FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- -- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- -- ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ______.
COMMISSION FILE NUMBER 333-5278-NY
-----------
ARCA CORP.
----------
(Exact name of business issuer as specified in its charter)
New Jersey 22-3417547
---------- ----------
(State or other jurisdiction (IRS Employer Identification
of incorporation) number)
215 West Main Street, Maple Shade, New Jersey 08052
---------------------------------------------- -------
(Address of principal executive offices) (Zip code)
(609) 667-0600
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days)
Yes XX No
---- ----
The Company had 2,060,000 shares of common stock, par value $.0001 per share,
outstanding as of September 30, 1997.
-1-
<PAGE>
ARCA CORP. AND SUBSIDIARY
INDEX
PAGE
PART 1. FINANCIAL INFORMATION ----
ITEM 1. FINANCIAL STATEMENTS
ARCA CORP. AND SUBSIDIARY
-------------------------
CONSOLIDATED BALANCE SHEETS AS OF
SEPTEMBER 30, 1997 AND 1996..........................3
CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996....4
CONSOLIDATED STATEMENT OF CASH FLOWS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996....5
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996....................6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...........7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.................8
PART II. OTHER INFORMATION.........................................10
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K...........10
SIGNATURES....................................................11
-2-
<PAGE>
ARCA CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
ASSETS
1997 1996
---- ----
Rental property, net of
accumulated depreciation of
$152,025 and $65,951, respectively $3,370,742 $3,439,479
Cash 28,131 36,253
Cash held in escrow 70,568 77,279
Accounts receivable 4,743 12,191
Prepaid expenses 80,939 17,343
Organization Costs, net of accumulated
amortization of $2,625 and $1,125, respectively 4,875 6,375
Deferred financing costs, net of
accumulated amortization of $-0- 86,331 0
---------- ----------
TOTAL ASSETS $3,646,329 $3,588,920
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Mortgage notes payable $3,427,673 $3,154,949
Accrued interest 0 360,656
Note payable -stockholder 177,500 10,000
Note payable -other 0 5,000
Accounts payable 15,267 17,273
Accrued expenses 69,774 17,785
Security deposits payable 52,643 48,366
---------- ----------
TOTAL LIABILITIES 3,742,857 3,614,029
Stockholders' Equity
Common stock, $.0001 par value
50,000,000 shares authorized, 2,060,000 and
500,000 shares issued
and outstanding, respectively 206 50
Additional paid in capital 343,894 212,450
Accumulated deficit (240,628) (97,609)
--------- ---------
103,472 114,891
Stock subscription promissory note receivable (200,000) (140,000)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY ( 96,528) (25,109)
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,646,329 $3,588,920
========== ==========
-3-
<PAGE>
ARCA CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND SEPTEMBER 30, 1996
(UNAUDITED)
1997 1996
---- ----
Revenues
Rental income $540,698 $543,133
Tenant fees and other income 11,029 10,187
Interest income 989 963
-------- -------
TOTAL REVENUE 552,716 554,283
Operating expenses
Administrative expenses 121,864 76,887
Utilities expense 64,871 75,567
Operating and maintenance 99,218 78,861
Taxes and insurance 102,347 112,845
Depreciation and amortization 67,076 67,076
-------- --------
TOTAL OPERATING EXPENSES 455,376 411,236
-------- --------
Operating income 97,340 143,047
Other Income (Expense)
Environmental remediation expense (111,974) 0
Interest expense (249,508) (249,318)
--------- --------
Total other income (expense) (361,482) (249,318)
Loss before extraordinary item (264,142) (106,271)
--------- --------
Extraordinary Item -
Net gain on extinguishment of debt 162,926 0
--------- --------
Loss before minority interest (101,216) ( 97,609)
Minority interest 0 (8,662)
-------- --------
Net loss ($101,216) ($97,609)
========= =========
Net (loss) per share ($.05) ($.20)
Weighted average number of common
shares outstanding 2,060,000 500,000
========= =========
-4-
<PAGE>
ARCA CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND SEPTEMBER 30, 1996
(UNAUDITED)
1997 1996
---- ----
Cash flows from operating activities
Net loss ($101,216) ($97,609)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Minority interest in net loss of
consolidated subsidiary 0 (8,662)
Stock compensation expense 46,600 0
Environmental remediation expense 101,081 0
Depreciation and amortization 67,076 67,076
Gain on extinguishment of debt (162,926) 0
(Increase) decrease in:
