per share $ (0.08) $ (0.17) $ (0.30) $ (0.41) Basic and diluted weighted average shares outstanding 4,963,211 4,993,444 4,976,432 4,773,000
3 See accompanying notes to these consolidated financial statements
RENAISSANCE ACCEPTANCE GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, ----------------- --- ---------------- 2002 2001 ----------------- ---------------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,483,986) $ (1,971,389) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 212,048 150,383 Amortization of subordinated debt discount 8,329 4,629 Common stock issued for compensation - 9,472 Net changes in assets and liabilities: Accounts receivable, prepaid expenses and other assets 434,149 (35,641) Loans held for sale and warehouse lines payable, net 812 (772,953) Real estate held for sale 145,163 691,643 Residences contracted for sale - 1,257,156 Deferred gain - (150,498) Accounts payable and accrued liabilities (48,418) (184,774) ----------------- ---------------- Net cash used in operating activities (731,903) (1,001,972) CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) / decrease in restricted cash (8,943) 10,000 Purchase of property and equipment (5,460) (283,857) Loans held for investment, net of collections 110,757 34,897 ----------------- ---------------- Net cash provided in investing activities 96,354 (238,960) CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury Stock (13,000) - Issuance of Preferred Stock Series A - 1,636,500 Net proceeds for short term borrowings 227,424 - Sales of loans held for investment 87,978 - ----------------- ---------------- Net cash provided in financing activities 302,402 1,636,500 NET CHANGE IN CASH AND CASH EQUIVALENTS (333,147) 395,568 CASH AND CASH EQUIVALENTS, beginning of period 404,496 500,034 ----------------- ---------------- CASH AND CASH EQUIVALENTS, end of period $ 71,349 $ 895,602 ================= ================ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Conversion of subordinated debt to preferred stock $ - $ 500,000 Interest paid, including warehouse lines of credit $ 240,625 $ 412,305 Warehouse lines settled for contracts for deed and mortgage loans $ - $ 1,100,000
4 See accompanying notes to these consolidated financial statements 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 4,956,436 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 4,736,436 shares of the Company's outstanding common stock (approximately 95.6 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. Reclassifications Certain amounts have been reclassified to conform to the current period presentation. 5 RENAISSANCE ACCEPTANCE GROUP, INC. 2. UNAUDITED INFORMATION --------------------- The September 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 nine month periods ended September 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 three months and nine months ended September 30, 2002 and 2001.
Quarter Ended September 30, 2002 Real Mortgage Estate Banking Total ----------------------- ----------------- ------------------- Net revenues from external customers $ 703,072 $ 623,671 $ 1,326,743 Net loss $ (340,635) $ (39,696) $ (380,331) Identifiable assets $ 388,570 $ 6,556,778 $ 6,945,348 Quarter Ended September 30, 2001 Real Mortgage Estate Banking Total ----------------------- ----------------- ------------------- Net revenues from external customers $ 692,945 $ 998,483 $1,691,428 Net income (loss) $(1,019,023) $ 175,784 $ (843,239) Identifiable assets $ 494,800 $18,184,316 $ 18,679,116
