U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended 12/31/96.
[ ] 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.
----------
(Name of small business issuer in its charter)
New Jersey 22-3417547
---------- ----------
(State or other jurisdiction (IRS Employer
of incorporation) Identification number)
215 West Main Street, Maple Shade, New Jersey 08052
---------------------------------------------- -------
(Address of principal executive offices) (Zip code)
(609) 667-0600
--------------
(Issuer's telephone number)
Securities registered under Section 12(b) of the Act: none
Securities registered under Section 12(g) of the Act: none
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) [X]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $735,863.
The estimated aggregate market value of the voting stock held by
non-affiliates of the registrant as of December 31, 1996 was $234,000. Since
no bid or offer had been submitted by any market maker as of the date of this
Form 10-KSB, the market value is based upon the offering price of the Common
Stock of $1.00 per share pursuant to the Company's registration statement
number 333-5278-NY which became effective on November 4, 1996.
The Company had 500,000 shares of common stock, par value $.0001 per share,
outstanding as of December 31, 1996.
Documents incorporated by reference: The Company incorporates by reference
various exhibits from the Company's Registration Statement on Form SB-2, file
No. 33-5278-NY, which became effective on November 4, 1996.
Transitional Small Business Disclosure: Yes No XX
---- -----
<PAGE>
PART I
Item 1. Description of Business
- ------ ----------------------
General
- -------
The Company was incorporated on December 22, 1995 in the State of New Jersey
for the purpose of acquiring, developing and selling residential real estate.
The Company simultaneously formed Spring Village Holdings, Inc. a New Jersey
corporation, as a wholly owned subsidiary. The discussion of the business of
the Company set forth herein includes the business of Spring Village Holdings,
Inc.
The Company acquired from its President, and companies affiliated with him, an
80.0% partnership interest in SVG Properties, L.P., a New Jersey limited
partnership, which owns a 124 unit apartment building in Sharon Hill,
Pennsylvania. The Partnership interest consists of a 4.5% general partnership
interest and a 75.5% limited partnership interest (see "Related Party
Transactions"). The remaining 20% of the partnership is owned by limited
partners who are independent of and are not affiliates of the Company. The
Company intends to refinance the property and then either sell it or hold it
for investment depending on future market conditions, net cash flow, etc.
The Company intends to utilize its contacts and business expertise to locate
and acquire additional properties, primarily apartments, preferably those that
are undervalued or which can be acquired at less than fair value due to the
financial difficulties of their owners. There is no assurance that such
properties can be obtained under terms and conditions that are favorable to
the Company.
Initial Acquisition
- -------------------
The Company acquired a 4.5% general partnership interest and a 75.5% limited
partnership interest (80% total) in SVG Properties, L.P. which owns the Spring
Village Apartments complex in Sharon Hill, Pennsylvania from Harry J. Santoro
and companies affiliated with him (Santoro), the Company's President, for
$50,000. SVG Properties, L.P. (the "Partnership") is a limited partnership
organized under the laws of the State of New Jersey on May 12, 1987. In 1987
the Partnership acquired for $2,450,000 the Mill Spring Apartments
(subsequently renamed the Spring Village Apartments). At the time of the
acquisition the property was severely in need of rehabilitation. The
Partnership invested over $1,000,000 into the property using capital
contributed by its partners and the net proceeds from a $3,250,000 mortgage
guaranteed by the Federal Housing Administration. Though the physical aspects
and the net income of the property were significantly improved, the net income
from operations was not sufficient to make the principal and interest payments
due on the first mortgage. The Partnership attributes this to the high
effective interest rate on the mortgage of 10 1/2%, plus 1/2% for insurance.
In January, 1992, the Partnership defaulted on its mortgage. In August, 1992,
Santoro acquired a controlling interest in the Partnership, along with other
assets, in exchange for $125,000. At the time of the acquisition in 1992, Mr.
Santoro<PAGE>
owned a 7.14% limited partnership interest in SVG Properties, L.P. Mr.
Santoro also was the chief executive officer and a 16.7% owner of Santoro,
VanDervort & Gordon, Inc., the corporate general partner, which owned 14.70%
of S.V.G. Properties, L.P. Santoro then entered into negotiations with the
U.S. Department of Housing and Urban Development (HUD) to renegotiate the
terms of the first mortgage. A Provisional Workout Agreement (the
"Agreement") was agreed to and became effective on January 1, 1994, whereby
HUD agreed not to take any action as a result of the default, provided that
the mortgagor remits the minimum monthly payment and satisfactorily performs
the other requirements of the agreement. The agreement provides for a minimum
monthly payment of $24,000 ($288,000/yr.) in 1994 increasing to $34,000 per
month ($408,000/yr.) in 2002. Below is a summary of the other requirements
and terms of the Agreement:
1) Payment Provisions
[CAPTION]
<TABLE>
Minimum Monthly
Payment Per Year % of Accruing Interest
-------------- -------- ----------------------
<S> <C> <C> <C>
1995 $25,000 $300,000 91%
1996 26,750 321,000 97%
1997 27,750 333,000 101%
1998 28,500 342,000 103%
1999 30,500 366,000 110%
2000 31,500 378,000 114%
2001 33,000 396,000 120%
2002 34,000 408,000 123%
1/1/03 - 11/30/22 35,175 422,100 127%
</TABLE>
2) Junior Obligations. The Company has agreed that project revenues will
not be used to repay either interest or principal for any project obligation
(other than reasonable and necessary operating expenses) that is junior to the
HUD mortgage (substantially all obligations are junior to HUD's mortgage).
3) Possession. The Company agreed that it will not oppose or interfere in
any way should HUD demand possession by reason of subsequent default under the
terms of the Agreement.
4) Excess Funds. The Company agreed to remit to HUD in addition to the
minimum monthly payment any funds in the operating account at the end of each
month in excess of $25,000.
5) No Service Charge or Tax Escrow Delinquency. The Company agreed not to
permit any delinquency to accrue in either the service charge due HUD or the
real estate escrow as billed by HUD each month.
6) Repair Fund Escrow. The Company shall place in a separate repair fund
escrow an additional $9,000 which may only be disbursed with prior written HUD
approval.
7) Mortgage Modification. If the Company has fully complied with the
terms of the Agreement and HUD has determined that it is financially feasible,
as of January 1, 2003, HUD agrees to recast the then existing mortgage and
accrued interest at 10.5% interest amortized over the <PAGE>
remaining term of the mortgage (11/30/22) (approximately 20 years). The
Company agreed to insert a call provision allowing HUD to declare the entire
indebtedness due and payable at or after ten years from the date of the
modification.
8) Equity Kicker. The Company agreed to pay HUD fifteen percent of the
gross sales price, minus the mortgage balance, upon a sale or conversion, or
fifteen percent of the gross proceeds from a refinancing.
9) Accounting Reports. During the term of the Agreement, the Company
agreed to submit monthly reports to HUD for establishing net income.
10) Distributions. The Company agreed not to take any distributions
during the term of the Agreement.
11) Cancellation Clause. The Agreement is on a month to month basis. HUD
agreed not to take action because of the existing monetary default, provided
that the Company remits the required minimum monthly payment and
satisfactorily performs the other requirements of the Agreement. Failure to
meet the terms of the Agreement will be sufficient cause for HUD to
immediately terminate the Agreement, commence foreclosure and will be grounds
to consider administrative sanctions against the Company, including but not
limited to suspension or debarment from participation in HUD programs.
During March of 1994, HUD announced that it planned to sell the large backlog
of mortgage loans that reverted to the Federal Housing Administration (FHA)
when borrowers defaulted on FHA insured mortgages. In fact, HUD has conducted
several large auctions of non-performing multifamily mortgages.
On September 18, 1996, the Company was notified that the mortgage on the
Property was sold to Resource Properties XXIII, Inc. ("RPI"). Shortly
thereafter, the Company commenced negotiations with RPI whereby RPI agreed to
recast the existing debt to RPI, currently $3,490,419, under the following
terms:
(a) RPI will lend to the Company, pursuant to the terms of a Promissory
Note (the "Note"), up to $110,000 for the removal of the underground oil tanks
in order to permit the Company to refinance the Property. The Note shall bear
interest at the rate of ten (10%) percent annually, with the principal due on
November 1, 2022, or when the final payment of principal is due on the
underlying mortgage. Payments of accrued interest and principal shall be made
in an amount equal to one hundred percent (100%) of the Company's cash flow
from the Property. Cash flow from the Property shall mean gross revenues from
the Property less payments made under Mortgage Note as modified by the
Provisional Workout Agreement and ordinary and necessary cash disbursements
incurred in connection with the Property but specifically excluding any
management fee to any party and any amount paid for any purpose to SVG or any
person with whom SVG has an Identity-of-Interest except for payments made to
H. James Santoro, Inc. for employee benefits with respect to employees of SVG
who are not related to Harry J. Santoro.
(b) The Company will deliver to RPI such data, reports, statements,
financials, and the like, as RPI may request, including monthly financial
<PAGE>
statements certified to be correct by Harry J. Santoro, and annual financial
statements certified by independent public accountants.