Accounts receivable 10,838 (4,231)
Prepaid expenses (2,497) 32,471
Cash held in escrow 10,841 6,119
Increase (decrease) in:
Accounts payable 1,161 (1,839)
Accrued expenses 203 (40,111)
Prepaid rent 0 (1,095)
Security deposits payable (58) 1,735
-------- ---------
Net cash used in operating activities (28,897) (46,146)
-------- ---------
Cash flows from investing activities:
Collection of stock
subscription receivable 0 70,000
Purchases of property and equipment (8,318) (6,053)
------- -------
Net cash provided by (used in)
investing activities (8,318) 63,947
Cash flows from financing activities
Proceeds from notes payable 7,500 5,000
Proceeds from issuance of common stock 25,000 0
Repayments of notes payable 0 (41,500)
------- -------
Net cash provided by (used in)
financing activities 32,500 (36,500)
Decrease in cash (4,715) (18,699)
Cash, beginning 32,846 54,952
------- -------
Cash, September 30, 1997 and 1996 $28,131 $36,253
======= =======
-5-<PAGE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $257,129 $284,377
======= =======
Cash paid for income taxes $305 $700
======= =======
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of 1,260,000 and 180,000 shares
of common stock, respectively $85,000 $140,000
Stock subscription promissory note receivable (60,000) (140,000)
------- -------
Proceeds from issuance of common stock $25,000 $ 0
======= =======
Issuance of 300,000 shares of common
stock as partial payment of legal
and professional fees $46,600 $ 0
======= =======
Debt incurred for environmental
remediation expenses incurred $101,081 $ 0
======= =======
During the nine months ended September 30, 1997, the Company refinanced its
existing debt as follows:
Proceeds from new first mortgage note $2,500,000
Partial repayment of original first mortgage note (2,227,276)
Increase in cash held in escrow (49,043)
Increase in prepaid expenses (24,200)
Increase in deferred financing costs (86,331)
Decrease in accrued interest (324,995)
Decrease in note payable - RPI (101,081)
Increase in note payable - stockholder 150,000
---------
Gain on forgiveness of debt ($162,926)
=========
-6-
<PAGE> ARCA CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 22, 1995 TO JUNE 30, 1997
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Stock
Additional Subscription Total
Common Stock Paid-in Promissory Note Accumulated Stockholder's
Shares Amount Capital Receivable Deficit Equity
Balance
12/22/95 0 0 0 0 0 0
Issuance of
Shares of
common stock
to management 250,000 25 2,475 0 0 2,500
Subscription
for shares of
common stock 70,000 7 69,993 (70,000) 0 0
------- ----- ------- -------- ---------- -------
Balance
12/31/95 320,000 32 72,468 (70,000) 0 2,500
Collection
of stock
subscription 0 0 0 70,000 0 70,000
Issuance of
common stock,
net of related
costs 180,000 18 139,982 (140,000) 0 0
<F1>
Net loss 0 0 0 0 (139,412) (139,412)
________ _____ ________ ________ _________ ________
Balance,
12/31/96 500,000 50 212,450 (140,000) (139,412) (66,912)
Issuance of
shares of
common stock 65,000 7 32,493 0 0 32,500
<F2>
Issuance of
shares of
common stock 1,250,000 125 74,875 (60,000) 0 15,000
Issuance of
shares of
common stock 235,000 23 14,077 0 0 14,100
<F3>
Issuance of
shares of
common stock 10,000 1 9,999 0 0 10,000
Net loss 0 0 0 0 (101,216) (101,216)
________ _____ ________ ________ _________ ________
Balance
9/30/97 2,060,000 $206 $343,894 ($200,000) ($240,628) ($96,528)
========= ===== ======== ======== =========== =========
</TABLE>
-7-<PAGE>
n. 1 16,000 shares of stock were issued to Harry J. Santoro, President,
Treasurer and a director of the Company and 24,000 shares were issued
to a consultant for services rendered in connection with the
preparation of the registration statement and prospectus for the
140,000 shares of stock issued on May 31, 1996.
n. 2 50,000 shares of stock were issued to Stephen M. Robinson, P.A. in
partial payment of legal services rendered during the nine months
ending September 30, 1997. Stephen M. Robinson, P.A. is a law firm whose
sole shareholder is Stephen M. Robinson, the Secretary, Vice President
and a director of the Company. 15,000 shares of stock were issued to
Harry J. Santoro, President, Treasurer and a director of the Company,
for services rendered to the Company during the nine months ended
September 30, 1997.
n. 3 235,000 shares of stock were issued to a consultant in connection with
registrant's acquisition program.
-8-
<PAGE>
ARCA CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. Summary of Significant Accounting Policies
The summary of significant accounting policies is included in the notes to the
consolidated financial statements for the year ended December 31, 1996 which
were audited and appear in the Form 10-KSB previously filed by the Company.