6 RENAISSANCE ACCEPTANCE GROUP, INC.
Nine Months Ended September 30, 2002 Real Mortgage Estate Banking Total ----------------------- ----------------- ------------------- Net revenues from external customers $ 2,791,818 $ 2,067,464 $ 4,859,282 Net loss $(1,253,800) $ (230,186) $ (1,483,986) Identifiable assets $ 388,570 $ 6,556,778 $ 6,945,348 Nine Months Ended September 30, 2001 Real Mortgage Estate Banking Total ----------------------- ----------------- ------------------- Net revenues from external customers $ 1,804,718 $ 2,026,176 $ 3,830,894 Net income (loss) $(2,296,662) $ 325,273 $(1,971,389) Identifiable assets $ 494,800 $18,184,316 $18,679,116
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 the third quarter of 2001, the Company made a conscious effort to exit the wholesale business due to increased risks in this business line. As such, ULP was transformed from being a wholesale lender to a retail lender. In addition, due to the steady decline in mortgage rates, the Company began a FHA streamline refinance group in September 2002 to attempt to capitalize on the lower mortgage interest rates. Ancillary Businesses Texas Real Estate Systems, LLC (TRES) is a licensed real estate broker, providing services mainly 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. 9 RENAISSANCE ACCEPTANCE GROUP, INC. Results of Operations Quarter ended September 30, 2002 compared to quarter ended September 30, 2001 The Company's net loss decreased to $380,000 during the quarter ended September 30, 2002 from $843,000 for the quarter ended September 30, 2001. Net Revenues Net revenues for the quarter ended September 30, 2002 were approximately $1,327,000 as compared with $1,691,000 for the quarter ended September 30, 2001, a decrease of $364,000. A decrease in loan production and the corresponding decrease in gain on sales of loans were the primary contributors to the decrease in net revenues. Gain on sales of loans Gain on sales of loans were approximately $624,000 for the quarter ended September 30, 2002 compared with $998,000 for the quarter ending September 30, 2001. The following table reflects loan originations during the quarter ended September 30, 2002 as compared to the quarter ended September 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 September 30, 2001 September 30, 2002 -------------------- ----------------------- ------------------------ Wholesale $ 44.8 $ 0.5 -------------------- ----------------------- ------------------------ Retail 7.1 6.2 -------------------- ----------------------- ------------------------ Retail-AFA 6.2 7.4 -------------------- ----------------------- ------------------------ Streamline - 3.0 ------ ------ -------------------- ----------------------- ------------------------ Total $ 58.1 $ 17.1 -------------------- ----------------------- ------------------------ 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% o Streamline 2.50%- 5.00% Gain on sales of loans decreased considerably from 2001 to 2002. Production levels for the wholesale business decreased almost 100%, as the company exited the wholesale business in 2001. Retail production levels, including AFA production, were level between the two periods. In September 2002, ULP began originating FHA streamline refinance loans through a separate in-house production unit. Although the Company originated $3 million "streamlines" during late September 2002, none of these loans were sold to investors during the quarter, and thus, no income was recorded for streamline refinance loans for the quarter. AFA education and service fees The following highlights the significance of the AFA Program to the results of operations. The table below reflects gross revenues related to the AFA transactions completed during the quarters ended September 30, 2002 and September 30, 2001. 10 RENAISSANCE ACCEPTANCE GROUP, INC.
For the Three Months For the Three Months Ended Ended September 30, 2001 September 30, 2002 - ---------------------------------------- --------------------------------- --------------------------------- AFA Transactions 59 homes 65 homes - ---------------------------------------- --------------------------------- --------------------------------- Average sales price per home $118,162 $113,033 - ---------------------------------------- --------------------------------- --------------------------------- Education and service fee income $400,702 $345,911 - ---------------------------------------- --------------------------------- --------------------------------- Per transaction $6,792 $5,322 - ---------------------------------------- --------------------------------- --------------------------------- Real estate commission $181,979 $193,317 - ---------------------------------------- --------------------------------- --------------------------------- Per transaction $3,084 $2,974 - ---------------------------------------- --------------------------------- --------------------------------- Title and escrow fees $80,245 $91,570 - ---------------------------------------- --------------------------------- --------------------------------- Per transaction $1,360 $1,409 - ---------------------------------------- --------------------------------- ---------------------------------
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 significant sales and cost of sales balance activity for 2002. Operating Expenses Operating expenses decreased to approximately $1,593,000 for the quarter ended September 30, 2002 as compared with $2,423,000 for the quarter ended September 30, 2001 or a decrease of $830,000. Personnel and related expense Personnel expense decreased to $839,000 during the quarter ending September 30, 2002 from $1,571,000 for the same period in 2001, or a decrease of $732,000. During the quarter ended September 30, 2002, compensation of key management of the Company was revised to only allow compensation to be paid from current Company profits, resulting in savings to the Company of approximately $262,000. Other senior executives were eliminated from the Company in 2002, resulting in expense savings of $160,000 from the same quarter in 2001. Additionally, the Company had increased their workforce during the prior year as the AFA business commenced, and subsequently implemented workforce