(c) If, prior to the earlier of: (i) one year from the date that a
closure report acceptable to most lenders is received by SVG from the
engineering firm retained to remove the oil tanks and perform the remedial
work, if any, or (ii) June 30, 1998, SVG is successful in finding a lender
that makes a first mortgage loan secured by the Property in an amount
sufficient to provide Resource with net proceeds (after all fees, costs and
expenses of the transaction) of at least Two Million Three Hundred Thousand
Dollars ($2,300,000), then Resource will:
(i) subordinate both the mortgage securing the Mortgage Note and
any mortgage securing the Note to the mortgage of the new lender;
(ii) agree to modify the payment terms of the Mortgage Note and the
Note as follows:
(a) interest shall accrue at a rate of 150 basis points above
the interest rate on the new first mortgage on a deemed total principal amount
equal to Three Million Three Hundred Fifty Thousand Dollars ($3,350,000), less
the original principal amount of the new first mortgage.
(b) payments of interest and principal (based on the deemed
principal amount described in Paragraph 8(ii)(a)) shall be payable monthly and
shall be based on a twenty-five year amortization. However, to the extent the
Net Cash Flow from the Property is insufficient to make the scheduled payments
of interest and principal in full, SVG shall pay over to Resource, until such
time as the scheduled payments are current, one hundred percent (100%) of the
Net Cash Flow from the Property. Net Cash Flow from the Property shall mean
Cash Flow before any payments on the Mortgage Note or the Note less payments
made under the new first mortgage loan and contributions to escrow accounts
reasonably established for taxes, insurance, utilities and replacements
provided that any such escrow account shall be controlled by either the new
first mortgage lender or Resource. Any interest payments not made as required
because of insufficient Net Cash Flow shall be added to principal and shall
bear interest at the rate set forth in Paragraph 8(ii)(a), compounded monthly.
(iii) agree to special provisions in the obligations of SVG
retained by Resource as may be required by the new first mortgage lender to
the extent such provisions are reasonable when compared to similar "soft
second" mortgages permitted by the other first mortgage lenders in the
reasonable opinion of Resource.
(iv) after it has received all of the interest and principal
required under Paragraph 8(ii), assign its interest in the Mortgage Note and
the Note to Harry J. Santoro for no additional consideration.
As part of the proposed refinancing it is anticipated that Harry J.
Santoro ("Santoro") and/or H. James Santoro, Inc. ("HJS") must agree to do the
following:
(a) certify certain financial reports as true and correct;
<PAGE>
(b) defer compensation for any service rendered to SVG until such time
as the proposed refinancing is complete; and thereafter, should the cash flow
from the property be insufficient to make all payments due on the proposed new
mortgage and the new promissory note due to Resource,
(c) to personally guarantee certain carve-out obligations of SVG
pursuant to the proposed new first mortgage and the new promissory note to
Resource; specifically mentioned during the course of the negotiations with
Resource were: (i) certain environmental indemnifications, and a guarantee to
refund any shortage in the tenant security deposit accounts; and SVG shall:
1. Indemnify Santoro for any losses incurred as a result of the proposed
guarantees;
2. Extend the existing management agreement between SVG and HJS until
such time as Santoro has no further obligations pursuant to the Agreement;
3. At closing of the refinancing, issue to Santoro a promissory note for
the difference between the amount due to Resource pursuant to the terms of
the existing mortgage note and $3,350,000, with the same terms and conditions
as the proposed new note to Resource as outlined in the Agreement.
Should the Company be successful in refinancing the Property pursuant to the
Agreement, the Company's debt structure related to the Property will be as
follows:
<TABLE>
<CAPTION>
Existing Principal Annual Interest
and
Accrued Interest
-------- ---------------- -----------------
<S> <C> <C>
Existing 1st Mortgage
- RPI (10½% interest) $3,490,419 $331.270
New Promissory Note
- RPI (10½% interest) 110,000 10,000
--------- ---------
Total $3,600,419 $341,270
<CAPTION>
After Refinance
---------------
<S> <C> <C>
New 1st mortgage (8½% +- interest) $2,400,000 $204,000
New 2nd mortgage (RPI) (10% +-) 950,000 95,000
New 2nd mortgage (Santoro) (10% +-) 150,000 15,000
--------- ---------
Total $3,500,000 $314,000
Debt forgiveness/annual
interest expense reduction $ 100,419 $ 27,270
</TABLE>
The Company can give no assurance that the above outcome will in fact occur.
<PAGE>
The Complex
- -----------
The Spring Village Apartment complex is a garden-type apartment complex
consisting of seven buildings containing 60 one-bedroom units, 49 two-bedroom
units and 15 studio units, located in Sharon Hill, Delaware County,
Pennsylvania. Construction features include brick veneer over concrete block
exterior walls, wood frame, asphalt shingle gable roofs, aluminum frame
windows and sliding patio doors. Each unit is heated by gas fired hot water
baseboard heat. All units have wall mounted air conditioners. The buildings
were built in 1966. The quality of construction and current physical
condition of the units is believed by the Company to be average. The Company
is not aware of any material adverse environmental attributes of the property
other than the seven inactive underground storage tanks formerly used to store
heating oil for the complex. The tanks are not regulated by the State of
Pennsylvania. The Company plans to remove the tanks as part of a future
refinancing of the property. Management estimates the cost to remove the
tanks and restore the sitework will not exceed $75,000. If the soils around
the tanks were contaminated by leaks, the Company estimates the cost to remove
the soil would not exceed $35,000. There can be no assurance that the cost to
remove the tanks and contaminated soils, if any, will not exceed these
estimates. The current real estate tax assessment equates to a market value
of $3,190,000. The assessed value for real estate taxes is $98,890 (based on
a presumed value of $3,190,000) and the real estate taxes paid for 1996 were
$88,886. The tax basis as of December 31, 1995 of the Partnership's buildings
and equipment was $3,587,444 and $104,768 respectively, with $1,023,669 in
accumulated depreciation. Buildings and improvements are depreciated using
the straight line method over a 40 year life. Equipment is depreciated using
the 150% declining balance method over a 10 year life. The Company owns an
80% partnership interest in the Partnership which owns the property. The
Property has been substantially renovated and the Company does not anticipate
the need for substantial future renovations other than routine replacements.
The Property is being held for investment in anticipation of a future
refinancing. The Company believes it has adequate insurance coverage.
The Company plans to make the following capital expenditures during the next
twelve months:
Replace roof on G building $ 4,000
Replace soffits and fascia 6,000
--------
Total $ 10,000
The Company also plans to spend $75,000 of the $110,000 to remove the
underground oil storage tanks pursuant to the agreement with RPI.
Future Acquisitions
- -------------------
The Company intends to acquire additional single family and multi-family
residential properties in the future, as well as undeveloped acreage. The
target price per apartment unit is $28,000 and the geographic area shall be
Eastern Pennsylvania, Delaware, and Southern New Jersey. There is no
assurance that properties meeting such criteria can be acquired by the<PAGE>
Company or that such acquisitions will be profitable. Also, investments may
be made in properties which do not meet the above criteria upon what the
Company believes to be favorable investment opportunities, such as purchasing
properties that are distressed, at sheriff sales and/or tax sales, and the
like.
The Company intends to finance its future acquisitions through the use of its
own equity and initial acquisition debt up to 100% of the cost of the
property, including anticipated improvements. It is the Company's stated long
term goal to reduce overall debt to no greater than 50% of the market value of
the Company's real estate holdings.
The Company's policy is to acquire assets for income, with capital
appreciation being anticipated, but secondary to current income.
The Company has no limit as to the percentage of its assets which may be
invested in any particular property, except that the Company will not invest
in a transaction or a series of transactions which will require registration
as an Investment Company under the Investment Company Act of 1940.
The Company may invest in mortgages or other debt securities, including real
estate tax liens, and there are no restrictions on such investments except
that such debt securities or liens shall be secured by residential real estate
or unimproved acreage.
The Company may invest in direct or indirect interests in residential real
estate and unimproved land, including fee simple ownership, general or limited
partnership interests, listed or not listed common or preferred stock in real
estate companies or REITS which invest in residential real estate. The
Company does not intend to originate or warehouse mortgages, for purposes of
sale or servicing.
The Company, at the discretion of the Board of Directors, may change the
investment objectives and criteria as it deems appropriate and in the best
interests of the Company.
Industry Overview
- -----------------
The Company's primary focus is to own and operate apartment complexes. The
industry is dominated by numerous small operators. There are several large
apartment operators in the area, including the Korman Organization, which
operates a 1,500+ unit apartment complex, International City, which competes
with the Company's existing complex. The Company believes the industry is
highly competitive.
<PAGE>
Apartment complexes in the area similar to the one owned by the Company have
the following profiles:
Rents per month, 1/1/96 Typical Company
----------------------- ------- -------
One bedroom $450 - $550 $500
Two bedroom $585 - $650 $605
Annual rent increase 1995 1% - 2% 1% - 2%
Average occupancy 1995 94% - 97% 95% - 98%
The Company believes that the general market is stable and that its units at
current rental rates are in line with competitive complexes in the area.
Because it costs more to build a new apartment unit than to acquire an
existing unit and due to lack of suitable construction sites in the area,
competition is limited to existing apartment complexes and should be
manageable.
Employees
- ---------
In addition to Harry J. Santoro, the President, and Stephen M. Robinson, the
Vice President and Secretary, the Company employs four other people on a
regular basis who manage and maintain the apartment complex.