UNAUDITED FINANCIAL STATEMENTS - The consolidated balance sheet as of
September 30, 1997 and 1996, the consolidated statement of operations for the
nine months ended September 30, 1997 and 1996, the consolidated statement of
cash flows for the nine months ended September 30, 1997 and 1996 for the
Company, and the related information contained in these notes have been
prepared by management without audit. In the opinion of management, all
accruals (consisting of normal recurring accruals) which are necessary for a
fair presentation of financial position and results of operations for such
periods have been made. Results for an interim period should not be considered
as indicative of results for a full year.
2. Related Party Transactions
During the nine months ended September 30, 1997, a company owned by Harry J.
Santoro, President, Treasurer and a director of the Company, and Stephen M.
Robinson, Secretary, Vice President and a director of the Company, advanced
$2,500 to the Company pursuant to a Demand Promissory Note which bears
interest at 8%.
During the nine months ended September 30, 1997, a company owned by Harry J.
Santoro, President, Treasurer and a director of the Company, advanced $5,000
to the Company pursuant to a demand promissory note which bears interest at
10%.
During the nine months ended September 30, 1997, 50,000 shares of stock were
issued to Stephen M. Robinson, P.A. in partial payment of legal services
rendered during the nine months ending September 30, 1997. Stephen M.
Robinson, P.A. is a law firm whose sole shareholder is Stephen M. Robinson,
Secretary, Vice President and a director of the Company.
During the nine months ended September 30, 1997, 15,000 shares of stock were
issued to Harry J. Santoro in payment of services rendered during the nine
months ended September 30, 1997. Mr. Santoro is President, Treasurer and a
director of the Company.
-9-
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
- -------
The Company targets its marketing and business activity to renting apartment
units to moderate income people who are not in a position to acquire a home.
The Company believes that well maintained, affordable rental units will be in
great demand as a result of slow wage growth in the future. This should
provide a stable rental income base and allow for future revenue growth
through modest rental increases near the rate of inflation.
The Company's long range plan is to reduce debt to around fifty percent of a
property's value. To accomplish this, the Company plans to raise additional
capital through the sale of its securities in the future. On September 19,
1997, the Company completed the refinance of the long term debt on its
existing property.
The Company advertises its units in local newspapers, by direct mail and
through promotional programs designed to maintain occupancy at or above 95%.
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Form 10-QSB and in the previously filed Form SB-2. The Company was
incorporated on December 22, 1996. The Company is a new enterprise in its
initial promotional and development stages. On December 31, 1996, the Company
acquired from its President an 80% partnership interest in S.V.G. Properties,
L.P. (the "Partnership") which owns a 124 unit apartment complex. The 80%
partnership interest consists of a 4.5% general partnership interest plus a
75.5% limited partnership interest. The financial information contained herein
includes the results of operations of the Partnership.
Results of Operations
- ---------------------
The following discussion is for the nine months ending September 30, 1997 and
1996, respectively.
The Company reported total revenues of $552,716 and $554,283 in 1997 and 1996
respectively. Occupancy was approximately 93% and 94%, respectively.
Operating expenses exclusive of interest expense increased from $411,236 in
1996 to $455,376 in 1997. Net loss increased from $97,609 in 1996 to $101,216
in 1997. The Company believes that overall, the Company and the industry
will realize modest increases in net rental income and net operating income
in the foreseeable future.
The net loss per share was ($.05) for the first nine months in 1997, compared
to a $(.20) net loss for the first nine months of 1996.
Included in the 1997 expenses are professional fees of $61,600 related to the
Company's acquisition program.
Interest expense was $249,509 in 1997 and $249,318 in 1996. Going forward,
the Company expects interest expense to decrease from prior periods as a
result of the refinancing which occurred on September 19, 1997.
-10-<PAGE>
The Company is taxed as a C-corporation for federal and state income tax
purposes. As such, the Company will pay taxes on its net income as defined by
the Internal Revenue Code. No tax attributes of the Company flow through to
the shareholders except for the regular taxation of dividends paid, if any.
Liquidity and Capital Resources
- -------------------------------
At September 30, 1997, the Company had working capital of $19,197, including
cash held in escrow for anticipated future expenses. The Company is
dependent upon the proceeds from the stock subscription receivable or other
financing to continue in business and to implement its business plan.
On December 31, 1996, the Company had $32,846 in cash. During the period, the
Company received $25,000 in proceeds from the issuance of common stock. The
Company used $28,897 in operating activities and purchased $8,318 in property
and equipment, of which $0 was debt financed. The Company borrowed $7,500 from
related parties. The net decrease in cash was $4,715. The Company had
$28,131 in cash on September 30, 1997, exclusive of cash held in the escrow
accounts.