reductions at the end of January 2002. General and administrative expense General and administrative expense decreased to $446,000 during the quarter ended September 30, 2002 from $564,000 for the quarter ended September 30, 2001, a decrease of $118,000. Professional and legal expense were approximately $64,000 for the quarter ended September 30, 2002 as compared to $120,000 for the same period in 2001, or a decrease of $57,000. As a result of the Company's merger with Cardiac Control Systems, Inc. during July 2001, the Company incurred significant legal and other professional costs in the prior year. 11 RENAISSANCE ACCEPTANCE GROUP, INC. Travel and entertainment expense decreased to $27,000 during the quarter ended September 30, 2002 from $56,000 for the quarter ended September 30, 2001, a decrease of $29,000. The Company incurred significant travel costs in an effort to start up the AFA business in the Austin, Houston and San Antonio markets during the third quarter of 2001. The Company also interviewed and recruited employees in these markets during the prior year. General office expenses, including equipment leases, supplies and software were $32,000 for the quarter ended September 30, 2002 compared with $84,000 for the same period in 2001, a decrease of $52,000. The branch of ULP in Austin, which ceased operations in 2001, had equipment lease expense of $12,000 in the third quarter of the prior year. Additionally, as the AFA business began operations in June of the prior year and relocated corporate headquarters in 2001, the Company incurred "start-up" costs by purchasing needed supplies, software, and equipment as well as costs for recruiting materials. Occupancy costs increased to $141,000 during the quarter ended September 30, 2002 from $76,000 for the quarter ended September 30, 2001, an increase of $65,000. During September 2001, as a result of operational growth, the Company relocated its entire Dallas operations increasing monthly rent by $25,000. Advertising Advertising expense increased to $239,000 during the quarter ended September 30, 2002 from $231,000 for the quarter ended in September 30, 2001, an increase of $8,000. Although there was a slight increase, the amount spent on advertising is generally consistent between the two periods. The AFA Program 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 both periods. Depreciation Depreciation and amortization expense increased to $69,000 during the quarter ended September 30, 2002 from $56,000 for the quartered ended September 30, 2001, or an increase of $13,000. The increase is based upon the addition of property and equipment associated with the September 2001 physical relocation of the Company. Interest Net interest expense of $114,000 during the quarter ended September 30, 2002 and $112,000 for the quarter ended September 30, 2001 are comparable on a quarter to quarter basis. Nine months ended September 30, 2002 compared to nine months ended September 30, 2001 The Company's net loss decreased to $1,484,000 for the nine months ended September 30, 2002 from a net loss of $1,971,000 for the nine months ended September 30, 2001. Net Revenues Net revenues for the nine months ended September 30, 2002 were approximately $4,859,000 as compared with $3,831,000 for the nine months ended September 30, 2001, an increase of $1,028,000. 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 nine months ended September 30, 2002 and September 30, 2001. The table below reflects gross revenues related to the AFA transactions completed during the nine months ended September 30, 2002 and September 30, 2001 comparably. 12 RENAISSANCE ACCEPTANCE GROUP, INC.
For the Nine Months Ended For the Nine Months Ended September 30, 2001 September 30, 2002 - ----------------------------------------- ---------------------------------- --------------------------------- AFA Transactions 67 homes 239 homes - ----------------------------------------- ---------------------------------- --------------------------------- Average sales price per home $114,805 $112,625 - ----------------------------------------- ---------------------------------- --------------------------------- Education and service fee income $489,130 $1,519,917 - ----------------------------------------- ---------------------------------- --------------------------------- Per transaction $7,300 $6,359 - ----------------------------------------- ---------------------------------- --------------------------------- Real estate commission $190,444 $729,598 - ----------------------------------------- ---------------------------------- --------------------------------- Per transaction $2,842 $3,053 - ----------------------------------------- ---------------------------------- --------------------------------- Title and escrow fees $93,712 $247,787 - ----------------------------------------- ---------------------------------- --------------------------------- Per transaction $1,399 $1,037 - ----------------------------------------- ---------------------------------- ---------------------------------
Gains on sale of loans Gains on sale of loans were approximately $2,067,000 for the nine months ended September 30, 2002 compared with $2,026,000 for the nine months ending September 30, 2001. The following table reflects loan originations during the nine months ended September 30, 2002 as compared to the nine months ended September 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 nine-month period. (Production $'s in millions) --------------------- ----------------------- ------------------------ Production Channel September 30, 2001 September 30, 2002 --------------------- ----------------------- ------------------------ Wholesale $ 130.6 $ 16.7 --------------------- ----------------------- ------------------------ Retail 14.9 21.8 --------------------- ----------------------- ------------------------ Retail-AFA 6.9 27.4 --------------------- ----------------------- ------------------------ Streamline - 3.0 -------- ------- --------------------- ----------------------- ------------------------ Total $ 152.4 $ 68.9 --------------------- ----------------------- ------------------------ 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% o Streamline 2.50%- 5.00% Operating Expenses Operating expenses increased to approximately $5,997,000 in the nine months ended September 30, 2002 as compared with $5,348,000 for the nine months ended September 30, 2001 or an increase of $649,000. 