Facilities
- ----------
The Company currently shares its principal executive offices with Santoro
Realty, Inc. in approximately 500 square feet of leased office space at 215
West Main Street, Maple Shade, New Jersey, 08052. Monthly rent under the
lease, which terminates in March 1998, is $500, of which one half will be paid
by the Company. The building is owned by Harry J. Santoro, President of the
Company; however, the Company believes the terms of the lease are at least as
favorable as terms available from non-affiliated third parties.
Item 2. Description of Property
- --------------------------------
See Item 1 "Description of Business" and Item 6 "Management Discussion and
Analysis or Plan of Operation".
Item 3. Legal Proceedings.
- --------------------------
There are no pending material legal proceedings to which the Company or any of
its properties is subject.<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
None.
PART II.
Item 5. Market for Common Equity and Related Stockholder Matters.
- ------------------------------------------------------------------
The Company's common stock was recently approved for quotation on the OTC
Bulletin Board under the symbol "ARCA". As of the date of this Form 10-KSB,
no quotations had been submitted by any market makers and no public trading
market had commenced.
As of December 31, 1996, there were 500,000 shares of common stock outstanding
held by 433 shareholders of record. There have been and are expected to be no
dividends declared on the common stock.
Item 6. Management Discussion and Analysis or Plan of Operation
- ---------------------------------------------------------------
The Company intends to target 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. The Company also
plans to refinance its existing property and may need additional capital to
accomplish the refinancing.
The Company advertises its units in local newspapers, by direct mail and
through promotional programs designed to maintain occupancy at or above 95%.
Results of Operations
- ---------------------
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Form 10-KSB. The Company was incorporated on December 22, 1995. The
Company is a new enterprise in its initial promotional and development
stages. On December 31, 1995, 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<PAGE>
partnership interest. The financial information contained herein includes
the results of operations of the Partnership.
The Company was incorporated on December 22, 1995, and has no operating
history. The Company acquired an 80% interest in the Partnership on December
31, 1995. The following discussion refers to the operations of the
Partnership.
The Partnership reported total revenues of $738,802 and $735,863 in 1995 and
1996 respectively. Occupancy was approximately 95% and 93% respectively.
Operating expenses exclusive of interest expense, depreciation and
amortization, increased slightly from $443,816 in 1995 to $444,459 in 1996.
Net income (before depreciation, amortization and financing cost) decreased
from $294,986 in 1995 to $291,404 in 1996. Depreciation, amortization and
interest expense for the periods up to and including December 31, 1996 have
been omitted because they include predecessor operations and are not
comparable to the Company's operations going forward. See "Selected Financial
Data" and "SVG Properties L.P. t/a Spring Village Apartments, Financial
Statements, December 31, 1996 and 1995." 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 prior five year rental history is summarized as follows:
<TABLE>
<CAPTION>
Gross Potential Rents Occupancy Average Annual Rent
Year and Other Income Percentage per square foot
- ---- --------------------- ---------- --------------------
<S> <C> <C> <C>
1992 $725,342 95 $9.25
1993 $740,272 98 $9.45
1994 $753,379 96 $9.61
1995 $763,181 95 $9.74
1996 $775,730 93 $9.90
</TABLE>
No tenant occupies more than 10% of the leased space. Substantially all
leases are for one year or less, and are for residential dwelling units. A
sixty day notice is required for termination. Substantially all of the leases
expire within one year as is typical for apartment leases.
The Company's balance sheet is highly leveraged. As discussed previously in
this Form 10-KSB, the Company plans to reduce this leverage through
refinancing and through the current and future equity offerings. The Company
believes it can support operations and planned capital expenditures for at
least twelve months. Thereafter, the Company's continued success will be
dependant upon its ability to refinance its existing property under more
favorable terms.
In order to provide comparative information, the operating results discussed
above include the past results of operations of the apartment complex acquired
by the Company on December 31, 1995.
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.<PAGE>
Liquidity and Capital Resources
- -------------------------------
At December 31, 1996 and 1995, the Company had working capital of $9,132 and
$13,269, respectively, including cash held in escrow for anticipated future
expenses.
On December 31, 1995, the Company had $54,952 in cash. During the period, the
Company collected $70,000 in stock subscriptions which were receivable as of
December 31, 1995. The Company used $42,848 in operating activities and
purchased $17,758 in property and equipment. The Company also repaid $41,500
in notes payable - stockholder (Harry J. Santoro, President). The net
decrease in cash was $22,106. The Company had $32,846 in cash on December 31,
1996, exclusive of cash held in the escrow accounts.
The Company believes that the agreement with RPI will enable the Company to
satisfy its anticipated financing needs for a period of at least 12 months.
In the event that the Company's plans change or its assumptions change or
prove to be inaccurate or if the net income from operations is insufficient to
meet its obligations pursuant to the agreement with RPI (due to unanticipated
expenses or difficulties or otherwise), the Company may be required to seek
additional financing sooner than currently anticipated. Thereafter, unless
the Company is able 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 other
than this offering 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.
Planned Capital Expenditures
- ----------------------------
Replace roof on G building $ 4,000
Replace soffits and fascia 6,000
--------
Total $ 10,000
The Company also plans to spend $75,000 of the $110,000 to remove the
underground oil tanks and restore the site pursuant to the agreement with RPI.
<PAGE>
Selected Financial Data
- -----------------------
The following selected financial data has been derived from the Company's
financial statements included elsewhere in this Form 10-KSB, and should be
read in conjunction with the financial statements and notes thereto.
<TABLE>
<CAPTION>
Statement of Operations Data <F1>
Predecessor
Operations
12/31/95 12/31/96
-------- --------
<S> <C> <C>
Total Revenues 738,802 735,863
Operating Expenses <F1> 443,816 883,937
Net Income (Loss)
before minority interest <F1> 294,986 (148,074)
Minority Interest n/a ( 8,662)
Net income (loss) <F1> 294,986 (139,412)
Net (Loss) per share n/a ( .28)
Weighted average number of shares outstanding 500,000
<CAPTION>
Balance Sheet Data December 31, 1995 December 31, 1996
- ------------------ ----------------- -----------------
<S> <C> <C>
Working capital $ 13,269 $ 9,132
Total Assets $3,703,001 $3,569,410
Total Liabilities $3,691,839 $3,636,322
Stockholders' Equity
(Deficit) $ 2,500 $ (66,912)
<FN>
<F1> The Statement of Operations for periods up to December 31, 1995 reflects
the results of operations of S.V.G. Properties, L.P., the major asset
acquired by the Company on December 31, 1995. Depreciation, amortization and
interest expense for periods up to and including December 31, 1995 have been
omitted because they are not comparable to the Company's operations going
forward. The Statement of Operations for the period ending December 31, 1996
includes depreciation and amortization of $90,260 and interest expense of
$332,336.
</FN>
</TABLE>
Item 7. Financial Statements.
- ------------------------------
The consolidated financial statements included in this Form 10-KSB for the
year ended December 31, 1996 have been audited by Haefele, Flanagan and
Company, independent certified public accountants, as indicated in their
report with respect thereto, and are included in reliance upon such report
given upon the authority of said firm as experts in auditing and accounting.
Please see pages F-1 through F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of ARCA Corp. and Subsidiary
We have audited the accompanying consolidated balance sheets of ARCA
CORP. AND SUBSIDIARY as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the year ended December 31, 1996 and for the
period from December 22, 1995 to December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ARCA CORP.
AND SUBSIDIARY as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the periods then ended in conformity with
generally accepted accounting principles.
HAEFELE, FLANAGAN & CO., P.C.