The Company's balance sheet is highly leveraged. The Company plans to reduce
this leverage through refinancing and through future equity offerings. With
the net proceeds of the stock subscription receivable, plus anticipated
revenues, the Company believes it can support operations and planned capital
expenditures for at least twelve months. In the event that the Company's plans
change or its assumptions change or prove to be inaccurate, the Company may be
required to seek additional financing sooner than currently anticipated.
Thereafter, if the Company is unable to generate sufficient income from
operations to service its existing debt, the Company will require additional
financing. The Company has not identified any potential sources of debt or
equity financing and there can be no assurance that the Company will be able
to obtain additional financing if and when needed or that, if available,
financing will be on terms acceptable to the Company.
Other
- -----
The Company was notified that HUD sold the mortgage on the Property to
Resource Properties XXIII, Inc. Negotiations to refinance and/or restructure
the debt have been completed.
The Company issued 1,485,000 shares, for a total consideration of $89,100, to
two consultants that provided services in connection with the Company's
acquisition program. All 1,485,000 shares were issued subject to repurchase
by the Company for nominal consideration if certain conditions precedent were
not fulfilled. Additionally, voting rights to 1,250,000 of such shares were
granted to Harry J. Santoro, President of the Company, until such time as the
conditions precedent were fulfilled.
On September 19, 1997, the Company completed the refinance of its long term
debt. This Form 10-QSB should be read in conjunction with the Form 8-K which
was filed by the Company on September 24, 1997.
-11-<PAGE>
Forward-Looking Statements
- --------------------------
The Company is making this statement in order to satisfy the "safe harbor"
provisions contained in the Private Securities Litigation Reform Act of 1995.
The foregoing discussion includes forward-looking statements relating to the
business of the Company. Forward-looking statements contained herein or in
other statements made by the Company are made based on management's
expectations and beliefs concerning future events impacting the Company and
are subject to uncertainties and factors relating to the Company's operations
and business environment, all of which are difficult to predict and many of
which are beyond the control of the Company, that could cause actual results
of the Company to differ materially from those matters expressed in or implied
by forward-looking statements. The Company believes that the following
factors, among others, could affect its future performance and cause actual
results of the Company to differ materially from those expressed in or implied
by forward-looking statements made by or on behalf of the Company: (a) the
effect of changes in interest rates; (b) the rental rate and demand for
apartment rental units; (c) fluctuations in the costs to operate the
properties owned by the Company; (d) uninsurable risks; and (e) general
economic conditions.
-12-
<PAGE>
PART II
OTHER INFORMATION
- -----------------
ITEM 1 LEGAL PROCEEDINGS
NONE
ITEM 2 CHANGES IN SECURITIES
NONE
ITEM 3 DEFAULTS ON SENIOR SECURITIES
NONE
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5 OTHER INFORMATION
NONE
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 1 - Earnings Per Share Schedule
Exhibit 27FDS - Financial Data Schedule
(b) Reports on Form 8-K
September 24, 1997 - Refinancing of Long Term Debt
-13-
<PAGE>
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.
ARCA CORP.
Dated: November 13, 1997 /s/ Harry J. Santoro
----------------------------------------
Harry J. Santoro
President, Chief Executive Officer and
Chief Financial Officer
-14-
EARNINGS PER SHARE SCHEDULE
Calculation of net income
Net Income (loss) ($101,216)
Assumed interest expense reduction 0
Assumed interest income increase 0
----------
($101,216)
==========
Calculation of weighted average number of shares
Weighted average shares outstanding 2,060,000
Common stock equivalents 0
----------
2,060,000
==========
Net income (loss) per share
($ 0.05)
==========
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001006762
<NAME> ARCA CORP.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 28,131
<SECURITIES> 0
<RECEIVABLES> 4,743
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 184,381
<PP&E> 3,522,767
<DEPRECIATION> 152,025
<TOTAL-ASSETS> 3,646,329
<CURRENT-LIABILITIES> 165,184
<BONDS> 3,577,673
0
0
<COMMON> 206
<OTHER-SE> (96,734)
<TOTAL-LIABILITY-AND-EQUITY> 3,646,329
<SALES> 0
<TOTAL-REVENUES> 552,716
<CGS> 0
<TOTAL-COSTS> 455,376
<OTHER-EXPENSES> 111,974
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 249,508
<INCOME-PRETAX> (264,142)
<INCOME-TAX> 0
<INCOME-CONTINUING> (264,142)
<DISCONTINUED> 0
<EXTRAORDINARY> 162,926
<CHANGES> 0
<NET-INCOME> (101,216)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