13 RENAISSANCE ACCEPTANCE GROUP, INC. Personnel and related expense Personnel expense increased to $3,449,000 during the nine months ending September 30, 2002 from $3,329,000 for the same period in 2001, or an increase of $120,000. As previously mentioned, the transition to the AFA business required significant additions in personnel for TRES, RT and AFA sales representatives. Additionally, ULP personnel expense increased with the shift from the wholesale business to retail business. The cuts to executive and senior management compensation in the third quarter 2002 were offset as most of these positions were added throughout 2001. General and administrative expense General and administrative expense increased to $1,540,000 during the nine months ended September 30, 2002 from $1,374,000 for the nine months ended September 30, 2001, or an increase of $166,000. The majority of this increase resulted from operational growth. Occupancy costs increased to $433,000 during the nine months ended September 30, 2002 from $176,000 for the nine months ended September 30, 2001, an increase of $257,000. During September 2001, as a result of 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. Professional and legal expenses were approximately $291,000 for the nine months ended September 30, 2002 as compared to $420,000 for the same period in 2001, or a decrease of $129,000. As a result of the Company's merger with Cardiac Control Systems, Inc. and the preferred stock offering during the first half of 2001, the Company incurred a considerable increase in legal expenses during the first nine months of 2001. Legal expenses in 2002 were incurred primarily in the normal course of business. Advertising Advertising expense increased to $797,000 during the nine months ended September 30, 2002 from $349,000 for the nine months ended in September 30, 2001, or an increase of $448,000. 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. As a result, advertising in 2002 captured nine months direct mail expense versus four months direct mail expense in 2001. Depreciation Depreciation and amortization expense increased to $212,000 during the nine months ended September 30, 2002 from $150,000 for the nine months ended September 30, 2001, or an increase of $62,000. The increase is based upon the addition of fixed assets associated with the relocation of the Company. Interest Net interest expense of $346,000 during the nine months ended September 30, 2002, decreased $109,000 from $455,000 for the nine months ended September 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 second quarter of 2001, also decreased interest expense overall for the nine months ending September 30, 2002. Liquidity and Capital Resources During the nine months ended September 30, 2002, the Company's unrestricted cash declined to $71,000 from $404,000. The Company's operating loss of $1,484,000 offset by the collection of $434,000 in receivables, sales of $145,000 in real estate held for sale and sales and collections, and $198,000 in loans held for investment led to this decrease. In addition, trade payables have aged and the Company has relied upon timely short-term borrowings from significant shareholders to provide cash flow to the business. 14 RENAISSANCE ACCEPTANCE GROUP, INC. 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 November 13, 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 September 30, 2002, ULP was in compliance with these covenants. However, given its current tangible capital levels, ULP was near its maximum credit availability under the terms of this facility at September 30, 2002. Unless capital is added to ULP, additional borrowings under this warehouse line will be severely limited. 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 September 30, 2002, it has continued to eliminate expenses, 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 2001. During the quarter ended September 30, 2002, compensation of key management of the Company has been revised to only allow compensation to be paid from current Company profits. As such, no compensation was paid to these executives during August and September. Although these savings 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. ITEM 3. CONTROLS AND PROCEDURES Under the supervision and with the participation of the Company's Chief Executive Officer, management of the Company has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-14(c) and Rule 15d-14 under the Securities Exchange Act of 1934) as of a date within 90 days prior to the filing date of this report. Based on that evaluation, the Chief Executive Officer concluded that, as of the date of the evaluation, the Company's disclosure controls and procedures are effective in timely alerting him to the material information relating to the Company required to be included in its periodic filings with the Securities and Exchange Commission. During the period covered by this report, there were no significant changes in the Company's internal controls or, to management's knowledge, in other factors that could significantly affect these controls subsequent to the date of their evaluation. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (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: November 13, 2002 RENAISSANCE ACCEPTANCE GROUP, INC. By: /s/ Paul Fagan --------------------------------------- Paul Fagan President and Chief Executive Officer 15 RENAISSANCE ACCEPTANCE GROUP, INC. CERTIFICATIONS I, Paul Fagan, President and Chief Executive Officer of the registrant, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Renaissance Acceptance Group, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date; 5. I have disclosed, based on my most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 /s/ Paul Fagan -------------------------- Paul Fagan Chief Executive Officer and principal financial officer EX-99.1 3 ex99-1.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 September 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 principal financial officer -----END PRIVACY-ENHANCED MESSAGE-----