Moorestown, New Jersey
March 1, 1997
F-1
<PAGE>
ARCA CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
1996 1995
----------- -----------
<S> <C> <C>
Rental property, net (Notes 2 & 4) $3,428,375 $3,499,377
Cash (Note 2) 32,846 54,952
Cash held in escrow (Notes 2 & 5) 32,366 83,398
Accounts receivable 15,581 7,960
Prepaid expenses 54,242 49,814
Organization costs (Note 2) 6,000 7,500
Total Assets $3,569,410 $3,703,001
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities
<S> <C> <C>
Mortgage notes payable (Note 6) $3,154,949 $3,154,949
Accrued interest 335,470 367,212
Notes payable (Note 7) 20,000 51,500
Accounts payable 14,106 19,112
Accrued expenses 59,096 51,340
Security deposits payable (Note 2) 52,701 46,631
Other liabilities -0- 1,095
Total Liabilities 3,636,322 3,691,839
Minority interest -0- 8,662
Commitments and contingencies (Note 10)
Stockholders' Equity (Deficit) (Note 8)
Common stock, $.0001 par value,
50,000,000 shares authorized,
500,000 shares and 320,000 shares in
1996 and 1995 issued and outstanding 50 32
Additional paid in capital 212,450 72,468
Accumulated deficit ( 139,412) -0-
73,088 72,500
Stock subscriptions receivable ( 140,000) ( 70,000)
Total Stockholders' Equity (deficit) ( 66,912) 2,500
Total Liabilities and Stockholders'
Equity (Deficit) $3,569,410 $3,703,001
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
ARCA CORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM DECEMBER 22, 1995 TO
DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
---------- ------------
<S> <C> <C>
Revenues
Rental income $ 721,583 $ -0-
Tenant fees and other income 13,107 -0-
Interest income 1,173 -0-
Total revenues 735,863 -0-
Operating Expenses
Administrative expenses 102,788 -0-
Utilities expense 101,799 -0-
Operating and maintenance 109,551 -0-
Taxes and insurance 147,203 -0-
Depreciation and amortization 90,260 -0-
Total operating expenses 551,601 -0-
Operating income 184,262 -0-
Interest expense 332,336 -0-
Loss before minority interest ( 148,074) -0-
Minority interest ( 8,662) -0-
Net loss ($ 139,412) $ -0-
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ARCA CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM DECEMBER 22, 1995 TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Additional Stock Total
Common Stock Paid-in Subscriptions Accumulated Stockholders'
Shares Amount Capital Receivable Deficit Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, December 22, 1995 -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, January 1, 1996 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-
Net loss -0- -0- -0- -0- (139,412) (139,412)
Balance, December 31,
1996 500,000 $ 50 $212,450 ($140,000) ($139,412) ($ 66,912)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4<PAGE>
ARCA CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM DECEMBER 22, 1995 TO
DECEMBER 31, 1995
<TABLE>
1996 1995
------------ -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss ($ 139,412) $ -0-
Adjustments to reconcile net loss to
net cash used in operating activities:
Minority interest in net loss of
consolidated subsidiary ( 8,662) -0-
Depreciation and amortization 90,260 -0-
(Increase) decrease in:
Accounts receivable ( 7,621) -0-
Prepaid expenses ( 4,428) -0-
Cash held in escrow 9,353 -0-
Increase (decrease) in:
Accounts payable ( 5,006) -0-
Accrued expenses 17,693 -0-
Other liabilities ( 1,095) -0-
Security deposits payable 6,070 -0-
Net cash used in operating activities ( 42,848) -0-
Cash Flows From Investing Activities:
Cash acquired from purchase of business -0- 53,452
Collection of stock subscription receivable 70,000 -0-
Purchases of property and equipment ( 17,758) -0-
Net cash provided by investing activities 52,242 53,452
Cash Flows from Financing Activities:
Proceeds from notes payable 10,000 1,500
Repayment of notes payable ( 41,500) -0-
Net cash (used in) provided by financing
activities ( 31,500) 1,500
Increase (decrease) in cash ( 22,106) 54,952
Cash, beginning 54,952 -0-
Cash, ending $ 32,846 $ 54,952
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 364,078 $ -0-
Cash paid for income taxes $ 700 $ -0-
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5<PAGE>
ARCA CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM DECEMBER 22, 1995 TO
DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Non-cash investing and financing activities:
Purchase of Business
Fair Value of Assets Acquired Other Than
Cash $ -0- ($3,640,549)
Liabilities assumed -0- 3,635,339
Debt incurred (Notes Payable) -0- 50,000
Minority interest -0- 8,662
Cash acquired from purchase of business $ -0- $ 53,452
Issuance of Common Stock
Stock subscriptions receivable $ 140,000 $ 70,000
Organization costs -0- 2,500
Common stock issued $ 140,000 $ 72,500
Other Transactions
Organization costs $ -0- $ 5,000
Liabilities incurred $ -0- $ 5,000
Decrease in cash held in escrow $ 41,679 $ -0-
Decrease in accrued expenses ( 41,679) -0-
$ -0- $ -0-
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ARCA CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 1 - Organization and Business Activity
ARCA Corp., a real estate holding company was incorporated in the State
of New Jersey on December 22, 1995. The Company commenced operations on
December 31, 1995 with the acquisition of an 80% partnership interest in SVG
Properties, L.P. (T/A Spring Village Apartments) through its wholly owned
subsidiary, Spring Village Holdings, Inc. The Company's 80% partnership
interest is comprised of a 4.5% general partnership interest and 75.5% limited
partnership interests. The remaining 20% limited partnership interests are
held by unrelated individuals.
Spring Village Apartments leases 124 residential apartment units to the
general public in Sharon Hill, Pennsylvania.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of ARCA Corp.,
Spring Village Holdings, Inc. and SVG Properties, L.P. All significant
intercompany transactions and accounts have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Rental Property
Rental property is recorded at cost. Depreciation is provided using the
straight-line method over its estimated useful life. Maintenance and repairs
are charged to expense as incurred; major renewals and betterments are
capitalized. When items of property are sold or retired, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss is
reflected in operations.
The estimated useful lives of the major classes of rental property, as
determined by the Company's management, are as follows:
Buildings and improvements - 40 years
Building equipment - 10 years
Other equipment - 5 years
F-7
<PAGE>
ARCA CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 2 - Summary of Significant Accounting Policies (continued)
Cash Held in Escrow
Cash held in escrow includes amounts held by the lender to provide funds
necessary for the payment of taxes of the Spring Village Apartment complex.
Revenues
The Company earns rental income under operating leases with tenants.
Rental income is recognized on a straight-line basis over the applicable lease
term.
Organization Cost
Organization costs are amortized on a straight-line basis over five
years. Amortization expense for the periods ended December 31, 1996 and 1995
was $1,500 and $-0-.
Security Deposits Payable
Security deposits payable represents amounts received from tenants and
are included in cash on the accompanying balance sheet. As of December 31,
1996, the tenant security deposits payable is underfunded by $22,721. Tenant
security deposits are guaranteed by a stockholder.
Advertising
The Company expenses all advertising as incurred. Direct response
advertising for which future economic benefits are probable and specifically
attributable to the advertising is not material. Advertising expense for the
periods ended December 31, 1996 and 1995 was $5,579 and $-0-.
Statement of Cash Flows
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with a term to maturity of three (3)
months or less at the time of acquisition to be cash equivalents.
Long-Lived Assets
In March 1996, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Prior to the acquisition of SVG Properties L.P., the rental
property was written down to its fair market value.
F-8
<PAGE>
ARCA CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 2 - Summary of Significant Accounting Policies (continued)
Reclassifications
Certain items included in the 1995 financial statements have been
reclassified to conform with the 1996 financial statement preparation.
Note 3 - Acquisition
At December 31, 1995, the Company acquired an 80% interest in SVG
Properties, L.P. from a stockholder in exchange for $50,000 in notes. The
purchase method was used to account for the acquisition.
The purchase price was allocated as follows:
<TABLE>
<S> <C>
Rental Property $3,499,377
Cash 53,452
Cash held in escrow 83,398
Accounts receivable 7,960
Prepaid expenses 49,814
Mortgage note payable ( 3,154,949)
Accrued interest ( 395,715)
Accounts payable ( 16,612)
Accrued expenses ( 20,337)
Security deposit payable ( 46,631)
Other liabilities ( 1,095)
Minority interest ( 8,662)
Notes issued $ 50,000
</TABLE>
Note 4 - Rental Property
Rental property at December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land $ 292,792 $ 292,792
Buildings and improvements 3,127,770 3,127,770
Building equipment 87,548 69,790
Office equipment 9,025 9,025
$3,517,135 $3,499,377
Less accumulated depreciation ( 88,760) -0-
Rental property, net $3,428,375 $3,499,377
</TABLE>
Depreciation expense for the periods ended December 31, 1996 and 1995 was
$88,760 and $-0-.
F-9
<PAGE>
ARCA CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 5 - Cash Held in Escrow
Cash held in escrow at December 31, 1996 and 1995 consisted of the
following:
<TABLE>
1996 1995
----------- ----------
<S> <C> <C>
Mortgage escrow deposits $ 32,099 $ 32,228
Reserve fund for replacements -0- 41,680
Heat, insurance and capital
expense escrow 267 9,490
$ 32,366 $ 83,398
</TABLE>
Note 6 - Mortgage Note Payable
Mortgage note payable at December 31, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Mortgage note payable in monthly
installments of $28,740 (including
principal and interest at 10 1/2%),
due November 2022, collateralized by
land, buildings, improvements and
equipment, secured by an assignment
of the management agreement between the
General Partner and SVG Properties, L.P. $3,154,949 $3,154,949
</TABLE>
In 1995, the mortgage note was payable to the Department of Housing and
Urban Development (HUD) under the provision of Section 207, pursuant to
Section 223 (f) and Section 244 of the National Housing Act, and was subject
to the terms of a Provisional Workout Arrangement. In September 1996, HUD
sold the mortgage on the Property to Resource Properties XXIII, Inc. (RPI).
The mortgage note payable is subject to the same terms of the Arrangement.
In accordance with the terms of the arrangement, principle payments on
the mortgage note payable are suspended through December 31, 2002. The
Company is required to make minimum monthly payments consisting of a specified
percentage of the interest due with annual increases through December 31, 2002
as follows:
<TABLE>
<CAPTION>
Monthly Percentage of
Amount Accruing Interest
-------- -----------------
<S> <C> <C>
1996 $26,750 97%
1997 $27,750 101%
1998 $28,500 103%
1999 $30,500 110%
2000 $31,500 114%
2001 $33,000 120%
2002 $34,000 123%
</TABLE>
F-10
<PAGE>
ARCA CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 6 - Mortgage Note Payable (continued)
On January 1, 2003, if the lender deems it financially feasible, the
mortgage will be modified and the mortgage payment will be set to amortize the
then existing balance (principal and accrued interest) at 10 1/2% over the
remaining term of the mortgage through November 2022.
The arrangement also contains a call provision which gives the lender the
option to declare the entire indebtedness due and payable at or after ten
years from the date of the modification (January 1, 2012).
On November 22, 1996, the Company entered into an agreement (the
Agreement) with RPI whereby RPI agreed to recast the existing debt to RPI
subject to the following terms:
(a)RPI will lend the Company up to $110,000 for the removal of the
underground oil tanks (Note 10) in order to permit the Company to refinance
the existing mortgage note payable. The note will bear interest at 10% with
the principal due on the earlier of November 2022 or when the final payment is
due on the mortgage note. Payments will be made from the Company's cash flow
before management fees as defined in the Agreement.
(b)If prior to the earlier of: (i) one year from the date of the
successful removal of the underground oil tanks, or (ii) June 30, 1998, the
Company secures a first mortgage loan (New Note) of at least $2,300,000, then
RPI will retain a subordinate position in the promissory note payable, the
mortgate note payable and the accrued interest thereon, up to the difference
between the New Note and $3,350,000 at 1.5% above the New Note's interest rate
payable. Payments will be made based on a twenty-five year amortization from
the Company's cash flow as defined in the Agreement. After payment of all of
the aforementioned debt, the residual amount will be assigned to a stockholder
subject to certain covenants and restrictions.
The carrying amount of the Company's debt approximates its fair value at
December 31, 1996.
F-11
<PAGE>
ARCA CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 7 - Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Notes payable to stockholders
with interest @ 8%, due on
demand, unsecured $10,000 $51,500
Note payable to related party
with interest at 10%, due
January 1998, unsecured 10,000 -0-
$20,000 $51,500
</TABLE>
Interest paid to stockholders in 1996 and 1995 was $1,066 and $0.
Note 8 - Equity and Stock Subscriptions Receivable
Two hundred fifty thousand (250,000) shares of common stock were issued
to the officers of the Company for services rendered in connection with
organizing the Company. At the time of issuance, the Company was newly formed
and had no assets. The shares were issued, as founder shares, for $.01 per
share.
On December 27, 1995, subscriptions for seventy thousand (70,000) shares
of common stock at $1 per share were received. The subscription receivables
were fully collected and the corresponding stock issued in February 1996.
On May 31, 1996, subscriptions for one hundred forty thousand (140,000)
shares of common stock at $1 per share were received from Eastern States
Energy, Inc. (Eastern) in the form of a promissory note receivable. The note
is to be collected solely from the net cash proceeds realized from the sale or
liquidation of the assets of Eastern. On November 15, 1996, the 140,000 shares
of Eastern were reissued to the stockholders of Eastern pursuant to a Plan of
Liquidation of Eastern.
Sixteen thousand (16,000) shares of common stock were issued to the
President of the Company and twenty-four thousand (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.
F-12<PAGE>
ARCA CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 9 - Related Party Transactions
Management of Rental Property
The rental property is managed by a company which is owned by a
stockholder. The current management agreement provides for a management fee
of 5% of gross income. Management fees for the periods ended December 31,
1996 and 1995 were $36,770 and $-0-.
Leases
The Company leases its office space from a company which is owned by a
stockholder. Monthly rental payments are $250 per month. Rent expense for
the periods ended December 31, 1996 and 1995 were $3,000 and $-0-.
Note 10 - Commitments and Contingencies
Located beneath the Spring Village Apartment complex are seven inactive
underground storage tanks formerly used to store heating oil for the complex.
The tanks are not regulated by the State of Pennsylvania. The Company plans
to remove the tanks as part of a potential future refinancing of the
property. Management estimates the cost to remove the tanks will not exceed
$75,000. If the soils around the tanks were contaminated by leaks, the
Company estimates the cost to remove the soil also would not exceed $35,000.
There can be no assurance that the costs to remove the tanks and contaminated
soils, if any, will not exceed these estimates. As of December 31, 1996, the
lender (RPI) has agreed to fund the removal of the tanks up to $110,000 (Note
6).
F-13
<PAGE>
SVG PROPERTIES, L.P.
T/A SPRING VILLAGE APARTMENTS
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
SVG Properties, L.P. T/A Spring Village Apartments
Maple Shade, New Jersey
We have audited the accompanying statements of income before depreciation
and amortization and interest expense of SVG PROPERTIES, L.P. T/A SPRING
VILLAGE APARTMENTS for the years ended December 31, 1996 and 1995. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the statements of income before depreciation and
amortization and interest expense referred to above present fairly, in all
material respects the results of operations before depreciation and
amortization and interest expense of SVG PROPERTIES, L.P. T/A SPRING VILLAGE
APARTMENTS for the years ended December 31, 1996 and 1995 in conformity with
generally accepted accounting principles.
HAEFELE, FLANAGAN & CO., P.C.
Moorestown, New Jersey
February 20, 1997
F-15<PAGE>
SVG PROPERTIES, L.P.
T/A SPRING VILLAGE APARTMENTS
STATEMENTS OF INCOME BEFORE DEPRECIATION AND AMORTIZATION
AND INTEREST EXPENSE
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Revenues
Rental income $ 721,583 $ 723,838
Tenant fees and other income 13,107 13,646
Interest income 1,173 1,318
Total revenues 735,863 738,802
Operating expenses
Administrative expenses 92,851 95,569
Utilities expense 101,799 98,611
Operating and maintenance 106,491 103,442
Taxes and insurance 143,318 146,194
Total operating expenses 444,459 443,816
Net income before depreciation
and amortization and interest
expense $ 291,404 $ 294,986
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
SVG PROPERTIES, L.P.
T/A SPRING VILLAGE APARTMENTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 1 - Summary of Significant Accounting Policies
Nature of Operations
SVG Properties, L.P., a limited partnership, was merged into its limited
partner in 1993. The surviving partnership was organized under the state laws
of New Jersey and is trading as Spring Village Apartments. The Partnership is
engaged in the business of leasing the 124 residential apartment units of
Spring Village Apartments in Sharon Hill, Pennsylvania.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenues
The Partnership earns rental income under operating leases with tenants.
Rental income is recognized on a straight-line basis over the applicable lease
term.
Advertising
The Company expenses all advertising as incurred. Direct response
advertising for which future economic benefits are probable and specifically
attributable to the advertising is not material. Advertising expense for the
years ended December 31, 1996 and 1995 was $5,579 and $8,449.
Income Taxes
The Partnership is not required to provide for, or pay any federal income
taxes. Net income or loss generated by the Partnership is passed through to
the partners and is required to be reported by them individually.
Note 2 - Acquisition
On December 31, 1995, ARCA Corp., through its wholly owned subsidiary,
Spring Village Holdings, Inc. acquired an 80% interest in the Partnership.
ARCA Corp.'s 80% partnership interest is comprised of a 4.5% general
partnership interest and 75.5% limited partnership interests. The remaining
20% limited partnership interests are held by unrelated individuals. The
purchase method was used to account for the acquisition. The cost of the
rental property of the Partnership was adjusted accordingly.
F-17<PAGE>
SVG PROPERTIES, L.P.
T/A SPRING VILLAGE APARTMENTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 3 - Depreciation and Amortization
Depreciation expense for the years ended December 31, 1996 and 1995 was
$87,225 and $110,884. Depreciation in future periods will be computed on the
straight-line method using the following values for the rental property:
<TABLE>
<CAPTION>
Annual
Depreciation
Rental Property Cost Life Expense
- --------------- ----------- -------- ---------------
<S> <C> <C> <C>
Land $ 292,792
Building and improvements 3,127,770 40 years $ 78,194
Building equipment 72,196 10 years 7,220
Other equipment 9,025 5 years 1,805
$3,501,783 $ 87,219
</TABLE>
Amortization expense for the years ended December 31, 1996 and 1995 was
$0 and $300. There will be no amortization expense in future periods.
Note 4 - Interest Expense
Interest expense for the years ended December 31, 1996 and 1995 was
$332,295 and $331,270. Interest expense in future periods will be based on
the cost of financing at that time.
Note 5 - Related Party Transactions
Management Fee
The property is managed by the General Partner. The current management
agreement provides for a management fee of 5% of gross income. Management
fees for the years ended December 31, 1996 and 1995 were $36,770 and $36,858.
Payroll and Maintenance Services
In 1995, the General Partner was reimbursed for actual wages paid to
on-site personnel and actual health insurance premiums paid for on-site
personnel plus a percentage for payroll taxes and workers' compensation
insurance. This was discontinued January 1, 1996. The General Partner also
provided maintenance services to the Partnership. The Partnership was billed
as follows:
F-18<PAGE>
SVG PROPERTIES, L.P.
T/A SPRING VILLAGE APARTMENTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Note 5 - Related Party Transactions (continued)
Payroll and Maintenance Services (continued)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Office salaries $ -0- $ 25,125
Maintenance salaries -0- 43,199
Payroll taxes -0- 7,429
Workers' compensation insurance -0- 4,117
Employee benefits -0- 7,081
Other maintenance services -0- 420
$ -0- $ 87,371
</TABLE>
Note 6 - Commitments and Contingencies
Located beneath the Spring Village Apartment complex are seven inactive
underground storage tanks formerly used to store heating oil for the complex.
The tanks are not regulated by the State of Pennsylvania. The Company plans
to remove the tanks as part of a potential future refinancing of the
property. Management estimates the cost to remove the tanks will not exceed
$75,000. If the soils around the tanks were contaminated by leaks, the
Company estimates the cost to remove the soil would also not exceed $35,000.
There can be no assurance that the costs to remove the tanks and contaminated
soils, if any, will not exceed these estimates. As of December 31, 1996, the
Partnership's lender has agreed to fund the removal of the tanks and the soil
remediation up to $110,000.
F-19
<PAGE>
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
- ----------------------------------------------------------
None.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
- ----------------------------------------------------------------------
The following table sets forth information with respect to the executive
officers, key personnel, directors and nominees to become directors of the
Company:
Age Title
---- ------
Harry J. Santoro, CPA 43 President, Treasurer and
Director
Stephen M. Robinson, Esq. 54 Vice President, Secretary
and Director
Harry J. Santoro. Mr. Santoro is 43 years old and holds a Bachelor of
Science Degree in Accounting from Drexel University, Philadelphia, PA, where
he graduated Summa Cum Laude. He began work in 1975 with Haefele, Van Sciver
& Co., a local certified Public Accounting firm. Three years later he became
a Certified Public Accountant and was made a partner in the firm. The firm's
name was changed to Haefele, Van Sciver, Santoro & Co. While at the firm he
provided tax and financial planning services to individuals and businesses in
a wide range of industries, including real estate development. He left the
firm in 1982 to form a company to invest in real estate. He is currently
engaged in real estate development and apartment management as principal and
President of H. James Santoro, Inc.
Stephen M. Robinson. Mr. Robinson, who is 54 years old, is admitted to
practice law in the State of New Jersey, and maintains a full time legal
practice concentrating on corporations, securities and associated general
practice matters. He received a B.A. from Rutgers University in 1964 and a
J.D. from Rutgers Law School in 1967. From 1970 to 1973, Mr. Robinson was an
assistant county prosecutor for Camden County, New Jersey, and from 1973 to
1978, he was an attorney with the United States Securities and Exchange
Commission. He returned to private practice in 1978, and has been
continuously involved in the legal aspects of public and private offerings of
securities, other '33 Act filings, '34 Act filings for public companies and
securities-oriented litigation. During the period from 1986 through 1992, Mr.
Robinson was a shareholder of the law firm of Robinson & Sacharow, P.C.,
located in Maple Shade, New Jersey. Mr. Robinson left such firm in 1992, and
opened an office at 172 Tuckerton Road, Medford, New Jersey where he continues
his securities practice.
All directors hold office until the next annual meeting of stockholders or the
election and qualification of their successors. Directors of the Company do
not receive any compensation for their services as members of the Board of
Directors, but are entitled to reimbursement for expenses incurred in
connection with their attendance at Board of Directors' meetings. Officers
are appointed by the Board of Directors and serve at the discretion of the
Board.
Item 10. Executive Compensation.
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Name and Other Annual
Principal Position Year Salary Bonus Compensation
- ------------------ ---- ------ ------ ------------
<S> <C> <C> <C> <C>
Harry J. Santoro, 1996 116,000 Shares 0 0<F1>
President, Treasurer
Stephen M. Robinson, 1996 150,000 Shares 0 0
VP, Secretary
<FN>
<F1> SVG Properties, L.P. entered into a management agreement with H. James
Santoro, Inc., effective August 1, 1992, whereby H. James Santoro, Inc. agreed
to manage the Spring Village Apartment complex for a fee equal to 5% of the
gross rent of the complex. Such agreement is currently in effect on a month
to month basis, and shall terminate when Mr. Santoro and H. James Santoro,
Inc. have no remaining obligation or liability related to the agreement with
RPI. Upon termination of the management agreement, Mr. Santoro shall be paid
a salary of $39,000 per year. Mr. Santoro owns 100% of H. James Santoro, Inc.
</FN>
</TABLE>
Employment and Consulting Agreements
- ------------------------------------
The employment agreements of the officers terminated on December 22, 1996, and
have not been renewed. The officers of the Company have received no
compensation for the period December 23, 1996 through the date of this Form
10-KSB, but it is the intention of the Company to award compensation, at a
future date, commensurate with the level of work performed on behalf of the
Company by such officers.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 31, 1996,
with respect to the beneficial ownership of the common stock by each
beneficial owner of more than 5% of the outstanding shares thereof, by each
director, each nominee to become a director and each executive officer named
in the Summary Compensation Table and by all executive officers, directors and
nominees to become directors of the Company as a group, both before and after
giving effect to the offering.
<TABLE>
<CAPTION>
Number of Shares of Percentage of Outstanding
Name and Address of Common Stock Common Stock
Beneficial Owner Beneficially Owned <F1> Beneficially Owned <F2>
- ------------------ ---------------------- -----------------------
<S> <C> <C>
Stephen M. Robinson
172 Tuckerton Road
Medford, NJ 08055 150,000 30.0%
Harry J. Santoro
215 West Main Street
Maple Shade, NJ 08052 116,000 23.2%
All Directors and
Officers as a
group (2 persons) 266,000 53.2%<PAGE>
<FN>
<F1>
Under the rules of the Commission, a person is deemed to be the beneficial
owner of a security if such person has or shares the power to vote or direct
the voting of such security or the power to dispose or direct the disposition
of such security. A person is also deemed to be a beneficial owner of any
securities of that person has the right to acquire beneficial ownership within
60 days. Accordingly, more than one person may be deemed to be a beneficial
owner of the same securities. Unless otherwise indicated by footnote, the
named entities or individuals have sole voting and investment power with
respect to the shares of common stock beneficially owned.
<F2> Represents the number of shares of Common Stock beneficially owned as of
the date of this Form 10-KSB by each named person or group, expressed as a
percentage of the sum of all of the shares of such class outstanding as of
such date and the number of shares not outstanding but beneficially owned by
such named person or group.
</FN>
</TABLE>
Item 12. Certain Relationships and Related Party Transactions
- --------------------------------------------------------------
Pursuant to an agreement between the Company and Harry J. Santoro and
companies affiliated with him, the Company acquired on December 31, 1995 for
$50,000 from Mr. Santoro, and companies affiliated with him, an 80%
partnership interest in SVG Properties, L.P., representing all of Mr.
Santoro's ownership in the Partnership. The purchase is summarized below.
The Sellers were the owners of an aggregate of 80% of the limited or general
partnership interests of S.V.G. Properties, L.P. (SVG), as follows:
<TABLE>
<CAPTION>
Sellers Percentage Type
------- ---------- ----
<S> <C> <C>
Harry J. Santoro 15.00 Limited
H.J.S. Venture Capital Co., Inc.* 44.00 Limited
H. James Santoro, Inc.* 16.50 Limited
H. James Santoro, Inc.* 4.50 General
<CAPTION>
The partnership interests in SVG were paid for as follows:
Partner Interest Sold Consideration
------- ------------- -------------
<S> <C> <C>
Harry J. Santoro 15.00% $ 9,375.00
H.J.S. Venture Capital Co., Inc.* 44.00% 27,500.00
H. James Santoro, Inc. 21.00% 13,125.00
Total 80.00% $50,000.00
*Owned 100% by Harry J. Santoro
</TABLE>
SVG Properties, L.P. entered into a management agreement with H. James
Santoro, Inc., effective August 1, 1992, whereby H. James Santoro, Inc. agreed
to manage the<PAGE>
Spring Village Apartment complex for a fee equal to 5% of the gross rent of
the complex. Such agreement is currently in effect on a month to month basis,
and shall terminate when Mr. Santoro and H. James Santoro, Inc. have no
remaining obligation or liability related to the agreement with RPI. Upon
termination of the management agreement, Mr. Santoro shall be paid a salary of
$39,000 per year. Mr. Santoro owns 100% of H. James Santoro, Inc.
The Company currently shares its principal executive offices with Santoro
Realty, Inc. in approximately 500 square feet of leased office space at 215
West Main Street, Maple Shade, New Jersey, 08052. Monthly rent under the
lease, which terminates in March 1998, is $500, of which one half will be paid
by the Company. The building is owned by Harry J. Santoro, President of the
Company; however, the Company believes the terms of the lease are at least as
favorable as terms available from non-affiliated third parties.
Item 13. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits
--------
3.1* Articles of Incorporation of Registrant filed on December 22, 1995
3.2* By-Laws of the Registrant
10.2* Employment Agreement between the Registrant and Harry J. Santoro dated
December 29, 1995
10.3* Employment Agreement between the Registrant and Stephen M. Robinson
dated December 29, 1995
10.4* Promissory Note between the Registrant and Eastern States Energy, Inc.
dated May 31, 1996
10.5* Subscription Agreement between the Registrant and Eastern States
Energy, Inc. dated May 31, 1996
10.6* Provisional Workout Agreement between S.V.G. Properties, L.P. and the
Department of Housing and Urban Development, dated January 1, 1994
10.7* Mortgage Note between SVG Properties, L.P. and Brennan-Indio, Inc.
covering the Spring Village Apartments in the amount of $3,200,000
10.8* Mortgage between SVG Properties, L.P. and Brennan-Indio, Inc. covering
the Spring Village Apartments in the amount of $3,200,000
10.9 Loan Agreement between Resource Properties XXIII, Inc. and SVG
Properties, L.P. in the amount of $110,000.
11.1 Statement re computation of per-share earnings
21.1* List of subsidiaries of the Registrant
27.1 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K for the period January 1, 1996 through
December 31, 1996.
- ---------
*Incorporated by reference to the Registrant's Registration Statement on Form
SB-2 number 333-5278-NY, effective November 4, 1996.
<PAGE> EXHIBIT 10.9
LOAN AGREEMENT BETWEEN RESOURCE PROPERTIES XXIII, INC. AND SVG PROPERTIES,
L.P.
AGREEMENT
This Agreement (the "Agreement") is made this 25th day of November, 1996
by and between RESOURCE PROPERTIES XXIII, INC., a Delaware corporation
("Resource") and SVG PROPERTIES, L.P., a New Jersey limited partnership
("SVG").
WHEREAS, SVG is the owner of property whose address is 601 Poplar Street,
Sharon Hill, PA which is improved by an apartment building consisting of 125
units commonly known as Mill Springs Apartments (the land and building
together are referred to herein as the "Property"); and
WHEREAS, Resource is the holder of a mortgage note (the "Mortgage Note")
on the Property in the original principal amount of $3,200,000; and
WHEREAS, on October 23, 1987, SVG entered into a Regulatory Agreement for
Multifamily Housing Projects Coinsured by HUD (the "Regulatory Agreement");
and
WHEREAS, effective January 1, 1994, SVG entered into a Provisional
Workout Agreement with the Department of Housing and Urban Development
("HUD"), a prior holder of the Note, whose rights thereunder have been
assigned to Resource; and
WHEREAS, the parties are both aware that there are underground oil
storage tanks on the Property; and
WHEREAS, SVG would like to borrow the money to remove the storage tanks
and remediate any contaminated soil on the terms and conditions set forth
herein; and
WHEREAS, Resource is willing to lend SVG the money to do so on the terms
and conditions set forth herein.
NOW THEREFORE, in consideration of the premises recited above and the
covenants and agreement set forth below, intending to be legally bound, the
parties hereto agree as follows:
1. Removal and Remediation. Within five (5) days from the date hereof,
SVG will solicit bids from qualified, licensed and bonded contractors for the
removal of the underground storage tanks and remediation of any contaminated
soil on the Property ("Removal and Remediation"). The Removal and Remediation
shall be performed in strict accordance with the provisions of the
Pennsylvania Storage Tank and Spill Prevention Act (the "Act") and the
regulations promulgated by the Pennsylvania Department of Environmental
Resources (the "Department") thereunder. If SVG is able to obtain bids with
estimated Removal and Remediation costs of less than One Hundred Ten Thousand
Dollars ($110,000) from qualified, licensed and bonded contractors, SVG shall
enter into such contracts of Removal and Remediation provided Resource has
approved all of the terms and conditions of such contracts.
SVG agrees to file an application for removal of the tanks with the
Department if required under the Act within five (5) days after the receipt
oft acceptable bid.
SVG agrees to furnish Resource with a copy of all applications, reports,
and correspondence relating to such Removal and Remediation within five (5)
days after the receipt of filing of such documents.
<PAGE>
2. Agreement to Lend. Resource shall lend the amounts up to the total
amount required under the contracts for Removal and Remediation as such funds
are required under such contracts. At the option of Resource, any amounts due
may be paid directly from Resource to a contractor, with SVG's loan account
being charged.
3. Terms of Loan.
(a) Any loan made pursuant to Paragraph 2 hereof shall be evidenced by a
promissory note in the form of Exhibit "A" hereto (the "Note") and shall be
payable as herein and therein set forth.
(b) The Note shall bear interest at the rate of ten percent (10%)
annually, compounded monthly; principal shall be due on the earlier of
November 1, 2022 or when the final payment of principal is due on the Mortgage
Note, whether by acceleration or otherwise. Payments of accrued interest and
mandatory prepayments of principal shall be made in an amount equal to one
hundred percent (100%) of SVG's Cash Flow From the Property. Cash Flow From
the Property shall mean gross revenues from the Property less payments made
under Mortgage Note as modified by the Provisional Workout Agreement and
ordinary and necessary cash disbursements incurred in connection with the
Property but specifically excluding any management fee to any party and any
amount paid for any purpose to SVG or any person with whom SVG has an
Identity-of-Interest (as defined in the Regulatory Agreement) except for
payments made to H. James Santoro, Inc. for employee benefits with respect to
employees of SVG who are not related to Harry J. Santoro.
4. Reporting Requirements. So long as any amount is due under the Note or
the Mortgage Note, SVG shall deliver to Resource such data, reports,
statements and information, financial or otherwise, as Resource may reasonably
request including, without limitation:
(i) within ninety (90) days after the end of the fiscal year of SVG,
financial statements of SVG for such year including a balance sheet, a
statement of cash flow and an income statement, all in reasonable detail and
prepared in accordance with generally accepted accounting principles,
including all supporting schedules, and certified by independent public
accountants or recognized standing or by Harry J. Santoro; and
(ii) within thirty-five (35) days after the end of each calendar
month, financial statements for the Property including a of cash flow and an
accrual basis income statement certified as correct by Harry J. Santoro.
5. Inspection. SVG will permit any of Resource's officers or other
representatives to visit the offices of SVG during regular business hours to
examine and audit all of SVG's books of account, records, requests and other
papers. All costs of such examination shall be paid by Resource unless such
examination reveals a total discrepancy in excess of five percent (5 %) of the
Cash Flow of the property, in which case all costs of such examination shall
be paid by SVG.
6. Default. If any financial statements defined pursuant to Paragraph 4
or any books and records made available to Resource pursuant to Paragraph 5
are determined in the reasonable opinion of independent certified public
accountants not regularly employed by Resource to have been materially false
or misleading, SVG shall be deemed to be in default of this Agreement.
<PAGE>
7. Other Documents. Any default by SVG under this Agreement or the Note
shall be deemed to be in default under the Mortgage Note and the Provisional
Workout Agreement. Borrower acknowledges that the Mortgage Note as modified by
the Provisional Workout Agreement is in full force and effect and acknowledges
there has been no default by any holder of the Mortgage Note and hereby waives
any defenses or counterclaims it might have with respect to enforcement or
collection of the Mortgage Note. SVG agrees to execute such documents as may
be necessary so that its obligations under the Note will be secured by the
Property.
8. Certain Refinancings. If, prior to the earlier of: (i) one year from
the date that a closure report acceptable to most lenders is received by
SVG~rom the engineering firm retained to remove the oil tanks and perform the
remedial work, if any; or (ii) June 30, 1998, SVG is successful in finding a
lender that makes a first mortgage loan secured by the Property in an amount
sufficient to provide Resource with net proceeds (after all fees, costs and
expenses of the transaction) of at least Two Million Three Hundred Thousand
Dollars ($2,300,000), then Resource will:
(i) subordinate both the mortgage securing the Mortgage Note and any
mortgage securing the Note to the mortgage of the new lender;
(ii) agree to modify the payment terms of the Mortgage Note and the
Note as follows:
(a) interest shall accrue at a rate of 150 basis points above the
interest rate on the new first mortgage on a deemed total principal amount
equal to Three Million Three Hundred Fifty Thousand Dollars ($3,350,000) less
the original principal amount of the new first mortgage.
(b) payments of interest and principal (based on the deemed c
principal amount described in Paragraph 8(ii)(a)) shall be payable monthly and
shall be based on a twenty-five year amortization. However, to the extent the
Net Cash Flow from the Property is insufficient to make the scheduled payments
of interest and principal in full, SVG shall pay over to Resource until such
time as the scheduled payments are current one hundred percent (100%) of the
Net Cash Flow from the Property. Net Cash Flow from the Property shall mean
Cash Flow before any payments on the Mortgage Note or the Note less payments
made under the new first mortgage loan and contributions to escrow accounts
reasonably established for taxes, insurance, utilities and replacements
provided that any such escrow account shall be controlled by either the new
first mortgage lender or Resource. Any interest payments not made as required
because of insufficient Net Cash Flow shall be added to principal and shall
bear interest at the rate set in Paragraph 8(ii)(a), compounded monthly.
(iii) agree to special provisions in the obligations of SVG retained
by Resource as may be required by the new first mortgage lender to the extent
such provisions are reasonable when compared to similar "soft second"
mortgages permitted by the other first mortgage lenders in the reasonable
opinion of Resource.
(iv) after it has received all of the interest and principal required
under Paragraph 8(ii), assign its interest in the Mortgage Note and the Note
to Harry J. Santoro for no additional consideration.
9. Notices. Any notices required or permitted by the Agreement shall
be in writing and shall be deemed given if delivered in person or if not by
telecopy or by nationally recognized overnight courier, via first class,
Certified or Registered<PAGE>
Mail, postage prepaid, as follows, unless such addresses are changed by
written notice hereunder.
If to SVG Properties, L.P.:
SVG Properties, L.P.
c/o Harry J. Santoro
215 W. Main Street
Maple Shade, New Jersey 08052
If to Resource Properties XXIII:
Resource Properties XXIII
1521 Locust Street - Suite 400
Philadelphia, PA 19102
Attn: Scott F. Schaeffer
10. Choice of Law and Consent of Jurisdiction. SVG and Resource agree
that Pennsylvania law shall govern this Agreement and hereby irrevocably
consent to the jurisdiction of the Court of Common Pleas of Delaware County,
Commonwealth of Pennsylvania in the United States District Court for the
Eastern District of Pennsylvania in any and all actions and proceedings
occurring under this Agreement any other agreement or understanding between
the parties and
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement as of the date first written above.
Attest: RESOURCE PROPERTIES XXIII, INC.
/s/ Kimberly A. Tower /s/ Scott B. Shaffer
- --------------------- ------------------------
Attest: SVG PROPERTIES, L.P.
By: SPRING VILLAGE HOLDINGS, INC.
General Partner
/s/ Harry J. Santoro /s/ Harry J. Santoro
- -------------------- ------------------------
<PAGE> NOTE
$110,000.00 Philadelphia, PA
November 25, 1996
FOR VALUE RECEIVED and intending to be legally bound, the undersigned,
SVG PROPERTIES, L.P., a New Jersey limited partnership ("Borrower"), promises
to pay, in lawful money of the United States, to the order of RESOURCE
PROPERTIES XXIII, INC. ("Lender"), at its offices, 1521 Locust Street,
Philadelphia, PA 19102 (or at such other address as Lender may designate to
Borrower), the maximum aggregate principal sum of One Hundred Ten Thousand
Dollars ($110,000) or such lesser sum which represents the outstanding
principal balance of all amounts advanced to the Borrower, the "Loans"),
pursuant to the provisions of that certain Agreement dated as of November 25,
1996 between Borrower and Lender (the "Agreement"). The outstanding principal
balance hereunder shall be payable pursuant to the terms hereof and of the
Agreement. The actual amount due and owing from time to time hereunder shall
be evidenced by Lender's records of receipts and disbursements with respect to
the Loans, which shall be conclusive evidence of such amount, absent manifest
error. All terms not otherwise defined herein shall have the meaning ascribed
to them in the Agreement.
Borrower further agrees to pay interest on the outstanding principal
balance hereunder from time to time at the per annum rate set forth in
Paragraph 3(b) of the Agreement. Interest and principal shall be due and
payable on the dates and otherwise in accordance with the terms of the
Agreement. In no contingency or event shall the amount of interest paid or
agreed to be paid to Lender hereunder exceed the highest lawful rate
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto. In such event, the interest rate
shall automatically be reduced to the maximum rate permitted by such law.
This Note shall evidence Borrower's unconditional obligations to repay
the aggregate outstanding balance of all of Loans made to Borrower, with
interest thereon, and any expenses of collection, including attorneys' fees
and expenses (the "Expenses") in connection therewith. If Borrower fails to
make any payment required hereunder or if a default occurs under the
Agreement, Lender shall thereupon have the option at any time and from time to
time pursuant to the terms of the Agreement, to declare the unpaid principal
balance of this Note along with accrued and unpaid interest and Expenses to be
immediately due an payable and to exercise all rights and remedies set forth
herein and in the other Agreement as well as all rights and remedies otherwise
available to Lender at law or in equity, to collect the unpaid indebtedness
hereunder and thereunder.
Borrower hereby waives presentment for payment, protest, demand, notice
of nonpayment or dishonor and all other notices in connection with the
delivery, acceptance, performance or enforcement of this Note. Any failure or
delay of Lender to exercise any right hereunder shall not be construed as a
waiver of the right to exercise the same or any other right at any other time
or times. The waiver by Lender of a breach or default of any provision of this
Note shall not operate or be construed as a waiver of any subsequent breach or
default thereof. Borrower agrees to reimburse Lender for all Expenses,
including, without limitation, attorneys' fees and costs incurred by Lender to
enforce the provisions of this Note, to protect, preserve and defend Lender's
rights under the Agreement and to collect Borrower's obligations hereunder.
BORROWER IRREVOCABLY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR ATTORNEYS OR
THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD IN THE COMMONWEALTH OF
PENNSYLVANIA,<PAGE>
UPON THE OCCURRENCE OF AN EVENT OF DEFAULT UNDER THE AGREEMENT, TO APPEAR FOR
BORROWER IN ANY SUCH COURT, WITH OR WITHOUT DECLARATION FILED, AS OF ANY TERM
OR TIME THERE OR ELSEWHERE TO BE HELD AND THEREIN TO CONFESS OR ENTER JUDGMENT
AGAINST BORROWER IN FAVOR OF THE LENDER FOR ALL SUMS DUE OR TO BECOME DUE BY
BORROWER TO LENDER UNDER THIS NOTE, WITH COSTS OF SUIT AND RELEASE OF ERRORS
AND WITH THE GREATER OF FIVE PERCENT (5%) OF SUCH SUMS OR $7,500.00 ADDED AS A
REASONABLE ATTORNEY'S FEE; AND FOR DOING SO THIS NOTE OR A COPY VERIFIED BY
AFFIDAVIT SHALL BE SUFFICIENT WARRANT; SUCH AUTHORITY AND POWER SHALL NOT BE
EXHAUSTED BY ANY EXERCISE THEREOF, AND JUDGMENT MAY BE CONFESSED AS AFORESAID
FROM TIME TO TIME AS OFTEN AS THERE IS OCCASION THEREFOR.
BORROWER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL IN THE
REVIEW AND EXECUTION OF THIS NOTE AND FURTHER ACKNOWLEDGES THAT THE MEANING
AND EFFECT OF THE CONFESSION OF JUDGMENT HAVE BEEN FULLY EXPLAINED TO IT BY
SUCH COUNSEL.
BORROWER, BEING FULLY AWARE OF THE RIGHT TO NOTICE AND A HEARING
CONCERNING THE VALIDITY OF ANY AND ALL CLAIMS THAT MAY BE ASSERTED AGAINST
BORROWER BY THE LENDER BEFORE A JUDGMENT CAN BE ENTERED HEREUNDER OR BEFORE
EXECUTION MAY BE LEVIED ON SUCH JUDGMENT AGAINST ANY AND ALL PROPERTY OF
BOA-ROWER, HEREBY WAIVES THESE RIGHTS AND AGREES AND CONSENTS TO JUDGMENT
BEING ENTERED BY CONFESSION IN ACCORDANCE WITH THE TERMS HEREOF AND EXECUTION
BEING LEVIED ON SUCH JUDGMENT AGAINST ANY AND ALL PROPERTY OF BORROWER, IN
EACH CASE WITHOUT FIRST-GIVING NOTICE AND THE OPPORTUNITY TO BE HEARD ON THE
VALIDITY OF THE CLAIM OR CLAIMS UPON WHICH SUCH JUDGMENT IS ENTERED.
All contractual rates of interest chargeable on outstanding Loans,
regardless of the then applicable interest rate, shall continue to accrue and
be paid even after default, maturity, acceleration, judgment, bankruptcy,
insolvency proceedings of any kind or the happening of any event or occurrence
similar or dissimilar.
Notwithstanding anything in this Note or in any agreement securing this
Note to the contrary, the liability of Borrower under this Note and any
agreement securing this Not shall be nonrecourse to the general partner or any
limited partner of Borrower and such general and limited partners shall have
no liability whatsoever under this Note and any agreement securing this Note.
No deficiency or other personal judgment shall be sought against such general
or limited partner.
This Note shall be construed and governed by the laws of the Commonwealth
of Pennsylvania, without regard to its otherwise applicable principles of
conflict of laws. The provisions of this Note are severable and the invalidity
or unenforceability of any provision shall not alter or impair the remaining
provisions of this Note. Jury trial is waived by Borrower and Lender in
connection with any controversy or proceeding involving the rights of the
parties to this Note, whether sounding in contract, tort or otherwise.
IN WITNESS WHEREOF, and intending to be legally bound hereby, Borrower
has executed these presents the day and year first above written.
Attest: SVG PROPERTIES, L.P.
By: SPRING VILLAGE HOLDINGS, INC.
General Partner
/s/ Harry J. Santoro /s/ Harry J. Santoro
- -------------------- ------------------------
<PAGE>
EARNINGS PER SHARE SCHEDULE
Exhibit 11.1
Calculation of Net Income
Net Income (loss) (139,412)
Assumed interest expense reduction 0
Assumed interest income increase 0
----------
(139,412)
==========
Calculation of weighted average number of shares
Weighted average shares outstanding 500,000
Common stock equivalents 0
----------
500,000
==========
Net income (loss) per share (.28)
==========
<PAGE>
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-START] JAN-01-1996
[PERIOD-END] DEC-31-1996
[CASH] 32,846
[SECURITIES] 0
[RECEIVABLES] 15,581
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 135,035
[PP&E] 3,517,135
[DEPRECIATION] 88,760
[TOTAL-ASSETS] 3,569,410
[CURRENT-LIABILITIES] 125,903
[BONDS] 3,490,419
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 50
[OTHER-SE] (66,962)
[TOTAL-LIABILITY-AND-EQUITY] 3,569,410
[SALES] 0
[TOTAL-REVENUES] 735,863
[CGS] 0
[TOTAL-COSTS] 551,601
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 332,336
[INCOME-PRETAX] (139,412)
[INCOME-TAX] 0
[INCOME-CONTINUING] (139,412)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (139,412)
[EPS-PRIMARY] (.28)
[EPS-DILUTED] (.28)
</TABLE>
